The Hong Kong Court have confirmed for the first time that a foreign voluntary liquidation is eligible for common law recognition and assistance in Hong Kong.
China Culture Media International Holdings Limited, incorporated in the BVI, was wound up on 9 May 2016. China Culture was the sole shareholder of Supreme Tycoon Limited, also incorporated in the BVI.
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Marex Financial Limited
This recent Court of Appeal decision has provided clarity on the justification for the rules against bringing claims for reflective loss and confirmed that both unsecured creditors and shareholders are similarly barred from bringing such claims.
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UK Government proposes radial changes to domestic insolvency law which would introduce a moratorium for solvent companies
On 26 August the UK Government announced its intention to introduce radical reforms to insolvency law in the catchily named consultation paper "Insolvency and Corporate Governance – Government Response". Despite the 82 pages, the government kept their cards relatively close to their chest choosing not to reveal their big plans but with suggestions about the reforms ahead to "enable more companies not only to survive, but to thrive".
Most notably the paper proposed the introduction of a new 3 month moratorium to "aid business rescue" for financially distressed companies which are ultimately viable. By allowing these companies a period of time when creditors cannot take action against the company, the company could look at alternative restructuring opportunities before they had passed the point of no return.
Available to (almost) all companies who could meet the currently undisclosed qualifying criteria, the directors would remain in control of the company throughout the moratorium process under the watchful eye of an authorised supervisor. Tasked with protecting the creditors' interests the authorised supervisor would be in charge of monitoring the company's compliance with the qualifying conditions throughout the moratorium and providing support and guidance where needed.
The paper reassured it would not be all bad news for creditors though (who may be prevented from enforcing their security), but by encouraging early intervention and the aptly named "rescue-finance", the creditor would find their security in a better financial position than before.
Department for Business, Energy and Industrial Strategy (BEIS) proposes reforms which could increase the liability for directors of holding companies
The Department for BEIS has recently published a consultation to the UK's insolvency and corporate governance landscape including significant proposals to extend the liability of directors of holding companies that sell insolvent subsidiaries.
In the paper, the BEIS committee submitted the proposal to increase the personal liability of directors of holding companies who sell an insolvent subsidiary which later enters into liquidation or administration. With a suggested "look-back period" of 2 years from the date of sale, the suggested reform could place considerable obligations on directors when considering their long term restructuring plans.
Despite attracting significant opposition to its proposal, the government showed no intention to reverse its suggested reforms. In an attempt to provide support to the concerning respondents, the BEIS committee released a statement reassuring that additional measures would be in place to safeguard directors who had a “reasonable belief at the time of the sale, that it would likely deliver a no worse outcome than bringing formal insolvency proceedings", but left no comment as to exactly how.
The paper however did comment on the necessity for additional guidance for directors. Proposing to introduce supplementary initiatives, greater access to training and mandatory training for directors of "large companies", the BEIS committee appeared to be echoing the importance of the fiduciary responsibility of the director in the current climate.
Germany confirms there will be no reliance on insurance for damage resulting from a delay in insolvency filing
In a recent landmark cross border decision the Düsseldorf Higher Regional Court clarified that general managers cannot rely on their Directors and Officers Liability Insurance cover (D&O) in the event of a claim for repayment under Germany's "wrongful trading" legislation.
Providing cover for the directors and officers of a company or the company itself, D&O insurance provides reimbursement in the event the insured suffers loss as a result of legal action brought for alleged wrongful acts of the directors and officers.
Pursuant to S.64 of the German Limited Company Legislation, directors of German companies are personally liable for payments made without "due care" by their companies if it is found there was a delay in filing for insolvency proceedings. Inviting heavy fines into the hundreds of millions of euros, the decision to deny the companies protection under D&O insurance for wrongful trading cases could have far reaching consequences across Europe if the trend continues.
The general effect of this is yet to be felt cross border but will mean general managers, board members and directors will need to be alert for impending financial crises and their obligations to file for insolvency.