Hong Kong's insolvency system is famous for its lack of statutory corporate rescue procedure ("CRP"). Owing to the lack of CRP, financially distressed companies may only recourse to rescue their business with (i) a non-statutory consensual agreement with major creditors to restructure debts, or (ii) a scheme of arrangement under the Companies Ordinance (Cap. 622). These options, however, have many problems such as being expensive, impracticable, inflexible and tedious.
Introduction
Section 209(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) empowers the Hong Kong court to make an order staying the winding-up proceedings after the winding-up order is made upon the application of, among others, a contributory. However, in the case of Safe Castle Limited v China Silver Asset Management (Hong Kong) Limited [2020] HKCFI 1028, Harris J made it clear that the court will be reluctant to exercise its discretion to stay a winding-up order pending appeal.
Introduction
What's the issue?
Many commercial contracts for the supply of goods or services contain clauses (known as ipso facto clauses) which allow a party to terminate in the event that the other enters into an insolvency process. Concerns have grown that termination under these circumstances restricts the ability of the company in trouble to engage in a successful restructuring or rescue (of either the company or the business) which can result in a negative impact on creditors.
What's the development?
Introduction