Future of Insolvency Law in Hong Kong

PROGRAMME

Day 1 - 1 June 2023, Thursday

8:50 AM - 9:00 AM

Opening Remarks

Professor Alexander LOKE

City University of Hong Kong, School of Law

Session 1

9:00 AM - 10:15 AM

Incentivising Early-Stage Debt Restructuring for Large Firms: A Study of Hong Kong and some United Kingdom Comparisons

Presenters:

Prof WAN Wai Yee

City University of Hong Kong, School of Law and Project Coordinator, Collaborative Research Fund award

Prof Gerry MCCORMACK

University of Leeds, School of Law

Commentators:

Dr Andrew GODWIN

Australian Law Reform Commission, The University of Melbourne, Melbourne Law School

Ms Tiffany WONG

Alvarez & Marsal Asia Limited

Mr Daniel CHOW

FTI Consulting, Inc.

10:15 AM -10:30 AM

Tea Break

10:30 AM - 11:45 AM

Insolvency Law Reforms in Hong Kong for SMEs

Presenters:

Prof WAN Wai Yee

City University of Hong Kong, School of Law

Commentators:

Dr Stefan LO

The University of Hong Kong, Faculty of Law

Prof Akshaya KAMALNATH [Zoom]

Australian National University, College of Law

Mr Alan HH CHEUNG

Wing United CPA Limited

11:45 AM – 12:00 PM

Tea Break

12:00 PM - 13:15 PM

Panel Discussion: Recent Developments and Future of Insolvency Law reforms in Asia

Mr Sumant BATRA

Insolvency Law Academy, India

Dr Andrew GODWIN

Australian Law Reform Commission, The University of Melbourne, Melbourne Law School

Prof Gerry MCCORMACK

University of Leeds, School of law

Mr WANG Lingqi

Fangda Partners, Mainland China

Ms Tiffany WONG

Alvarez & Marsal Asia Limited

1:15 PM - 2:30 PM

Lunch Break

Session 2

2:45 PM - 4:00 PM

Financing Small and Medium Sized Enterprises in Times of COVID-19 in Hong Kong

Presenters:

Prof MO Lai Lan Phyllis

City University of Hong Kong, Department of Accountancy

Prof LI Che Lan Linda

City University of Hong Kong, Department of Public and International Affairs

Commentator:

Mr Michael LI

Zhonghui Anda CPA

Dr Wilson Chan

City University of Hong Kong, College of Business

4:00 PM – 4:30 PM

Tea Break

4:30 PM - 5:45 PM

Bankruptcy Reforms and Corporate Debt Structure

Presenter:

Dr. QI Yaxuan

City University of Hong Kong, Department of Economics and Finance

Commentator:

Dr Felix STEFFEK [Zoom]

University of Cambridge, Faculty of Law

6:00 PM - 8:00 PM

Dinner (all panelists and commentators)

Day 2 - 2 June 2023, Friday

Session 3

9:30 AM – 11:00 AM

Leases and COVID-19

Presenters:

Dr Kelvin KWOK

The University of Hong Kong, Faculty of Law

Prof Kelvin LOW

National University of Singapore, Faculty of Law

Dr Alwin CHAN

The University of Hong Kong, Faculty of Law

Commentators:

Prof Alexander LOKE

City University of Hong Kong, School of Law

Dr William M.F. WONG, SC, JP [Zoom]

Des Voeux Chambers

11:00 AM – 11:30 AM

Tea Break

11:30 AM - 12:30 PM

Panel Discussion: The Future of Cross-Border Insolvency in Hong Kong

Mr Terry KAN

SHINEWING Hong Kong

Mr Ian MANN

Harneys

Dr Stefan LO

The University of Hong Kong, Faculty of Law

Mr WANG Lingqi

Fangda Partners, Mainland China

12: 30 PM - 12:40 PM

Closing Remarks

Prof WAN Wai Yee

City University of Hong Kong, School of Law

12:30 PM - 1:30 PM

Lunch

Abstract listed in Presentation Order

Incentivising Early-Stage Debt Restructuring for Large Firms: A Study of Hong Kong and some United Kingdom Comparisons

Professor Wan Wai Yee

City University of Hong Kong, School of Law, School of Law

 Professor Phyllis Mo

City University of Hong Kong, School of Law, Department of Accountancy

 Professsor Gerard McComack

University of Leeds, School of Law

Financially distressed companies are more likely to be rescued as going concerns if they enter into debt restructuring early whilst still high up on the ‘demise curve’. In Hong Kong, early-stage non-consensual debt restructuring is effected via the scheme of arrangement. Yet, despite the similarities in the legislative framework, Hong Kong is less successful than the United Kingdom (UK) in using the scheme for early going-concern restructuring as the directors often invoke the scheme only when their company is far down the demise curve. We address the reasons for the difference based on the comparative outcomes of the schemes and interviews with insolvency professionals. Our results show that the reasons are attributed less to the differences in directors’ duties in the zone of insolvency but the perception on how these duties are enforced. Urgent law reform is thus required to incentivise directors to address the problems early.

*** 

Governmental Responses Mitigating the Impact of COVID-19 on Small and Medium-sized Enterprises and the Case for Insolvency Law Reforms in Hong Kong

Professor Wan Wai Yee

City University of Hong Kong, School of Law

The COVID-19 crisis has triggered unprecedented governmental responses around the world to mitigate the effects of the pandemic, with particular attention being given to small and medium-sized enterprises (SMEs). Governments around the world have implemented economic measures in the form of direct subsidies or government-guaranteed loans, and legislated to provide mandatory relief from contractual obligations. In addition, increasing recognition of the limitations of insolvency regime in addressing the crisis for SMEs prompted many jurisdictions to change their laws.

However, consistent with its free market principles, Hong Kong has only adopted economic measures and has provided limited contractual relief in favour of SME tenants. There is no SME-specific insolvency law nor is the Hong Kong government currently considering any such law reform. This paper reviews the need for a temporary insolvency regime to cater to distressed but economically viable SMEs restructure their debts. Drawing on a set of interviews with Hong Kong SME owners, this author finds that they are often unaware of how insolvency law operates, their unsecured creditors are apathetic, and bankruptcy stigmatism is high. Based on a review of the frameworks in the other advanced common law jurisdictions such as the United States, Australia and Singapore, a recommendation for a simplified restructuring and liquidation framework is developed. The process is designed to be simplified and expedited and it incentivises early negotiations with creditors.

***

Financing Small and Medium Sized Enterprises in Times of COVID-19 in Hong Kong

Professor Wan Wai Yee

City University of Hong Kong, School of Law

 Professor LI Che Lan Linda

City University of Hong Kong, Department of Public & International Affairs

 Professor MO Lai Lan Phyllis

City University of Hong Kong, Department of Accountancy

COVID-19 had a devastating impact on small and medium enterprises (SMEs) globally. Hong Kong implemented an Anti-Epidemic Fund (AEF) which aims to address, among others, the financing needs of SMEs through subsidies and government-guaranteed loans. To shed light on the impact of COVID-19 on SMEs and the efficacy of the AEF, we surveyed 486 SMEs in Hong Kong. We find that SMEs are less likely to receive subsidies or guaranteed loans under the AEF if they have lower revenues are more financially fragile. This is the case even though subsidies are payable to businesses in affected industries and not dependent on financial position. Unsuccessful SMEs also report lower number of financing sources and have fewer credit support options. The evidence suggests that AEF is skewed towards benefitting financially sound SMEs that could have met their liquidity needs from the market and does not meet the needs of vulnerable SMEs.

***

Bankruptcy Reforms and Corporate Debt Structure

Dr Xiaotian Liu

Shanghai University of International Business and Economics

Dr Qi Yaxuan

City University of Hong Kong, Department of Economics & Finance

Professor Wan Wai Yee

City University of Hong Kong, School of Law

A growing number of jurisdictions have adopted bankruptcy law reforms to aid debt restructuring. By utilizing a difference-in-differences model based on bankruptcy law reforms across six economically advanced jurisdictions, we discover that firms adopt more diversified debt instruments following the law reforms. This impact is predominantly observed in firms that are more vulnerable to potential tightening of credit supply due to the law reforms. Such firms also decrease their overall debt borrowing and investment. Moreover, we find that affected firms rely less on secured debt, aligning with the idea that these legal reforms diminish the protection of secured creditors. Our findings also indicate that borrowing costs rise and debt maturities shorten after the reforms, implying that creditors may adjust debt contract terms to counterbalance the reduced legal protection. Overall, our analysis suggests that bankruptcy law reforms promoting debt restructuring could potentially negatively impact credit supply and impede the debt financing of some types of firms.

***

Leases and COVID-19

Dr Kelvin KWOK

The University of Hong Kong, Faculty of Law

Prof Kelvin LOW

National University of Singapore, Faculty of Law

Dr Alwin CHAN

The University of Hong Kong, Faculty of Law

COVID-19 has posed challenges for many business tenants in Hong Kong and abroad. Given the significant business disruption, many tenants struggled to breakeven and fell behind in payments. This paper explores the application of the common law contractual doctrines of frustration and remedies to leases in situations of business disruption. It argues that the doctrines apply unfavourably towards tenants, calling for potential legal reforms to better protect tenants in similar situations.