Hong Kong Law Reform Commission

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Chapter 2 - A Separate Insolvency Ordinance to Include All Forms of Winding-up, Receivership, Provisional Supervision and Bankruptcy

2.1 The Consultation Paper proposed that there should be a separate Insolvency Ordinance which would contain all matters relevant to insolvency, including bankruptcy.

2.2 The Review of the Hong Kong Companies Ordinance recommended that a new Companies Ordinance should only contain what it described as “core” company matters.[8] This would not include the insolvency provisions, which the Review recommended should be left to a comprehensive Insolvency Ordinance.[9] The Review further recommended that only solvent dissolution and liquidation should be dealt with in the new Companies Ordinance.[10] In effect, this would mean that a new Insolvency Ordinance would not provide for members’ (solvent) voluntary winding-up, a point with which we disagree. We are, however, broadly in agreement with the Review’s approach.

2.3 The Consultation Paper proposals received broad support in a number of submissions and we recommend that all insolvency matters should be placed in an Insolvency Ordinance. These would include winding-up by the court, creditors’ (insolvent) voluntary winding-up, members’ (solvent) voluntary winding-up and bankruptcy. There are, however, areas of dispute.

2.4 On a practical level, we anticipate that a process which would involve the introduction into legislation of amendments to the Companies Ordinance as a consequence of this report at the same time as an exercise to establish an Insolvency Ordinance would result in delays in the introduction of amendments to the Companies Ordinance. We therefore recommend that the amendments are made to the winding-up provisions of the Companies Ordinance first and that the establishment of an Insolvency Ordinance should be undertaken as a separate exercise.

Receivership and provisional supervision

2.5 In the broader, corporate, context of a new Insolvency Ordinance, we recommend that the current provisions of the Companies Ordinance on receivership and the proposed provisions on provisional supervision should be included in any new Insolvency Ordinance. There has been no disagreement on this point but we refer to these processes specifically because a company that goes into receivership or provisional supervision is not necessarily insolvent. It seems logical, however, to include these provisions in an Insolvency Ordinance. The Insolvency Act contains provisions on receivership, bankruptcy, winding-up, voluntary arrangements and administration of companies.

Members’ (solvent) voluntary winding-up

2.6 The Consultation Paper expressed uncertainty as to whether the provisions on members’ (solvent) voluntary winding-up should be contained in the Insolvency Ordinance as members’ (solvent) voluntary winding-up involved the winding-up of solvent companies. On balance, however, we recommend that the provisions on members’ (solvent) voluntary winding-up should be included in an Insolvency Ordinance as the procedures involved in members’ (solvent) voluntary winding-up are the same as for other forms of winding-up and because it would be more convenient for insolvency practitioners dealing with all forms of winding-up to find the winding-up provisions in one Ordinance.

2.7 We note that members’ (solvent) voluntary winding-up should not be confused with those provisions that the Registrar of Companies is preparing for a simplified procedure for the dissolution of companies. This procedure might be more properly placed in the Companies Ordinance.[11]

Disqualification of directors

2.8 The Consultation Paper proposed that, as the provisions of Part IVA of the Companies Ordinance on disqualification of directors were closely related to the insolvency regime, it should be included in any new Insolvency Ordinance. The Review of the Hong Kong Companies Ordinance recommended that the disqualification provisions should be eliminated from the core Companies Ordinance provisions.[12]

2.9 The Registrar of Companies submitted that he had some difficulty with the proposal that Part IVA should be transferred to a new Insolvency Ordinance. The Registrar said that in company law, the directors of a company occupied fundamentally important positions and, conceptually, it would be difficult to separate the provisions regarding their disqualification from the other provisions governing their appointment, behaviour and resignation as directors. The Registrar submitted that, furthermore, sections 168D to 168T should, in any event, remain in the Companies Ordinance given that their effect and reach was equally applicable to the directors of solvent companies.

2.10 We are inclined to accept the Registrar’s point as directors of solvent and functioning companies should be able to refer to the Companies Ordinance to find out their obligations. We accept that the provisions could get hidden if placed in an Insolvency Ordinance.

Procedures should be kept separate within an Insolvency Ordinance

2.11 The Consultation Paper proposed generally that provisions that were common to different forms of winding-up should be combined in a single section that would apply to more than one form of winding-up. There are many instances of this happening, particularly in relation to creditors’ (insolvent) voluntary winding-up and members’ (solvent) voluntary winding-up.

2.12 Experience has shown us, however, that while this may make for a shorter Ordinance, it also leads to confusion and we have found that many provisions which on the face of it would fit more than one form of winding-up do not quite fit, and this can lead to problems. We therefore recommend that provisions should be kept separate. The Insolvency Act provides a good example of the sort of Ordinance that we would like see as it has the various forms of insolvency neatly divided into parts.

[8] Paragraph 1.01 of the Review.

[9] Paragraph 1.05 of the Review.

[10] Part 9.00 of the Review. See, in particular, paragraph 9.01.

[11] See paragraphs 17.25 to 17.31.

[12] Review of the Hong Kong Companies Ordinance, paragraph 6.18.