1. Introduction 

During the COVID-19 crisis, many companies are facing unexpected financial distress, and taking steps to stabilise their business and bolster their finances.

Many directors will not have experienced these issues before, and should be aware of how their duties are impacted when the company is in financial distress.

This guide has been prepared on the basis of Hong Kong law principles. Many of the principles will also be applicable to other common law jurisdictions.

How are companies responding to the current crisis?

In the context of joint liquidators’ applications for documents “belonging to” the company or “relating to” its affairs (under sections 324 and 326 of the Insolvency Act 1986), the High Court confirmed that English law applied to determine whether documents could be withheld by the Luxembourg lawyers who were respondents to the application.

The Court of Appeal has held that a settlement agreement, in which the defendant acknowledged that a debt was payable in full and agreed the mechanics and timing of payments, had the effect of excluding the defendant’s right of equitable set-off: IG Index Ltd v Ehrentreu [2013] EWCA Civ 95. The claimant was therefore entitled to summary judgment on the debt. The defendant however remained free to pursue his cross-claim for damages against the claimant.

The government has clarified which claims will benefit from the continued recoverability of CFA success fees and ATE insurance premiums, following its announcement in May last year that there would be a two-year delay to implementation of this aspect of the Jackson reforms for “insolvency proceedings” (see post).