HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
7.4 Rescue or Reorganisation Procedures Other Than Insolvency There is no statutory basis for corporate reha - bilitation or corporate rescue in Hong Kong. The key company rescue or restructuring procedures outside of insolvency proceedings in Hong Kong are as follow. Informal Workouts A workout is an entirely voluntary process avail - able at any time through which the company and its creditors agree to vary the terms of the financings and any security arrangements on a negotiated basis. Under an informal workout, the management of the company typically does not change, and following the agreement of the terms of the workout, the company will continue operating on the basis of the terms of the newly agreed arrangements. Schemes of Arrangement A scheme of arrangement is a legally binding arrangement or compromise arrived at between a company and its creditors (or a class of them) and which must be approved by the court. A scheme of arrangement is available to compa - nies at all times and insolvency is not required. In general, a proposed scheme of arrangement has to be approved by all classes of affected creditors before coming into effect. The scheme has to be approved by at least 75% in value and more than 50% in number of each class of creditors voting. The key advantage of a scheme of arrangement is that, provided the requisite majority in each class of creditors approves a scheme, that scheme may be used to restruc - ture the claims of both secured and unsecured creditors. A scheme administrator will typically be appointed to monitor the implementation of the scheme.
as unsecured creditors for the balance of the unpaid debt. • Second, payment of the costs and expenses of winding up, as well as payments to prefer - ential creditors such as employees (in respect of payments related to wages, provident fund, severance, long service and employee com - pensation) and the government. • Third, floating charge holders are entitled to the proceeds of the sale of the assets subject to the floating charge, but only after all prefer - ential claims have been met. • Fourth, any remaining surplus will be shared across the unsecured creditors on a pro rata basis in the event the surplus is insufficient to meet all of their claims • Finally, any remaining balance is distributed to shareholders. 7.3 Length of Insolvency Process and Recoveries The time taken to complete an insolvency pro - cess in Hong Kong depends on the particular facts of each case, including the complexity, size, type of business and assets involved, the type of insolvency process and the amount of time that may be spent attempting any potential restructuring plans, workouts or corporate res - cue, before resorting to an insolvency process. A key determinant of the timescale is also the type of stakeholders involved on the debtor side and their willingness to achieve a swift resolu - tion. Although not an insolvency process, there is no prescribed timeframe for a scheme of arrange - ment, but great speed can be achieved with willing and well-advised parties. A general ref - erence for a relatively straightforward scheme of arrangement for an uncomplicated business is three to six months.
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