How to Apply Mortgage of Stocks for Hong Kong Listed Companies??
Overview of Mortgage of Stock of Hong Kong Listed Companies
As a Hong Kong lawyer dealing with cross-border legal matters, I often come across situations where Mainland individuals or enterprises borrow money from Mainland or Hong Kong financial institutions, and the shares of Hong Kong listed companies held by the borrowers or their associates are used as collateral. As stocks of listed companies are highly liquid, they can be easily realized and their market value can be easily recognized, making them an acceptable form of security for lenders in general. So, how to apply for loan collateral using shares of Hong Kong listed companies?
How to mortgage stocks of a Hong Kong listed company
There are usually two types of mortgages, one is legal mortgage, i.e. the legal interest of the collateral stock is transferred to the name of the mortgagor; if a default occurs, the mortgagor can directly sell the collateral stock to be compensated; if no default occurs at the end of the mortgage period, the mortgagor will transfer the stock back to the mortgagor. The other type of mortgage is an equitable charge, in which the shares of the collateral are not transferred to the mortgagor’s name, but the mortgagor signs and delivers the transfer documents along with the share certificates to the mortgagor for safekeeping. In the event of default, the mortgagor can either transfer the collateral shares directly into his/her own name or sell the shares to a third-party purchaser.
Deed of Mortgage on Shares of Hong Kong Listed Companies
A deed of mortgage is a legal document that defines the rights and obligations of both parties. Regardless of which type of mortgage is used, the mortgage contract needs to be carefully drafted, and the terms of the contract will be different under the two types of mortgages.
Security over Shares of Hong Kong Listed Companies: Mortgage or Pledge?
In the legal context of Mainland China, the legal term ‘pledge’ should be used when using movable assets such as shares as collateral for a loan. However, in the common law context of Hong Kong, the term ‘mortgage’ or ‘charge’ is usually used for the pledge of shares, which is translated into Chinese as ‘抵押’.
For more information on mortgages of shares of listed companies in Hong Kong, please consult with Yan Lawyers.