Vol 1 (2004) - Issue 1

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Cross-Border Restructuring: Hong Kong Developments

1. Introduction
Although general insolvency law reform was begun in Hong Kong in the early 1990s, progress in relation to corporate restructuring has been very slow (whilst progress in relation to cross-border matters has been virtually non-existent). In 2000 there was an attempt to introduce a statutory corporate rescue mechanism to be known as ‘provisional supervision’. Provisional supervision was to a large extent modeled on the Australian and Canadian domestic régimes. The 2000 Bill failed to get enacted, as did a revised version in 2001. (Although, at the time of writing, there are some signs that provisional supervision may again be stirring.) In any event, at present, Hong Kong’s corporate insolvency and restructuring régime is based on the somewhat dated Companies Ordinance (hereinafter ‘CO’).
The CO makes limited provision for insolvent restructuring in general and has even less to say about cross-border insolvency. Inevitably, therefore, cross-border restructuring receives little or no direct attention in the CO. Nor is this likely to change at any time in the near future. Nevertheless, there are a few specific sections in the CO which, particularly in the light of recent cases, may come into play in the context of a cross-border restructuring. The most obvious is s.193 of the CO which provides for the appointment of provisional liquidators. It will also be noted that the Hong Kong courts have not infrequently been asked to sanction schemes of arrangement between an insolvent company, its shareholders and the creditors. Moreover, in addition to a handful of statutory provisions, Hong Kong, as a former British colony, has received a body of common law precedents which covers a range of issues that may arise in an insolvency - including a restructuring - with international elements. It is perhaps not unreasonable to describe this rather loose assortment of statutory and common law rules as a ‘framework’ applicable to cross-border restructurings.
In a cross-border restructuring this legal framework, firstly, forms part of the background against which negotiations between the various parties take place. Legal rules may often only come to the fore when consensus cannot be reached and one side or the other loses patience. This is not to say, however, that the legal framework is unimportant: the fact that, for example, the rights of secured creditors are ‘entrenched’ in Hong Kong law or that, in the absence of a formal insolvency proceeding, any creditor can employ the court’s enforcement mechanisms, has an important bearing upon the strategies available to both debtors and creditors in a restructuring.