Hong Kong is one of the financial capitals of the world and is a very popular location for mergers and acquisitions and financial investment. While mergers and acquisitions have no specific definition in Hong Kong legislation, and the two are at times indistinguishable, in general the phrase can be taken to indicate the obtaining by one business entity of the entire or fractional ownership of another business entity.
The sources of mergers and acquisition law in Hong Kong are common law, legislation governing corporate entities, relevant industries and types of transactions including the Companies Ordinance, and regulations and legislation pertaining to publicly listed companies.
Letter of Intent
Following initial negotiations and agreement on key terms, an incipient merger and acquisition transaction is birthed with the issuance of a Letter of Intent, also known as a Term Sheet or Memorandum of Understanding, which sets out the key terms.
In the Letter of Intent, it should be stated whether or not the terms therein are to be legally binding. Certain terms could be singled out as being legally binding, such as clauses pertaining to confidentiality.
A confidentiality agreement is typically signed before the release of any confidential or sensitive information and before entering into a legally binding agreement.
The purchaser is typically the party responsible for legal and financial due diligence, which might include contracts entered into by the purchaser and other parties including leases and loans and reports on title in relation to property owned by the vendor. In Hong Kong, it is common practice to engage in extremely detailed and costly systematized due diligence exercises where huge volumes of documents are scrutinized and a standard report is generated. This practice is de rigeur for most multinational corporations prior to mergers and acquisitions.
Sale and Purchase Agreement
The Letter of Intent typically provides for the entering into of a Sale and Purchase Agreement at a later date. While the particularities of each sale and purchase agreement depend to a large extent on the nature of each transaction and the surrounding circumstances, there are certain provisions that can be found in the majority of agreements. Such provisions include clauses pertaining to the parties, consideration and completion, as well as conditions precedent, preemption rights and restrictive covenants. Boilerplate clauses such as those pertaining to authority, confidentiality, and limitation of liability tend to be common features of many agreements.
Instrument of Transfer
Upon completion, an Instrument of Transfer must be signed by the vendor and the purchaser and lodged with the Stamp Duty Office together with payment of stamp duty.
Following completion, documentation must be prepared to comply with the various regulations governing share transfers. Under the Transfer of Business Ordinance, in the case of sales of businesses, notice must be given of the sale. If the transaction involves a publicly listed company or a company related to a publicly listed company, a press release or shareholder circular might be required.