Wheels of reform have habit of getting stuck

PUBLISHED : Tuesday, 02 February, 2010, 12:00am
UPDATED : Tuesday, 02 February, 2010, 12:00am

Introducing market reforms is never easy in this city.

The latest case is the government's proposal for a Chapter 11-style bankruptcy protection bill that has just completed its third consultation since 2000 but still there are few signs of a general consensus.

The market is well aware that for too long it has lagged behind the United States, Britain, Australia and the mainland where troubled companies are given breathing space to find a white knight or restructure their debts, safe in the knowledge that no creditor can seek a winding-up order.

Here, a company can go into liquidation if just one creditor applies for it to be wound up.

It was 14 years ago that a law reform committee stressed the need for bankruptcy protection and there have been two attempts to introduce a bill - in 2001 and 2003 - but they failed over disputes about how to handle employees' unpaid wages and entitlements.

The 2001 proposal said staff would be entitled to all unpaid salary before the firm began its corporate rescue. Unionists were happy but the business sector and accountants rejected the plan, pointing out that if a company could pay the entitlements, it would not need to be rescued.

The 2003 proposal added a cap of HK$270,000 per employee but this, too, was rejected.

The latest proposal would give companies a 60-day grace period on payments, capped at HK$36,000 for unpaid wages - the same level as that of a protection fund that caters for employees of collapsed firms. This time unionists say they want more protection and that HK$36,000 is simply not enough.

It is another prime example of how difficult is it for the government to carry out reforms.

Plans to introduce quarterly reporting for companies on the main board of the stock exchange have been through two consultations in the past decade but still we lag behind markets in the US, the mainland and Singapore which have done so for many years.

In 2007, Britain introduced a narrative statement of quarterly reporting in which companies do not need to give full set of accounts but they must give management updates in the first and third quarters.

Hong Kong's quarterly reporting proposals have been supported by institutional investors and fund managers who want more transparency, but listed companies say it is too costly and takes time.

Another reform the government has been struggling with is the plan to turn some of the listing rules into law so that giving misleading information to the market could lead to criminal prosecution.

Opponents say it would give the Securities and Futures Commission too much power and leave directors too exposed.

The government wants to put the issue back on the table soon, but just like with the corporate rescue bill, nobody is holding their breath.