Insolvency Law at Hong Kong
Insolvency law in Hong Kong is a well-developed legal framework that governs how individuals and companies deal with financial distress and the inability to pay debts. The legal framework balances the interests of debtors, creditors, and the public. Here's a structured overview:
1. Legal Framework
Hong Kong's insolvency laws are primarily governed by:
Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) – governs corporate insolvency.
Bankruptcy Ordinance (Cap. 6) – governs personal bankruptcy.
Companies Ordinance (Cap. 622) – covers company restructuring provisions.
Rules of the High Court (Cap. 4A) – relevant for procedural matters in insolvency proceedings.
2. Corporate Insolvency
Key procedures include:
a. Winding Up (Liquidation)
Voluntary winding up: Initiated by the company (members or creditors).
Compulsory winding up: Initiated by a creditor through the court.
The Official Receiver or a licensed insolvency practitioner is appointed as the liquidator.
The company’s assets are realized and distributed according to statutory priorities.
b. Receivership
Appointed by a secured creditor (usually holding a debenture).
The receiver takes control of specific assets (or sometimes the entire business) to repay the secured creditor.
c. Provisional Liquidation
A temporary measure to preserve the assets of a company before a winding-up order is made.
d. Corporate Rescue and Restructuring
Hong Kong does not have a formal corporate rescue procedure akin to U.S. Chapter 11.
However, Schemes of Arrangement under the Companies Ordinance allow for restructuring, subject to court approval.
3. Personal Insolvency
a. Bankruptcy
Initiated by either the debtor (self-petition) or a creditor.
Once a bankruptcy order is made, a trustee (usually the Official Receiver) manages the debtor’s estate.
b. Individual Voluntary Arrangements (IVAs)
A debtor can propose an IVA to creditors to repay debts over time without going bankrupt.
Requires approval from 75% of creditors (by value).
4. Priority of Claims
In both personal and corporate insolvency:
Secured creditors (have rights over specific assets).
Costs and expenses of insolvency.
Preferential creditors (e.g. wages, taxes).
Unsecured creditors.
Shareholders (in corporate cases – usually get nothing).
5. Recent Developments
In 2020, Hong Kong proposed a Statutory Corporate Rescue Procedure (SCRP), aiming to introduce a "provisional supervision" regime and a new moratorium to give breathing space for companies to restructure. As of now, this is still under review and not yet enacted.
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