SECTION T - SALE & TRANSFER OF ASSETS
If it was necessary to sell or transfer assets (including a business) of an insolvent corporate borrower what, if any, are the major difficulties or problems associated with that process (for example restrictions on transfer or sale of land; providing for the transfer or welfare of employees on a sale or transfer of a going concern business)?

There was general agreement that the sale or transfer of assets of an insolvent corporate can be dealt with in a rather efficient manner. Several bankers applauded the lack of any prohibition on foreign ownership. However, among the matters that need to be addressed are the following:

(1) The complexity of the Transfer of Business (Protection of Creditors) Ordinance (cap 49), which is intended to protect unsecured creditors of a business that is transferred by setting forth under what conditions a transferee may be liable for the creditors' debts existing at the time of the transfer of the business.

A recent submission by the Hong Kong Society of Accountants is telling:

In Hong Kong, China, the Transfer of Business (Protection of Creditors) Ordinance provides protection to unsecured creditors of a business on the transfer of that business by creating a liability in the hands of the transferee for all the debts incurred by the transferor in carrying on the business.

While we recognise that there needs to be some sort of protection and recourse for the creditors when businesses are transferred, we have found the legislation to be quite unusable due to the lack of clarity in the provisions and absence of case law.

We note that there is no similar legislation in Australia or in the United Kingdom, and that the legislation is unique to Hong Kong, China. The legislation also appears to be quite in-operative. We cannot recall the law having ever been tested in court nor can we provide any relevant authoritative cases thereon. We surmise that due to the significant uncertainties contained in the legislation, most people would try to avoid using it.

. . .

Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 27.4 at 189.

(2) Resolving the claims of workers that arise under the Protection of Wages on Insolvency Fund Ordinance; and

(3) The practical problems and difficulties that can arise in regard to the transfer of interests in real property (eg, involving tenants or landlords).