Hong Kong 'Chapter 11' Bill May Become Law

by Mary Swire, Tax-News.com, Hong Kong

04 April 2002

A bill to reform parts of corporate liquidation law in Hong Kong which was first put forward in 1996 following a Law Reform Commission report and has since languished in eternal consultation has finally struggled to the surface and may actually get enough support in the Legislative Council to be passed.

The bill wsould introduce a regime similar to Chapter 11 in the US, allowing a provisional supervisor to be appointed to devise a workout plan for an ailing company, also giving the firm a 30-day lull on creditor action.

The Government caused problems by withdrawing a proposal that the Protection of Wages on Insolvency Fund (PWIF) should be responsible for meeting the claims of employees. Another concern about the original bill was that directors of insolvent companies would also have to be paid in full, leaving the provisional supervision process open to abuse.

This led to years of bickering and put the brakes on any kind of corporate-rescue procedure being in place for the Asian financial crisis and the present downturn. However, a third draft soon to be released for consultation has received initial support from core groups - labour organisations and some financial services providers.

The Hong Kong Society of Accountants is behind the bill, as are most labour groups. Legislator Eric Li Ka-cheung, who represents the accountancy sector, said: "Basically, I think credit is due to the Government for not giving up."

A decision was taken to refine the bill's most controversial part, which provides that employees be paid in full before a corporate rescue can take place. Critics saw this as the death knell of the proposed law. Labour groups, however, stood firm that the provision should remain, for fear of putting further strain on the

In the latest draft, there is a cap on payouts of HK$258,500 per employee proposed as a compromise. "I think the idea seems to be going down with interest from the labour union groups," Mr Li said, pointing out that they were quite willing to give the matter another chance.

Deputy Secretary for Financial Services Susie Ho Shuk-yee, who is putting the final touches on the draft, was "fairly optimistic". However, resistance may still come from labour groups that feel employees will get less than under the earlier proposals.

The banking and finance sectors are expected to be most resistant to the suggestion of a cap on payments, however. "I don't think they are getting too excited about it," Mr Li said. "They know it's a good thing [the bill] in principle, but are worried about possible abuse. They are taking a fairly neutral position."

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