On 14 May 2021, a cooperation mechanism was established between the Mainland and Hong Kong in the form of the Record of Meeting of the Supreme People's Court and the Government of the Hong Kong Special Administrative Region and Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Court of the Mainland and the Hong Kong Special Administrative Region and the Supreme People’s Court’s Opinion on taking forward a pilot measure in relation to Recognition and Assistance to Bankruptcy (Insolvency) Proceedings in the Hong Kong Special Administrative Region (the “SPC Opinion”).
The cautious and prudent approach for distressed companies pursuing a Hong Kong scheme of arrangement is to simultaneously pursue a parallel scheme in their home jurisdiction, even if most if not all of its debts are governed by Hong Kong laws. The rationale is to prevent hostile creditors from disrupting the implementation of the scheme in another jurisdiction, thereby better insulating the distressed company.
Nick Gall, Ashima Sood and Kritika Sethia have contributed the Hong Kong chapter for the 2021 International Comparative Legal Guide (ICLG) to Restructuring & Insolvency. The chapter covers common issues in restructuring and insolvency, including issues that arise when a company is in financial difficulties, restructuring options, insolvency procedures, tax, employees and cross-border issues in 25 jurisdictions.
Partner Evelyn Chan has been quoted extensively in a The Standard article on insolvencies in Hong Kong. In the first 11 months last year, bankruptcy filings increased by 7.29 percent to 7,980 from a year ago, data from Official Receiver's Office showed. A total of 409 compulsory winding-up petitions were presented, rising by 7.63 percent year-on-year.Evelyn believes the effects of the pandemic have not yet been fully reflected in the figures, as Hong Kong Court hearings have been disrupted amid the pandemic, resulting in more delays.In the article, Evelyn also explains the process of provisional liquidation and explores soft-touch provisional liquidation – where the company's directors will remain in the management while the provisional liquidator is appointed for restructuring purposes only, and they work together on a restructuring plan.
The idea of reforming Hong Kong’s corporate rescue regime was first floated back in 1996. It was introduced in the form of the Companies (Corporate Rescue) Bill 2001 but got nowhere due to differences of opinion. This was returned to the table subsequently in 2003, 2009 and 2014, but nothing ever came to fruition.
Chris Wong and Kenix Yuen have been quoted in an article in Economic Digest on winding up. The article touches on points to note on various situations of winding up including compulsory winding-up and voluntary winding-up.
We recently acted for the joint provisional liquidators of Rare Earth Magnesium Technology Group (“the Company”) appointed by the Supreme Court of Bermuda in a conventional application for the recognition of the Bermuda soft-touch provisional liquidation of the Company.
COVID-19 has created unforeseen challenges to businesses all over the world, resulting in many companies being unable to survive the pandemic. Hong Kong has been no exception. In Hong Kong, according to data published by the Hong Kong Government’s Official Receiver’s Office, in the first seven months of the year, 5219 compulsory bankruptcy petitions and 247 compulsory winding-up petitions were presented, representing 13.7% and 5.1% year-on-year increase respectively. The effect of COVID-19 may yet be fully reflected by these figures.
The ICLG to restructuring and insolvency covers common issues in restructuring and insolvency, including issues that arise when a company is in financial difficulties, restructuring options, insolvency procedures, tax, employees, and cross-border issues.
For directors, the winding up of a company could be judgment day when their past misdeeds come back to haunt them. If insolvency is on the horizon, there are various matters directors should bear in mind lest incurring personal liability if insolvency becomes inevitable.
