The New Avoidance Powers Under Hong Kong Insolvency Law: A Move from Territoriality to Extraterritoriality

Abstract:     
The Hong Kong Bankruptcy Amendment Ordinance of 1996 was enacted in December 1996 and finally came into operation on April 1, 1998. The ordinance overhauled Hong Kong bankruptcy law for the first time in over a century. It provides for major amendments to the Hong Kong Bankruptcy Ordinance and consequential amendments to other ordinances, including the Hong Kong Companies Ordinance. The changes include substantial amendments to the avoidance powers exercisable by a trustee in a bankruptcy, and a consequential amendment to one of the avoidance powers exercisable by a liquidator in a winding up. The new avoidance powers are modeled on, and in many parts copied verbatim from, the bankruptcy avoidance powers set out in sections 339 to 343 of the United Kingdom Insolvency Act of 1986. Whereas the old avoidance powers were generally regarded as having only domestic effect and not applying to transactions occurring outside Hong Kong, recent judicial decisions in England have held that the relevant U.K. sections do have extraterritorial effect. Thus, one of the likely consequences of the recent amendments to Hong Kong law is that Hong Kong avoidance powers now have extraterritorial effect.

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