Insolvent Liquidation in Hong Kong: A Crisis of Confidence

Abstract

Hong Kong is frequently portrayed as a modern international city at the cutting edge of the twenty-first century, the so-called ‘Asian century.’ Yet Hong Kong’s corporate insolvency law remains very much rooted in mid-twentieth century England. One finds in the Hong Kong Companies Ordinance (‘CO’) not only the familiar distinctions between compulsory and voluntary liquidations, but also virtual replicas of the old UK provisions on receivership. Indeed, conspicuously absent from the Hong Kong statute book is any modern corporate rescue regime – despite the best efforts of the Law Reform Commission of Hong Kong in the mid-1990s.

This article seeks to illustrate how regulators and practitioners have, in light of the historical origins of the primary legislation and Hong Kong’s severe economic downturn during 1998-2003, sought to tackle the contemporary realities of insolvent liquidations in Hong Kong. The conclusion the authors reach is that the funding and administrative arrangements now in place for the handling of small- or no-asset insolvent liquidations in Hong Kong are seriously flawed; and, as a result, the integrity of the insolvent liquidation process has been damaged. In short, insolvent liquidation in Hong Kong is facing a grave crisis. The authors propose that the government must immediately re-evaluate the financial arrangements for small- and no-asset cases, with a view to providing for increased levels of investigation of such activity by directors of insolvent companies. Better policing of wrongful or inappropriate activity by directors of insolvent companies will serve as a deterrent to other directors and correspondingly improve corporate governance standards in Hong Kong.