Chen Haolian: Hong Kong's current corporate rescue procedures are widely recognized internationally and in the market for their flexibility and effectiveness.

On April 1st, during the Legislative Council meeting, Hong Kong Acting Financial Secretary and Treasury Secretary Christopher Hui responded to questions from council members, stating that Hong Kong's corporate bankruptcy and restructuring system serves as a legal mechanism for debt restructuring. The current arrangement is flexible, efficient, internationally and market-recognized, and can effectively support viable companies to continue operating while balancing the interests of various parties. Under the supervision of the courts, the current arrangement has successfully assisted multiple companies in achieving debt restructuring. Hui mentioned that the Hong Kong Financial Services and Treasury Bureau and the Official Receiver have conducted several consultations on the statutory corporate rescue procedure, including seeking advice from the Legislative Council Finance Committee in 2020. While the proposed statutory corporate rescue procedure received support from accounting and legal professionals, many members and major stakeholders expressed opposition and strong reservations. Labor unions are concerned that the statutory corporate rescue procedure may be abused to transfer company assets to evade responsibility for paying employees what they are owed. Furthermore, if the corporate rescue ultimately fails, it may delay employees from receiving benefits from the Protection of Wages on Insolvency Fund, and there are concerns that the temporary administrator appointed may prioritize the survival of the company over employee protection in proposed rescue plans. Additionally, there are concerns that the moratorium period in the statutory corporate rescue procedure may be used by debtors to delay legitimate creditor claims, and having an independent third-party professional as a temporary administrator in the corporate rescue procedure may not be as familiar with the business operations or able to provide targeted and effective advice. Small and medium-sized enterprise representatives also fear that the complexity and high costs of involving professionals in the statutory corporate rescue procedure may make it accessible only to a few large companies, leaving many small and medium-sized enterprises vulnerable as unsecured creditors in the process, with limited bargaining power and having to accept substantial debt reductions detrimental to their interests. Therefore, after considering the opinions of various stakeholders on the statutory corporate rescue procedure, Hong Kong will maintain the current market-driven arrangement as the legal mechanism for debt restructuring. In fact, Hong Kong's common law system and internationally-aligned judicial system already provide an attractive and efficient option for corporate restructuring. The market has effectively used the scheme provided by the Companies Ordinance (Chapter 622) to assist numerous companies in achieving debt restructuring. Over the past five years, over 40 schemes approved by the courts for debt restructuring have been implemented, covering industries such as aviation, mining, and real estate. Under the current scheme, which is supervised by the court, viable companies are effectively supported in debt restructuring, reducing the risk of forced liquidation. Specifically, restructuring plans must convene meetings of creditors or different classes of creditors and obtain at least a 75% majority agreement of the total debt value from creditors present and voting before court approval can be obtained. Additionally, employees' unpaid entitlements (such as wages owed) are usually regarded as a separate class of creditors. This mechanism can effectively address conflicts of interest among different creditors, protect the rights of company directors, shareholders, and employees during the restructuring process, and under the common law system, provide more flexible and effective restructuring solutions for companies. During the restructuring process under the scheme, companies can appoint independent third-party restructuring advisors (usually lawyers or accountants) to assist in formulating a restructuring plan and continue normal operations during the restructuring period. If the company is issued a winding-up order, the restructuring work will be managed by the liquidator. If necessary, the liquidator may apply to the court to continue business operations.