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This document summarizes key aspects of money lending businesses, secured credit, and loan agreements in Hong Kong. It outlines the differences between banking, shadow banking, and money lending. Money lenders must be licensed, loans must follow certain formalities, and interest rates are subject to limits. The document also discusses pawnbroking requirements, unlawful pawning, and the law of pledges. It then covers types of loans and credits, loan agreements terms like conditions precedents, representations and warranties, and events of default. Finally, it summarizes laws around security, guarantees, and comfort letters.
This document summarizes key aspects of money lending businesses, secured credit, and loan agreements in Hong Kong. It outlines the differences between banking, shadow banking, and money lending. Money lenders must be licensed, loans must follow certain formalities, and interest rates are subject to limits. The document also discusses pawnbroking requirements, unlawful pawning, and the law of pledges. It then covers types of loans and credits, loan agreements terms like conditions precedents, representations and warranties, and events of default. Finally, it summarizes laws around security, guarantees, and comfort letters.
This document summarizes key aspects of money lending businesses, secured credit, and loan agreements in Hong Kong. It outlines the differences between banking, shadow banking, and money lending. Money lenders must be licensed, loans must follow certain formalities, and interest rates are subject to limits. The document also discusses pawnbroking requirements, unlawful pawning, and the law of pledges. It then covers types of loans and credits, loan agreements terms like conditions precedents, representations and warranties, and events of default. Finally, it summarizes laws around security, guarantees, and comfort letters.
- Paying or collecting cheques - Does not include lending Shadow banking - No concession to borrower industry - Time bomb Money Lender - NOT applicable to authorized institution Ordinance - Apply to (1) money lender in HK AND (2) loans took out in HK – i.e. oes not have to be a money lender for Ordinance to apply Loan transaction? - in substance or effect a loan of money + an agreement to secure the repayment of any such loan - NOT required to charge interest - NO hire purchaser transaction - NO conditional sale transaction - EXEMPTED LOAN? o Loan made to a co with paid up capital of 1M o Credit card o Licensed pawnbroker Money Lender - Register with the Companies Registrar AND the Commissioner of Police License - Loan irrecoverable if not licensed to lend money, SUBJECT to the court’s discretionary power to allow recovery of loan - Money lender = business is making loans or advertises or announces himself or holds himself out in any way as carrying on that business – more than occasional or disconnected loan - EXEMPTED PERSON? o Authorized institutions Formality - Must comply with S.18 MLO otherwise not enforceable - Subject to the court discretion Effective interest rate - Interest = any amount in excess of the principal - Compound interest is illegal SUBJECT to court discretion – but bank can charge compound interest - Must be specified in the LA - > 48% extortionate - >60% illegal - SUBJECT to court discretion to reopen extortionate transactions - DOES NOT APPLIED to [1] authorized institution and [2] co with paid up share capital of 1M Consequence of - Criminal liability breach - Civil liability Power to enforce - S.18 (Form of agreement) illegal/ transaction - S.22 (Illegal agreement) breaching MLO - S.25 (reopening of certain transaction) Code of ML Practice - Non statutory code Pawnbroking Requirement - = EXEMPTED LOAN - Must be licensed - Limit to 100K - Charge simple interest - DD checks and prohibition - Issue tickets - Unredeemed goods within 4 lunar months to become property of pawnbroker UNLESS loan renewed Unlawful pawning - Court consider the fault or carelessness of owner or pawnbroker o Pawnbroker should [1] check the goods against a list provided by the police as to goods which have been stolen and [2] to make report to the police if the goods have been reported as stolen o Statutory duty on owner - Civil remedy bared Law of pledge - Delivery of possession - Transferable - Right to possess - Right to redeem - Pledgor retains ownership - Power of sales + Account for surplus + Fiduciary relation Limitation - Inconvenient to hold the pledged assets - Cannot use the pledged assets in business to generate income Loans and Credits Debt vs Equity - Debts: debt service obligation irrespective of profits; interest are tax deductible; loan due at a specified time; bank can take action to recover the loan; no loss of control Loan - Loan = [1] loan of money; [2] deferment of obligation to pay for goods and services - Demand loan – loan can be demanded and repayable at any time at the lender’s discretion - Revolving loan o Repayable on demand – no certainty – uncommitted o Flexibility to borrow and pay again o Higher costs - Term loan o Certainty – committed – fixed repayment period o Less flexible o Relatively lower costs Hybrid clause - Question of the parties intention “Repayable on o Long list of EOD in LA with clause allowing lender to demand early payment term loan demand” o [1] Loan repayable on demand AND [2] bank intended to make the facility available until a specified date not inconsistent demand loan Demand must be - Must specify the right to demand and the form of demand communicated - Demand for immediate repayment possible Loan Agreement Early break - No repayment during an interest period protection/ penalty - Break costs clause - Default interest o Penalty or genuine pre-estimate of loss: whether the term is commercially justifiable? What is the actual loss? Commitment to lend - Term sheet is only an agreement to agree - Does not create a legal binding contact EXCEPT [1] banks cost and fees and [2] the confidentiality undertaking Definition and - To make doc shorter interpretation - Ensure consistency Conditions - Conditions that lender requires a borrower to fulfil before it can issue that first utilization request precedents - Bank is not obliged to lend if conditions precedents are not satisfied Purpose clause - Terms must not be illegal or contrary to public policy - Illegality does not prevent a claimant from making a claim but if doing so, she does not have to plead the illegality - SUBJECT to public policy approach: as a matter of interest enforcement of the claim would be harmful to the integrity of the legal system? - If the purpose of the loan is specified, and if the purpose has failed, any money which has ot been drawn down but remains unspent will be held by the borrower on resulting trusts for the bank - Check the actual and ostensible authority of the agent Drawdown and - Utilization request payment Repayment and - On breach: acceleration = cancel commitment prepayment - Interest: Market Disruption - Adjustment to give lender a level of protection Representations and - Statement of fact – will be condition precedent to draw down of the facility warranties - [1] Legal and [2] Commercial representations - Repeated representations - Can be EOD if turned out untrue Misrep/Negligent misstatement/ Recession allowed Covenants - = promises made by the borrower to the lender EOD - EOD = failure to fulfill an obligation or condition essential to the contract - [1] payment default [2] non-compliance [3] anticipatory - Grace period: bank reluctant - Cross default: automatically default borrower under the loan in the event that brrower defauls under certain types of agreement - Bank can: o Enforce security; cancel any undrawn amount; declare any or all outstanding amounts immediately due and payable o Must give notice before enforce right Code of banking - Ensure information that must be communicated to the customer practice - Can complain to HKMA if a bank does not follow the code Laws on secured credit Security - Personal security: cannot follow the claim to other people/ assets subject to pari passu principle - Real security: follow the assets and does not affected by insolvency Guarantee - Personal right - Form of undertaking by one party to answer for another party’s liability - = secondary obligation - Guarantor can set off and counter claim against the borrower - The amendment, variation, waiver or release of an obligation by borrower must be within the general purview of the original guarantee [Triodos Bank] get approval from guarantors - Guarantors have subrogation right [s.15 LARCO] Comfort letter - A statement of intent that could vary - Does not intend to form a binding obligation - Not enforceable if it is only a representation of fact Set off - Statutory set off [s.35 BO] – mutal credits, mutual debts or other mutual dealings between a bankrupt and any other person proving a debt - Contractual set off – common to see in bank doc - Equitable set off Secured credit - Perfection by possession; notice; registration - Dearly Hall principle: assignment of chose in action – 1/ no notice of an earlier assignment; 2/ give notice of the assignment to the debt first – constructive notice - Registration: - ensure validity but may not necessarily grant priority o Security void against the company o Debt secured by the charge becomes immediately repayable Fixed charge - Gives lender control [Re Spectrum] Floating charge - Co is allowed to deal with assets in its ordinary course of business until the floating charge crystalizes Crystallization of - Automatic crystallization clause floating charge - Winding up order - Appointment of a receiver or administrative receiver - Cessation of business Negative pledge - Prohibit the charger to create a subsequent charge ranking in priority or pari passu to the existing charge - EXCEPT bona fide disposal for value for trade creditors in the ordinary and usual course of business; security which has been disclosed; setting off; liens arising by operation of law in the ordinary course of trading - NOTICE: subsequent charge will take free from negative pledge UNLESS it has notice of the clause – now Constructive notice OK Charge created at - Connected person: 12 months + unable to pay its debts at the time OR becomes unable to pay its debts relevant time without in consequence of the transaction under which the charge is created new consideration - Non connected person: 2 years - Paid money to the company? Supply property or services to the company? Avoidance of - Disposition made after the commencement of the WU Void disposition of property after WU Undervalue - 5 years before WU transaction - Make a gift OR enter into a transaction for a consideration the value in money or money’s worth significantly less than the value - EXCEPT good fail exemption Unfair preference - Unfair preference - Desire to prefer – statutory presumption for connected person o EXCEPT: genuine pressure exerted on the debtor - Connected person: 2 years before WU - Non connected person: 6 months before WU - Consequence: void Disposition to - Prove intend to defraud defraud creditors - For consideration? In good faith? Pledge - Possession - Cannot pledge intangible assets Bank lien - Arises by operation of law - Retain the possession until sums are disposed Mortgage - Equity of redemption - Equitable mortgage can be ignored by a bona fide purchaser for value who has no notice of the M
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