Hong Kong is taking a second look at the Companies Ordinance proposals as the economy is limping back to normal. The enacting of an insolvency law is a well-visited proposition in Hong Kong. Such a law was proposed in 2000 and again in 2003, but was not enacted by the Legislative Council. Hong Kong had just gone through economic downturns - the Asian financial crisis and the period during the severe acute respiratory syndrome epidemic. But as the economy recovered after each crisis, the sense of urgency behind having a restructuring law quickly faded. A year ago, amid the global financial crisis, Hong Kong's lack of optimal market rescue procedures brought provisional supervision back into focus as part of the revised Companies Ordinance. Provisional supervision allows a company to appoint a provisional supervisor, an individual, to help prepare a proposal for creditors and shareholders to restructure the business. In providing a moratorium period it allows a company in distress the time needed to focus on restructuring, as opposed to winding it up, with the goal of returning it to financial solvency. 'I think Hong Kong probably does feel it's lagging behind because there are corporate rescue procedures enacted in lots of places around the world, China being one of them,' says Anthony Boswell, partner at PricewaterhouseCoopers Hong Kong. The mainland's enterprise bankruptcy law was introduced in June 2007. It has three major provisions: first, you can close down a company because it is insolvent; the second provides the framework for restructuring the company; and the third provides a scheme where creditors and debtors can agree on a plan. The mainland's law enables restructuring where either creditors or the debtor can apply for a court order. The court in turn can appoint an administrator. The legislation is independent of the mainland's company law, unlike the proposed Hong Kong provisional supervision which would be part of the Companies Ordinance. Boswell acknowledges that while the lack of corporate restructuring is probably seen as a gap within the legislative framework in Hong Kong, the city is such a special and dynamic environment that a large number of companies have been able to restructure through an informal work out process. 'There are a lot of informal restructurings that have been able to complete in Hong Kong without the need for a legislative framework. 'But there are shortfalls in this. For example, there is no moratorium period. The proposed corporate rescue procedure would place a formal moratorium on creditors taking action against a company while it tries to restructure its debts. It gives the company some breathing space,' Boswell says. The length of the moratorium period is a topic of debate. At present it is set at 30 days and it can be extended for up to six months by application at a creditors' meeting. But within the initial 30 days, a proposal must be made to the creditors asking for more time if they want an extension. 'Is 30 days enough time?' asks Andrew Koo, managing director, Transaction Advisory Services at Ernst & Young. 'Should we increase the moratorium to 60 days? Any professional trying to go in and rescue and stabilise the situation will take time, and they also have to do the proposal. The 30 days may not be sufficient time for a professional, in this case the supervisor, to properly review the situation and provide an independent assessment of the company.' According to Koo, any rescue and turnaround legislation should provide sufficient time for the company to make good and allow it the opportunity to run the business. 'The company needs to generate orders to create cash. If it is not allowed to do that, and if management does not have that control, then the supervisor goes in and everyone has to wait until he or she comes up with a proposal,' he says. The proposed provisional supervision procedure would allow the supervisor - typically a qualified lawyer or accountant - to make the assessment as to whether management is in the best position to run the company. 'At the end of the day, this is about trying to restructure companies to try and help save employment and bring viable businesses back to a position where they are not taking value off other creditors,' he says.