Telling tales

Written by Cliff on Thursday 24 April 2014 at 12:55 pm

The recent implementation of Dodd Frank-like whistle-blowing proposals in the US and UK and other Asian countries has brought the act of reporting your own company’s misconduct into fashion. However, Hong Kong resists the change, citing that no thought has gone into that direction.

there are myriad, colourful names for Chinese people who betray their families

After all, the Chinese population is not too accustomed to laying bare their family’s problems, as is Confucian custom. To do so and gain rewards is betrayal and there are myriad, colourful names for Chinese people who betray their families, their state and their organisations since the age of fire.

However, Hong Kong sits uncomfortably at the seams between traditional Chinese custom and western management practice. The government and regulatory authorities have, since their establishment, been balancing the gut instinct of Chinese people and the need to gain some sort of respect and compatibility with Western corporate governance practices.

So what happens if a director, vested with fiduciary duties towards his company, wanted to report the misconduct of either the company or his fellow directors to a regulatory authority, e.g. the ICAC or the SFC? It is a vexing question indeed. Is it a breach of fiduciary duty? A breach of confidence? Misuse of proprietary information? Can he be fired? Can he be sued? What will become of his reputation?

Hong Kong has no general ‘whistleblower’ protection law to speak of. People open their mouths at their own risk. There are anonymous reporting programs operated by the ICAC and less formally provided by the SFC but that’s about it. Courts around the world have generally come to the conclusion that reporting would be in the best interests of the company because to delay may land even harsher penalties when any misconduct is discovered by the authorities, so that might help with the breach of fiduciary duties part.

All in all, a director might find it useful to resign before opening his mouth. Better quit first before being made to do so!

The above is for leisure reading only.

Casenote: Kao, Lee & Yip v Steph Lau and Fion Tsui FACV 7/2008

Written by Cliff on Wednesday 23 April 2014 at 6:47 pm

Court of Final Appeal (!)

Case highlight: Ribeiro PJ lashes out at law firm for taking it out on law-abiding newly qualified lawyers wanting to leave. It’s only 50 paragraphs!

Issues: (1) Whether an employer or employee can unilaterally terminate employment relations. (2) Whether employee can opt to reduce his notice period using annual leave in lieu or simply work more and receive payment for accrued annual leave.

Decided with high degree of certainty that: (1) Either the employer or employee can terminate employment relations unilaterally in accordance with law and contract; and (2) an employee may choose to reduce his notice period using accrued annual leave days, or he may work for the full notice period and receive payment for the accrued annual rest days in accordance with statute. Join the forum discussion on this post – (11) Posts

LLB Tort Law past paper

Written by Cliff on Wednesday 19 March 2014 at 5:57 pm

A past paper on tort law has been contributed by a student and added to our collection under Education.

Family Tree

Written by Cliff on Tuesday 18 March 2014 at 10:06 am

Family Tree
This diagram is useful in both legal and social contexts – recalling those massive family gatherings over new year during which you cannot remember how to address each person you meet! In the legal context, this diagram can help determine corresponding interests of directors, who must declare their interests in company transactions. For public/listed companies, this diagram becomes useful to unravel possible connected transactions where family members may be associates of the director concerned.

Old Companies Ordinance

Written by Cliff on Sunday 9 March 2014 at 12:05 am

This is the old Companies Ordinance Cap.32 prior to the the new CO Cap.622 – Companies Ordinance (Cap 32).

Stamping transfer of HK stock

Written by Cliff on Wednesday 26 February 2014 at 11:11 am

Under the tax laws of Hong Kong, the HKSARG levies a 0.2% tax on transfers of shares in Hong Kong companies. For listed companies, the tax is generally charged on the market value of the shares. The practice note is unclear on how this market value is determined. To clear up the question, we tried to transfer some shares ourselves.

In practice, the stamp office will use the last available closing price of the shares. If your transfer is dated 13 Feb 2014, and the closing price for the shares has already been issued, then that closing price is used. If the market has not closed on the transfer date, the closing price of the previous day is used. For some people, they may wish to time their transfers to reduce their tax burden.

On the shoulders of giants

Written by Cliff on Wednesday 26 February 2014 at 10:17 am

Last night, I had the pleasure to speak with a young man who insisted on his belief that a business that created systems is superior to one that used systems because it would give him greater ‘satisfaction’.

I told him that since all businesses were founded on the exchange of goods and services for currency, any business you create is already based on a system. You should instead create a new system for international trade, if that would lend you greater ‘satisfaction’.

The trend today, unless you happen to be as capitalised as Google, Microsoft or Apple, is to create businesses on the shoulders of giants – platforms, in today’s terminology. The recent acquisition of Whatsapp and not least the public success of many smaller companies have highlighted the feasibility and benefits of operating on universally available platforms. No longer are we operating alone in a disparate business ecosystem. Tomorrow’s business heroes can rest-assured build on existing platforms to create a better future for themselves and their customers.

A new model for a new century – Entrepreneurship, a new paradigm shift for growth

Written by Cliff on Thursday 6 February 2014 at 3:29 pm

Kaitak Runway concept
Despite its ignoble birth, Hong Kong was alchemized into the “Pearl of the Orient” by the combined forces of its geographical location and historical circumstances. July 1st 1997 was a notable date in the annals of Hong Kong. Not only did it mark the birthday of HKSAR of the PRC, but it also witnessed the zenith of its economic prosperity. The collapse of the Thai Baht in the autumn of 1997 triggered throughout Southeast Asia a severe financial crisis, which punctured the balloon of Hong Kong’s financial and property markets, resulting in share and property prices plummeting by more than 50%. But even then, fortune continued to smile on Hong Kong. When China pledged full support for the Hong Kong Dollar, and stubbornly resisted international pressure to devalue the Yuan, Hong Kong rode through the crisis unscathed, as far as its monetary system was concerned. Nevertheless, it is a lamentable fact that our economy suffered a severe downturn, and the “Pearl of the Orient” lost its lustre. Almost two decades after the Asian financial crisis, Hong Kong is still struggling with massive fiscal deficits, crippling inflation, and to a lesser extent the chronic pain of “negative equities” of our sandwich class, whereas all our neighbouring countries have either recovered from the crisis or well on the way to do so. And of course, China continues to prosper.

Most of us would agree that our failure to respond positively to the economic decline could be due to the absence of a sense of direction. We heard a lot of noises, but nothing really happened. This sense of drifting and feeling of helplessness could not be more demoralizing. Feeble attempts by the HKSAR Government to liven things up — like the $100 million Harbour Fest — usually ended up with more questions being asked than problems solved. Instead of conserving energy and employing collective efforts to do something positive for Hong Kong, we expended our time and activities in street demonstrations, finger-pointing and mutual recriminations. The Central Government went all out to extend help and assistance by promulgating a series of measures calculated to stimulate Hong Kong’s economy, like CEPA and its supplements, as well as encouraging Mainlanders to visit as tourists, etc., from which Hong Kong derived much benefit. These led the HKSAR Government to announce that a fledgling GDP growth year after year. I do not wish to sound ungrateful, but I consider such announcements as warning signals that Hong Kong is fast becoming one of the many ordinary cities in China, supported by the guided hand of the Central Government! The “Pearl” has lost more than its lustre; it is losing its individuality! Where is our uniqueness, our identify, and our pride?

To answer this question, we can go back into history. The reason behind Hong Kong’s success story as the “brightest star in the Chinese firmament” in the past was because we could do things in Hong Kong which our compatriots in China could not do due to political reasons. With the “open market” in China, where material and financial resources are far superior to Hong Kong, what we can now do, China can do much better. To deliver Hong Kong out of its current malaise and economic quagmire, and to regain our self-respect, we must be bold, daring, adventurous, and most importantly, nurture a broad vision with an inventive mind capable of lateral thinking. We must concentrate our energies and expertise to develop and exploit a NEW, ULTRAMODERN, NOVEL, AVANT-GARDE and REVOLUTIONARY
venture which no one else in this part of the world can do any better than Hong Kong. In plain words, we must find in Hong Kong “natural settings and indigenous advantages” which others do not have, and by which Hong Kong can do what others cannot do!

In this respect, notable analysts have pointed out that Hong Kong is blessed to have just the exact specifications and the right prerequisites of “natural settings and indigenous advantages” in the site of the old Kai Tak Airport in Kowloon Bay to enable us to do what others cannot do. Nowhere else in the world can anyone find an abandoned airport runway jetty jutting 8,000 feet right out into the sea — basically providing a ready-made sea-frontage of approximately 20,000 feet (8,000 x width of runway), and permitting the simultaneous berthing of more than ten ocean-going cruise vessels each of 1,000 feet long. Never has the world beheld such a huge cruise terminal right in the centre of a major international city. With this physical asset in situ, Hong Kong could become the “Miami of the East” (but better and bigger). Hong Kong has already built one of the largest, the most modern, and the most user-friendly airports in the world — Chek Lap Kok. By the same token, there can be no reason why we should not think big and build much more than just a mere “Cruise Terminal” in the old airport site. This idea, in the words of the late doctor Peter Lee, J.P., is “mind boggling”. Of course, the Cruise Terminal may well ignite the reform and transformation of vintage thinking that plagues the local government. But we will need far more than what may be a white elephant to sustain the momentum of improvement needed to resolve Hong Kong’s lingering problems, which include income disparity, poor living conditions, unaffordable housing and air pollution.

According to the government census, the median monthly domestic household income for 2012 was $20,700. About 1.3 million people, or 19.6% of the population, were below the poverty line and only 3.9% of domestic households earned over $100,000 per month. The latest statistics show that Hong Kong’s Gini coefficient, a measure of wealth distribution where 0 describes perfect equality and 1 describes perfect inequality, has reached 0.533, the widest income gap among all developed economies. With private housing prices surging over $3,000,000 for a 600 square feet cubicle, it is no wonder many couples do not want to have children, feel insecure and have no desire to commit to any risky, innovative ventures that could have any prospect of improving their livelihoods. The venerable model of buying a home in preparation for marriage has become a historic relic and a topic for discussion over dinner that is swiftly diverted to topics of social unrest, ‘occupy Hong Kong’ and other unconstructive distractions. The systemic inability to keep up with the older generation has led to profound dissatisfaction among the younger participants of the workforce, of whom over 33% have undergone tertiary education. Young people are finding that the once-coveted relationship between education and income is far looser than just 20 years ago. Furthermore, each taxpayer now has to supplement a growing demographic of elderly people and increased welfare benefits. The ageing population in Hong Kong is testimony to its impeccable healthcare system, but akin to Japan, this growth is a cause for concern.

It is not necessary for me to make out a case for a “Cruise Terminal” in Hong Kong or to list out each and every social problem that we are facing now since so many people already voice out their opinions each week while parading through Central. But the statistics require a solution; and fast. This solution might find its roots in Taiwan, an island with an ageing population, low birthrate and high inflation. Profit margins for Taiwan’s high-tech industry, which make up 75% of its economy, have continued to decrease over the years as competition increases, prices slide and wages in its manufacturing base, China, go up. Wage rises have not matched company profits and low-skilled workers have been left behind during decades of growth. Even many in the middle class cannot afford to buy a home or have children, contributing factors that have led to the island state having the lowest fertility rate in the world.

For the past decade, however, an enthusiastic response has struck a chord with the island’s inhabitants. One in six Taiwanese of working age today are involved in a side business of sorts to supplement their income. These entrepreneurs often work with an established brand to provide products or services within a circle of influence, be it a circle of friends, a book club or an interest group. This “side economy” is empowering a large proportion of the female workforce and over US$2.8 billion of the local economy. It is no wonder that local trade ministries are promoting this form of work in each and every locality in Taiwan. In a nod towards the needs of a people keenly aware of health and wellness trends, wellness products form an astounding 59% of overall revenues. The side business culture has also taken off in nearby South Korea, where it is generating over US$12.9 billion each year and has captivated the minds of chaebol senior management and base-level employees alike. This spirit has yet to take flight in Hong Kong.

The past three decades have seen increasing emphasis on tertiary and professional education to service the hopes that increased education leads to better livelihoods. The number of university graduates has increased dramatically since 1960 and the number of universities has increased from 1 to 8 in our little city of 7 million souls. Entrepreneurship, something in which almost everyone was involved in during the 1930s is only starting to become popular again in our humble city simply because people need to afford better living conditions for themselves in a time when employment can no longer meet expected standards of living. The starting wage today has remained stagnant over 15 years while inflation continues at 4% year on year. Dragging their feet, universities are providing more and more resources to entrepreneurship, which used to be a mere six credit course in most institutions. Entire curriculums, office complexes and staff are now dedicated to entrepreneurship education in universities to accommodate forecast demand. However, only a handful of well-known multinational companies are willing to serve the needs of budding entrepreneurs or employees wishing to do a little more to support their families in their spare time. This is no small wonder since established businesses have no interest in serving prospective competitors. Entrepreneurship with a ‘social’ aspect is becoming a buzzword in universities as students begin to learn about how private free enterprise can have a profound social and environmental impact around them. One can imagine how an established and ethical provider of entrepreneurship tools can reap the benefits of the upcoming tide.

We all have a innate biological motivation to help ourselves. But with our increasing awareness of Hong Kong’s problems and social needs, our entrepreneurship cannot only be self serving, it must also help people help themselves. After all, teaching people how to fish is a longer lasting solution than giving people fish. And teaching people how to fish sustainably whilst teaching them how to teach others fish may be the greatest revolution that Hong Kong’s entrepreneurs will yet have to experience for themselves. I do not believe that we need to be so outstanding that we become insurmountable objects of esteem but I do believe that we can become so outstanding that we become a model for the world to emulate and copy as much as they like.

A new model, for a new century.

The Chocolate Crisis

Written by Cliff on Tuesday 21 January 2014 at 3:16 pm

Attention in Hong Kong remains focused on full universal suffrage. But a far more important issue confronts Hong Kong while the chief executive and party leaders dither: rising chocolate prices. When will the government address this terrifying crisis?

Chocolate comes from cocoa trees, which have been cultivated for thousands of years. The Europeans also deserve credit for adding sugar and milk. And then America’s Milton Hershey did what Americans always do so well: created a mass market with cheap chocolate bars. Chocolate Hershey products are ubiquitous today.

How would we live without chocolate? Yes, there are a few malcontents and deviants who claim not to like chocolate. Aliens, perhaps, from another planet. Or people just deficient in what ultimately makes us human. But that’s fine since it leaves more for the rest of us.

Now the gift from the gods is threatened. The cost of one kilogram of chocolate surpassed $12.25, up 45% in 2007, the highest ever. Explained the Wall Street Journal: “Prices are on the rise due to a shortage of cocoa beans, which are roasted and ground to make chocolate. Market experts estimate that supplies will fall short of demand this year for the first time since 2010 and dry weather is expected to hurt the next harvest in West Africa, where 70% of cocoa beans are produced.” Rabobank predicts a third consecutive cocoa deficit for the 2014/15 crop year that will see prices soar 23% from Q3 2013 levels to $3,000 per (MT) by Q3 2014.

Even a weak recovery has sparked a consumer return to the chocolate market, with consumption rising for the first time since the economic and financial crashes of 2008. Jonathan Parkman of the London commodities brokerage Marex Spectron, said sales reveal “a better-than-expected recovery in core markets such as North America and Northern Europe.”

The problem is worldwide. In Europe the cost of cocoa butter is up 70% from the end of last year. The expense of making a milk chocolate bar is up 31%. The same phenomenon is evident in Asia. “In the regions like Asia-Pacific or Latin America, we are seeing more middle class consumers buying chocolates compared with five or six years ago because they have the money to do it,” observed Francisco Redruello of Euromonitor International. In Asia chocolate prices are up 30 to 40% this year. “Most of our customers are not happy about it” said Richard Lee of Singapore-based Aalst Chocolate.

Not everyone is certain that rapid price increases will continue. Shawn Hackett of Hackett Financial Advisors complained that the current futures market reflects a “feeding frenzy” and speculators are “getting carried away.” One can only hope that he’s right. Otherwise the future of mankind will be in doubt.

The only downside in all of this is that demand is increasing fastest for dark chocolate. Chocolate manufacturers are expanding their line-ups of dark chocolate products. Admittedly darker is lower in calories and better in health. But it just doesn’t have the wonderful smooth, creamy taste of milk chocolate. It is sad to see scarce chocolate products being diverted to inferior uses.

This is a crisis. A real crisis. No nonsense about world peace, international poverty, income inequality, environmental degradation, runaway inflation, overwhelming debt, or other minor problems. Chocolate is going to cost more!

This will be bad enough for casual consumers, denying them access to the elixir of life, the nectar of the gods. It is far worse for chocolate addicts, otherwise known as chocoholics. After all, we can’t help ourselves. We are controlled by larger forces. We are helpless in the face of the taste of chocolate.

Blogger Kimi Harris offered some self-help advice, if one wants to call it that, but it included such strange ideas as “eat better chocolate, less often.” After all, “the better quality, the less you need.” Anyone who would say such things does not understand the miracle of chocolate—and certainly is not a chocoholic. Eat less? The better the chocolate, the more one wants to eat! You can never have enough chocolate. There is no such thing as too much chocolate.

It’s time for the government to act. After all, for what do we have the government if not to act in a crisis like this? Vital interests are at stake.
First, we need a Department of Chocolate. Not just an agency or bureau. A full ministerial-level department answerable to the CE.

Second, we need to create a new welfare program to ensure that everyone has access to chocolate. Social welfare isn’t enough. Hong Kong people need a guaranteed ration of chocolate, irrespective of financial need.

Third, we need price controls on chocolate, to compliment the upcoming competition law. After all, why should greedy profiteers be able to take advantage of helpless chocoholics? We have a RIGHT to reasonably-priced chocolate. Who cares about economics when it comes to something as important as chocolate?

Then we need to lobby China to exercise military prowess – we need a China-backed military policy based on guaranteed access to cocoa. The vast majority of cocoa is produced in West Africa; 43% comes from Ivory Coast alone. Forget access to African gas and Australian mines. Energy is an international market. Moreover, new alternatives are coming online all of the time. In recent years solar an nuclear have become viable alternatives.

However, we remain hopelessly dependent on foreign sources of cocoa. Indeed, there is no production in China at all. How did we allow ourselves to become so vulnerable to international cocoa disruptions and interruptions? Chocolate is far more important than oil!

We need a new chocolate “czar” to coordinate a truly effective cross-border chocolate policy. Hong Kong, no, China needs to simultaneously hold down excessive chocolate prices, ensure fair and adequate access to chocolate, guarantee the nation’s access to foreign sources of this vital good, and ultimately develop a domestic industry. Only strong multi-agency effort can deliver chocolate independence!

Indeed, the neoconservatives have long suggested that Hong Kong concoct some new grand crusade as a means of promoting foreign direct investment. How about guaranteed chocolate for all? A world-beating HK chocolate industry? Promoting a new advanced chocolate civilization? These would reflect greatness redefined!

Hong Kong’s political leaders are being laughed at around the world. But for all the wrong reasons. They bicker. They won’t cooperate. They won’t be constructive. They try to implode the property market. They are irresponsible. They represent special interests rather than the public interest. They are extraordinary morons.

All true.

But their worst political crime is failing to deal with the looming chocolate crisis. If they fail to act, future generations will never forgive them.

The Golden Triangle

Written by Cliff on Friday 10 January 2014 at 10:07 am

At the heart of Hong Kong’s economy is the triangle of government, property developers, and banks. The former two mark up land prices through auctions. The later make loans to both with inflated land as collateral. As statistics show, land prices rise much faster than the economy, and credit becomes concentrated in the government and developers. As they use money inefficiently, inflation has risen, essentially a tax on anyone not involved in propagating this vicious cycle. This spiral of credit concentration and inflation is becoming wobbly over time due to its rising share in GDP. What I would term as ’empty growth’, analogous with ’empty calories’ – it tastes good, but in the long term will give you diabetes, heart disease and gout.

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