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Jane Moir

Legislators will be informed today that controversial corporate rescue proposals have been dropped from the Companies Amendment Bill.

Economic Services Secretary Stephen Ip Shu-kwan will tell the Legislative Council that the severely criticised provisions have hindered the progress of the bill.

In order to push ahead with legislation, the bills committee and Government have agreed to scrap the corporate rescue proposals - the main chunk of the bill - and consider them separately in the next session.

This follows attacks by business and legal sectors on the draft proposals, which would enable provisional supervision of troubled companies similar to the US Chapter 11 bankruptcy protection legislation.

'Whatever happens, we are going to miss the boat for this economic restructuring. We missed a golden opportunity two years ago,' bills committee member Eric Li Ka-cheung said yesterday.

Companies on the brink of collapse have no lifeline to allow them breathing space from creditors anxious to file bankruptcy proceedings.

The corporate rescue proposals have already been five years in the pipeline.

Mr Li said the Government was committed to table the proposals again in October. 'But it will take a great deal of care to get it through,' he said.

'Accountants and solicitors want it as soon as possible, but we felt that having the right legislation is more important than trying to rush through any legislation.

'How fast we can do this depends on how well the administration makes use of the time between now and the next legislative session.' The Law Society claims the bill fails to give an 'appropriate, fair and workable procedure', casting doubts on its ability to allow cash-strapped firms to survive.

One criticism from all circles has been the decision to give employees preferential rights, a move claimed to be the death of any restructuring.

Other complaints have centred on the draft's cumbersome nature, inconsistencies, ambiguities and inadequacies - for example, the lack of substantive court safeguards and the personal liabilities liquidators would be forced to incur.

However, insolvency practitioners are anxious to see the proposals debated by legislators as soon as possible.

'While this may not be the most difficult time of the economy, some sort of rescue provisions are necessary just to handle a company in crisis,' KPMG partner Gabriel Tam said.

Nearly 1,200 companies were the subject of winding-up petitions last year in the wake of the Asian financial crisis and ensuing recession - the highest number seen in Hong Kong. A total of 795 were declared insolvent by a judge.

So far this year, 481 winding-up petitions have been filed in the High Court, and 391 orders made.

Other provisions of the Companies Amendment Bill, which will go ahead with a second reading in Legco today,  include simplified procedures for filing annual returns and the authority of the Official Receiver to delegate work in a liquidation.



Rescue plans dropped from companies bill