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SCMP Reporter

A consultation paper containing long-delayed proposals aimed at helping troubled companies avoid liquidation and big job losses looks set to be released by the Government before the end of the year, according to insolvency practitioners.

 The proposals, first published by the Law Reform Commission (LRC) in October, 1996, are designed to give problem-plagued but viable companies some breathing space to work out an arrangement with creditors rather than simply being wound up.

 Industry sources say mounting corporate woes, rising numbers of winding up petitions and expectations of worse to come in 1999 highlight an urgent need for the procedures - known as provisional supervision - to be introduced.

 They say many companies and jobs could have been saved had they been in place this year. 'Some parts of companies could have been saved and jobs could have been saved,' said Official Receiver Robin Hearder.

 Simon Blade, director corporate recovery services at Grant Thornton, said: 'It [the legislation] is going to be a major assistance to corporate insolvencies in Hong Kong.

 'It's extremely urgent given the current economic circumstances.

 'The feeling is that there will be an increase in corporate insolvencies.'  Mr Blade said that legislators 'really should be looking to prioritise it and push it through'.

 The proposals, which provide for an independent administrator to manage the company and prepare a rescue plan, borrow from rescue procedures in Britain, the US and Australia but most closely resemble those in Britain.

 In Hong Kong such rescues are difficult to achieve under existing law, prompting most creditors to opt for receivership.

 Even if a reconstruction is attempted, industry sources say it is often done in a half-hearted manner.

 Delays in putting the proposals up for consultation are believed to have been caused by Labour Department concern about the potential treatment of employees under any change in the law.

 One stumbling block is that under the LRC's proposals, employees sacked by a troubled company which does not go into liquidation would not be able to make claims for ex-gratia payments from the Protection of Wages on Insolvency Fund.

 The fund is only triggered by a winding-up petition or by advice from the Director of Legal Aid.

 'On a provisional supervision, employees could therefore be cut out and left without the prospect of any interim payment from the Fund,' according to the Financial Services Bureau (FSB), which is drafting the legislation.

 The Labour Department is believed to have proposed that the provisional supervisor personally guarantee to pay wages. However industry experts say this is unacceptable.

 'Where severance benefits are high, if the provisional supervision is to work, the supervisor has to be prepared to act and they are not going to be prepared to act if they have to take on employee liabilities which would otherwise be treated preferentially,' one liquidator said.

 The FSB said the consultation paper would seek views on how to resolve such employee-related concerns, which many in the industry believe should not be too difficult to overcome.

 Sources said the government wanted to establish a united front before releasing the consultation paper.

 'But why not do it now and let the Legislative Council sort it out?' one insolvency expert asked.



Official receiver says measures could have saved many jobs and stricken