COVID-19 in Hong Kong: Court calls for immediate restructuring and insolvency legislative reform

Unlike many other common law jurisdictions, there are no insolvency relief measures solely to assist restructuring and corporate rescue in Hong Kong. However, in the recent case of Re China Oil Gangran Energy Group Holdings Ltd [2020] HKCFI 825, the Hong Kong Court confirmed its power to grant recognition and assistance to liquidators appointed in a foreign country. 

Harris J said that "immediate” legislative steps be taken to counter “the economic problems that COVID-19 is causing". In particular, the judge called for "amendments to… the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) to provide expressly for provisional liquidators to be given restructuring powers."

Amid the pandemic, these comments were timely, as financially distressed companies are desperately searching for corporate rescue to avoid a full winding-up. A statutory corporate rescue regime protects distressed companies against creditors’ actions and gives such companies an opportunity for restructuring.

That said, the readily available insolvency relief measures in Hong Kong are not without problems; for instance:

• Schemes of arrangement – there is no moratorium prior to the scheme becoming effective.
• Appointments of provisional liquidators following the presentation of a winding-up petition – this ultimately leads to a compulsory liquidation which kills the business.

Proposals for corporate rescue have been underway over the past two decades in Hong Kong. However, it wasn't until March 2020 that the government announced its intention to hold a consultation to finalise the corporate rescue bill in the first half of the 2020/21 legislative session. Although the legislative reform is likely to take some time, it is nonetheless a welcome development.