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Consultation Paper on the Winding-up Provisions of the Companies Ordinance

21 July 1998 

The Law Reform Commission of Hong Kong 
Sub-Committee on Insolvency 
20/F, Harcourt House 
39 Gloucester Road  
Wanchai, Hong Kong 

Attention: Mr Jeremy Glenn, Secretary 

Dear Sirs, 

CONSULTATION PAPER ON THE WINDING-UP PROVISIONS OF THE COMPANIES ORDINANCE 

We are responding to your letter of 30 April inviting us to submit our comments on the above paper. 

Although we have serious reservations on the Commission's earlier consultation paper on Corporate Rescue and Insolvent Trading, which we expressed in our letter to the Commission dated 31/8/95, we are generally supportive of the above paper. We feel that the proposals in the consultation paper should contribute to a more effective winding up regime. In particular, we appreciate the proposals to license insolvency practitioners and to create a consolidated Insolvency Ordinance. 

Our comments on the consultation paper are therefore minor. 

1.  The proposal to shift the burden of proof in respect of certain offences or 
     frauds by officers of companies in liquidation to the officer should be very 
     carefully considered. Given the stresses placed on our legal system by the 
     changing political environment, one would not want to erode the 
     protections for the individual that do exist. 

2.  We are supportive of the proposal to move in the direction of 
     compensation payments by directors instead of imprisonment. Presumably 
     the burden of proof would be lower in respect of such penalty, and the 
     success rate in investigation and prosecution higher. If this is the case, 
     there would appear less need to reduce protections for the individual 
     officer as per point 1 above. 

3.  In view of the public controversy over scale fees in the legal profession, 
     we wonder why scale fees are being retained, or even extended, in 
     insolvency proceedings. 

4.  We are supportive of the proposal to reduce the various categories of 
     preference. Indeed, we wonder whether the paper could go still further 
     and eliminate the preferences for bank deposits and insurance contracts as 
     well. Public order or systemic risk implications arise in only a minority of 
     cases, and we feel that such cases could be dealt with if necessary by 
     different means rather than by a blanket preference of the kind proposed. 
     In particular, we feel that any preference given to banks will create moral 
     hazard, encourage imprudent lending and worsen systemic risk in the long 
     run. 

We hope that the above is helpful, and thank you for consulting us. 

Yours sincerely, 

Alan LUNG Ka-lun 
Chairman