Relevant Legal Issues in relation to Trust Arrangement in an Overseas Initial Public Offering

Governing Law of the Trust Agreement

It is notable that the fact that the bare trustee and the Beneficiaries are all Chinese residents and the Trust Agreement is entered into in China does not necessarily result in the application of the PRC Trust Law¹《信托法》. This is because the trust property in the shares of the SPV (a company incorporated in Singapore) and the bare trustee's duties under the Trust Agreement shall be discharged in Singapore. Therefore, Singapore law shall be the appropriate governing law in such case.

In practice, it is recommended that the Trust Agreement shall contain, inter alia:

(i) the decision-making scheme for the major matters which may require the SPV's shareholders' approval;

(ii) the obligations and rights of the trustee and the Beneficiaries respectively;

(iii) the circumstances in which the trust can be terminated;

(iv) the circumstances in which the trustee can or needs to be replaced; and

(v) a detailed meeting rules for all the Beneficiaries.

In addition, a detailed breakdown of the respective number of the Trust Shares held by the Controlling Shareholder for each of the Beneficiaries needs to be provided.

Procedural Requirements under the PRC Law

Under the PRC law, such Trust Agreement is required to be registered with the relevant foreign exchange authority. There are two main relevant regulations, namely (i) the Notice of Relevant Issues concerning Foreign Exchange Administration for Domestic Residents to Engage in Financing and Return Investment via Overseas Special Purpose Vehicles (the Notice 75) promulgated by the State Administration of Foreign Exchange (SAFE) on October 21 2005; and (ii) the Notice of Implementing Rules for the Notice of Relevant Issues concerning Foreign Exchange Administration for Domestic Residents to Engage in Financing and Return Investment via Overseas Special Purpose Vehicles (the Notice 106) issued by SAFE on May 29 2007.

1. Pursuant to Notice 75, the Controlling Shareholder is required, before establishing or controlling the overseas SPV, to apply to the competent SAFE branch for foreign exchange registration of the establishment of the SPV. The competent SAFE branch shall, after examining and checking the application materials, affix the special seal for foreign exchange business for capital account transactions on the Certificate of Foreign Exchange Registration of Overseas Investments or the Form of Foreign Exchange Registration of Overseas Investments of the Domestic Individual Resident.

It is worth noting that according to Notice 106, such foreign exchange registration needs to be applied by the Controlling Shareholder personally. No authorisation or proxy is allowed for the purpose of such application.

2. Pursuant to Notice 106, the Trust Agreement which contains the trust arrangement details between the Controlling Shareholder and the Beneficiaries shall be registered with the competent SAFE branch by the Controlling Shareholder, who is the bare trustee, on behalf of the Beneficiaries.

3. In the event that there is any change in the total number of the Trust Shares or the proportion of the respective Trust Shares held by the bare trustee on behalf of any of the Beneficiaries, the relevant modification to the registration is required to be effected. However, in the event that any of the Beneficiaries assign his/her rights under the Trust Agreement to any other party without affecting the total number of the Trust Shares or the proportion of the assigned Trust Shares in the total number of the Trust Shares, no modification to the registration is required under the Notice 106.

The abovementioned foreign exchange registrations are required to be effected before the IPO submission to the SGX. In practice, the Controlling Shareholder is also required to provide a written undertaking to comply with all the relevant regulations, including Notice 75 and Notice 106, in relation to any modification registration after the IPO submission.

Endnote

1. The PRC Trust Law was promulgated by the Standing Committee of the Ninth National People's Congress on April 28 2001 with effect from October 1 2001. Article 3 of the Law stipulates that this Law applies to the settlor, trustee and beneficiary carrying out civil, business or public trust activities within the territory of the People's Republic of China.

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