Hong Kong has been slow in following other common law jurisdictions to introduce legal provisions for corporate restructuring.
But not for lack of trying. Following a Law Reform Commission report, a bill on corporate rescue has been kicking around since 1996, but several drafts have been rejected.
The main bone of contention is labour's insistence that employees be fully paid before any corporate rescue can take place. Now, a revised draft bill will put a cap on payouts of $258,500 per employee. The compromise is said to have won preliminary backing from labour and other parties and will be tabled in the legislature again.
It remains to be seen whether the bill, if passed, can really help financially beleaguered companies gain some breathing space by applying for provisional supervision instead of bankruptcy.
The business sector here is dominated by small and medium-sized companies run by owner-managers. They usually use property as collateral for loans and banks are pro-active in ensuring their cash-strapped clients are not put into liquidation prematurely, such as by varying repayment terms.
Trade creditors protect themselves by monitoring their clients closely and cutting supplies as soon as they sense trouble. If they are unlucky enough to have dealt with a bankrupt, they simply write off the losses and move on.