Shareholders as Creditors in Hong Kong Corporate Insolvency: Myth or Reality?

Hong Kong Law Journal, Vol. 38, p. 685, 2008

Posted: 13 Jul 2009

See all articles by Anil Hargovan

Anil Hargovan

University of New South Wales

Date Written: 2008

Abstract

The recent landmark High Court decision in Sons of Gwalia Ltd v Margaretic (2007) in Australia has altered the topography of modem Australian insolvency law by recognising distributive equality in the treatment of shareholder and ordinary unsecured creditor claims in certain circumstances. Some commentators fear that the elevation of shareholder claims in Australia may have significant implications for ordinary unsecured creditors in corporate insolvencies in Hong Kong. Australia and Hong Kong share a common legal heritage. In particular, there are identical statutory debt subordination provisions in both jurisdictions which subordinate shareholder claims in favour of ordinary creditors. The article assesses the prospects and possible impact of Sons of Gwalia in the legal treatment of shareholder claims in corporate insolvencies in Hong Kong. A comparative assessment is made, focusing on material differences in the commercial and insolvency landscape between the two jurisdictions and in the enforcement culture of investor protection laws. Such significant disparities lead to the conclusion that the impact on creditors in Hong Kong will be minimal, unless accompanied by other significant legal developments and reforms discussed in the article.

Suggested Citation

Hargovan, Anil, Shareholders as Creditors in Hong Kong Corporate Insolvency: Myth or Reality? (2008). Hong Kong Law Journal, Vol. 38, p. 685, 2008. Available at SSRN: https://ssrn.com/abstract=1432947

Anil Hargovan (Contact Author)

University of New South Wales ( email )

Kensington
High St
Sydney NSW 2052
Australia

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