HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
of the secured asset, and claims and obligations that attach to or arise from ownership of the asset do not pass to the secured creditor that is enforcing its security. For example, a secured lender enforcing its security over shares in a company by appointing a receiver to exercise the power of sale should not be liable for obliga - tions of the secured company to it employees. Generally speaking, under Hong Kong’s envi - ronmental laws and regulations, the occupier of a property will have primary responsibility for complying with such laws and regulations. This means that, where a secured lender simply holds the benefit of the security, it is not likely to be in the firing line when it comes to environmental liability in Hong Kong. However, for the same reason, caution will need to be exercised where the secured lender is planning on taking pos - session of the property which will result in the lender effectively becoming the occupier and exercising operational control of the property in question. 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes One of the in-court insolvency processes avail - able to lenders is a compulsory liquidation where the company is wound up by the court. The typi - cal ground for winding up of a company in an insolvency scenario is the inability of the com - pany to pay its debts, although this is not the only ground on which a court has the discretion - ary power to order a company to be wound up. The commencement of winding up proceedings does not have any effect on the lender’s right to enforce its loan, security or guarantee, as it may still proceed to do so while the proceedings are ongoing, unless that loan, security or guarantee
is not valid or liable to be set aside under one of the grounds for voidable transactions further discussed in 7.6 Transactions Voidable Upon Insolvency . There is no automatic or formal moratorium which comes into effect upon the commence - ment of winding-up proceedings under Hong Kong law, unless a provisional liquidator is appointed. However, once a winding-up petition is presented, the company which is the subject of the insolvency proceedings as well as any creditor or persons obliged to contribute to the assets of the company may apply to the court for a stay of proceedings. This means that in prac - tice, there may be a moratorium against legal claims and proceedings being brought against the company between the commencement of the winding up proceedings and the making of the winding up order. This does not, however prevent a secured creditor from enforcing its security. Other categories of in-court insolvency pro - cesses are a members’ voluntary liquidation (in respect of solvent companies) and a creditors’ voluntary liquidation. Both of these procedures are initiated by the company (at least initially) and are not as relevant for present purposes. 7.2 Waterfall of Payments Creditors are typically paid in the following order on a company’s insolvency. • First, secured creditors are entitled to the proceeds of the sale of their secured assets (subject to the receiver’s costs and expenses being paid from the proceeds of the sale). If the proceeds from the sale of the secured assets are insufficient to satisfy the debt in full, the secured creditors are entitled to claim
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