Secured Convertible Promissory Note for Hong Kong

Secured Convertible Promissory Note Template for Hong Kong

A Secured Convertible Promissory Note governed by Hong Kong law is a hybrid financial instrument that combines elements of debt and potential equity ownership. It represents a loan to a company that is secured by specific company assets and includes the right to convert the outstanding amount into equity shares under predetermined conditions. The document incorporates Hong Kong-specific security registration requirements, Companies Ordinance compliance provisions, and local law considerations for both debt and equity instruments. It provides investors with the security of debt while offering potential equity upside, making it particularly suitable for growth-stage companies in the Hong Kong market.

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What is a Secured Convertible Promissory Note?

The Secured Convertible Promissory Note is commonly used in Hong Kong for growth-stage company financing, bridging the gap between pure debt and equity financing. This document is typically employed when investors seek the protection of secured debt while maintaining the potential upside of equity participation. The note includes detailed provisions for security interests that must comply with Hong Kong registration requirements, conversion mechanics aligned with the Companies Ordinance, and enforcement provisions under Hong Kong law. The document specifies the loan amount, interest terms, security details, conversion rights, and investor protections. Companies often use Secured Convertible Promissory Notes during pre-Series A or bridge financing rounds, or when traditional equity financing may not be optimal due to valuation uncertainties.

What sections should be included in a Secured Convertible Promissory Note?

1. Parties: Identification of the Note holder (Lender) and the Company (Borrower)

2. Background: Context of the note issuance, including the Company's request for funding and the Lender's agreement to provide it

3. Definitions: Key terms used throughout the document, including financial terms, security-related definitions, and conversion-related terminology

4. Principal Amount and Issuance: Specification of the loan amount, issuance date, and acknowledgment of receipt

5. Interest: Interest rate, calculation method, payment frequency, and default interest provisions

6. Repayment Terms: Maturity date, repayment schedule, prepayment rights and restrictions

7. Security Interest: Description of collateral, grant of security interest, perfection requirements, and maintenance obligations

8. Conversion Rights: Terms governing the right to convert the note into equity, including conversion price, timing, and mechanics

9. Representations and Warranties: Standard company representations and specific declarations regarding security and conversion rights

10. Events of Default: Circumstances constituting default and consequences thereof

11. General Provisions: Standard clauses including notices, amendments, assignment, governing law, and jurisdiction

What sections are optional to include in a Secured Convertible Promissory Note?

1. Subordination: Required when the note needs to be subordinated to other debt obligations

2. Registration Rights: Include when the converted shares may need registration rights for future sale

3. Board Observer Rights: Optional rights for the note holder to appoint a board observer

4. Information Rights: Additional rights to receive company financial and operational information

5. Most Favored Nation: Protection ensuring the note holder receives the best terms offered to other investors

6. Tax Provisions: Specific tax-related provisions if cross-border elements are involved

7. Currency Conversion: Required for notes where payment may be made in multiple currencies

What schedules should be included in a Secured Convertible Promissory Note?

1. Schedule 1 - Description of Collateral: Detailed description of assets serving as security

2. Schedule 2 - Conversion Mechanics: Detailed procedures and calculations for converting the note to equity

3. Schedule 3 - Form of Conversion Notice: Template notice for exercising conversion rights

4. Schedule 4 - Shareholders' Rights: Rights attached to shares issued upon conversion

5. Appendix A - Corporate Authorizations: Copies of board and shareholder resolutions authorizing the note

6. Appendix B - Security Registration Forms: Forms required for registering the security interest in Hong Kong

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Hong Kong

Publisher

Genie AI

Document Type

Letter of Credit

Cost

Free to use
Relevant legal definitions
Relevant Industries

Technology

Biotechnology

Financial Services

E-commerce

Healthcare

Manufacturing

Clean Energy

Software Development

Real Estate

Consumer Products

Media and Entertainment

Telecommunications

Relevant Teams

Legal

Finance

Corporate Development

Treasury

Compliance

Risk Management

Board of Directors

Company Secretariat

Investment

Executive Management

Relevant Roles

Chief Executive Officer

Chief Financial Officer

General Counsel

Corporate Secretary

Finance Director

Investment Manager

Legal Counsel

Compliance Officer

Treasury Manager

Company Director

Investment Analyst

Corporate Development Manager

Risk Manager

Financial Controller

Industries
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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