Urgent steps are being taken to keep Hong Kong's insolvency fund from going bankrupt, with reserves down to just HK$206 million - not enough to meet projected claims this year. A surge in payouts has depleted the Protection of Wages on Insolvency Fund reserves by 75 per cent since the Asian financial crisis, racking up a deficit of HK$1.94 billion. Claims are expected to snowball this year, hitting a record high of HK$500 million. With annual income expected to be about HK$200 million, the fund would slip into the red. The fund, established in 1985, provides relief to employees of insolvent companies and is mainly funded by a flat-rate annual levy on each business registration certificate. It has operated on a deficit since 1997. The sums paid to employees have acutely outstripped the fund's annual income, draining the reserves. Between April last year and January this year, there was a 35 per cent rise in applications. By the end of this month, the fund's reserves will be down to HK$206 million. In comparison, the reserves stood at HK$877 million in the 1996/1997 financial year. Large payouts in subsequent years - as the financial crisis started to bite - gradually drained the reserves. The number of winding-up petitions filed against companies has increased from 742 in 1996 to 1,401 last year. So far this year, 230 petitions have been filed at the High Court. Figures from the Companies Registry show creditors' voluntary winding-ups have also increased, with 174 started in 1996 and 229 last year. The figure shot up in 1999, when 322 were stated. In response to the depletion of the insolvency fund, legislators have given a tentative green light to more than doubling the business registration levy to compensate for the increase in payouts. By increasing the levy from the present HK$250 to HK$600, the Government hopes to meet this year's expenditure and keep the reserves at HK$127 million. The increase will also generate annual surpluses of up to HK$25 million. The news will come as a shock to companies who expected the business registration levy to be waived altogether as part of this year's budget. According to Government officials, the business registration fee will be waived, but not the annual levy. Legislator for the accountancy sector Eric Li Ka-cheung said: 'For a lot of small and medium enterprises, it is going to make some impact. Some [of these firms] were quite wary of the scheme.' According to the Government, legislators were generally in favour of the increased levy. The proposal is for the HK$600 rate to become effective in May. The Labour Advisory Board endorsed the increase, although it did so on the premise that a review of the new rate be conducted a year later. The Education and Manpower Bureau said the HK$600 levy - in terms of additional costs to the employer - would amount to less than HK$1 a day per establishment. Strong opposition to any further demands on the fund in part led to a stalemate over a proposed corporate rescue law in Hong Kong. Labour groups vehemently objected to a proposal that workers whose companies were involved in provisional supervision be paid out of the fund's coffers. This led to an about-turn on the Law Reform Commission's initial proposals and prompted the Government to suggest that all workers be paid off in full before provisional supervision could take place.
