Reforming Corporate Rescue Procedures in Hong Kong

Philip St John Smart

Associate Professor, Faculty of Law, University of Hong Kong

Charles D Booth

jcls Vol 1 Issue 2 (December 2001)

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Abstract

The need for a statutory corporate rescue mechanism has long been recognised in Hong Kong. That need was heavily underscored by the recent Asian financial crisis. Following recommendations made in 1996 by the Law Reform Commission of Hong Kong, legislation was introduced in January 2000, in the form of the Companies (Amendment) Bill 2000. The Bill proposed a regime, to be known as "provisional supervision", which would allow a company, without having to go to court, to appoint an insolvency specialist to take over its affairs under the protection of a moratorium. Once appointed, the provisional supervisor would formulate a plan for voluntary arrangement for approval by the company’s creditors. However, after serious opposition was raised against the Bill, the provisional supervision proposals were dropped. It is anticipated that a modified provisional supervision regime will soon be put back on the legislative agenda. This paper offers a critical analysis of the provisional supervision regime contained in the Bill, with particular emphasis on the Government's controversial proposals regarding the rights of secured creditors and the treatment of workers’ wages.

Keywords

Delaware Law, company law, corporate opportunities, default rules, fiduciary scrutiny, freedom of contract, mandatory rules