The Hong Kong government will introduce a long-awaited statutory corporate rescue procedure (CRP) in 2021, bringing the regime more in line with international practice in jurisdictions such as the UK and the USA.

The current lack of a CRP in Hong Kong means that there are limited options available to distressed companies and the lack of a moratorium on creditor enforcement jeopardises legitimate restructuring efforts. The Companies (Corporate Rescue) Bill is timely given the difficulties brought by the current economic downturn, itself exacerbated by the impact of COVID-19.

How will the Bill work?

The Bill introduces a new provisional supervision procedure during which there will be a moratorium on civil proceedings against a distressed company.

Commencement of provisional supervision will unfold as follows:

• the company or its provisional liquidator/liquidator may appoint an independent professional third party as a provisional supervisor (PS) who must be a certified public accountant or a solicitor
• a notice of intention to appoint a PS must be served on the major secured creditors (MSC) of the company 
•  if the MSCs have no objections, the provisional supervision will commence.

During provisional supervision (proposed to be 45 business days), a PS will:

• carry on the company’s business
• take control and examine the company’s business, property and financial affairs
• consider restructuring options or whether the company should be wound up, and 
• formulate a rescue proposal known as voluntary arrangement (VA) where appropriate.

At the end of provisional supervision:

• the VA is presented to the creditors of the company at a creditors’ meeting for approval, and
• if approved, implemented under the supervision of the PS.

Find out more

To discuss the Companies (Corporate Rescue) Bill in more detail, please reach out to a member of our Restructuring & Insolvency team.