(a) Are there any recent, imminent or proposed legislative, administrative, or practical reforms or developments or proposals in the legal system of this economy which impact upon the matters mentioned above?

As noted at the outset, Hong Kong insolvency law is in a state of flux. Major changes were made to Hong Kong bankruptcy law through the BAO, which finally came into operation on 1 April 1998. A bill is in the process of being drafted regarding provision supervision and will be enacted sometime in 1999.

Most recently, in April 1998, the Sub-Committee on Insolvency issued its Consultation Paper on the Winding-Up Provisions of the Companies Ordinance. Among the relevant recommendations of the sub-committee are the following (which are drawn from the Executive Summary of the Consultation Paper):

• That the law regarding bankruptcy, winding up, provisional supervision, receivership, and the disqualification of directors (and perhaps members' voluntary winding-up) should be brought together in a separate Insolvency Ordinance.
• That a two-tier system for the licensing of insolvency practitioners should be established, with greater experience required for work as liquidators in liquidation, receivership, provisional supervision, and bankruptcy than for work in members' voluntary winding up and individual voluntary arrangements in bankruptcy.
• That some changes should be made to the law affecting company directors, including the following: that share repurchases by a company within a year of winding up should be avoidable; that it should be a contempt of court for a director to fail, without providing reasonable excuse, to provide a statement of affairs within 28 days of the winding up of a company; that an express provision should be enacted to make it clear that the directors' powers cease on the making of a winding-up order; to incorporate the notion of shadow directors into the winding-up provisions; and that the new insolvency law should move away from a penal philosophy in addressing directors' wrongdoing in favor of a scheme premised more on disclosure by directors.
• That some changes should be made to the law regarding liquidators, including the following: liquidators should have an increased discretion as to when to convert foreign currency assets into HK$; liquidators should be under a statutory duty to act in a fiduciary capacity and to deal with property under their control honestly, in good faith, with proper skill and competence, and in a reasonable manner; in realising assets it should be the duty of the liquidator to take all reasonable care to realise the best price reasonably obtainable in the circumstances; and that Section 276 should be expanded in relation to a liquidators (which deals, inter alia, with the power to assess damages against a delinquent liquidator).
• That changes should be made to the procedures regarding public and private examinations that will track the equivalent bankruptcy provisions that have recently been enacted.
• That Section 228A - which provides for a special procedure for voluntary winding up in case of inability to continue business - should be abolished.
• That major changes be made to the provisions regarding preferential payments, in particular that:
  • The only exceptions to the pari passu distribution system should involve the maintenance of public order or the prevention of systemic failure (and therefore that the existing preferences for insurance claims under a contract of general insurance and for bank deposits should be retained).
  • The preferences for employees would be abolished, since employees are adequately protected at present by the Protection of Wages on Insolvency Fund Ordinance (cap 38). (As noted in Section L2(a) above, this proposal has been opposed by the Labour Unions in Hong Kong, China, the Protection of Wages on Insolvency Fund Board, and the Labour Department.)
  • That the existing preferences for the Government, in respect of fines, for the Companies Registry, and in respect of distraint by landlords and others should be abolished.
• That a provision regarding transactions at an undervalue should be enacted to track the provision recently enacted in the Bankruptcy Ordinance.
• That some changes should be made to the law regarding receivers and managers, including the following: that a receiver (or partners or members of the same firm) over the assets of a company should be prohibited from later acting as a liquidator of the same company; and where a company is wound up after a receivership, the receiver should be required to file a 'Receiver's report' with the Registrar of Companies.
• That although the existing provision on cross-border insolvency needs to be clarified, there is no need for major changes.
• That insolvency provisions should take account of recognised netting systems.
• That subordination of debt should be allowed as long as the subordination of debt agreements do not affect the rights of third parties.