DEALING WITH BUSINESS INTERESTS IN DIVORCE SETTLEMENTS – HOW IT WORKS IN HONG KONG
Polly Chu and Jocelyn Tsao, Partners in the Corporate and Family Teams at
Withers, outline what you need to know.
PHOTOS COURTESY OF Withers
Many couples in Hong Kong hold interests in companies that own landed properties or other investments. When the couples divorce, there are various ways in which corporate interests can be dealt with. This article highlights some key considerations that divorcing couples should note if they desire to transfer their corporate interests in divorce proceedings.
METHODS OF DIVISION
Rearranging corporate interests for a divorcing couple is not as simple as transferring one spouse’s shares to another. There are many factors that need to be carefully considered before making such re-arrangement to prevent contentious issues from arising. The most effective way for such re arrangement very often depends on the specific situation on a case-by-case basis. For example, if a company is jointly owned by a divorcing couple and each spouse wishes to keep a certain part of the business post-divorce, then it would be advisable to incorporate a new company, and transfer part of the business to the newly set-up company.
Alternatively, where a spouse does not wish to keep an interest in the company, then the spouse who elects to keep it should opt to pay the other spouse equality monies for there to be a fair division, either by making a lump sum payment or through periodic payment to the other from the company’s assets and/ or profits. If the paying spouse has liquidity issues, he or she could consider obtaining a director’s loan from the company or seek other forms of financing in order to pay the lump sum.
Lastly, if neither spouse wishes to keep the corporate interest, it can be sold. It can be stated in the divorce settlement that the sale proceeds will be held by the solicitors who are appointed in the sale process and will distribute the proceeds (in the desired proportion) to the parties directly in order to avoid argument. If no sale of business is possible, parties may dissolve the company and distribute the remaining assets.
VALUATION
Determining a company’s value is often an important aspect when negotiating settlement in divorce proceedings. It is important to know the value of the company in order to ascertain the size
of the matrimonial pot for division. The divorcing couples should try to agree on a valuation of the spouse’s shareholding in the company, failing which they should appoint a single joint expert, usually an accountant or surveyor, to make a formal valuation.
However, there may be difficulties in evaluating a spouse’s shareholding if the spouse holding the shares is not concurrently a director of the company, or if other shareholders in the company do not wish to allow the company to be valued. As such, in order to inspect the books and accounts of the company for valuation purposes, it may be necessary to apply to the court for an inspection order.
CONTINUED CO-OPERATION In some instances, divorcing spouses may wish to continue co-owning or running their company together despite their divorce. We would recommend that these couples enter into a shareholders’ agreement to clearly delineate each of their shareholders’ rights and responsibilities in relation to the company. Doing so would help facilitate future co-operation and avoid arguments or deadlock situations regarding the management of the company.
Withers’ teams of matrimonial and real estate lawyers have extensive experience in dealing with Hong Kong family and property law.
For enquiries, contact Polly Chu at [email protected] or Jocelyn Tsao at [email protected].
Withers, 30/F United Centre, 95 Queensway, Admiralty,
3711 1600, www.withersworldwide.com.