Rescuing Hong Kong Companies with Provisional Supervision: Proposals that Workers and Management Can Support

17 Pages Posted: 8 Jun 2010

See all articles by Charles D. Booth

Charles D. Booth

Institute of Asian-Pacific Business Law, William S. Richardson School of Law, University of Hawaii at Manoa; University of Hawaii at Manoa - William S. Richardson School of Law

Trevor Lain

University of Hawaii

Date Written: May 24, 2010

Abstract

Hong Kong lacks a statutory corporate rescue regime, despite repeated attempts at legislative reform beginning with the the Law Reform Commission’s 1996 recommendations. But each attempt to pass a version of so-called “provisional supervision” failed, mainly due to irreconcilable views of diverse stakeholders on the treatment of labour claims, and in particular on the feasibility of full satisfaction of labour claims as a precondition to entering provisional supervision. In October 2009 the government of Hong Kong tried once again to bridge the differences with proposals set forth in a consultative paper entitled, Review of Corporate Rescue Procedure Legislative Proposals, issued by the Financial Services and Treasury Bureau (FSTB). On 22 January 2010 at the University of Hong Kong, the authors convened a symposium of stakeholders to discuss and comment on the consultative paper. Underscoring the importance of corporate rescue legislation, stakeholders responded enthusiastically. and endeavored to overcome historical impasses with fresh ideas on the treatment of labour claims. The attendees also welcomed a proposal by the authors, that Hong Kong consider adopting a “hybrid” debtor-in-possession (“DIP”) approach to corporate reorganization that would allow management in certain cases and with creditor approval to continue administering the debtor during the statutory rescue process. Following the symposium, the FSTB invited the authors to draft a paper discussing the various proposals on the treatment of labour claims that emerged at the symposium, and to provide a more detailed discussion of the hybrid DIP approach. In this article, submitted to the Hong Kong Law Journal, the authors seek to relay to a broader audience the comments and proposals they initially expressed in their submission to the FSTB. This paper reviews the history of corporate rescue legislation reform attempts in Hong Kong, then discusses the merits and demerits of various proposals for dealing with labour claims, and finally presents and discusses the merits of a hybrid debtor-in-possession approach to corporate rescue. The authors argue that without a DIP option, many companies in distress will not avail themselves of provisional supervision, and that, in many if not most cases, a punitive approach to management is not merited and thwarts the intended goal of a corporate rescue regime.

Keywords: Corporate Rescue, Reorganization, Restructuring, Provisonal Supervision, Hong Kong, Debtor-In-Possession

JEL Classification: G33, G34

Suggested Citation

Booth, Charles D. and Lain, Trevor, Rescuing Hong Kong Companies with Provisional Supervision: Proposals that Workers and Management Can Support (May 24, 2010). Available at SSRN: https://ssrn.com/abstract=1615155 or http://dx.doi.org/10.2139/ssrn.1615155

Charles D. Booth

Institute of Asian-Pacific Business Law, William S. Richardson School of Law, University of Hawaii at Manoa ( email )

University of Hawai'i at Manoa
2515 Dole Street
Honolulu, HI 96822-2328
United States

University of Hawaii at Manoa - William S. Richardson School of Law ( email )

2515 Dole Street
Honolulu, HI 96822-2350
United States

Trevor Lain (Contact Author)

University of Hawaii ( email )

Honolulu, HI 96822
United States

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