HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
• that person is one of the company’s creditors or a surety or guarantor for any of the com - pany’s debts or other liabilities; and • the company does anything or suffers any - thing to be done which has the effect of put - ting that person into a position which is better than the position it would have been in if that thing had not been done, and the company was influenced, in deciding to give that unfair preference, by a desire to procure the effect under the second bullet point above. It is also necessary for the liquidator to estab - lish that at the time the preference was given, the debtor company was, or became in con - sequence of the transaction, unable to pay its debts (within the meaning of Section 178 of the CWUMPO). Avoidance of Floating Charges (Sections 267 and 267A CWUMPO) To the extent a security document creates a floating charge over the assets and undertak - ings of a company, the floating charge may be partially or wholly held to be invalid. If it is cre - ated within the period of 12 months ending with the day on which the winding up of the company commences and the company, at the point of creation, or in consequence of the transaction pursuant to which the charge is created, is una - ble to pay its debts (within the meaning of Sec - tion 178 of the CWUMPO). However, the floating charge survives to the extent of (i) the amount of any new money paid to, or at the direction of, the chargor at the time of, or subsequent to, the creation of the float - ing charge; or (ii) any property or services sup - plied to the company at the same time as, or after, the creation of the floating charge. In each case, interest is payable under the terms of the
charge or the underlying transaction document at the lesser of the rate specified in the charge or transaction document and 12% per annum. The look-back period is extended from 12 months to two years if the floating charge is cre - ated in favour of a person connected with the company as defined in Sections 265A(3), 265B and 265C of the CWUMPO. Extortionate Credit Transactions (Section 264B CWUMPO) A liquidator may challenge a transaction where credit was provided to the insolvent company on the grounds that it was an extortionate transac - tion. The liquidator or administrator will need to establish that: • the transaction was entered into in a period of three years ending with the day on which the company went into liquidation; and • having regard to the risk accepted by the credit provider, the terms of the transaction were such as to require grossly exorbitant payments to be made in respect of the provi - sion of the credit or it otherwise grossly con - travened ordinary principles of fair dealing. Fraudulent Conveyance (Section 60 CPO) Any disposition of property made with intent to defraud creditors is voidable on the application of any person prejudiced by the disposition. 7.7 Set-Off Rights Set-off on insolvency is recognised in Hong Kong. There must be a mutuality in respect of obligations, dealings or credits between the creditor and the debtor company prior to the commencement of liquidation.
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