I OVERVIEW OF RESTRUCTURING AND INSOLVENCY ACTIVITY
i Hong Kong
The People’s Republic of China (PRC) resumed its sovereignty over Hong Kong with the establishment of the Hong Kong Special Administrative Region of the PRC on 1 July 1997. The Basic Law – part of the constitution of Hong Kong – was adopted on 4 April 1990 by the National People’s Congress of the PRC and provides for a 50-year period during which Hong Kong will be allowed to retain its current political, social, commercial and legal systems, including those that have made it an international financial and business centre.
Hong Kong operates a free trade economic system with minimal government intervention. A primary attraction is Hong Kong’s legal system, based on English common law and rules of equity, involving strict adherence to the principles of the rule of law and judicial independence.
Many head offices and holding vehicles for Chinese and foreign multinational corporations, financial institutions and regional investors with operations in China and South East Asia, have long maintained their base in Hong Kong. The Hong Kong Stock Exchange is one of the largest globally and a significant proportion of the companies listed on it hold assets and operations in the PRC.
Given its proximity to and relationship with the PRC, Hong Kong is often regarded as the primary intermediary platform for trade between mainland China and the rest of the world, and therefore serves a dual role as both conduit for access to the mainland Chinese market and a springboard for Chinese businesses to gain exposure to international markets.
Hong Kong has also pioneered offshore yuan business, being the first offshore market to launch in 2004. As China’s economy increasingly integrates with the rest of the world’s markets, the yuan will see increasing use as a payment currency. At the end of October 2015, customer deposits and certificates over deposits in yuan issued by banks in Hong Kong totalled around 1 trillion yuan.2
ii Economic conditions
Globally, financial markets have seen weakening recoveries and ongoing financial volatility. The United Kingdom’s referendum to leave the European Union, an upcoming presidential election in the United States, the slowdown in China’s growth and raw materials demand, and the pressure on commodities prices set a backdrop of grave economic uncertainty. Hong Kong cannot rest immune to these global concerns, not least because of China’s impact on its regional neighbours.
China continues to rebalance its economy, moving towards one increasingly driven by domestic consumers. The extraordinary intervention measures undertaken by China’s policymakers in its stock markets, combined with an uncertainty about China’s shifting exchange rate policy, have also contributed to the overall economic uncertainties.
iii Market trends
A general shift from bank lending to alternative credit providers, which has been in evidence over the last few years, continues, but it appears that even with substantial cash reserves available there is uncertainty over how to deploy that capital. This is largely for two reasons: the weight of available capital and low interest rates have meant that the cost of borrowing has been low, keeping returns depressed; and uncertainty over the ability to enforce security close to the assets in the relevant Asian jurisdictions combined with unfavourable local court processes have muddied the risk-to-reward analysis.
A notable result of the move from credit provided by banks to alternative providers is that restructurings may in some circumstances appear to be merely a repackaging, enabling onward sale of relevant debt instruments to other alternative credit providers, allowing profits to be made but also ailing enterprises to survive but not prosper – the zombie company phenomenon.
Hong Kong operates on the basis of the English law approach to distressed enterprises (that is, generally a creditor-friendly approach) but without the benefit of any statutory corporate rescue procedures (such as administration). However, the trend has been away from liquidation and towards refinancing. Notwithstanding a small increase in 2009 following the global financial crisis, statistics from the Official Receiver’s Office3 show the number of compulsory winding-up petitions presented and orders made has broadly continued to decline. So where, for example, in 2003 the annual total petitions presented was 1,451 of which 1,248 received orders to be wound up, in 2015 the annual total petitions presented was 408, of which 305 were ordered into liquidation. Whether the current turmoil in the world’s economies will to some extent reverse that trend remains to be seen.
In Hong Kong, the scheme of arrangement has long been an important restructuring tool and that continues to be the case. As a number of entities listed on the Hong Kong Stock Exchange and otherwise are incorporated offshore, parallel schemes running in Hong Kong and the relevant offshore jurisdictions have become more common.
II GENERAL INTRODUCTION TO THE RESTRUCTURING AND INSOLVENCY LEGAL FRAMEWORK
A new Companies Ordinance (Cap 622) came into effect on 3 March 2014, and the previous Companies Ordinance (Cap 32) was retitled the Companies (Winding up and Miscellaneous Provisions) Ordinance (the Winding Up Ordinance) and a large number of its provisions were repealed. However, provisions covering the winding up of Hong Kong companies and foreign corporations registered in Hong Kong and the insolvency-related regime remain in the Winding Up Ordinance and subsidiary legislation.
The statutory provisions applicable to individual bankruptcy as opposed to corporate insolvency are contained in the Bankruptcy Ordinance (Cap 6). Discussions below focus on corporate insolvency.
Insolvency of a Hong Kong company will generally result in a company being wound up by either voluntary or compulsory liquidation, the latter occurring pursuant to court order on a winding-up petition against the company. There are additional statutory provisions that are applicable in the case of certain regulated industries, such as banking and insurance, and there is also power for the government to petition for the winding up of a company if considered expedient in the public interest.
i Voluntary winding up
Voluntary liquidation may occur when the company is solvent, which is known as a members’ winding up; or when the company is insolvent, which is known as a creditors’ voluntary winding up.
A voluntary liquidation is started by a members’ resolution and then will become a members’ winding up if a certificate of solvency is issued by a majority of the company’s directors, noting their opinion that the company will be able to pay its debts in full within a period not exceeding 12 months from the commencement of the winding up specified in the certificate. If no certificate of solvency is made or if it is not effective because other prescribed criteria are not satisfied, the winding up will be a creditors’ voluntary winding up.
The legislation also, uniquely, provides for a procedure allowing directors of a company to commence voluntary liquidation without holding a shareholders’ meeting. Instead, the voluntary liquidation is initiated by a directors’ meeting, resolving (among other things) that the company cannot by reason of its liabilities continue its business, the directors consider it necessary to be wound up and that it is not reasonably practicable for the company to be wound up under any of the other procedures prescribed in the legislation, giving supporting reasons. The procedure is not frequently used, given the general availability of other procedures.
ii Compulsory winding up
Compulsory winding up pursuant to a court order is based on a petition presented usually by a creditor, although a shareholder or the company itself may also petition in appropriate circumstances. The legislation provides various grounds upon which a petition can be presented, the most common of which is an inability of the company to pay its debts, a matter that may either be proved on the balance of probabilities by the petitioner or deemed where the company has failed to pay or otherwise satisfy a statutory demand within three weeks of that demand being served on the company; and another of which is that it is just and equitable for the company to be wound up.
The legislation does not provide a specific definition of ‘insolvency’, instead, referring to the inability to pay debts, which is deemed to have occurred on satisfaction of one or more of the bases prescribed in Section 178 of the Winding Up Ordinance. In considering an inability to pay debts, the court may consider applying either the cash flow or the balance sheet test.
For a creditor to bring a winding-up petition, there must be a debt (present, contingent or prospective) for a liquidated sum due from the debtor company to the creditor. Where the debt is not yet due, but is to fall due in the future or is contingent, the court will not hear the petition unless security for costs are provided and a prima facie case for winding up is demonstrated. If a debt is the subject of a genuine dispute, it cannot found the basis of a winding-up petition. Further, for the debt to be capable of supporting a winding-up petition, it must be at least HK$10,000 in amount.
iii The liquidator and committee of inspection
In Hong Kong there is no requirement for liquidators to be licensed, as is the case in certain other jurisdictions. Even so, in practice, appointed liquidators are licensed insolvency practitioners, accountants or other professionals with the requisite commercial experience.
In general terms, a court-appointed liquidator is required to investigate the affairs of the company in order to get in and realise its assets, before applying those realisations in discharge of the company’s liabilities, which will include investigating the conduct of the company’s past and present office holders to consider whether any wrongful conduct or criminal offence has been committed against the company.
In fulfilling these functions, liquidators have broad powers at their disposal, some that require sanction of the court or of a committee of inspection (if there is one) before being exercised (such as making any compromise or arrangement with the company’s creditors, contributories, claimants or debtors, and disclaiming onerous property); and some that do not (such as realising the property of the company and dealing with proofs of debt).
The committee of inspection is appointed at a meeting of creditors and is intended to be representative of the creditors of the company and capable of taking decisions in the interests of all creditors. Outside the powers only exercisable with sanction, it is for the liquidator to decide how frequently the committee of inspection is to be consulted.
iv Other restructuring methods
Workout arrangements, pursuant to which a debtor company enters into contractual arrangements with its bank and other creditors, continue in Hong Kong and may be used in conjunction with a scheme of arrangement, as discussed above. The non-statutory guidelines issued jointly by the Hong Kong Association of Banks and the Hong Kong Monetary Authority provide principles as to how banks should deal with customers in financial difficulty, encouraging a standstill, during which an information gathering assessment can be undertaken with a view to reaching an informal decision as to the customer’s long-term future. Although non-statutory, banks are expected to adhere to the guidelines and to act cooperatively and in an expeditious manner in trying to agree a restructuring plan, and will be subject to scrutiny from the regulators if they fail to do so.
However, the guidelines are applicable only to banks and, therefore, other creditors such as bondholders, hedge funds, employees and trade creditors may proceed with enforcement actions during the period in which banks are seeking to implement a restructuring plan with the debtor company.
Scheme of arrangement
While a mechanism referred to as ‘provisional supervision’ was put forward by the government more than 15 years ago, Hong Kong continues to operate without a procedure by which a distressed company can reorganise its debt obligations and trade out of difficulties, such as administration in the UK or Chapter 11 in the United States.
The primary restructuring tool available, therefore, remains the scheme of arrangement, which can be used for both insolvent and solvent companies. Schemes may be used to supplement informal contractual workouts implemented by multi-bank creditor groups or other creditor constituencies.
As schemes of arrangement do not provide a statutory moratorium, there remains a risk of a creditor taking enforcement action, including winding-up proceedings, after a scheme of arrangement has been initiated. For this reason, schemes of arrangement in the insolvency context are frequently undertaken in conjunction with provisional liquidation (where appropriate) or liquidation, to create the necessary moratorium. As a result of the Legend case,4 it currently appears clear that restructuring alone is not sufficient to found the appointment of provisional liquidators so that an applicant will still have to show concern as to, for example, potential dissipation of the company’s assets.
If the company is being wound up, an application to court to convene a creditors’ meeting to propound a scheme must be made by the liquidator or provisional liquidator. The court will consider whether the terms of the scheme are fair and could be supported by creditors exercising reasonable judgment. However, Hong Kong has not fully moved with the updated position in England so the court at the first hearing is not obliged to consider whether the classes of creditors involved in the scheme have been appropriately constituted. Therefore, there remains the risk of creditor classification being called into question at the second hearing, at which sanction is sought. The scheme will be legally binding on the company and the scheme creditors – including those scheme creditors who voted against the scheme and those who do not vote – if at the scheme meeting, the requisite majority representing a majority in number and at least 75 per cent in value of the creditors present and voting, in person or by proxy, at the meeting vote in favour of the scheme; the court sanctions the scheme; and an office copy of that order is registered by the registrar of companies in Hong Kong.
Hong Kong law recognises four forms of consensual security: the mortgage, the charge, the pledge and the lien. The formalities required for effective security, such as registration, will depend on the form of security. Failure to register a registrable charge will result in the charge being ineffective against a liquidator and any creditor of the company, although it will not affect the validity of the charge itself as between the parties to the security. Certain classes of assets (such as maritime vessels and aircraft) have separate registries, and registration will be required or expected at the relevant registry.
Secured creditors having a fixed charge will rank first for distributions from a company in liquidation. They are generally entitled to claim as unsecured creditors for any balance that remains unpaid after realisation of the security.
Where a company has granted a fixed and floating charge debenture (usually in favour of its bankers) over its undertaking, property and assets, the usual method of enforcement is through the appointment of a receiver. A receiver may be appointed outside liquidation but receivership is often indicative of insolvency. The validity of a floating charge created within 12 months prior to the company’s winding up may be susceptible to challenge by the company’s liquidator to the extent that new monies were not advanced.
vi Duties of directors
Directors’ duties (statutory and fiduciary) are owed to the company. While a company is solvent, the duty to act in the company’s best interests is generally assessed by reference to the interests of shareholders, whereas upon insolvency the interests of creditors will supersede those of shareholders in that assessment.
One of the reforms made in the new Companies Ordinance (Cap 622) was the codification of the duty of care, skill and diligence for directors,5 which is based on Section 174 of the UK Companies Act 2006 and therefore applies a dual objective/subjective standard to directors’ duty of care.
The Winding Up Ordinance6 provides a summary method of enforcing existing duties owed by past and present officers (who include directors, managers and company secretaries) of a company subject to winding-up proceedings. Conduct that may give rise to liability under this section might include a breach of directors’ duties, or claims arising from preferences or fraudulent trading.
A liquidator is the agent of the company and on appointment displaces the directors and assumes their powers and functions in respect of the company. The directors remain obliged to assist the liquidator in the course of the winding up, and failure to provide the required assistance may result in civil and criminal penalties being imposed on the offending directors. In contrast, the liquidator does not owe duties to the directors of the company and is not required to keep the directors apprised of his activities.
vii Clawback actions
As a starting point, there are two main categories of actions that a liquidator can bring:
- a Company actions – The liquidator can commence proceedings in the name of the company to enforce rights and claims vested in the company prior to liquidation: the claim exists and can be pursued irrespective of whether or not the company is insolvent, and the proper plaintiff is the company.
- b Liquidator actions – In addition to company actions, there are a number of special powers given to a liquidator that can be invoked to avoid or reverse the effect of certain transactions that would have remained binding on the company but for its liquidation. These ‘avoidance powers’ are available only in the context of winding up proceedings and are contained in legislation.
Hong Kong’s antecedent breach legislation may be the subject of some reform in due course.7
Pre-insolvency transactions that can be challenged or set aside by the liquidator include:
- a Unfair preferences – Action taken by the company, influenced by a desire to prefer, that puts one creditor in a better position in the event of insolvency than it would otherwise have been.
- A transaction will be liable to be set aside by a court if there is evidence that the desire to prefer the recipient influenced the company’s decision to enter into the transaction (or make the subject payment) and if ‘…it was one of the factors which operated on the minds of those who made the decision’.8 The desire to prefer the recipient does not have to be the dominant factor; it may simply be one of a number of matters considered by the company.
- Transactions involving ‘associates’ are presumed to be an unfair preference. The look-back period in respect of transactions entered into between an insolvent company and its associates is extended from six months to two years. The current definition of ‘associate’ is taken from the Bankruptcy Ordinance and is unsatisfactory when applied to a company being wound up.
- b Extortionate extensions of credit to the company – The terms of the transaction are, or were, such as to require grossly exorbitant payments to be made or it otherwise grossly contravenes ordinary principles of fair dealing.
- c Floating charges – The Winding Up Ordinance invalidates a charge created as a ‘floating charge’ within 12 months prior to the commencement of the winding up, if the company subject to winding up was insolvent when the charge was created, or, alternatively, if the company became insolvent as a consequence of granting the charge.
- d Transactions made with the intention of defrauding creditors – The standard of proof is high and consequently it can be difficult to pursue this action.
III RECENT LEGAL DEVELOPMENTS
Hong Kong is a gateway to business around Asia and investors continue to appreciate the certainty of its legal system and application of the rule of law. For a variety of reasons, including legal and tax considerations, enterprises running businesses through Hong Kong will often do so using corporate structures involving several jurisdictions. In addition, the assets underpinning those businesses are frequently situated outside Hong Kong.
It is inevitable, therefore, that the growing global trend of cross-border insolvencies is also being felt in Hong Kong. Two associated aspects have been the subject of recent judicial development: jurisdiction of the Hong Kong courts to wind up foreign companies and recognition of foreign liquidation proceedings.
i Winding up foreign companies
Hong Kong courts have power under the legislation to wind up a foreign company, including one that is not registered in Hong Kong.
The courts will not exercise the power lightly and will determine the position on a case-by-case basis. The courts have formulated three core requirements for exercising their power to wind up a foreign company:9
- a there has to be a sufficient connection with Hong Kong, although this does not necessarily have to consist of the presence of assets within the jurisdiction;
- b there must be a reasonable possibility that the winding-up order would benefit those applying for it; and
- c the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.
The fact that the court considers itself to have jurisdiction does not mean that it will make a winding-up order and will maintain discretion whether or not to do so.
In November 2015, the Court of Final Appeal (CFA) delivered its judgment in the high-profile Yung Kee case.10 The CFA reversed the lower courts’ decisions and decided Yung Kee Holdings Limited (Yung Kee), incorporated in the BVI and indirectly holding the well-known Yung Kee restaurant in Hong Kong, has sufficient connection with Hong Kong to trigger the Hong Kong court’s winding-up jurisdiction, and to do so on just and equitable grounds.
The deceased petitioner had alleged that the affairs of Yung Kee were conducted in a manner that was unfairly prejudicial towards him and sought an order for the first respondent to buy his shares in the company or, alternatively, an order that Yung Kee be wound up on just and equitable grounds.
Having considered jurisdiction from the perspective of unfairly prejudicial conduct, the CFA turned its focus to jurisdiction from a winding-up perspective. While the CFA affirmed the principle that normally the most appropriate jurisdiction to bring a winding-up petition is the one where the relevant company was incorporated, it also acknowledged that a winding-up petition could be presented in Hong Kong with regard to a company incorporated elsewhere.
The CFA focused on the first core requirement, namely a ‘sufficient connection with Hong Kong’, holding that the test is whether the petitioner will derive significant benefit from a winding-up order in Hong Kong, even though the company is incorporated elsewhere.
ii Recognition of foreign proceedings
A recent appeal to the Privy Council from the Bermuda Court of Appeal has further developed the common law on cross-border insolvency, with implications that have extended to Hong Kong. In Singularis Holdings Ltd v. PwC,11 the appeal12 concerned attempts by the Cayman liquidators of companies in the Saad Group to obtain documents from the companies’ former auditors, PricewaterhouseCoopers. The Board considered the doctrine of modified universalism (whereby, broadly speaking, a court will give such assistance as it can to foreign insolvency proceedings, consistent with local law and local public policy, to ensure that a company’s assets are distributed under a single system), and held by a majority that there was a common law power to assist a foreign insolvency, although the power could not be used to enable foreign liquidators to do something that they could not do under the law of the liquidation under which they were appointed.
In Hong Kong, where a UK administrator sought assistance from the Hong Kong court in recognising the moratorium created by the administration order in the UK to prevent disposal of the company’s assets, the court concluded that it could not provide the assistance because to do so would be an impermissible extension of common law principles: Hong Kong currently has no procedure analogous to administration in the UK and thus the order was not one that would be available to a Hong Kong office holder.13
In the recent matter of The Joint Official Liquidators of A Company v. B and Another,14 the court confirmed that a liquidator of a foreign company may obtain orders for the production of information and documents in Hong Kong without the need for a parallel winding-up proceeding in Hong Kong to be commenced, by producing to the court a letter of request from a common law jurisdiction with a similar substantive insolvency law.
There is a distinction between information and assets. In this regard, the judge stated, ‘[u]nlike the position in personal bankruptcy the common law maintains that a foreign liquidation has no automatic consequences in relation to the property of a foreign company in a local jurisdiction. As a consequence an application needs to be made by a foreign liquidator for an order vesting him with the title to the local property.’15
The decision shows that to the extent established common law principles require the Hong Kong court to recognise foreign liquidators, it is both prepared and willing to provide assistance to them.
IV SIGNIFICANT TRANSACTIONS, KEY DEVELOPMENTS AND MOST ACTIVE INDUSTRIES
i Schemes of arrangement
A foreign compromise does not necessarily discharge a debt unless it is discharged under the law governing the debt. In a creditors’ scheme purporting to vary contractual rights, the effectiveness of the scheme may require that the debtor seeks not only the sanction of the court in its jurisdiction of incorporation but also of the courts in the jurisdictions that govern its contractual debt obligations, to ensure that dissenting creditors cannot enforce their claims against the debtor company in jurisdictions other than that of its incorporation.16
Recent examples of schemes are becoming increasingly cross-border in nature given the mix of creditor constituencies involving bank debt as well as bonds subject to, for example, New York law. The result increasingly requires parallel schemes in Hong Kong, the relevant offshore jurisdiction (such as the Cayman Islands or British Virgin Islands, where companies listed in Hong Kong are frequently incorporated) together with Chapter 15 recognition in the United States, with a view to ensuring that claims in all relevant jurisdictions are extinguished.
In the case of LDK Solar Co Ltd (in provisional liquidation),17 the Hong Kong court decided that it had jurisdiction to sanction a scheme of arrangement in respect of an insolvent foreign unregistered company (Cayman incorporated) under the Companies Ordinance. Recognising that debts governed by Hong Kong law – which formed a material part of the claims against the company – would only be discharged by a Hong Kong court-sanctioned scheme, the court was satisfied that the company had a sufficient connection with Hong Kong.
Kaisa Group Holdings Limited
Kaisa Group is one of the leading PRC real estate property developers listed on the Hong Kong Stock Exchange, with interest-bearing borrowings in the billions of dollars, and has borrowings in the PRC and offshore, through a mixture of bank and bond debt. Its default is the first time that a major property company operating exclusively in the PRC has defaulted on its offshore debt. Schemes of arrangement have been sanctioned in both Hong Kong where Kaisa was listed and the Cayman Islands where it was incorporated; and the United States Bankruptcy Court for the Southern District of New York provided recognition of the scheme of arrangement proceedings then pending before the High Court of Hong Kong under Chapter 15 of Title 11 of the United States Code.
Lehman Brothers Asia Holdings Limited
In the Lehman Brothers liquidations in Hong Kong, a scheme of arrangement has recently been used18 to help accelerate the liquidation process.
The scheme was proposed with the objective of reducing the company’s creditor constituency and thereby simplifying its liquidation and reducing costs. In broad terms, the scheme provides for the full and final discharge of the scheme claims by the scheme creditors, in return for them receiving a payment which, together with the interim dividends in the past, will give them the anticipated total recovery (calculated on a best-case basis) much earlier than if the liquidation were to continue without the scheme. The scheme also operates to impose a cut-off date by which creditors must, if not already admitted in the company’s liquidation, submit claims against it, failing which they will be barred from participating in the scheme or the liquidation.
At the sanction hearing, the key legal issue was whether (moving on from Garuda19) it is permissible to have a scheme of arrangement between an insolvent company and only some (i.e., not all) of its unsecured creditors, having regard to the principle of pari passu distribution in insolvency law. The liquidators relied on English and Hong Kong authorities to the effect that a scheme of arrangement can be used to achieve a departure from the pari passu principle in a liquidation and, although all creditors in a class must have similar rights, not all creditors with similar rights have to be joined in a class, notwithstanding the insolvency of the debtor.
i UNCITRAL Model Law
The United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law in light of the increasing incidence of cross-border insolvencies; and because national insolvency laws were recognised to have limited provision for cases of a cross-border nature, resulting in inconsistent legal approaches.
Currently, there is no statutory provision empowering a Hong Kong court to render assistance to a foreign court in an insolvency matter, as Hong Kong has not adopted the Model Law in its domestic legislation, or any other legislation to similar effect (except with regard to certain aspects of arbitration).
ii The Hong Kong courts’ approach
The approach taken by the Hong Kong courts to cross-border insolvencies has been pragmatic. There is increasing acknowledgement of the need for courts from different jurisdictions to assist one another where possible and to address the common law recognition of foreign liquidators (see Section III, supra).
The Hong Kong courts have a broad jurisdiction to wind up companies in Hong Kong. This extends not only to companies that are incorporated in Hong Kong, but also to overseas companies registered in Hong Kong and unregistered companies, providing certain requirements are met.
In the Lehman Brothers liquidations, where there are a number of office holders in different countries, the Hong Kong liquidators of certain key affiliates were instrumental in implementing a cross-border protocol for dealing with information sharing and creditor resolution proposals.
VI FUTURE DEVELOPMENTS
i Proposed legislation
Hong Kong’s Chief Executive ordered on 29 September 2015 that the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Bill 2015 should be introduced into the Legislative Council and the bill was gazetted on 2 October 2015. Timing for its enactment is uncertain.
The intention of the bill is to improve and modernise the corporate winding-up regime in Hong Kong. As the bill merely seeks to amend the existing Winding Up Ordinance and continues to omit any corporate rescue procedure, it may not be adequate to meet its intended aims in the long term.
The main proposals in the bill, which are intended to increase protection of creditors in the course of a winding up are:20
- a Providing power for the court to set aside transactions at an undervalue entered into by a company within five years before the commencement of its winding up. This concept is familiar from English law but has not to date been part of Hong Kong corporate insolvency law.
- b Introducing stand-alone provisions in the Winding Up Ordinance on the court’s power to set aside transactions that are unfair preferences entered into by a company prior to its winding up that unfairly put a particular creditor in a better position than other creditors. At present, the provisions are applied from the Bankruptcy Ordinance, which produces some anomalies in corporate liquidations.
- c Providing for the liabilities of relevant directors and members to contribute to the assets of the company in connection with a redemption or buy-back of the company’s own shares out of capital in cases where the company is wound up within one year of the relevant payment out of capital.
- d Introducing additional safeguards to reduce the risk of abuse in a director-initiated creditors’ voluntary winding up. See Section II.i, supra.
- e Enhancing the requirements relating to the first creditors’ meeting upon the commencement of a creditors’ voluntary winding up.
ii Corporate rescue procedure
As noted above, notably absent from the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Bill is any provision for some form of statutory corporate rescue procedure.
The Financial Services and the Treasury Bureau has stated that ‘[they] are developing detailed proposals to introduce a new statutory corporate rescue procedure […] for Hong Kong. […] Having regard to the scale of the exercise and the complexity of the issues involved, [the] target is to introduce the relevant amendment bill into LegCo in 2017/18.’21
1 Tom Pugh is a partner at Mayer Brown JSM.
2 Hong Kong, The Global Offshore Renminbi Business Hub – The Hong Kong Monetary Authority January 2016.
3 See www.oro.gov.hk/cgi-bin/oro/stat.cgi.
4 Re Legend International Resorts Ltd  2 HKLRD 192.
5 Section 465, Companies Ordinance.
6 Section 276, Winding Up Ordinance.
7 See Section VI, infra.
8 Re MC Bacon Ltd (No. 1)  BCLC 324 at 336.
9 As summarised by Kwan J (as she then was) in Re Beauty China Holdings Ltd  6 HKC 351.
10 Kam Leung Sui Kwan, personal representative of the estate of Kam Kwan Sing, the deceased v. Kam Kwan Lai & Ors (FACV 4/2015, on appeal from CACV 266/2012, HCCW 154/2010).
11  UKPC 36.
12 See also PwC v. Saad Investments Co. Ltd  UKPC 35;  1 WLR 4482, which was heard with Singularis.
13 The Joint Administrators of African Minerals Ltd (in administration) v. Madison Pacific Trust Ltd and Shandong Steel Hong Kong Zengli Limited  HKEC 608.
14  HKCFI 1294.
15 Ibid. at paragraph 6.
16 See Re Drax Holdings Ltd  1 WLR 1049.
17 HCMP 2215/2014.
18 HCMP 2762/2015.
19 Sea Assets Ltd v. Penerbangan Garuda Indonesia  EWCA Civ 1696.
20 See the Legislative Council Brief dated 30 September 2015 prepared by the Financial Services Branch of the Financial Services and the Treasury Bureau.
21 Ibid., Paragraph 20.