Mergers, Takeovers or Restructurings of Authorized Institutions

Guideline No. : 1.3
Our Ref. CB/POL/6/3 17 January 1992
The Chief Executive
All Authorised Institutions and Representative offices Dear Sir, Mergers, takeovers or restructurings of authorised institutions I am writing to inform you of important steps which need to be taken if at any time your institution contemplates a merger, take-over or restructuring involving another institution or company. This applies both to Hong Kong incorporated institutions as well as to those incorporated overseas. Any approval given under the Banking Ordinance to an institution to carry on a banking or deposit-taking business, or to maintain a representative office, in Hong Kong is given to the legal entity which makes the application. Approval is given in the light of certain facts about the institution which are submitted at the time of application. It follows, therefore, that if there is any change to the legal entity to which approval has been given, either through a merger, restructuring, or other arrangement, the approval itself may need to be amended or transferred (in the case of a banking licence) to the new entity. Otherwise the new legal entity may not be operating in compliance with the Banking Ordinance. Existing consents given in respect of controllers, directors and the chief executive of an institution may also be affected. Banking licences are granted by the Governor-in-Council, on the recommendation of the Commissioner of Banking. The transfer of a banking licence from one entity to another, or the merger of two or more existing banks involving revocation of one or more of the banking licences, requires similar approval. Before making any recommendation in respect of

the transfer or revocation of a licence, the Commissioner must be satisfied that adequate and legally effective arrangements have been made for the transfer of existing liabilities and assets in Hong Kong to the new entity or to the institution which remains after the merger. This is to ensure that the interests of depositors remain fully protected, and that the business will continue to be conducted in a prudent and business-like manner. The Commissioner will therefore wish to discuss in advance with the institution and its legal advisers the merger plan generally and the prior steps which will need to be taken. These may include the submission to the Commissioner of all relevant documentation, the drafting of new legislation, the novation of existing agreements, the seeking of appropriate consents from counterparties and the notifying of customers. Other prudential issues may arise. In the case of an institution incorporated outside Hong Kong, legal measures taken to effect a transfer of business in its home country are unlikely to be sufficient fully to cover the position in Hong Kong. Experience suggests that these procedures can take a number of months. Since it is important that the Commissioner should be in a position to make a recommendation on the transfer of a banking licence to the Governor-in-Council before any change to the legal entity occurs (otherwise the new entity could find itself carrying on a banking or deposit￾taking business in Hong Kong in breach of the Banking Ordinance) , it is imperative that sufficient advance notice is given in writing to the Commissioner's Office before any such plans are implemented. For example, up to six months may be required if new legislation is sought in the case of a merger. Once a timetable leading up to the merger etc. has been established and agreed with the Commissioner, any subsequent changes to that timetable should be promptly notified. Although the grant of a restricted banking licence, the registration of a deposit-taking company or an approval to maintain a representative office does not have to be submitted to the Governor-in-Council, the Commissioner will nevertheless wish to be satisfied that all necessary action is being taken as set out above. A similar time-scale to that applying to banking licences is therefore involved. I should be grateful if all Chief Executives and representatives will ensure that this office is given sufficient notice in writing of any impending changes. It is their responsibility to advise the Office of any transaction

which might affect the validity of authorities already given to the institution. In the case of institutions incorporated overseas, a copy of this letter should be passed to their Head Offices, so that the position of their Hong Kong operations is taken into account in future planning. Yours faithfully,

D T R Carse
Commissioner of Banking