Vol 14 (2017) - Issue 5

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Hong Kong’s Insolvency Regime: A Time of Change

Earlier this year, Hong Kong’s insolvency regime turned a corner with the coming into effect of much needed amendments to its corporate insolvency statute, the Companies (Winding Up and Miscellaneous Provisions) Ordinance. These amendments represent the first of two phases of regime changes. This first set of changes has gone some way to strengthening creditor protection particularly for avoidance transactions prior to winding up which breach the pari passu principle, as well as to streamline the winding up process. The second phase, which should start its legislative journey later this year, will however be the ‘game changer’, and if this phase makes it into law in the shape that the Government is proposing, after a very long wait, Hong Kong will finally have a much needed statutory corporate rescue procedure.

Hong Kong sits at a pivot point in North-East Asia where it serves as a major centre for financial services for the region, attracting very significant levels of corporate activity, driven by its unique geopolitical position and its cross border treaty arrangements with Mainland China. These and other factors have helped to make Hong Kong a natural focal point for both inbound transactions into Mainland China as well as outbound. Hong Kong is also recognised as having one of the most mature and trusted legal systems in Asia, which accounts for the presence of much of this activity. Given these factors, the process of modernising some of the key aspects of Hong Kong’s corporate insolvency regime as a component in the corporate life cycle, is long overdue.

This article will give an overview of the first phase amendments now in force, focusing on the new creditor protection provisions, as well as covering the ground on some of some of the changes to the winding up regime. It will then look very briefly at the proposed second phase amendments, where the detail has yet to be published.