i Statutory framework and substantive law

On 3 March 2014, the rewrite of Hong Kong company law culminated with the coming into effect of the new Companies Ordinance. Corporate insolvency in Hong Kong was outside the remit of this initial rewrite phase, and so remains primarily governed by the remaining provisions of the old companies ordinance, renamed the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO), and amended by the Companies (Winding Up and Miscellaneous Provisions) Amendment Ordinance (Amendment Ordinance), which came into effect on 13 February 2017. The changes to the CWUMPO effected by the Amendment Ordinance are discussed further in Section I.ii.

The bulk of the provisions set out in the specialist resolution regime for financial institutions in Hong Kong (FIRO) came into effect on 7 July 2017,2 meaning that Hong Kong has now largely met its obligations as a member of the Financial Stability Board. Accordingly, while in theory the winding up in Hong Kong of an international bank remains possible, in the case of its financial distress some form of resolution under FIRO is the most likely scenario. While the Hong Kong Monetary Authority, the Securities and Futures Commission (SFC) and the Insurance Authority retain statutory powers to commence administrative proceedings such as the appointment of special managers, as these powers do not relate to insolvency processes they are generally beyond the scope of this chapter.

Hong Kong insolvency law and practice is substantially based on insolvency law and practice in the United Kingdom. Hong Kong does not, however, benefit from the extensive reforms introduced in the United Kingdom by the Insolvency Act 1986 so that, for example, in Hong Kong there is, currently, no ‘rescue’ procedure akin to administration in the United Kingdom. The concept of ‘wrongful trading’ has also not been legislated for in Hong Kong.

ii Policy

The lack of any rescue procedure in Hong Kong leaves creditors with a stark choice: seek to agree an out-of-court restructuring, or turn to a formal liquidation process that will mean the demise of the corporate entity and likely present severe difficulties in saving the underlying business. Looked at from the perspective of the debtor company, a fairly entrepreneurial spirit is prevalent in Hong Kong and the lack of any real and effective sanction, when compared with other jurisdictions, against directors for allowing a company to continue to trade when in ‘the twilight zone’ does little to focus the minds of directors of troubled companies.

The Amendment Ordinance focused on reforms to the existing legislative framework, the main thrust being the enhancement of protection for creditors, combined with improvements to efficiency and accountability.

The key changes implemented when the Amendment Ordinance came into force are:

    • a clarifications around the role and powers of a provisional liquidator as well as increasing the level of supervision that can be exercised by the courts;
    • b closer examination of persons that can be appointed (and disqualified from being appointed) as liquidators, including statutory disclosure of relevant relationships and a prohibition on acting where conflicts of interest exist, as well as provisions setting out the basis for remuneration and tenure of office of liquidators. However, the role of liquidator is still not a regulated insolvency profession in Hong Kong;
    • c modernisation of the mechanics by which a committee of inspection (COI) can operate alongside a liquidator, to encourage participation of creditors and contributories;
    • d modernisation of the law on voidable transactions, including the introduction of stand-alone provisions on unfair preferences and ‘transactions at an undervalue’ and the extension of the vulnerability period for a floating charge created in favour of an associated person to two years prior to the commencement of the winding up; and
    • e new provisions for civil liability of directors and members in connection with a redemption or buy-back of shares out of capital where such redemption or buy-back took place in the year before the commencement of the winding up.

The Amendment Ordinance did not, however, introduce either a corporate rescue or insolvent trading regime.

The introduction of a corporate rescue regime was first raised in 1996: the Companies (Corporate Rescue) Bill was then proposed in 2001 but failed to gain legislative acceptance. A further consultation in 2009 built on the previous work, and there have been no significant changes to the method of corporate rescue first suggested, which is to be known as ‘provisional supervision’. The process would be akin to administration in the United Kingdom, with a moratorium on the commencement and continuation of proceedings (critically this would include the enforcement of security by secured creditors) starting automatically on the entry of the company into provisional supervision and the appointment of an independent person (the provisional supervisor) to take temporary control of the company and consider options for rescuing it. The stated aim is that provisional supervision would mainly take effect through out-of-court arrangements, saving time and money.

The proposed insolvent trading regime would make a director of a company civilly liable for its insolvent trading, and require the director, on the order of the courts, to pay compensation to such company.

The stated intention3 was that an amendment bill introducing corporate rescue and insolvent trading would be introduced to the Legislative Council in 2017 or 2018; to date, no such bill has been announced. A body of representatives from across the insolvency industry in Hong Kong has been formed with the aim of seeking further amendments in the area of cross-border insolvency proceedings, to develop the scheme of arrangement regime with automatic stay provisions and to permit the provisional liquidation regime to function as a restructuring tool. Whether these further amendments can (or should) be introduced as part of an amendment bill dealing with corporate rescue and insolvency trading remains to be seen.

iii Insolvency procedures

Leaving aside less formal restructuring processes (which are fairly prevalent in the absence of a statutory corporate rescue regime), the insolvency regime in Hong Kong still revolves primarily around liquidation.


Liquidation is also referred to as ‘winding up’, of which there are two types:

  • a a compulsory winding up or winding up by the courts; and
  • b a voluntary winding up:

• members’ voluntary winding up (i.e., solvent liquidation), which is not an insolvency process as the directors must file a declaration of solvency; and

• creditors’ voluntary winding up (CVL), initiated by the shareholders of an insolvent company, once it is considered that there is no prospect of a viable restructuring.

Power also exists under Section 228A of the CWUMPO for a director (without first consulting shareholders) to commence a voluntary winding up of the company and seek the appointment of a provisional liquidator. This is rarely used, owing to the particular statutory requirement that no other form of winding up should be reasonably practicable, which the directors must state to be the case (with appropriate justification) in the winding-up statement to be delivered to the Registrar of Companies.

Provisional liquidation

The appointment of a provisional liquidator (PL) can be sought at the time of the presentation of a winding-up petition by the official receiver or any creditor or contributory. The primary objective of such an appointment is to preserve the assets and records of a company, for the benefit of its creditors, in the interim period between the presentation of the winding-up petition and the granting of a winding-up order by a court. The application to the courts for the appointment of a PL is often underpinned by a desire to combat the perceived risk that directors (or shareholders) may dissipate assets of the company in the period before a winding-up order is made and, indeed, it is necessary to satisfy the court that the assets of the company are in jeopardy for the appointment to be made. There is no moratorium on the enforcement of security by secured creditors during the period between the presentation of the petition for winding up and the making of the order for winding up, or when a PL has been appointed, or when a winding-up order has been made, but a stay on proceedings against the company arises on the making of a winding-up order and on the appointment of a PL.4

In Re: Keview Technology (BVI) Ltd5 the Court of First Instance considered the power of the court to legitimately expand the role of a PL to implement a corporate rescue plan that was supported by the creditors. The power of the court to vary an order appointing a PL was restated.6 It was held that the court would need to determine whether the context was conducive to an expansion of the PL’s powers on a case-by-case basis, but the arguments put forward by the official receiver that current legislation did not permit PLs to act as ‘provisional supervisors’ were rejected. The court considered English case law and precedent such as Re English and American Insurance Co Ltd,7 where the option of appointing a PL following the presentation of a winding-up petition had been utilised to combat the difficulties where administration was not at the time available to certain entities (for example, insurance companies).

In Re: Legend International Resorts Ltd (Court of Appeal),8 the narrow circumstances in which Re Keview might be applied to permit a PL to undertake a supervisory role were demonstrated. It was held first that the traditional basis in Hong Kong for the appointment of PLs under Sections 192 and 193 of the CWUMPO (that there had to be a showing of assets in jeopardy) still had direct application. Further, the wording of Section 192 was very clear: the appointment of a PL had to be for the purposes of the winding up. Provided such purpose existed, there would be no objection to extra powers being given to the PL.9 Second, there was still a significant difference between the appointment of PLs on the basis that the company was insolvent and that its assets were in jeopardy, which was permissible, and the appointment of the PL solely for the purpose of enabling a corporate rescue to take place, which was not. Finally, there was no basis in the particular circumstances for the appointment of PLs as the assets of the company were not shown to be in jeopardy.10 While the scope of Re Legend remains uncertain, in the recent case of Re China Solar Energy Holdings Ltd11 the court (at first instance) took the view that there was nothing wrong in principle with the practice of including powers of restructuring as a standard order when appointing a PL. An alternative approach was adopted in Z-Obee Holdings Ltd12 where the Hong Kong winding-up petition of a company incorporated in Bermuda was stayed and the Hong Kong-appointed PLs dismissed in order to allow the appointment of provisional liquidators with a specific restructuring power (as allowed under the Bermudian legislation) in Bermuda. Once appointed, the Bermudian provisional liquidators were subsequently granted recognition in Hong Kong.

Ancillary proceedings

Local procedures13 in Hong Kong allow for ancillary proceedings where main proceedings are pending in another country. In this regard, unregistered companies (for example, a Hong Kong branch of a company incorporated overseas) that have some sufficient connection with Hong Kong can be wound up in what are called ‘concurrent’ proceedings. See Section I.vii.

iv Starting proceedings

The CVL process is commenced by the passing of a special resolution to wind up the company at a general meeting of the members.14 A meeting of creditors (to be held in accordance with Section 241 of the CWUMPO) should then take place on a date not later than 14 days after the day of the meeting of members, and notice should be given of the meeting to all creditors at least seven days before the day on which the meeting is to be held. Responsibility for leading the meeting of creditors is initially placed on the chairman (usually a director of the company), who will be responsible for the admission and rejection of creditors’ claims for voting purposes. Creditors must be provided with a ‘statement of affairs’, which, inter alia, particularises the assets, debts and liabilities of the company, the names of its creditors and the details of any security held by any creditor.15

The chairman will take creditors’ alternative nominees for the liquidator’s role (if any) – an initial nomination will have been made by the members at the general meeting – and a vote will be taken. In the event of any conflict, the creditors’ choice will prevail.16 The usual practice in Hong Kong is for two liquidators to be appointed who will act jointly and severally. A COI may also be established, which will take a prominent advisory role in the CVL, exercising a degree of supervision and control over the liquidator.

Court winding up

The vast majority of winding-up petitions are submitted by unsecured creditors, and are most frequently brought on the grounds that a company is unable to pay its debts. However, it should be noted that winding up by the court is not limited to instances where a company is insolvent; a petition can be made to the court where there are ‘just and equitable grounds’ to do so,17 for example, in cases involving suspected fraud.

Under Section 178 of the CWUMPO, a company is deemed unable to pay its debts, in summary, where:

  • a the company fails to satisfy – within three weeks of the service of a notice in the prescribed form – a debt exceeding HK$10,000;18
  • b the enforcement of a judgment of the court against the company has not been satisfied; or
  • c it appears to the court that the company is unable to pay its debts, taking into account the contingent and prospective liabilities of the company. Often, the test relied upon is a cash-flow test, but a balance-sheet test may also be used.

A total of 458 winding-up petitions were submitted to the Hong Kong High Court in 2016, and 265 had been submitted up to 31 August 2017.19

The potential time lapse between the presentation of a winding-up petition and the declaring of a winding-up order may stretch to several months. This may present difficulties for creditors and directors, particularly in light of the retrospective calculation of the date of the commencement of the winding-up (deemed to be the date of the presentation of the petition).

Presentation of a winding-up petition

The following parties may present a winding-up petition:

  • a the company;
  • b any creditor or creditors;
  • c a contributory or contributories;
  • d the official receiver in respect of a company that is being wound up voluntarily;
  • e the Registrar of Companies;
  • f the Financial Secretary (in a case falling within Sections 879(1) or 879(3) of the Companies Ordinance, for example, where it is expedient in the public interest);
  • g the SFC can petition in the public interest in respect of listed companies20 and leveraged foreign exchange traders; and
  • h the Insurance Authority can petition in relation to insurers under the Insurance Companies Ordinance.
Appointment of a liquidator

On the making of a winding-up order, the official receiver becomes the PL (unless one has been previously appointed). The PL must then call separate meetings of creditors and contributories of the company to determine who will act as liquidator. Where no agreement can be reached, the official receiver will offer the name of the next person on the rota system of the Administrative Panel of Insolvency Practitioners for Court Windings Up (also known as Panel A or the ‘cab rank’ system). If further disputed, the court will decide who is to be appointed as it sees fit, in the interest of all parties, and it need not have regard for the recommendations of the meetings of either creditors or contributories.

v Control of insolvency proceedings

The making of a winding-up order results in the termination of the company directors’ powers of management; the subsequent question of who will exercise control over the company and of the liquidation differs, to a degree, between a CVL and a court winding up.


Liquidators have wide-ranging statutory powers as regards the realisation of the assets of the company and the winding up of its affairs. However, those powers that are exercisable without an element of supervision or prior sanction or permission are narrowly defined (although more extensive in the context of a CVL). Under Section 199(2) of, and Schedule 25 to, the CWUMPO a liquidator has the power to, inter alia, sell company property, execute documents and claim in the insolvencies of debtor companies and individuals. A creditor or contributory can refer questions on the exercise of these powers to the court.21

The COI, if appointed, will take a general supervisory role and the liquidator will report to or seek advice from the COI on the conduct of the liquidation. The COI also has the power to fix the remuneration of the liquidator.22 The liquidator can only take specified actions where he or she has first obtained the sanction of the COI or the court (or where there is no COI, at a meeting of the creditors), for example, to pay any class of creditors in full or to make a compromise or arrangement with creditors.23 The potential exists, however, for the liquidator to apply to the court for such sanction where this is not forthcoming from the COI, which may be granted if deemed in the best interests of the company.24 The Amendment Ordinance provides for the composition of the COI and procedures in relation to a COI meeting. A COI must consist of not less than three and not more than seven members, with the possibility this might be varied upon application by the liquidator to the court.25

Court winding up

Court supervision of the conduct of a liquidation is more far reaching in the context of a compulsory winding up. Examples of the powers available to the court include:

  • a summary cases: In instances where the assets of an insolvent company are likely not to exceed HK$200,000, the court may make an order for the company to be wound up in a summary manner; the order may be rescinded should further assets of the company come to light;26
  • b regulating orders: In the interest of efficiency or expediency, the court has the power to dispense with some of the procedural requirements (i.e., for certain meetings to take place);27
  • c staying the winding up: With good reason, the court has a general power to stay the winding-up proceedings at any time after a winding-up order has been made, either altogether or for a limited time;28 and
  • d conversion of a compulsory liquidation into a CVL: This concept is unusual, and it has rarely been used.29

The powers exercisable by a liquidator without sanction are fewer in the case of a compulsory winding up. The general powers of a liquidator under Section 199 of the CWUMPO (which have been reframed by the Amendment Ordinance) are subject to the control of the court, and a request for the review by the court of any action of a liquidator may be submitted by any creditor or contributory.30

The court also has the power to remove a liquidator. Creditors may apply for a liquidator to be removed, and may choose to do so where they were unable to secure the initial appointment of their preferred liquidator.31

Guidance notes as regards a liquidator’s role and his or her investigation of the affairs or assets of a company have been produced by the Hong Kong Institute of Certified Public Accountants. The Amendment Ordinance expands the list of people disqualified from appointment as a liquidator or PL to avoid conflicts of interest.

vi Special regimes

As stated in Section I.iv, the SFC has unique statutory power to commence liquidation proceedings in respect of particular types of entities. Hong Kong also now has a specialist resolution regime for financial institutions under FIRO.

While the detail of FIRO and the changes wrought by its introduction are outside the scope of this text, it is useful to understand the broad scope of FIRO when considering the landscape of insolvency-related measures available in Hong Kong. FIRO provides a comprehensive resolution regime for the banking, insurance, securities and futures sectors, including branches of financial institutions incorporated outside Hong Kong, locally incorporated holding companies and associated operating entities, clearing houses and recognised exchanges. FIRO provides a full menu of stabilisation options that are available to the resolution authority to utilise where: (1) a within-scope financial institution has ceased, or is likely to cease, to be viable; (2) there is no reasonable prospect that private sector measures outside of resolution would result in the institution becoming viable again within a reasonable period; and (3) the non-viability of the institution poses risks to the Hong Kong financial system. These options include the transfer of the failing financial institution or some or all of its businesses to a commercial purchaser, the transfer of some or all of its businesses to a bridge institution, the transfer to an asset management vehicle, the statutory bail-in of certain obligations and, as a last resort, taking the financial institution into temporary public ownership. The objectives throughout are to promote the stability and effective working of the financial system in Hong Kong (including the continuity of critical financial functions), to protect deposits and insurance policies; to protect client assets and, subject to satisfying the preceding objectives, to protect public funds by containing the costs of resolution. Recognising the cross-border nature of the business of many financial institutions operating in Hong Kong, FIRO also gives the resolution authority the ability to recognise a foreign resolution process and to exercise its powers in support of a foreign resolution process.

vii Cross-border issues

Hong Kong has not enacted the United Nations Commission on International Trade Law Model Law on Insolvency and consequently there is no statutory process for the formal recognition of foreign proceedings. However, cross-border insolvency issues often arise in Hong Kong as a practical consequence of the fact that a number of companies that conduct their business in Hong Kong (and through Hong Kong into mainland China) are incorporated in such jurisdictions as the Cayman Islands and the British Virgin Islands. As a consequence, there may often be the need – where such a company enters a formal insolvency process in its place of incorporation – for there to be a parallel insolvency process in Hong Kong. As has already been noted, the Hong Kong courts have wide discretionary powers to wind up a company incorporated outside Hong Kong where the relevant company has some suitable connection with Hong Kong. Recent cases have confirmed that the Hong Kong court will examine closely the need for such proceedings. In Re Pioneer Iron and Steel Company Limited32 the Court of First Instance reiterated that:

  • a Sections 327(1) and (3) of the CWUMPO give the courts a discretionary jurisdiction to wind up an unregistered company; and
  • b its jurisdiction would be exercised if the following three core requirements, which had been stated in Re Yung Kee Holdings,33 were satisfied:

• there is a sufficient connection with Hong Kong. In the context of insolvency there is commonly the presence of assets, but this is not essential;

• there is a reasonable possibility that the winding-up order would benefit those applying for it; and

• the court must be able to exercise jurisdiction over one or more persons interested in the distribution of the company’s assets.

The Court continued to say that an exceptional case could arise where the connection with Hong Kong was so strong and the benefits of a winding-up order for the creditors of a company so substantial that the Court would be willing to exercise its jurisdiction despite the third criterion not being satisfied. This was then tested in Re China Medical Technologies Inc.34 Here the Court of First Instance rejected a petition for winding up where it was not satisfied that it would be able to exercise jurisdiction over one or more persons interested in the distribution of the company’s assets (determining that a Hong Kong-based creditor with a low value claim was not sufficient to meet this requirement) and that the connection with Hong Kong was not strong enough and the benefits of a winding up to the creditors of the company were not so substantial so as to enable the Court to exercise its jurisdiction without the third criterion being satisfied. A few months later, new evidence came to light that suggested that persons and bank accounts in Hong Kong had played a key role in a suspected fraud in Hong Kong. The Cayman liquidators sought to reopen the hearing of the petition on the basis that a sufficient connection to Hong Kong was established by the presence of these persons and accounts; the Court held that the new evidence showed that there was a sufficient connection with Hong Kong and there was benefit in making a winding-up order, and so such an order was made, notwithstanding that the third core requirement was not satisfied.

The three-part test set out above was affirmed by the Court of Final Appeal in the long-running Yung Kee Holdings35 case; the Court of Final Appeal also held that the same test applies whether the winding-up petition has been presented by a creditor or a shareholder. However, the Court noted that the factors to which the court will look in determining whether there is a sufficient connection between a (solvent) foreign company and Hong Kong in the context of a shareholders’ petition are different to those to which it looks in the context of a creditors’ petition to wind up an (insolvent) company because the nature of the dispute and the purpose for which the winding-up order is sought are different.

While Hong Kong does not have a statutory provision enabling the courts to assist foreign insolvency proceedings,36 in addition to the power to wind up unregistered companies, the court also has, as a matter of common law, the power to recognise and grant assistance to foreign insolvency proceedings. In Joint Official Liquidators of A Co v. B,37 the Court of First Instance took the opportunity to issue a reminder that the court may, pursuant to a letter of request from a common law jurisdiction with a similar insolvency law, make an order of a type that is available to a provisional liquidator or liquidator under Hong Kong’s insolvency regime. In this case, a request had been made by the liquidators of a Cayman company, on a letter of application from the Grand Court of the Cayman Islands, for the production of certain documents to the liquidators. In making the order requested, the Hong Kong court noted that the status of a foreign liquidator of a foreign company is the same as that which the directors of that company had prior to the winding up, but that a distinction needed to be made between information and assets, and that in the case of property an application would need to be made by the foreign liquidator for an order vesting him with title to the local property. This approach was followed, and the scope of order granted was expanded, in a line of cases including Re Centaur Litigation SPC.38 In making the requested orders in Re Centaur, the court included a provision that would require any person wishing to commence proceedings in Hong Kong against any of the companies to first obtain the court’s leave. The judge who made the order has stated that the intention was to broadly replicate the impact of the making of a winding-up order in Hong Kong without the need for a petition and the engagement of the entire Hong Kong insolvency regime.

In The Joint Administrators of African Minerals Ltd (in administration) v. Madison Pacific Trust Ltd,39 the Court of First Instance was asked, pursuant to a letter of request from the English High Court, to consider providing assistance to insolvency proceedings in England which took the form of an administration of a non-English entity under the supervision of the English High Court. The assistance sought was the recognition of the English proceedings and an order restraining the enforcement over security granted by the company in administration (the secured creditor being incorporated in, and carrying on business in, Hong Kong). For the purposes of the decision, the Court assumed (but without deciding) that the Hong Kong court can, in principle, recognise liquidators appointed in a jurisdiction other than the place of incorporation or administrators appointed by the High Court of England. However, the Court reiterated that although the Hong Kong court can take a generous view of its power to assist a foreign liquidation process, this is limited by the extent to which the type of order sought is available to a liquidator in Hong Kong under Hong Kong’s insolvency regime, common law and equitable principles: as Hong Kong does not have any statutory provision which provides for a moratorium on the enforcement of a secured debt, the Court could not make the orders sought.

An important practical issue that arose over the course of 2016 was whether in addition to ordering the production of documents that a liquidator would expect to obtain as a matter of course, the court’s common law power extended to ordering the production of documents or examination of persons that would historically have required an application under Section 221 of the CWUMPO.40 In BJB Career Education Co Ltd,41 the Court of First Instance made an order, following a request from the Cayman Islands’ court for recognition and assistance, for the delivery of documents, answers to questions and oral examination of a director without requiring the foreign liquidators to commence an action under Section 221. This approach was followed in Re Pacific Andes Enterprises (BVI) Ltd.42

In practical terms, it is important to remember that Hong Kong does not have a specialist insolvency court. In practice, petitions for winding up and related insolvency law cases appear to be primarily directed to a handful of judges with experience in this area.


There continues to be a distinct lack of significant formal liquidation processes in Hong Kong.

The Hong Kong economy remains reasonably buoyant and there are, as a consequence, limited defaults on debt obligations.


i China Fishery Group Limited43

China Fishery Group Limited (CFG) is part of an integrated seafood conglomerate, known as the Pacific Andes Group (PAG). Reports put PAG as being the world’s 12th largest seafood company. Incorporated in the Cayman Islands but with its main operations based in Hong Kong and listed in Singapore, CFG’s main value comes from shareholdings it holds in certain Peruvian subsidiaries; these subsidiaries in turn have the largest anchovy catch quota in Peru. PAG has a reported debt burden of US$1.7 billion, with the China Fishery part of the structure responsible for approximately US$750 million of that amount. The China Fishery debt is comprised of a mix of bank and bond debt including a US$650 million club facility (the Club Facility), US$300 million senior unsecured notes due in 2019 and certain other unsecured trade facilities.

In 2014 and 2015, the El Niño weather pattern had an unfavourable effect on the anchovy stock in Peru. CFG began to face liquidity issues and in the autumn of 2015 missed a payment due on the Club Facility. On 25 November 2015, HSBC, one of the lenders under the Club Facility, petitioned in Hong Kong on an ex parte basis for the winding up of, and appointment of, joint provisional liquidators (JPLs) to, both CFG and its Samoan subsidiary China Fisheries International Limited, and the Hong Kong court appointed the JPLs to both companies in Hong Kong. On 27 November 2015, HSBC filed a parallel petition in the Cayman Islands in respect of both companies, and the same JPLs were appointed by the Cayman Islands court.

In late December 2015, a deed of undertaking was entered into between CFG’s ultimate parent company, Pacific Andes International Holdings Limited, and the majority of the lenders under the Club Facility in favour of the Hong Kong court. In exchange for these undertakings, the majority of the lenders under the Club Facility agreed to support the removal of the JPLs and the dismissal of both the Hong Kong and the Cayman Island winding-up proceedings.

On 5 January 2016, the Hong Kong court removed the JPLs. Following the entry into a further deed of undertaking on 20 January 2016 in favour of HSBC and certain providers of trade finance (which included undertakings that a sale of the Peruvian operations would be concluded by 15 July 2016 and the repayment in full of the Club Facility and certain other facilities would be completed by 20 July 2016), the Cayman Islands proceedings were dismissed and the JPLs removed. By a consent order dated 29 January 2016, the Hong Kong winding-up proceedings were dismissed.

A sale of the Peruvian business did not complete by the deadline set out in the two deeds of undertaking. On 30 June 2016, CFG and certain of its non-Peruvian subsidiaries filed for Chapter 11 protection in the USA. At the same time, creditors ‘friendly’ to PAG commenced proceedings against the two key Peruvian subsidiaries in Peru, which in turn filed for Chapter 15 recognition of the Peruvian proceedings. The commencement of the Chapter 11 proceedings saw the founding family of PAG pitched against the lenders under the Club Facility (with an increasing level of support from lenders elsewhere in the China Fishery group and to PAG), with differing views on the form a restructuring should take. Meanwhile, the British Virgin Islands’ court accepted the commencement of winding-up proceedings in respect of, and the appointment of provisional liquidators to, a number of further CFG subsidiaries. In mid-August 2017, the US bankruptcy judge approved the sale procedures proposed by the bankruptcy trustee for a sale of the Peruvian operations: with no reserve price set, the market waits to see what price can be achieved.

ii Winsway Enterprises Holdings Limited (now E-Commodities Holdings Limited)44

Winsway is a Chinese coking coal trader and logistics services provider, focused on providing coal for China’s steelmakers. Incorporated in the British Virgin Islands, with operations in China and Hong Kong, and listed in Hong Kong, the company had been increasingly suffering because of the declining demand for Chinese steel. With the company’s chief executive describing its existing business as ‘unsustainable’,45 Winsway proposed to refocus on logistics and supply chain solutions.

Winsway had a debt pile that included both onshore secured and unsecured bank borrowings, and offshore US$500 million bonds due in 2016 (the Notes). In the face of declining demand for coking coal, in April 2015 Winsway missed a semi-annual coupon payment on the Notes. Having agreed a standstill with a substantial portion of noteholders, Winsway negotiated a restructuring that saw the holders of the Notes receive a combination of cash (raised through a further rights issue) and contingent value rights, plus a consent fee. The restructuring was effected by way of parallel schemes of arrangement in Hong Kong (sanctioned by the Hong Kong court on 17 May 2016) and the British Virgin Islands (sanctioned by the British Virgin Islands court on 2 June 2016). Because the Notes were governed by New York law, recognition of the Hong Kong and British Virgin Islands proceedings was sought under Chapter 15 of the Bankruptcy Code and obtained on 17 July 2016. Reports suggested that the total scheme recovery rate would be between 15.4 per cent and 18.6 per cent (increasing to 17.9 per cent and 21.1 per cent if the consent fee was also taken into consideration).46

On 16 August 2016, Winsway announced47 that the Winsway group was expected to record a consolidated profit for the first half of 2016, which it attributed in part to the successful completion of the rights issue and the restructuring of the Notes. Winsway announced further net profits for the second half of 201648 and the first half of 2017.49

iii Kaisa Group Holdings Limited

Kaisa is a China-based property development, property investment and property management company. Following a government block on presales in 2014, Kaisa defaulted on an offshore loan in early 2015, resulting in further blocks on presales by other onshore creditors. With total offshore debt of approximately US$2.6 billion (comprised of both bank debt and notes), the offshore bondholders realised that a restructuring would be preferable to an onshore bankruptcy. After protracted negotiations, a deal was hammered out with the offshore bondholders and implemented through parallel schemes of arrangement in Hong Kong (being the place where Kaisa carried out the majority of its business activity) and the Cayman Islands (being Kaisa’s place of incorporation) in June 2016. The schemes received overwhelming support from creditors holding about 99.9 per cent in value of the offshore debt and became effective in mid-July 2016. Because the offshore bonds were governed by New York law, recognition of the Hong Kong and British Virgin Islands proceedings was sought under Chapter 15 of the US Bankruptcy Code and obtained on 14 July 2016. The restructuring enabled Kaisa to swap its existing US$2.6 billion of offshore loans and notes into a combination of straight bonds, mandatorily exchangeable bonds and contingent value rights, certain of which it had redeemed by the end of the summer of 2017.

iv Mongolian Mining Corporation (MMC)

MMC is a Cayman Islands-incorporated company, listed in Hong Kong. Through its subsidiaries, MMC mines and sells coal, predominantly to the Chinese market for use in the manufacture of steel. MMC had a total debt stack of around US$765 million, including a syndicated loan, offshore bonds and a subordinated promissory note. As was the case with many other coking coal miners selling to the same market, from 2015 onwards MMC experienced increasing financial pressure resulting from the decline in Chinese steel production. In January 2016, MMC announced that it had begun work on a restructuring of its offshore bonds, but pressures continued to mount, and in March 2016 MMC missed an interest payment on its syndicated loan, cross-defaulting the bonds. Negotiations with and between MMC, the ad hoc committee of bondholders and the bank lenders grew increasingly fractious, and a deal could not be reached between the various parties. On 7 July 2016, MMC petitioned for its own winding up in the Cayman Islands, seeking the appointment of provisional liquidators for the purpose of effecting a restructuring of its debts. Negotiations continued until in early November 2016 MMC announced that it had reached agreement on the terms of a restructuring with the ad hoc committee of bondholders, the bank lenders and the holders of its subordinated promissory note. The restructuring duly took place through a simultaneous restructuring of the bond, syndicated loan and promissory note, using parallel schemes of arrangement in the Cayman Islands and Hong Kong to restructure the bonds and a consensual restructuring of the syndicated loan and the promissory note. Because the bonds were governed by New York law, recognition of the Cayman Islands scheme of arrangement was also sought and obtained under Chapter 15 of the US Bankruptcy Code. Taking effect on 4 May 2017, the restructuring enabled MMC to swap its existing syndicated loan, bonds and promissory note into a combination of a new syndicated loan, bonds, perpetual notes and shares. On 10 August 2017, MMC announced that it expected to record a consolidated profit for the first half of 2017.50


The key cases involving ancillary insolvency proceedings in Hong Kong are set out in Section I.vii.


There is general anticipation that insolvency activity in Hong Kong will increase during the coming year. This is largely as a consequence of the commonly held view that the economic cold winds in China will inevitably lead to an upturn in formal insolvency processes in Hong Kong given that there are a number of Hong Kong-incorporated entities and overseas incorporated entities that have their principal place of business in Hong Kong but conduct their key business activities in mainland China.

1 Joanna Charter is a consultant at Clifford Chance. Joanna would like to acknowledge the original author of this Chapter, Mr Mark Hyde, with whom Joanna co-authored the second, third and fourth editions of this text.

2 The operation of certain provisions (including those relating to clawback of remuneration, loss-absorbing capacity, the requirement for contractual bail-in and the suspension of termination rights) will come into force when further secondary rules are made and/or on a date to be appointed by the Secretary for Financial Services and the Treasury.

3 Set out in paragraph 20 of the Financial Services and the Treasury Bureau’s Legislative Council Brief of 30 September 2015 (www.legco.gov.hk/yr15-16/english/bills/brief/b201510021_brf.pdf).

4 Section 186 of the CWUMPO.

5 [2002] 2 HKLRD 290.

6 Re Highfield Commodities Ltd [1985] 1 WLR 149 applied.

7 [1994] 1 BCLC 549.

8 Civil Appeal Nos. 207 and 210 of 2005/[2006] HKCA 75/[2006] 2 HKLRD 192.

9 Re Keview, Re Luen Cheong Tai International Holdings Ltd [2002] 3 HKLRD 610 considered.

10 Securities & Futures Commissioner v. Mandarin Resources Corp Ltd & Another [1997] HKLRD 405, Re Luen Cheong Tai International Holdings Ltd considered.

11 Unreported, HCCW 108/2015, 30 March 2017.

12 HCMP 663/2017.

13 Section 327 of the CWUMPO.

14 Section 230 of the CWUMPO: the special resolution is one pursuant to Section 228(1)(b) of the CWUMPO, that the company be wound up voluntarily. The meeting is called by the directors of the company on, in the case of a limited company, 14 days’ notice (or such longer period as is prescribed in the company’s articles of association); see Sections 562, 564 and 571 of the Companies Ordinance.

15 Section 241(3A) of the CWUMPO particularises all the information required to be presented in a statement of affairs.

16 Section 242 of the CWUMPO.

17 Under Section 177(1)(f) of the CWUMPO.

18 The Amendment Ordinance has introduced a prescribed form of statutory demand.

19 Numbers are taken from copies taken of the cause book for Company Winding-up Proceedings at the Hong Kong High Court. These numbers do not give an indication of how many of these companies were subsequently wound up, nor under which statutory grounds the petitions were submitted.

20 The SFC utilised its powers under Section 212 of the Securities and Futures Ordinance in July 2013 for the first time in relation to China Metal Recycling (Holdings) Limited: on 26 February 2015 the Hong Kong High Court ordered that China Metal Recycling (Holdings) Limited be wound up in the public interest.

21 Such a power exists under Section 255(1) of the CWUMPO in respect of a CVL.

22 Section 244(1) of the CWUMPO; in the absence of the COI, the creditors may fix the remuneration of a liquidation.

23 Section 251(1)(a) of, and Schedule 25 to, the CWUMPO.

24 Re Luen Lick Water Drainage Works Ltd, CFI HCCW 209 [2002].

25 Sections 243(1) and 243(1A) of the CWUMPO.

26 Power of the court exists under Section 227F of the CWUMPO.

27 Power of the court exists under Section 227A of the CWUMPO.

28 Power of the court exists under Section 209 of the CWUMPO.

29 Power of the court exists under Section 209A of the CWUMPO.

30 Creditors or contributories (or a liquidator themselves) may refer questions to the court on the conduct of a court winding up under Section 200 of the CWUMPO.

31 Power to remove a liquidator exists under Section 252 of the CWUMPO (CVL) and Section 196(1) of the CWUMPO (court winding up).

32 HCCW 322/2010 unreported judgment of 6 March 2013.

33 [2012] 6 HKC 246.

34 [2014] HKCU 900.

35 Kam Leung Sui Kwan v. Kam Kwan Lai and Ors (FACV No. 4 of 2015).

36 Similar, for example, to Section 426 of England’s Insolvency Act 1986.

37 [2014] HKEC 1244.

38 HCMP 3389/2015, 3391/2015 and 3391/2015, [2016] HKEC 576.

39 [2015] HKCU 875.

40 Section 221 of the CWUMPO empowered the court to order the production of documents relating to a company or to summon any person who has information about a company’s affairs for an examination; the Amendment Ordinance repealed this section and replaced it with new Sections 286B and 286C.

41 [2017] 1 HKLRD 113.

42 HCMP 3560/2016, [2017] HKEC 146.

43 Substantially all of the information in this section is taken from Debtwire, Legal Analysis, China Fishery Group, 11 August 2016, available at www.debtwire.com/intelligence/view/2283375.

44 On 1 August 2016, Winsway obtained shareholders’ approval to change its name to ‘E-Commodities Holdings Limited’; see announcement on the Hong Kong Stock Exchange, available at: www.hkexnews.hk/listedco/listconews/sehk/2016/0801/LTN201608011847.pdf.

45 Patrick Fitzgerald, ‘China’s Winsway Enterprises Files for U.S. Bankruptcy Protection’, The Wall Street Journal, 7 April 2016, available at: www.wsj.com/articles/chinas-winsway-enterprises-files-for-u-s-

46 Debtwire, Restructuring Report, Winsway Enterprises, 11 May 2016, available at: http://asia.debtwire.com/Common/CompanyDocumentDownload.aspx?id=11042.

47 Announcement on the Hong Kong Stock Exchange, available at: www.hkexnews.hk/listedco/listconews/sehk/2016/0816/LTN20160816013.pdf.

48 Announcement on the Hong Kong Stock Exchange, available at: www.hkexnews.hk/listedco/listconews/sehk/2017/0216/LTN20170216400.pdf.

49 Announcement on the Hong Kong Stock Exchange, available at: www.hkexnews.hk/listedco/listconews/sehk/2017/0808/LTN20170808736.pdf.

50 Announcement on the Hong Kong Stock Exchange, available at: www.hkexnews.hk/listedco/listconews/sehk/2017/0810/LTN201708101093.pdf.