The Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 introduces key changes to the administration of the winding-up process. While the ordinance aims to improve the corporate winding-up regime by increasing creditor protection and enhancing the integrity of the winding-up process, the somewhat limited changes represent a missed opportunity to modernise Hong Kong's antiquated corporate insolvency regime.
After months of consultation and debate, the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 has been published, although an enforcement date is yet to be set. The stated aim is to improve and modernise the corporate winding-up regime by increasing protection of creditors and enhancing the integrity of the winding-up process.
The Court of Final Appeal recently considered the lower-instance decisions in the Yung Kee Holdings saga. The long-running case concerned a dispute between two brothers over a famous family-owned roast goose restaurant. In a unanimous decision, the Court of Final Appeal ordered that the business be wound up, but gave the disputing parties 28 days to discuss a share buy-out.
In its recent decision in the winding-up of Grande Holdings Ltd, the Hong Kong Court of Appeal unanimously held that an amount due under a complex derivatives contract was a liquidated sum entitling the resulting creditor to vote at the first meeting of creditors. The ability to vote at the first creditors' meeting can be important, as it is at this meeting that the liquidator of the company is chosen.
The winding-up orders granted in 2008 against Oasis Hong Kong Airlines Limited and Oasis Growth and Income Investments Limited marked the end of the short-lived budget airline, but the size and complexity of the liquidation mean that key issues are still being resolved. A recent judgment clarifies the position of parties which provide services to an airline that goes into liquidation.
A public consultation and its conclusions offer valuable clues as to what insolvency and restructuring practitioners may expect if a statutory corporate rescue mechanism is finally enacted in Hong Kong. Other potential changes in approach - as well as future possibilities, such as the introduction of a debtor-in-possession regime - may also merit attention.
Hong Kong has lagged behind other jurisdictions in the development of litigation funding. However, a recent Court of First Instance decision offers the first explicit and publicly available endorsement of the lawfulness of third-party litigation funding in the context of claims by insolvent companies. Although key questions remain, the decision offers guidance on the lawfulness of a liquidator accepting funding.
Recent cases - including one arising from the winding-up of eight companies in the Lehman Brothers group - have clarified the statutory structure applying to a provisional liquidator's remuneration. In particular, the cases illustrate the proper construction of Sections 194 and 196 of the Companies Ordinance and demonstrate how their application has evolved.
The High Court has introduced significant reforms of its civil procedure that emphasize the court's case management role. Despite the laudable aims of the rule changes, a more front-loaded case management process presents difficulties for liquidators and may make it harder for them to prosecute good claims against delinquent directors or others who have contributed to, or benefited unfairly from, corporate collapses.
In an insolvent winding-up in Hong Kong, the liquidator will review past conduct, decisions and actions in relation to the company's operation and the management of its affairs. However, his or her avoidance powers are often difficult to exercise. Two cases in relation to unfair preference and fraudulent conveyance shed light on the extent to which a liquidator can overturn past transactions involving a debtor's property.
The government is considering the introduction of a corporate rescue procedure that would provide a statutory grace period for companies in short-term financial difficulty. Such a statutory framework - with minimal court involvement, but with the advantage of a moratorium while the company formulates its restructuring plan - could greatly boost corporate rescues.
Hong Kong has not adopted the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency. However, its courts take a pragmatic approach to cross-border insolvency issues. When considering the steps to take in Hong Kong, they will recognize foreign liquidations and will have regard to foreign restructuring arrangements which have been approved abroad.
Contrasts and Similarities; Options for Creditors; Receivership; Restructuring and Workouts; Provisional Liquidation Schemes of Arrangement; Liquidation; Debts and Distribution of Assets; Cross-Border Insolvencies.
Although there are no corporate rescue provisions in Hong Kong's winding-up legislation, except those which allow for a scheme of arrangement, it had been thought that the courts could appoint provisional liquidators in order to allow a defaulting company and its creditors to work out the feasibility of a corporate rescue and restructuring process. A recent case has firmly rejected such thinking.
Can a director who fails to prevent a winding-up order being made against his or her company be personally liable for the petitioner's costs? The answer depends on whether the director is deemed a 'party' to the proceedings, and whether he or she was authorized by the company to oppose the order. A petitioner may be compelled to seek an order joining the director as a party in order to apply for costs.
The Hong Kong Court of Appeal recently confirmed that a director of a Hong Kong company which goes into liquidation must assist the company's liquidators in their investigation of the company's affairs, even if the director is not resident in Hong Kong. The court can also make an order for the private examination of a director and secure compliance with an arrest warrant or an injunction.
Subject to certain safeguards, the common law privilege against self-incrimination has been abrogated in private examinations under the Companies Ordinance. This is the case even where a potential examinee already faces criminal charges under the Theft Ordinance. It ensures that liquidators can establish the reasons for the failure of a company and, if appropriate, pursue (civil) recovery proceedings.
A recent case has affirmed the High Court's jurisdiction to stay arbitration proceedings, until the hearing to wind up the company involved in both proceedings has concluded.
A court order involving the Peregrine liquidation ruled that an independent party be appointed to examine the liquidators’ remuneration - making it clear that there is a lack of guidelines for examining liquidators’ fees, as well as solicitors’ fees.
Including: Insolvency Law Gains Importance; Winding Up; Bankruptcy