Chinese and Hong Kong Stock Exchanges: Offshore Protection in a Volatile Market

Walkers is receiving an increasing number of enquiries from lenders, investors, investment managers and other parties exposed to securities listed on the Chinese and Hong Kong stock exchanges following the recent volatility and media coverage regarding these markets. Walkers is uniquely placed to provide guidance in these turbulent times – from our corporate and finance teams who are able to assist with preparing the documentation required to protect investors' rights to our insolvency and dispute resolution team ("IDR"), which is able to act in an advisory capacity on the offshore options available and to take steps to protect our clients rights and interests, including by formal legal process if necessary.

Lenders


For lenders exposed to margin or other credit facilities either provided to or secured by shares in Cayman Islands or British Virgin Islands ("BVI") entities, there are a number of steps which might be taken to protect their interests, which arise both from the underlying documentation and as a matter of the relevant governing law (whether Cayman or BVI). Such steps may include forbearance of rights to enable a restructuring of the debt, including amendments to loan covenants, the issuance of notices of default and demand, the direct enforcement of rights by the exercise of a power of sale, appropriation, foreclosure or the appointment of a receiver to recover monies for the benefit of the secured creditor. For lenders to Cayman Islands and BVI entities, this last option is usually preferable, and we attach our general memorandums regarding enforcement in both jurisdictions for your information.


Investors and Investment Managers


For investors and investment managers, significant fluctuations in the price of underlying securities is likely to impact net asset values and create considerable uncertainty. Fund documentation generally contains protections for both investors and investment managers in the event of volatility. There are usually steps which can be taken to enable the fund to manage its liquidity and extract maximum value for investors, which may include redemption, suspension, the imposition of redemption gates and redemption maximums. For funds which have included leverage as part of their investment strategy, effective negotiation with counter-parties can be an important tool to assist with managing demands for liquidity and margin, and potential defaults under the relevant documentation. Every scenario however will be different and specific advice should be sought on the best approach in each instance.

Walkers' Funds and IDR teams have considerable experience in the funds industry, with a broad knowledge base regarding the management and operation of funds generally, as well as assisting in relation to funds and other investment vehicles which may be experiencing distress. We would be happy to provide further information or guidance to you as and when required. Please contact one of the following, or your usual Walkers' contact, should you require assistance.


For a copy of Walkers' BVI and Cayman companies enforcement guide please select the document from below:

 

BVI Companies

 

Cayman Companies

 

If you are interested in hearing a presentation on this issue, please contact:

Fraser Hern, Partner
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T +65 6603 1692

Robert Foote, Partner
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T +65 6603 1695

Tim Haynes, Partner
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T +852 2596 3323

or

Simone Soong, Marketing
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T: +852 2596 3302