At present, Hong Kong does not have any statutory corporate rescue regime. A financially distressed company may try to rescue its business by entering into (i) private debt restructuring agreement(s) with its major creditors; or (ii) a scheme of arrangement under the Companies Ordinance (Cap. 622), which allows for a compromise between the company and its shareholders and creditors.

Two recent decisions of the Honourable Mr Justice Harris are helpful additions to the growing amount of case law in this jurisdiction dealing with cross-border insolvency issues and are worthy of examination.

Hong Kong Companies Court appoints provisional liquidators for the purpose of seeking recognition in Mainland for the first time

The Corporate Insolvency and Governance Act 2020 (“CIGA”), which came into force on 26 June 2020, introduced a series of new “debtor friendly” procedures and measures to give companies the breathing space and tools required to maximize their chance of survival. The main insolvency related reforms in CIGA (which incorporates both permanent and temporary changes to the UK’s laws) include:

1. New moratorium to give companies breathing space from their creditors

2. Prohibition on termination of contracts for the supply of goods and services by reason of insolvency

In the recent case of Re Shum Tung Lam formerly known as Shum Wan Man [2020] HKCFI 1720, the Court of First Instance was asked to clarify the requirements under section 30A(6) of the Bankruptcy Ordinance (Cap. 6) (BO) which governs objections made by creditors or trustees to the automatic discharge of a bankrupt from bankruptcy.

The U.S. Court of Appeals for the Sixth Circuit (the “Sixth Circuit”), whose jurisdiction includes Michigan, Ohio, Kentucky, and Tennessee, recently held that, under Chapter 13 of the Bankruptcy Code, a debtor’s pre-petition and certain post-petition voluntary retirement contributions are excludable from the debtor’s disposable income, which is used to satisfy a debtor’s obligations to its unsecured creditors.

Section 29 of the Bankruptcy Ordinance (Cap. 6) (BO) allows a trustee in bankruptcy to apply to the Courts for orders compelling disclosure of material documents and/or information of the bankrupt in order for the trustee to carry out his/her duties under the bankruptcy. For the authors’ previous article on Section 29, please see here.

Section 29 provides that:

Background

Land and buildings Ships and aircraft Other tangible assets Liens Retention of title Intangible assets Personal security Debentures Form of debentures Assets covered by debentures Trust receipts or letters of hypothecation

Receivership

Appointment of a receiver Receivers' powers Receivers' obligations Termination of the receivership

Deacons contacts

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3 3 3

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6 6 7 7

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Types of security

While every effort has been made to ensure the accuracy of the information contained in this booklet, it is only a summary and should not be relied upon as a substitute for detailed advice in individual cases.

Deacons 2020

Contents

Introduction Corporate insolvency

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Available procedures

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Liquidation

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Members' voluntary liquidation

2

Creditors' voluntary liquidation

3

Compulsory liquidation

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Which procedure?

3

Receivership

3

Scheme of arrangement3

In recent years the Hong Kong Companies Court has dealt with a large number of applications for recognition and assistance from the Courts of various overseas jurisdictions in relation to cross border insolvency matters. The Court will now routinely grant orders of recognition and assistance to liquidators of companies incorporated in Commonwealth jurisdictions such as the Cayman Islands, Bermuda and the British Virgin Islands, which are all common law jurisdictions which have insolvency law regimes which are in many ways similar to Hong Kong’s own regime.