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The Hong Kong Open-Ended Fund Company
The Hong Kong Open-Ended Fund Company
An OFC is an open-ended fund in corporate form domiciled in Hong Kong. Although established in corporate form, shares in the OFC may be created or cancelled in order to meet shareholder subscription and redemption requests. This flexibility is not possible for conventional companies incorporated under the Hong Kong Companies Ordinance (Cap. 622).
An OFC can be established as a Private OFC or Public OFC.
A private OFC means an OFC which is not authorised by the Securities and Futures Commission (SFC) and can only be offered to “professional investors” in Hong Kong.
A public OFC is an OFC which has been authorised by the SFC in Hong Kong and can be offered to the public in Hong Kong.
An OFC can be structured as a single fund or alternatively it may be structured to have multiple sub-funds (i.e. an umbrella fund), each of which will operate as a “protected cell” which means that the assets and liabilities of each sub-fund belong only to that specific sub-fund and are not available to creditors of another sub-fund in the event of the respective sub-fund’s insolvency. An OFC that is structured as an umbrella fund offers a great deal of flexibility to investment managers as each sub-fund can adopt different investment objectives and strategies.
The application for the establishment of an OFC in Hong Kong is submitted to the SFC for approval. Once the SFC has approved the application, the SFC will send the incorporation documents to the Companies Registry for incorporation. Although the incorporation documents are sent to the Companies Registry, the OFC is incorporated under Part IVA of the Securities and Futures Ordinance (Cap. 571).
The SFC have indicated that they aim to process an application for the establishment of a private OFC within one (1) month from the date that they take up the application (i.e. from the time that all the required documents are sent to and accepted by the SFC) and based on our experience this is accurate.
Please note that the SFC have indicated that they aim to process an application for a public OFC in 1 – 3 months from the date that they take up the application (i.e. from the time that all the required documents are sent to and accepted by the SFC).
The Securities and Futures (Amendment) Ordinance 2021 (the “SF Amendment Ordinance”) amended the Securities and Futures Ordinance (Cap. 571) (the “SFO”) to introduce a mechanism for overseas incorporated corporate funds to be re-domiciled so as to become an open-ended fund company (the “OFC”) under the SFO. To re-domicile a non-Hong Kong corporate fund, application for registration as an OFC must be must to the Securities and Futures Commission (the “SFC”) and application must be made to the Companies Registrar for the issue of the certificate of re-domiciliation. However, two separate applications are not required and an applicant can submit all of the application documents (the “Application”) together the applicable application fees to the SFC (the “Application”). The Application for re-domiciliation must be accompanied by inter alia the following documents:
- the OFC’s intended instrument of incorporation;
- the certificate of incorporation (or registration) issued to the corporation under the law of its place of incorporation;
- the instrument of incorporation or equivalent constitutive document;
- a certificate to the effect that:
- the proposed re-domiciliation is not prohibited by, and has been approved in accordance with the fund’s constitutive documents;
- any consent or approval that is required for the intended deregistration has been obtained or alternatively has been waived;
- the fund (and its sub-funds where applicable) are solvent and that the fund has not been notified of any petition or other similar proceedings to wind up or liquidate the fund; and
- the creditors of the fund have been notified of the fund’s proposed re-domiciliation.
Once the Application is submitted to the SFC together with the supporting documents and the prescribed fees (outlined below), the SFC may register the fund as a Hong Kong OFC under the SFO. The SFC may refuse the Application for re-domiciliation where the requirements set out in section 112E of the SFO have not been complied with. In addition, the SFC may refuse to register the fund if it is not satisfied that the registration is in the interest of the investing public.
Deregistration from the place of incorporation
As soon as practicable after the re-domiciliation certificate has been issued (the “Re-domiciliation Date”), the re-domiciled OFC, must take all reasonable steps to procure its deregistration in its jurisdiction of incorporation. However, within 60 days of the Re-domiciliation Date, the non-Hong Kong corporate fund must be deregistered in its place of incorporation and must submit evidence of the deregistration to the SFC.
Together with submitting the Application to the SFC, the non-Hong Kong corporate fund must also apply for a business registration certificate and pay the prescribed fee.
The fees payable in respect of the re-domiciliation are generally as follows:
- HK$10,000 for the application where the intended OFC has one or more sub-funds and a further HK$1,250 for each sub-fund;
- HK$5,000 in any other case other (a) above.
In addition to the aforementioned fees, a fee of HK$479 is payable to lodge the re-domiciliation form and a copy of the instrument of incorporation and a further fee of HK$2,555 is required for issuing a certificate of re-domiciliation.
The OFC re-domiciliation grant scheme
The Hong Kong Financial Secretary of the Hong Kong Government announced in the 2021/2022 budget speech that the Hong Kong Government will provide subsidies to cover 70% of the expenses paid to Hong Kong professional service providers for Hong Kong open-ended fund companies (“Hong Kong OFCs”) set up in or re-domiciled to Hong Kong in the upcoming three years, subject to a cap of HK$1 million per OFC (the “Hong Kong OFC Grant Scheme”).
For Hong Kong OFCs that are successfully re-domiciled to Hong Kong, the Hong Kong OFC Grant Scheme will cover 70% of the Hong Kong OFC eligible expenses that are paid to Hong Kong-based service providers, subject to a cap of HK$1 million per OFC. For further details please see Charltons’ newsletter Hong Kong Government subsidises establishment of Hong Kong open-ended fund companies and real estate investment trusts.