Home » Business » Biz Commentary
Enforcement tactics needed to track assets offshore
Print Edition
After litigating in offshore jurisdictions for many years as a London-based barrister, I see Kobre & Kim’s integrated litigation practice fills a need in the marketplace involving China.
Actually, many of our Chinese clients use holding company structures that are based offshore. At the end of 2011, 38.2 percent of the 1,326 companies listed on the main board of the Hong Kong Stock Exchange and 59.4 percent of those listed on the GEM board were incorporated in either the Cayman Islands or the British Virgin Islands. The number of Chinese companies utilizing this offshore structure continues to trend up because it provides better access to foreign capital and other benefits.
Given the increased use of onshore and offshore structures, we also found that the legal solutions we were developing for Asia-based clients often involved litigating in Cayman or the BVI. Some were related to issues of corporate control offshore, while others required us to assist in the enforcement of monetary judgments.
We often emphasize to Western clients the importance of employing a specific judgment enforcement team to navigate the issues of locating and recovering assets from Chinese companies with complicated corporate structures. In many cases, the judgment itself is directed at a single offshore-incorporated company, while the underlying assets of the company are effectively buried underneath layers of subsidiaries in China’s mainland, Hong Kong, offshore or beyond. Sorting through these corporate structures, and doing it quickly before the company has the opportunity to further conceal underlying assets or change corporate structure is a challenge.
We recommend a multi-faceted approach for taking control of assets as we discover them. The first tool we typically turn to is a Mareva injunction, or a worldwide freezing order, which is recognized in most jurisdictions where legal systems are based on English law, including Hong Kong. The catch to this approach, however, is that there is variability in the extent to which offshore jurisdictions will enforce the order. Cayman, for example, does not permit freestanding freezing orders in support of a foreign proceeding, so in order to freeze assets isolated in this jurisdiction, we must initiate proceedings for interim relief from Cayman courts.
In cases where we are successful in gaining control of offshore companies that hold the debtor’s Chinese subsidiaries, Western clients are often faced with major obstacles in taking active control of those subsidiaries on the ground in the mainland. As an extreme example, we have seen situations in which the client is effectively locked out and physically barred from asserting control over an asset-bearing subsidiary — a crude but effective tactic. Local authorities are generally ill-equipped to resolve a battle over corporate control, giving little option but to re-litigate the underlying control issue in Chinese courts.
Debtors are becoming much more skilled in manipulating assets, making them difficult for creditors to reach.
Loan agreements and financial instruments used by lenders to China-based borrowers often now include a variety of mechanisms for taking control of offshore structures. If drafted with enough skill, they facilitate the security and judgment enforcement process.
Asset tracing and enforcement proceedings are becoming increasingly global, leading our investigative and legal teams to far-flung jurisdictions around the world.
We have, however, simultaneously seen a key counterbalancing trend: Foreign jurisdictions seem to be moving toward greater transparency and are increasingly willing to cooperate in enforcement matters with global reach.
The move toward global cooperation has been driven, in part, by the UN Convention Against Corruption — a fundamental principle of global coordination on asset recovery. The convention has 140 signatories, while the 2003 recommendations of the Financial Action Task Force, an intergovernmental body devoted to increasing global cooperation in combating corruption, have been endorsed by 170 jurisdictions. Admittedly, corporations and individuals intent on evading enforcement are also discovering novel ways to obfuscate assets.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
