Provisional Supervision – The Latest Chapter

Following the latest round of consultations, the administration has issued it’s latest views on Provisional Supervision and Insolvent Trading. It has been tweaked a little from its most recent incarnation back in 2011, but in most respects it’s very similar.

We understand from the grapevine that it’s going to be introduced to LegCo in the near future with a view to it being passed into legislation, presumably before the end of the current LegCo session. It seems that it will then become a stand-alone piece of legislation, because the updates to the winding-up provisions of the Companies Ordinance (now part of the Companies (Winding-up and Miscellaneous Provisions) Ordinance are unlikely to come into operation until 2018 or 2019 – that of course is assuming that the proposed amendments will be passed by LegCo.

It shouldn’t be too time consuming to draft the legislation because a draft bill has existed since as long ago as 1997 and formed the basis for the bill put (unsuccessfully) before LegCo on two previous occasions. This, allied to the fact that the changes since 1997 have not been material, leads one to hope that it will be introduced sooner rather than later.

Contrary to recent suggestions in the local press, even by experienced commentators, this is not a US style Chapter 11 process. Yes – it is a corporate rescue process, but that’s where the similarities start to fall away.

It’s unfortunate that it’s a process that is still considered by many to be flawed, but there is a large body of opinion that says better a flawed process than no process at all. Many in the corporate recovery profession in Hong Kong are of the view that equally important are the provisions relating to Insolvent Trading, designed to prevent irresponsible directors from running businesses into the ground when they know that there is no prospect of the business avoiding failure.

Over the next few months we’ll be putting out a series of articles looking in more detail at some of the key aspects of the legislation and we would welcome constructive feedback.