Vol 9 (2012) - Issue 5

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Corporate Rescue Procedures in Hong Kong: A Matter of Time or Culture?

Hong Kong is a place where Western and Chinese cultures co-exist in bliss. The territory, which pegs its currency to the US dollar, is an international business hub where many American and Pan-European companies situate their regional head offices. Yet, economically it is increasingly dependent on capital inflow and trade with the Peoples’ Republic of China for its economic growth. Such contrasts can also be used to describe the diversity in corporate governance in Hong Kong with both Anglo-American and Chinese family models adopted by different types of companies. This in turn affects how corporate rescue are being perceived.
Under colonial rule, the territory’s economy had developed from a fishing village into an international financial and business centre. One of the most notable British exports to Hong Kong is the legal system and British laws. The first company law in Hong Kong was enacted in 1865, and the ordinance was a mirror of the British Companies Act 1862. However, the territory failed to follow the developments in corporate rescue procedures in Britain. In an article I co-authored with Professor Ted Tyler that appeared in this journal last year, we outlined the long and difficult journey to enact corporate rescue procedures in Hong Kong. The prime reason for the general reluctance of key stakeholders, made up of elite business, professional community and governmental departments, is to obtain consensus on specific provisions. And since there were no signs of an economic meltdown from the Asian crisis in 1997, the corporate rescue Bills in 2000 and 2001 were put on the back burner. Although with the most recent round of consultation launched in 2010 by the Hong Kong government there was greater willingness and acceptance on the part of the stakeholders, it was decided that the introduction of these statutory provisions would be deferred until the next parliamentary term.
For a place that claims to be an international city embracing globalisation, its resistance to change and modernisation of certain aspects of corporate law, such as corporate rescue, is somewhat puzzling. Alan Tang, an insolvency practitioner in Hong Kong offered some explanation when he wrote that creditors viewed corporate rescue as an attempt to reschedule debt, instead of the restructuring or reorganisation of ailing companies. Hence, if corporate rescue is a pretext for debt rescheduling, cynicism is to be expected. However, a different perspective was put forwarded by two legal academics, Bahrin Kamarul and Roman Tomasic. They found that
'In Hong Kong, insolvency law is used mainly by foreign creditors and corporations, and rarely by Chinese businesses … [C]hinese businesses, however, use the legislation as it is perceived to be based on foreign laws, rather than on Chinese social tradition…[A]n expatriate accountant said, of the solvency law, that 2we have an English system imposed on Hong Kong, which does not necessarily reflect how Hong Kong works. The Chinese system is one of self-reliance, where people aim to solve their problems themselves you keep it within the family".'
Therefore, culture plays a crucial role in how corporate rescue is being viewed by the Chinese.