Increasing cash flow pressure on many businesses has resulted in a heightened risk for directors that a company may be wrongfully trading and personal liability may then accrue to the directors.

Increasing cash flow pressure on many businesses has resulted in a heightened risk for directors that a company may be wrongfully trading and personal liability may then accrue to the directors.

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.

This briefing looks at the potential impact of the coronavirus COVID-19 on businesses and examines steps that can be taken by stakeholders and directors to recognise, manage and mitigate the risks. In particular, we look at: the potential impact on businesses; managing insolvency risk; considerations for directors; and considerations for lenders.

Global outlook for the coronavirus situation

The recent English judgment of System Building Services Group Limited¹ is an important decision for directors of offshore companies in 'soft touch' provisional liquidation, and highlights the importance of conducting a thorough analysis of the order appointing provisional liquidators for the purposes of ascertaining the scope of directors’ duties that apply during the course of their post-appointment restructuring efforts.

Alexandra Vinogradova v (1) Elena Vinogradova, (2) Sergey Vinogradov (BVIHCMAP 2018/052)

With the States of Guernsey's approval yesterday of the Companies (Guernsey) Law, 2008 (Insolvency) (Amendment) Ordinance, 2020 (the "Ordinance"), Guernsey took a step towards further enhancing its reputation as a robust jurisdiction for restructuring and insolvency.

In Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449, the Honourable Mr Justice Harris held that a petition to wind up a company on the ground of insolvency should “generally be dismissed” where:

If a company becomes insolvent or experiences a liquidity crunch, which necessitates a restructuring or resort to higher-risk financing arrangements, the directors should consider whether to commence formal proceedings to facilitate the restructuring or financing.

In recent years, the Hong Kong courts have been required to deal with a significant number of cases concerning cross border insolvency. Most notably, a number of cases have arisen where insolvency practitioners appointed by overseas courts seek recognition of their authority to act on behalf of overseas companies placed in liquidation or a similar insolvency regime, and to seek authority to use powers equivalent to those granted to liquidators by the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.