On 24 March 2021, Charltons and Perun Consultants presented the second webinar of a 3 part webinar series on Insolvency, restructuring & recovery,focusing on three main areas: (i) informal workouts, including, inter alia, formulating a turnaround plan, doing debt restructuring and/or equity-based restructuring; (ii) court-assisted restructuring, where we will discuss issues relating to Hong Kong schemes of arrangement and also the offshore light-touch provisional liquidator route; and (iii) methods and procedures of different liquidations in Hong Kong.
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RESTRUCTURING OPTIONS
Webinar 24 March 2021
Financial Restructuring Process
Recognise signs of financial distress
Discussed in webinar 1
Perform independent Business Review
Diagnose extent of problem and the viability of the business
Consider debt restructuring options
Identify appropriate solutions, based on exsisting financial posotion and forecasted financing needs
Stakeholder engagement / Formulate Restructuring Plan
Negotiation of terms with lenders and stakeholders
Finalise terms
Implement restructuring plan (workout or cour-assisted)
Complate the proposal and bind all relevant stakeholders
Finanical Advisor engaged to guide the company or advise the lenders / other stakeholders on the company’s proposal
Consensual and Contractual: This workout is comprised of contractual arrangements between a debtor and its creditors.
Advantages:
Flexible and timely preservation of business value
Less regulatory impact
Less costly (no judiciary involvement)
Requirements:
A viable business
Positive attitude towards negotiation
Homogeneity of creditors
Currently there is no formal corporate rescue procedure under Hong Kong Law. Pursuing workouts or schemes of arrangement are the two main ways by which a Hong Kong company in financial distress may restructure its debts.
Financial Position, Projections and Formulate Turnaround Plan
First step, perform an Independent Business Review (“IBR”) to diagnose the extent of the problem:
What is the financial position of the company?
What are the short-term cash needs?
What are the issues / drivers of underperformance?
What are the prospects?
What are the interests of key stakeholders?
Normally, a financial advisor (“FA”) would assist to review the business and prepare the IBR.
Review the Balance Sheet
Example Initiatives:
Redundant asset? Capable of disposal?
Monetise?
Deferral? Rebate?
Pooling? Repatriation?
Deferrals? Reduction schemes?
Reduce payments?
Review P&L Forecast
Critique the underlying drivers, including the basis of assumptions adopted into the forecast.
Assess the business’ financing needs and most appropriate capital structure for the business going forward.
Formulate a Plan
After performing the IBR, the FA would work out the appropriate restructuring plan, which comprises a cashflow forecast and considers the company’s repayment capacity.
Typically, a restructuring plan will have two elements:
To demonstrate that the company is proactively taking action to improve performance and cash flows.
Proposed financial restructuring itself.
A creditor committee would be established to provide oversight to the restructuring process.
Formulate a Plan
Key considerations:
Early intervention to restructure and communication with stakeholders is key
Think flexibly to deal with uncertainties
Fallback planning
Determine a sustainable level of debt
Debt Restructuring Options
There are a few debt restructuring options to help generate or preserve cash, generally falling within the following considerations:
Reschedule debt or amend other terms
Raise new finance on better terms
Write off or convert debt to equity
Aim:
Identify the relevant options available to the business, based on existing financial position and forecasted financing needs.
Debt Restructuring Options
Various debt restructuring options include:
Interest waiver / haircuts
Payment holidays / rescheduling / term extensions
Refinancing / new bond issue
Bridge or debtor in possession loan
Debt to equity swap
Securitisation of receivables
Sale and leaseback of assets
Granting securities over assets
A debtor may seek to alleviate financial difficulty and raise funds to service outstanding debt by:
negotiating new loan or margin facilities with new or existing lenders; and/or
negotiating with existing lenders to increase their commitments.
Typically, a creditor would likely require:
the creation or addition of new or further security over assets of the debtor; and/or
renegotiation of terms of any existing security package/arrangements, such as adjustment of loan-to-value ratios, if any.
Determining which assets to pledge/charge as security
Where secured financing is considered a feasible option, the debtor would need to determine which assets could be used to provide additional security to, and may potentially be acceptable, to the lender.
Some non-exhaustive include, inter alia:
whether the creation of new security would result in a breach of existing contractual undertakings
whether the creation of new security may materially impair its future capital raising capability
the implications of potentially losing control of the assets being pledged/charged to the business and operations of the debtor/debtor group
possible alternatives to creating security over unencumbered assets:
create security over proceeds of the loan or existing credit support from affiliates
contractual subordination of security over secured assets
for listed issuers, any legal or regulatory implications (to be discussed in webinar 3)
Forms of security over assets
For Immovable property : common forms of security include legal mortgage, equitable mortgage and fixed charges
For Movable property : common forms of security include mortgages, fixed charges and floating charges.
Immovable property / real estate (land and buildings)
typically taken by way of legal mortgage, which involves a transfer of title with a right of the mortgagor’s equity of redemption
mortgagor is typically permitted to continue to occupy the property
formalities include execution of a conveyance deed as well as registration with the Companies Registry (if the land is owned by a Hong Kong registered company) and Land Registry within one month of creation of security
Tangible movable property (office equipment, inventories, aircraft and vessels etc.)
typically taken by way of:
legal mortgage
floating charge, which crystalises into a fixed charge upon occurrence of certain pre-agreed events
these forms of security permit the debtor to continue to use and deal with the property
formalities include: entering into mortgage/charge; and filing of mortgage/charge with the Companies Registry, or other applicable other registries (such as the Shipping Registry of the Marine Department in respect of a mortgage over registered ships and vessels)
Equity and debt securities
typically taken by way of:
mortgage
for unlisted companies only, unless shares are not in CCASS
the mortgagor must transfer legal title to shares which is then recorded in the register of members of the company
charge
the legal title is retained with the charger
delivered for perfection of security:
share certificates
pre-executed but undated instruments of transfer, bought and sold notes, irrevocable proxy, undertakings and written resolutions (and in some cases, directors resignation letter) to effect a transfer of shares are delivered
Equity and debt securities (cont’)
for listed shares (the share certificates of which are deposited into CCASS), security would typically be created by:
charging shares in the securities account together with a notice to the broker
arranging shares to be transferred to securities account of the chargee or its nominee
for thinly capitalised special purpose vehicle (SPV) set up to hold certain of the debtor’s assets, consider whether intragroup loans advanced by the debtor to the SPV would need to be subordinated to the loans being advanced, or security taken thereon, by the lender
Claims and receivables (cash deposits, trade receivables, rights of payments under contracts/ insurance proceeds etc.)
security typically taken by way of:
fixed charge
if chargee does not have control over the proceeds of debt, then it would be a floating charge until crystalisation
assignment
which gives the assignee the right to take action against the debtor without joining the assignor
a statutory assignment of rights to debt deemed effectual in law provided that notice in writing has been given to the relevant debtor or other persons from whom the assignor would have been entitled to receive or claim the relevant debtor. Therefore, a creation of a charge is preferred where giving written notice is not desirable
formalities for perfecting security: registration with the Companies Registry (NB: charge over cash deposits does not qualify as book debts and is not registrable)
registration with relevant registry of the Intellectual Property Department (i.e. Trade Mark Registry, Patents Registry or Designs Registry)
Which assets to be offered as security and what form?
Both legal and commercial considerations should be taken into account. For example:
complexity and formality involved in creating security over assets in foreign jurisdictions (e.g. notarization or certificate requirements and applicable requirements concerning creation of charge over real property)
feasibility and commercial implications of sending of written notices to counterparties (such as banks, brokers, customers and clients) involved in creation of security by way of assignment
Lender due diligence and syndication
lender due diligence: conducting of legal and financial due diligence as well as issuance of legal opinions (concerning, inter alia , the good standing of the borrower, ownership and title over relevant assets, absence of restrictions imposed by constitutional documents on creation of security, fulfilment of legal requirements for perfection of security etc.)
syndication: where there is more than one lender, then it would be preferable for syndication of loans as well as security (to be managed by a security agent in many cases) to facilitate the performance of the relevant loan documentation and security arrangements
Capitalisation of the company
sometimes financial difficulties arise as capitalisation of the company does not support the operational growth of the business (for example, where the company is attempting to fund long-term assets with short-term sources of financing)
where a company in financial distress has a reasonable prospect of being sustainable, it may consider seeking investments from existing shareholders or third parties (in particular, from firms which specialise in investing in distressed assets)
Considerations for equity investors of distressed companies
events on the horizon which may change the nature or increase the value of the investee company strategy for cashing out (e.g. earning of capital gains from repricing upon exit, or exercise of put options granted etc.) heightened risks involved in the investment in a distressed company and associated costs and tradeoff given scarce resources
if the investor is in the same industry:
whether they can benefit from mutual cooperation negotiated on favorable terms
whether they can acquire access over valuable assets
whether they can consolidate market share (i.e. sometimes opportunistic or predatory in nature)
Prospective investors
Potential investors may include:
persons/entities the company are familiar with (such as existing shareholders, creditors, suppliers or customers), and
investment banks, financial advisers and private equity funds who may be interested in investing themselves or may assist in placing securities of the company to other investors
The company should have a clear understanding of the investment objectives of the investors i.e. whether:
they would merely be passive investors seeking financial returns (require information access, participation in matters which affect interest etc.)
they would have strong views of the business operations or vision of the company (i.e. request participation in or overhaul of management and operations, reorganisation and other terms and conditions linked to investments)
Raising funds from existing shareholders
quite often the first choice to seek capital for a company in financial distress
typically does not require material due diligence to be carried out vis-à-vis raising fund from third parties (unless the company is a public or listed company with sufficient analysts coverage, or securities of the company are already part of an investment platform which has conducted operational due diligence)
Some common methods:
Rights issue
Seeking shareholders’ loan from existing shareholders
Rights issue
an offer by way of rights to existing shareholders which gives right to subscribe securities pro rata in proportion to their shareholdings
no shareholders’ approval is required
no prospectus is required to be registered in Hong Kong and no authorisation from the SFC is required
formalities:
board meeting/written resolutions to approve rights issue
circulation of rights issue document (offer and acceptance forms)
tendering of acceptance letters and subscription forms by accepting shareholders
submission of return of allotment by the company in respect of the allotment
issuance of share certificates and updating of register of members
Seeking shareholders’ loan from existing shareholders
straight loans, secured loans or convertible loans from existing shareholders based on agreed terms
however, company would have accrued more repayable debt (i.e. no improvement in financial position)
if the debt is unsecured, the loans are junior debts ranked in lower priority of distribution in case of a liquidation
tax implications: interest income for the shareholder and any waiver of shareholders loan would be taxable in Hong Kong
formalities:
board meeting/written resolutions to approve the shareholders loan
execution of loan and security documents
registration of charge and updating register of charge (if applicable)
Capital raising from third parties
Issuance and allotment of shares or securities
Relevant equity which may be offered include:
Ordinary voting shares
under the Companies Ordinance, an issue and allotment of shares (other than pursuant to a rights issue) would require the obtaining of prior shareholders’ approval and such approval may be by virtue of a general mandate or a specific mandate
Formalities include: entering of subscription agreement/application letter, filing of a return of allotment with the Companies Registry, issuance of share certificates and updating of register of members.
Preference shares
carry a preferential right to dividends and/or distributions in a liquidation ranking ahead of ordinary shares
depending on specific terms negotiated:
holders may enjoy other rights not available to holders of ordinary shares (e.g. right to appoint directors, information access rights etc.)
holders may or may not enjoy voting rights
may be redeemed by the company or converted into ordinary shares by the holders at a later date
where no existing preference share class, or a new preference share class with different rights is required, then amendment of the articles of association approved by shareholders and filings to the Companies Registry would be necessary
Convertible bonds
debt instruments issued by a company which can carry an option for the bonds (exercisable by the bond holder or the company upon the occurrence of certain events) to be converted into shares of a company at an agreed price
particularly attractive instrument for investors as gives the investor:
a fixed rate of return (debt component): fixed rate coupon and return of capital upon maturity
an embedded equity call option (equity component): equity upside potential in the ordinary shares of the company
preference ranking ahead of ordinary and preference shares in a liquidation of the company.
Benefits to the company
investors typically accept a lower interest rate than plain vanilla bonds given the added value of the option (or optionality)
the company would not be required to repay its borrowings upon exercise of the embedded option
early redemption rights may be negotiated to bring an end to giving up of control of shares (typically at a premium however to compensate the investor).
However, the forward selling of ordinary shares which may lead to dilution of existing shareholders’ stake may put pressure on the company’s share price and impair future capital raising
Key terms of convertible bond
Credit protection
negative pledge against the carrying out of certain activities
acceleration of repayment upon certain events of default (such as failure to pay coupon)
Mechanisms to protect the equity call option’s value
adjustments to conversion price in the event of capital reorganisations, dividend payments, distributions of cash or non-cash assets to shareholders or further issuance of shares at an undervalue
optionality adjustments
Formalities involved in an issuance of convertible bond include:
entering into of convertible bond instrument
obtaining of board and shareholders’ meeting to approve the allotment of convertible bonds as well as the shares to be issued and allotted upon exercise
filing of return of allotment of debentures to the Companies Registry and further filings of return of allotment of shares upon exercise of embedded equity option
In all of the above capital raising options, the company should review its existing contractual undertakings binding on it when considering the method of raising capital
Adjustment to dividend policies or undertakings for retention of capital
dividend policies entrenched in articles of association of company or provisions in shareholders’ agreement binding on company may payment of dividends based on a predetermined pay-out ratios
such binding obligations makes any debt restructuring or fund raising of the company unappealing as capital contributed or any latitude granted are not retained or utilised to ensure the sustainability or future profitability of the business of the company
Therefore, necessary for any restructuring proposals to include a moratorium on dividend payments. This may involve:
the passing of special resolutions to make amendment to the articles of association of the company if the relevant dividend payments are entrenched in its articles
the obtaining of waiver of rights to dividend payments if the relevant rights are contained in shareholders or joint venture agreements
Pre-empting necessity to adjust dividend policies or payouts
declaration of dividends would only be permissible in compliance with applicable laws
Companies Ordinance require that distributions may only be made out of distributable profits, and not out of capital
distributable profits mean accumulated and realised profits (including profits arising from revaluation of assets and financial instruments) which has not been utilised under relevant accounting principles, less any accumulated and relised losses which has not been written off
as such, distribution of dividends would naturally be restricted in the event a company is in financial distress due to accumulation of material loss or otherwise
Pre-empting necessity to adjust dividend policies or payouts
dividend policies should specify that any decision to declare dividends should be subject to directors’ discretion in the exercise of their fiduciary duties and duties of care and diligence
the dividend policies may state clearly that in determining whether to make any dividends, the directors are empowered to consider:
the company’s immediate cash flow implications
continuing ability to pay its debts as they fall due
capital commitments/expenditures (which may be important for the implementation of its strategy and future development)
any other factors which the board may deemed to be relevant
Court-Assisted Restructuring
Within a legal framework and statutory process, the advantages are:
Moratorium
Majority to bind minority creditors
Shareholders’ consent not required
Provides transparent forum for multi-party negotiations
Fewer chances of lender liability actions
Less risk for directors re insolvent trading
Recognition by foreign courts
Corporate Rescue in Hong Kong
No tailor-made statutory corporate rescue mechanism, despite there being discussions over the past 20 years for implementing a new statutory procedure, Provisional Supervision, specific for corporate rescue
Much needed: Allow viable businesses facing short term financial difficulty to have a grace period “moratorium,” and a more timely/less costly statutory framework to restructure their business and debts (or seek a white knight)
Corporate Rescue in Hong Kong
Current Solution for HK Companies:
Only way of binding dissenting creditor is by way of a scheme of arrangement , Part 13 of the CO.
Usually before a scheme for the purposes of restructuring of financially distressed companies is considered, provisional liquidators would have already been appointed to the company pursuant to section 193 of the C(WUMP)O on the backdrop of a winding up petition against the company having been filed and there is a risk of asset dissipation before the winding up hearing.
Once appointed, provisional liquidators may be granted powers to explore corporate rescue options, that are then implemented via a scheme of arrangement
Schemes of Arrangement
Legal requirements and practical considerations:
A statutory procedure where a company makes an arrangement with its members or creditors
Unanimity of creditor support not required
Binding on all creditors if voted on and accepted by all the various classes of the company’s creditors
Threshold: >50% in number and >75% in value of each class
Court approval (i) to hold meeting (ii) to sanction scheme once voted by creditors
Schemes of Arrangement
4-stage process
Proposal (Key)
Completion of the Proposal (Key)
Implementation
Termination
Stage 1: Formulate Proposal
With assistance of professional advisors (insolvency and legal practitioners), put together a proposal to be presented to its creditors and shareholders.
The proposal should seek to compromise debts with a view to the business continuing to operate (often under new ownership)
Creditors prepared to accept less than amount they are owed, in full and final settlement of their claim against the company, on the premise that the compromise would yield a better return than the alternative scenario of the company’s liquidation.
Stage 2: Completing the Proposal
Proposal Document contains:
Background of the company’s affairs leading to current difficulties;
Statutory information and accounting history of the company;
Proposals for resolving its financial difficulties (including any change in control of the company);
Terms and conditions governing the operation of the scheme, creditors’ classes, issues relating to the meetings of creditors and shareholders, and distributions ie nuts and bolts of how the scheme will work.
Ie must properly and fairly explain the reasons and purposes behind the scheme and contains all the necessary provisions to enable the scheme to proceed.
Stage 2: Completing the Proposal
Obtain agreement of the court on the Proposal Document and to hold meetings of the respective classes of creditors and shareholders
Send Proposal Document to creditors and shareholders with the notices of meetings
Present proposal to shareholders and creditors at the approved class meetings for voting. Threshold to approve: >50% in number and >75% in value at every class meeting
This process ensures that shareholders and creditors are provided with all the necessary information to enable them to make an informed decision on whether to accept or reject the proposal
Stage 2: Completing the Proposal
Principle of classes:
Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings.
Test: similarity or dissimilarity of legal rights against the company.
The fact that individuals may hold divergent views based on their private interest not derived from their legal rights against the company is not a ground for calling separate meetings.
The question is whether the rights to be released/varied/given under the scheme are so different that the scheme must be treated as a compromise or arrangement with more than one class
Stage 2: Completing the Proposal
Sanction Hearing
Not a rubber stamp
Court considers whether the necessary statutory requirements have been met, in particular:
Whether classes of creditors properly construed;
Be satisfied that each class has been fairly represented and has voted bona fide in the genuine interests of the class (no coercion for members of a particular class to vote a particular way); and
That there were no irregularities at the scheme meeting.
Stage 3 and 4: Implementation and Termination
File court order arising from the sanction hearing with the Registrar of Companies to achieve the final approval of the scheme
Scheme administrator implements the provisions of the scheme
Once the scheme is implemented and completed, the scheme administrator will file a notice with the Registrar of Companies stating that the scheme has been concluded
Schemes of Arrangement
Pros:
Only statutory mechanism available to bind dissenting creditor
Cons:
No moratorium (encourages strategic behaviour by small individual creditors against the best interests of the general body of creditors)
Separate approval by each different classes of creditors – what is a class needs to be carefully defined (provoked considerable litigation in the past)
Substantially court driven, takes several months and costly. (A company needs to be of a certain critical mass before it is cost effective to consider a scheme)
HK Companies: Use of Provisional Liquidation to Effect Corporate Rescue
Relationship between provisional liquidation and proposed restructuring:
Section 186 of C(WUMP)O: no action or proceeding shall be proceeded with or commenced against the company once placed in provisional liquidation except by leave of the court
It achieves a “de facto moratorium” to allow the company breathing space to formulate a restructuring proposal to present to creditors
Prevents any individual creditor from acting against the interests of creditors as a whole
HK Companies: Use of Provisional Liquidation to Effect Corporate Rescue
Requirements and considerations:
Winding up petition on foot (presented by creditor)
Company is insolvent
Degree of urgency
Risk of dissipation of assets
No winding-up order has been made
PLs cannot be appointed by the company solely for corporate rescue in HK. The sole purpose of contemplating a restructuring does not fall within the intention of s193 of C(WUMP)O
HK Companies: Use of Provisional Liquidation to Effect Corporate Rescue
Proposed legislative amendments to s193(1) of C(WUMP)O:
“The court may appoint a liquidator provisionally at any time after the presentation of a winding-up petition and before the making of a winding up order in respect of a company, on such grounds as the court thinks fit, including on the grounds that the company intends to present a compromise or arrangement to its creditors .”
Further proposed: the court should be able to make a PL order upon an application by a company’s directors
Application to the court in the relevant offshore jurisdiction by the company for lighttouch PLs to be appointed
Obtain recognition of the PLs’ appointment in HK via a Letter of Request from the offshore court. Decisions from the Hong Kong Court indicate that the court does have jurisdiction at common law to recognise the powers and assist the work of an offshore light-touch PL in HK
Powers and duties:
Light-touch PLs are granted with limited powers necessary to contemplate a restructuring plan on appointment
The directors remain in day-to-day control of the affairs of the company
Liquidation: Modes and Procedures
Solvent Companies – business having fulfilled its purpose (members control)
Option 1: Deregistration (Part 15, Div 2 of CO)
Does not incur professional fees
Criteria:
All members agree to the deregistration
Company has not carried on any business during the three months immediately before the application
Company’s assets do not consist of any immovable property situate in HK
Process:
Must wait for tax liability to be crystallised and settled from surplus cash
Distribute remaining cash amongst the shareholders
Application to the Companies Registrar in specified the form accompanied by the prescribed fee and tax clearance
Application to the Companies Registrar in specified the form accompanied by the prescribed fee and tax clearance
Time frame: approx. 9-12 months
Liquidation: Modes and Procedures
Solvent Companies – business having fulfilled its purpose (members control)
Option 2: Members’ Voluntary Winding Up (Part V, Div 3, Subdivisions 4 of C(WUMP)O)
Engage an independent professional (usually accountants or lawyers) to take on the role as a liquidator to wind up the affairs of the company
Winding up and appointment of liquidators effected by the passing of a shareholder’s resolution + directors’ declaration of solvency
Process—key tasks for liquidator to attend to:
Deal with any remaining assets
Call for creditors to come forward by claims bar date (usually 1 month), adjudicate and pay off any creditors with valid claims, including the IRD
Obtain tax clearance
Distribute any surplus assets to shareholders
Attend to various statutory filings with the Companies Registrar, including
Professional fees and expenses of the liquidation: to be agreed with the company and paid as a fixed fee before commencement of liquidation
Time frame: approx. 7-12 months
Liquidation: Modes and Procedures
Insolvent Companies (creditor control)
Option 1: Creditors’ Voluntary Winding Up (Part V, Div 3, Subdiv 5 of C(WUMP)O)
Winding up effected by the passing of a shareholders’ resolution
Appointment of liquidators to be approved by creditors at the first meeting (usually held on the same day but within 14 days of shareholders’ resolution)
Process: key tasks for liquidator to attend to:
Investigate, take control of and liquidate the company’s assets
Call for creditors to come forward by claims bar date and adjudicate claims
Keep creditors abreast on the progress of the liquidation, including holding of creditors or creditor committee meetings
Distribute proceeds from asset realisations (net of liquidators’ fees and expenses) in accordance with the statutory priority distributions as set out in section 265 of C(WUMP)O.
Professional fees and expenses of the liquidation are to be paid out of the assets of the company in priority to all other claims (s256 of C(WUMP)O)
Time frame: approx. 9-12+ months depending on size and complexity
Liquidation: Modes and Procedures
Insolvent Companies (creditor control)
Option 2: Court Liquidation (Part V, Div 2 of C(WUMP)O)
Process to commence winding up:
Petition to the court by either the company, creditor or shareholder, under the circumstances as specified under s177, including the company being unable to pay its debts (definition per s178)
Should there be a risk of assets dissipation prior to the winding up hearing, the court may appoint a provisional liquidator with limited powers to preserve the company’s assets until a liquidator is appointed (should the winding up application be approved and a winding up order made at the winding up hearing, s193)
Liquidation: Modes and Procedures
Insolvent Companies (creditor control)
Option 2: Court Liquidation (Part V, Div 2 of C(WUMP)O)
Appointment of liquidator upon a winding up order being made at the winding up hearing (s194):
Unless a s193 PL has been appointed prior to the hearing, the Official Receiver automatically becomes the PL until such time she appoints another person as PL (assets < HK$200,000) or the liquidator is appointed
The PL shall then summon separate meetings of shareholders and creditors for the purpose of determining whether an application is to be made to the court for appointing a liquidator
If the creditors/shareholders do not pass a resolution or if there is a difference in determinations at the meetings, the court shall decide and make such order as the court may think fit
Where the official receiver is the liquidator, he may at any time apply to the court for the appointment of a person as a liquidator in his place
Where a winding-up order has been made or where a PL has been appointed, the liquidator/PL shall take into his custody and control, all property of the company (s197)
Liquidation: Modes and Procedures
Powers and duties of the liquidator (s199):
Without court’s sanction (Part 3 of Schedule 25), including:
Appoint an agent or solicitor to assist in performing his/her duties
Sell the real and personal property and things in action of the company, with power to transfer such property to any person or company
Do all other things as may be necessary for winding up the affairs of the company and distributing its assets
Only with court’s sanction (Part 1 and 2 of Schedule 25), includes:
Pay a class of creditors in full
Make a compromise or arrangement with creditors or persons having or alleging to have any claim against the company
Bring or defend any action or other legal proceedings in the name and on behalf of the company
Carry on the business of the company so far as may be necessary for its beneficial winding up
The liquidator shall have regard any directions that may be given by resolution of the creditors, members at any general meeting or by the committee of inspection, and may apply to the court for directions in relation to any particular matter arising under the winding up (s200)
Liquidation: Modes and Procedures
s256 and s265 Priority Distributions, broadly summarised as follows:
First, all costs, charges and expenses properly incurred in the winding up
Second, employees:
Outstanding wages and salaries, including any payment from the Protection of Wages on Insolvency Fund (not exceeding HK$3,000 per employs)
Severance payment payable under the Employment Ordinance (not exceeding HK$6,000 per employee)
Long service leave payment payable under the EO (not exceeding HK$8,000 per employee)
Employee compensation under the Employee’s Compensation Ordinance accrued
Wages in lieu of notice (not exceeding the lesser of one month’s wages or HK$2,000 per employee)
All accrued holiday remuneration payable on termination
