Intercompany Revolving Loan Agreement Template for Hong Kong

An Intercompany Revolving Loan Agreement is a crucial financial document that enables affiliated companies within a corporate group to establish flexible lending arrangements under Hong Kong law. Unlike traditional term loans, this revolving facility allows the borrower to draw down, repay, and re-borrow funds multiple times within the agreed facility limit and term period, making it ideal for managing working capital fluctuations and ongoing operational needs between related entities.

When do you need this document?

You need an Intercompany Revolving Loan Agreement when your group companies require ongoing financing flexibility between related entities. This document is essential when a parent company or cash-rich subsidiary provides credit facilities to other group companies for working capital, expansion projects, or general corporate purposes. It's particularly valuable for multinational groups using Hong Kong entities for regional treasury operations, where funds need to flow efficiently between different jurisdictions and business units. The revolving nature makes it perfect for businesses with seasonal cash flow variations or those requiring immediate access to funds for opportunities without lengthy approval processes.

Key legal considerations

Several critical legal aspects must be addressed when structuring your intercompany revolving loan agreement. Transfer pricing compliance is paramount, requiring that interest rates and terms reflect arm's length conditions that would apply between unrelated parties. You must ensure proper corporate authorization through board resolutions and compliance with each company's constitutional documents. Financial covenants and representations need careful drafting to protect the lender while allowing operational flexibility for the borrower. Security arrangements, if applicable, require proper documentation and registration. The agreement should include clear drawdown procedures, interest calculation methods, and repayment mechanisms to avoid disputes and ensure smooth administration throughout the facility's life.

Legal requirements in Hong Kong

Under Hong Kong law, your intercompany revolving loan agreement must comply with the Companies Ordinance provisions governing related party transactions and directors' duties. The Money Lenders Ordinance typically doesn't apply to genuine intra-group lending arrangements, but you must ensure the relationship qualifies for this exemption. Transfer pricing documentation under Departmental Interpretation and Practice Notes No. 59 requires maintaining contemporaneous records demonstrating arm's length pricing. Interest deductibility under the Inland Revenue Ordinance depends on meeting specific conditions and commercial substance requirements. If overseas companies are involved, you may need process agents for service of legal documents. Stamp duty considerations under the Stamp Duty Ordinance may apply depending on the transaction structure and security arrangements.