Global Restructuring Review - Cross-border restructuring and insolvency legal news, features and events

“I will get something resolved”: Hong Kong’s justice secretary Teresa Cheng on insolvency reform

Douglas Thomson

19 November 2018

“I will get something resolved”: Hong Kong’s justice secretary Teresa Cheng on insolvency reform Teresa Cheng SC

Hong Kong’s Secretary for Justice Teresa Cheng SC has told GRR she is “determined” to resolve the gaps in the special administrative region’s legislative framework with a new package of measures.

In an exclusive interview with GRR, Cheng said she expected a corporate rescue package to be introduced into Hong Kong’s Legislative Council (LegCo) in either the second or third quarters of 2019, after two previous attempts by the Special Administrative Region to pass similar legislation.

She also confirmed the government’s interest in adopting the UNCITRAL Model Law on Cross-Border Insolvency, and stressed the importance of plans for a protocol on mutual recognition of insolvency proceedings between the courts of Hong Kong and mainland China.

Cheng is one year into the job of secretary for justice, having come to it from private practice as a barrister and arbitrator at Des Voeux Chambers, and chair of the Hong Kong International Arbitration Centre. She said her experience in private practice led her to “rather determinedly, even more so than in other areas” reconsider Hong Kong’s insolvency regime for the good of Hong Kong.

“I’ve had cases where we’ll be competing with the mainland courts, for example, on insolvency measures – which one is going to seize the assets first for instance – where provisional liquidators have been appointed, but can do nothing in the mainland, even during the course of an arbitration. All these things happen, so I think the reality of these has to be addressed.”

Cheng said the government would shortly be putting out a public consultation on a protocol for mutual recognition with the mainland, in parallel with discussions with the Supreme People’s Court in China. She said she was hoping to enlist private practitioners to explain Hong Kong insolvency professionals’ perspectives to the mainland courts.

While Hong Kong and China’s legal systems are different, she said “the root needs of the businesses, and so the concerns of the practitioners, are the same”.

The reason Hong Kong has taken so long to introduce legislation on cross-border insolvency and corporate rescue, Cheng added, is that it is “a very careful planning society”.

“We don’t steamroll things through. We have a due process that we observe. We allow people to express their views and take them on board before putting it back in the legislative machine again. That’s part of our democratic process.”

Cheng said that there could be members of the LegCo “speaking for the employees who want certain things to be introduced” that might not match with the desires of business. “I think that has put a little bit of stall back to the legislative process for the corporate rescue procedure,” she said.

She added that she was “a little bit cautious” about the implementation of a debtor-in-possession regime in Hong Kong, saying that a system where management continue to operate a company facing reorganisation might not suit the realities of the stakeholders in the region.

“We have to be realistic about how some of these corporations are being structured in Asia,” she noted, pointing out the close-knit structure many companies adopt. “If there is a financial issue, there may – I’m not saying there will, because in other places it works – be concerns from creditors about the protection of their debts. So that’s something we will look at very, very carefully.”

Cheng said Hong Kong was learning from other jurisdictions, but that its own priority would be to be “safe and solid” as opposed to adopting “gimmicks that look great, but in reality don’t work”.

She sounded sceptical of the “self-promulgated extraterritoriality” of cross-border moratorium legislation, which she noted as having been adopted by “some jurisdictions” without specifying which ones she had in mind.

Singapore’s cross-border moratorium recently came under scrutiny in the Hong Kong case of CW Advanced Technologies.

Cheng said the UNCITRAL Model Law on Cross-Border Insolvency would also be “highly relevant” and that the government was looking at adopting it as Hong Kong’s model. The Model Law once adopted into domestic legislation might “perhaps actually reflect the practice that we have been adopting,” she said.

Cheng noted the government had opted to pursue the corporate rescue package first simply as a question of legislative time. “I guess it’s just more ready,” she said, adding that its prior legislative history meant it had been looked at already a number of times. “Some things will reach the target post a little earlier than others.”

She finally observed that in the absence of a statutory scheme “the common law has served us very well”. In particular Cheng praised Companies Judge Jonathan Harris “who has been able to devise very effective common law schemes that work for businesses”.

She said she did not feel the development of jurisprudence through the court’s rulings raised any particular issues that needed addressing through legislation, but she considered codification would allow Hong Kong’s law to be “more clear” to non-common law lawyers. “This is an area that, coming from private practice into government, I will get something resolved quicker,” Cheng said.