SECTION U - LIQUIDITY PROBLEMS

If it was necessary to provide urgently needed cash (or liquidity) to enable the business of an insolvent corporate borrower to survive, how could a financier who was willing to provide this "new money" be protected and given priority over other existing creditors?
The main solution is to gain the agreement of the banks involved in the workout. The actual result would depend on the extent to which free and clear assets existed that could be used to secure the loan. In the absence of available security, the result would have to be more creative and might well involve a 'complex trust structure.' Perhaps a new entity could be created or in a case involving a pre-existing corporate group, the lending might be to another entity in the group, or perhaps from one group member to another - resulting in subordination and different, tiered levels of debt. See Consultation Paper on the Winding Up Provisions of the Companies Ordinance, para 32.1 at 199 (submission of the Hong Kong Association of Banks). Some respondents stressed the complications (and possibilities of fraud) that can arise when structuring such transactions, given the lack of transparency of many corporate groups in Hong Kong, China.