Special report: The problem solvers

Jeremy Chan
Gianfranco Bonadies

Restructuring and insolvency practitioners are in demand like never before. The economic downturn brought by the coronavirus pandemic has led to an uptick in financially-distressed companies seeking experts to turn things around – and to do it quickly. Jeremy Chan speaks to insolvency practitioners and finds out how they are dealing with more complex companies, and why rescuing them requires much more than just insolvency know-how, but a true strength of character

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Jeremy Chan
Gianfranco Bonadies


Around the world, the pandemic has pulled the shutters down on businesses – and for many, it’s permanent. In Hong Kong, 3,600 bankruptcies were registered in the first five months of the year, up by 12.5 percent compared to the same period in 2019, according to the Official Receiver’s Office (ORO) in June. Winding-up petitions went up by 25 percent with almost 150 companies forced into liquidation.

With all this happening, restructuring and insolvency professionals are experiencing a busy time. They are being called on to help troubled businesses navigate lawfully and quickly through the pandemic to hopefully more stable times ahead.

But even in times of no economic downturn, Hong Kong’s vibrant business environment will inevitably see some companies fail. Insolvency practitioners thrive in this area with their specialized knowledge and ability to bring order to chaotic situations and advise anxious company owners on how to avoid the worst.

The nature of this already taxing job has become more complex with the increase of cases involving companies across multiple jurisdictions, a lack of a formal corporate rescue procedure in Hong Kong and, nowadays, more companies to restructure. Insolvency practitioners need to be highly skilled and knowledgeable in a range of technical areas and equipped with soft skills in order to help maintain Hong Kong’s status as one of the most trusted business environments in the world. If a company gets into trouble, these professionals can be trusted to make ethical and fair decisions.

As the city’s economy continues to be mired in uncertainty, this special report looks at the work processes of restructuring and insolvency specialists, how they are navigating new challenges, the expertise needed to rescue companies in increasingly difficult environments, and the role they play in upholding Hong Kong’s status as a respected international finance and business hub.

Rescue and recovery

Kenneth Yeo, Director and Head of Specialist Advisory at BDO, a Hong Kong Institute of CPAs member and Deputy Chairman of the Restructuring and Insolvency Faculty Executive Committee (RIFEC), says insolvency specialists are very much used to seeing and helping companies that have hit rock bottom. “By the time we are appointed, the company’s usually on its last legs,” he adds. With impatient creditors hoping to obtain as much money as possible from insolvent companies, practitioners must explore ways to recover assets. “We look at every possible asset that can be recovered – even ones that have already been transferred out. If assets have been transferred out, we need to speak with the recipients and try to assess whether we can recover such assets from the transferees on the grounds that there was an unfair preference.”

Liquidations involve thorough investigations into a company and its owners. As Yeo notes, the process can be both lengthy and tricky when it comes to identifying assets that can be recovered. Similarly, listed companies might have already dissipated all of their assets or transferred them all out. In cases like these, insolvency practitioners would have to find an investor who is willing to inject capital, known as a white knight, into the company to prevent it from collapsing.

An investigation would first involve looking at the company’s financial history. This can reveal a lot, according to Yeo. “We try to identify why the company failed in the first place and whether there were any assets transferred out during the last two years to related or unrelated parties,” he says. “And if there were, we can take action against the directors and transferees and try to claw back the assets.” Yeo and his team would also have to determine which transfers were legitimate, and which were not. “If it was a genuine arms-length sale, that makes things more complicated because it was done in good faith.”

Dick Tang, Manager, Strategy and Transactions at EY, an Institute member and a member of the RIF, agrees that the process of recovering assets is further complicated if company owners deliberately conceal them. “Not all directors want to disclose everything,” he says. If insolvency practitioners aren’t able to encourage company owners to reveal valuable information, this would prompt further investigations into the background and transactions of the company. “In one case, we eventually found out that the director concealed a valuable overseas investment held by the company.” Some members of management, Tang notes, will even go out of their way to mislead investigators. “There are cases of management showing us fake accounts,” he adds.

Insolvency practitioners often work closely with legal professionals in investigations, which may involve courts in ongoing hearings and eventual prosecutions. Lawrence Chan, Partner at Wilkinson & Grist, an Institute member and a member of the RIFEC, explains how they work with accountants. “Accountants can help to highlight fraudulent or dubious transactions and then discuss them with the lawyers in deciding how to proceed,” he says. “Lawyers can then determine the proper way to obtain more information or documents pertaining to those transactions and how to pursue the wrongdoer.” Lawrence acts as a legal advisor in liquidations. He says that though insolvency practitioners are expected to have a basic understanding of legal terminology, lawyers can help liquidators interpret legislation in investigations if need be and also help to launch claims against company auditors for professional negligence.

Conversely, he says lawyers who have a basic knowledge in accounting are an advantage. “As an insolvency lawyer, a firm grasp of financial reporting helps us to understand a company’s financial accounts from a legal perspective,” he explains. “This helps us to determine the legal implications for management in how they have disclosed the company’s financial affairs in their accounts, and also whether the company’s auditors are in breach of auditing standards in giving the auditor’s opinion.”

Jessica Zhao, Senior Associate, Restructuring, at Grant Thornton and an Institute member, says legal advisors play an important part in the asset recovery process of a liquidation. “To maximize the benefit to the liquidation estate, it is important that a clear scope of work is agreed on between the lawyers and insolvency practitioners,” she says. “There also needs to be clear communication between the parties about the merits and costs that come with pursuing any particular course of action.”

A practitioner also needs to decide early on whether rescuing and restructuring an insolvent company is viable. “We’re a bit like doctors trying to save patients – the question is how to save them, and whether it will cost an arm and a leg,” says Kenny Tam, Founder of Kenny Tam & Co. CPA Limited, an Institute member and a member of the RIFEC. “In some cases, by keeping a company alive, they will experience more issues, especially with landlords. Company offices, shops and property all occupy space. If they are unable to pay rent, rescuing them isn’t the best choice.” Failure to rescue a distressed company could also incur costs that practitioners have to personally bear.

Lawrence adds that small- and medium-sized enterprises (SMEs) will also make up a large chunk of foreseeable bankruptcies, despite the loans announced by the Hong Kong government this year. Lawrence cautions: “The existing debts of SMEs could continue to accumulate over time,” he says. “And once that grace period passes, we expect to see a surge in bankruptcies and liquidation cases.” Indeed, half of SMEs do not expect to survive beyond the next six months, according to a survey conducted this month by the Hong Kong General Chamber of Commerce. There are over 340,000 SMEs in Hong Kong, accounting for 98 percent of the city’s businesses, and 45 percent of the city’s employment in the private sector, according to the Trade and Industry Department.

Galaxy Chan, Director, Restructuring and Disputes, at Duff & Phelps, an Institute member and an RIFEC member, also warns of more bankruptcies for sole proprietors. She is dealing with more cases involving businesses owned by sole proprietors who have been forced to shut down their restaurants or shops due to a lack of business brought on by the pandemic. “At the end of the day, they’ll be sued by creditors who want to put them into bankruptcy. It’s becoming more difficult for us to help these creditors – most of these bankrupts don’t have any assets left in their estate,” she says.

Galaxy’s role also sees her managing family disputes. Often, it concerns the estate, or an individual’s property, possessions, financial securities, cash, and other assets that an individual owns or has a controlling interest in. “I come across this the most when I deal with high-net-worth individuals who have passed away, have dementia or are mentally incapacitated,” she adds. “These disputes usually happen when a family patriarch passes away and a long list of relatives are all trying to claim a share of the person’s estate.” She notes how her experience working with difficult individuals as an insolvency practitioner comes into play especially when she has to facilitate family meetings. “Emotions are running high, which is something we must deal with,” adds Galaxy. “These people have just lost a relative, and they’re sad, but on the other hand, they are all fighting for a share of the estate. There are meetings where they shout and argue with each other, and it’s my job to calm them down. It’s not an easy task.”

“In some cases, by keeping a company alive, they will experience more issues, especially with landlords.”

Complex cases

Galaxy has also been caught in a flurry of work, dealing with more bankruptcies than usual. She expected this. What she didn’t expect was just how complex the cases would be, and how heavily she would be relied on as an insolvency practitioner to turn the situation around.

In an ongoing case, she is tasked with helping to liquidate a clothing and footwear company. Already, she has been helping to quell endless worries from suppliers. With the company’s main retail stores based in France and its suppliers located in regions such as Mainland China, India and Bangladesh, it has been a case of dealing with one frustrated supplier after the other.

“With the lockdown in France earlier this year and an increase in its unemployment rate, people have been spending a lot less, which severely impacted the retail business there,” explains Galaxy. “This forced the company into liquidation two or three months ago.” With the suppliers left with little or no business, Galaxy has been bombarded with daily emails and calls from them. “It was really challenging the first two weeks. There were also lockdowns in China, India and Bangladesh, so employees there were really struggling,” she says.

It’s expected that the pandemic will lead to more companies going under for a foreseeable time. Galaxy, who has worked in insolvency for over 20 years, saw similar spikes in the months after the Asian Financial Crisis of 1997 and the Global Financial Crisis of 2007-2008. This pandemic is no different, she says. “We’re still waiting for the worst to come and expect to see a lot more cases within the next six to 12 months.”

Renovate… or liquidate

The economic downturn has also led to insolvency practitioners being called into troubled companies to try to rescue and restructure them. A restructuring often involves reorganizing the operational, financial, and organizational structures of a company facing financial pressures with the aim of improving its business. While a company restructuring changes a company’s structure or operations to cut costs or sell viable assets to new owners to improve its operations, a debt restructuring sees a company consolidating its debts to make them easier to discharge by changing the payment terms.

For example, Hong Kong’s flag carrier Cathay Pacific announced plans in July to restructure by, among other things, forcing its older pilots into early retirement in a bid to cut pilot costs. The airline saw losses of almost HK$10 billion in the first six months of the year, also brought on by COVID-19, which has crippled air travel worldwide.

By providing rapid assistance, practitioners are able to identify the nature and severity of a company’s issues, develop solutions and find investors. They must work closely with members of management and creditors to ensure a smooth restructuring.

Zhao at Grant Thornton has been handling more restructuring cases than usual. “The social unrest of 2019 and the COVID-19 pandemic this year has severely affected the cash flow of many companies,” she says, adding how most cases involved companies seeing sudden drops in their revenue over a short period of time.

When assigned a new restructuring case, Zhao says it is crucial for restructuring experts like herself to put on their detective hats and find out the cause of the company’s problems, and most importantly, any underlying issues. This helps to formulate strategies and provide sound advice to company owners. “We need to investigate whether the company is facing issues related to its management, policies, investment failures, or whether their strategies are at fault,” she explains. “For example, are they seeking to expand its operations when the economy is facing a downturn? They may not have done enough research prior to expanding.” Other issues that can hamper a company’s performance, Zhao adds, include whether the company’s policies are effective enough or whether frontline staff are indeed performing well.

While most company owners are eager to help during the interview stage, restructuring and insolvency practitioners often have to deal with uncooperative members of management. “Not all of them choose to cooperate,” she says. “They refuse to disclose the problems they are facing, or worse, provide us with limited information. This stops us from coming to real conclusions, and that stops us from providing them with the best possible advice.” Company directors may feel wary or even intimidated with the idea of revealing sensitive information to people they haven’t met before. Therefore, Zhao stresses the need to build rapport early on. “We remind the management that we are professionals and that we are there to help them. We try to build their confidence in us,” she says. “We also tell them that refusing to cooperate makes both our and the company management’s lives harder, as well as the lives of creditors, the banks and suppliers.”

Lawrence at Wilkinson & Grist says insolvency practitioners can remind members of management that their decisions are strictly impersonal. “It’s important for directors to know that the actions we take or propose are for the best interests of the company and its stakeholders,” he explains. “Once they understand that other directors would be similarly advised in other cases, they would be more willing to cooperate.”

Tang at EY agrees that joint action is vital during the initial stages of a restructuring. “During interviews with management, we get them to explain their business models, critical assets and their financial position,” he says. “We request them to provide their latest financial accounts, which we analyse to determine what happened to the company.” Restructuring experts then work closely with the management and the white knight to devise a restructuring plan, which needs to be agreed upon by all parties.

Therefore, he says, it is imperative for insolvency practitioners to remind directors that it is their duty to cooperate from the beginning. “Under the statutory framework, directors already have a duty to cooperate with liquidators or trustees, otherwise, their misconduct can be reported to the ORO for further action.”

Yeo at BDO agrees: “If the directors of insolvent companies have nothing to hide and the failure of the company was purely a commercial matter, they should be cooperating with the liquidators – but unfortunately that is more the exception than the norm.”

He notes that the lack of a corporate rescue bill (see sidebar on the right) in Hong Kong still adds a degree of uncertainty to restructurings. “In any informal restructuring without the involvement of the court, any creditor can still file a winding-up petition or take legal action against the debtor and derail the entire restructuring,” he says. With companies in debt, insolvency practitioners also often find themselves knee-deep in negotiations with creditors.

There are a few ways to deal with tricky creditor negotiations, says Yeo. “I first present the company’s financial position to the key creditor or creditors who have taken action. I tell them: ‘if the company were to be wound up, this is what we expect as a result of assets that won’t be recovered in full or at all.’ I inform them whether they’ll get anything back at the end of the day.” In cases where the creditor has already filed action, Yeo might resort to a debt restructuring and ask if the creditor is willing to accept equity in exchange for capital. “We’ll also explain the prospects of the company to the creditor such as its future plans and whether or not we can expect a capital injection from a white knight.”

Special report: The problem solvers

Treading international waters

Yeo at BDO says restructuring and insolvency practitioners are now dealing with more cases involving companies with interests located in multiple jurisdictions. “Getting assets from point A to point B in terms of realizations has become more complicated and costly over the years, due to the need to address cross-border issues with multi-jurisdictional groups,” he says, adding that almost every case he is appointed to involves a company operating in more than one jurisdiction.

“Until 30 years ago, Mainland China wasn’t really on the restructuring and insolvency map,” says Yeo. “So if there was any insolvency work, it was always a domestic affair and there weren’t many cross-border cases.” He adds that listed and non-listed companies would prefer to have their holding company incorporated in jurisdictions with more favourable tax regimes such as Bermuda, the British Virgin Islands (BVI) and the Cayman Islands. Some, for example, would have their intermediate subsidiaries located separately from the holding company in another jurisdiction, and their operating entity in either Hong Kong or Mainland China.

Tam at Kenny Tam & Co. CPA Limited agrees: “We have to determine which court to head to first before taking on a case – will it be in Bermuda, BVI or Hong Kong?” Therefore, a firm understanding of the legal considerations across multiple jurisdictions is crucial in order to work effectively with offshore lawyers nowadays, for example, when it comes to helping with wind-ups or the realization of overseas assets. “If you want to take control of a company’s operations and assets, for example, oftentimes they’ll have subsidiaries in Mainland China, the United Kingdom or continental Europe. So we’ll have to wind up the subsidiaries in those locations too, and this will require us to repatriate their assets back to Hong Kong. It’s a very complicated process,” Tam explains. “Every country has different rules when it comes to winding-up. This involves getting help from lawyers in those relevant jurisdictions for us to ensure the best realization of assets from the subsidiary.”

Hong Kong does not have a statutory equivalent to the Chapter 15 procedures available in the United States. Chapter 15, which is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency, provides an effective mechanism to deal with insolvency cases involving debtors, assets, claimants, and relevant parties in more than one country. As a result, Hong Kong courts rely on the common law. The powers of Hong Kong-based insolvency practitioners are also mutually recognized by different courts in common law jurisdictions, adds Lawrence at Wilkinson & Grist.

There is also no reciprocal arrangement for cross-boundary insolvency or restructuring matters between Mainland China and Hong Kong. This means that courts in Mainland China are not always willing to recognize Hong Kong insolvencies and vice versa. This, Lawrence says, means that the powers of Hong Kong-based liquidators may not always be recognized. He often handles insolvency cases involving a company listed in Hong Kong that has many operating subsidiaries in Mainland China. “When it comes to obtaining control over the assets of a subsidiary in China, this is a very difficult task. It’s almost an art,” he explains. “One has to go to Mainland China and discuss with relevant departments and authorities to see if they are able to recognize your role and powers. It’s an extremely lengthy process.” If powers are not recognized, practitioners would have to engage lawyers based in Mainland China to help with the case.

As a result, some liquidation cases in Mainland China can drag on for years, adds Galaxy at Duff & Phelps. “Insolvency laws in China are very different from the ones in Hong Kong,” she adds. “We need to locate assets, launch an investigation and cooperate with the authorities there. It can take years and years to get the funds.”

Foreign liquidators can have their powers more easily recognized in Hong Kong courts, provided that the liquidators are appointed in jurisdictions with similar insolvency regimes to Hong Kong. They would have to seek recognition and assistance from Hong Kong courts by obtaining a letter of request from the foreign company’s place of incorporation and then apply on paper for a recognition order in Hong Kong. Foreign liquidators can apply for a winding-up order too if they plan to put a foreign company into liquidation in Hong Kong. They are able to apply for themselves to be appointed as provisional liquidators in Hong Kong while the petition is being determined.

Hong Kong courts also have the power to wind up foreign incorporated companies under section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance. The company must have a sufficient connection with Hong Kong, and there must also be a reasonable possibility that the winding-up order will benefit those applying for it. In addition, the court must be able to exercise jurisdiction over one or more individuals in the distribution of the company’s assets. Courts in Hong Kong will also recognize foreign insolvency proceedings if the foreign insolvency proceedings will benefit the general body of creditors and if the proceedings are opened in the company’s country of incorporation.

With all this, knowledge in insolvency laws across multiple jurisdictions including Mainland China is essential nowadays, Galaxy adds. “We are a bridge between the creditors and authorities in Mainland China, so we need a good understanding of these laws,” she says. “We need to continuously advise our creditors on our next steps and what our expected timeline is.”

“We have to determine which court to head to first before taking on a case – will it be in Bermuda, BVI or Hong Kong?”

A broad skill set

With the role of a restructuring and insolvency practitioner growing in complexity, specialists are expected to have a diverse set of skills to succeed in the role. “An insolvency practitioner needs to have a firm knowledge of insolvency laws,” says Tang at EY. “We also need to understand other areas of law, such as employment laws, as that helps us to know when to adjudicate employee claims.”

Legal knowledge is indeed essential, adds Galaxy at Duff & Phelps. With the need to read through lengthy legal documents and effectively work alongside lawyers, insolvency practitioners must set aside time to familiarize themselves with more than just the basics. “Since I started doing insolvency work, I’ve always had to read and interpret legal documents such as indentures and security agreements,” she says. “In following case developments, we also have to be able to understand court judgments. Legal knowledge helps us to communicate with other insolvency practitioners and lawyers too.” Lawrence at Wilkinson & Grist agrees: “When we review facts, we’ll be able to determine what to do from both a legal and insolvency perspective, such as how to legally proceed with obtaining more information and recovering assets.”

Insolvency practitioners need quick decision-making abilities as well as effective people skills. “It’s important for us to be able to explain findings in a clear manner to our clients,” stresses Tang. He adds that insolvency practitioners are relied on to allay concerns, and need to know how to manage the high expectations of creditors, shareholders and other stakeholders, who are also working under a lot of stress. “We have to be calm, patient and considerate at all times. Usually, these individuals just need someone to listen, so we let them speak, listen closely and constantly remind them that we are there to help them.”

It’s a profession that requires a high level of emotional intelligence, notes Galaxy. “An insolvency practitioner also has to be really thick-skinned,” she says. “There can be a lot of shouting and bickering involving suppliers and employees to deal with. Meetings between creditors, employers and employees can also get quite heated.” By keeping calm and collected, practitioners can be the ones to turn any situation around. “We’re always dealing with contentious situations, so we still need to have a level of empathy for these stakeholders, employees and creditors.”

Galaxy notes that it takes many years to become a seasoned insolvency practitioner and says newer practitioners must persevere and keep their chin up, especially during difficult times. “Be prepared to deal with some difficult people – don’t get easily upset. New practitioners need to know that it takes time to build experience. It’s a very lengthy career path,” she says. “It might take around 10 or 12 years for an auditor for be considered quite senior, but in this profession, it takes much longer than that.” Dealing with different situations every day, she adds, brings different scenarios. “I’ve been in this profession for over 20 years and I’m still learning things all the time.”

Tam at Kenny Tam & Co. CPA Limited agrees. He says the role, albeit demanding, can also be exciting and is well-suited for those who are drawn to helping others solve problems. “It’s not the kind of job that sees one calmly sitting in an office the entire day,” he says. “We have general schedules, but they are flexible in case anyone knocks on our door. We don’t know what’s coming next, but have to go and fight that fire, no matter what.”

Upholding core values

With business survival contingent upon the work of insolvency practitioners, there is no denying that they have a crucial role to play in upholding Hong Kong’s status as a respected international finance and business centre. They are relied on to conduct their duties in a fair and professional manner, and also to uphold the city’s rule of law throughout. “We act as a form of corporate governance,” says Tam. “Because we are often appointed by the court to handle liquidations, we have to uphold corporate laws. If we do happen to identify unscrupulous or irresponsible behaviour on the part of company directors, say, who aren’t keeping their books and records properly, it is up to us to report them to the ORO.” Therefore, Tam adds, it is in an insolvency practitioner’s best interest to bring the relevant individuals to justice. “We’re the ones looking at the company’s books to determine the reasons they have gone under.”

Tam hopes businesses, investors and the public can continue placing their trust in the work of restructuring and insolvency practitioners. “We are doing good for society. I hope businesses appreciate what we are doing, as we want people to trust in Hong Kong as a top financial centre and location for business when they come here.”

Zhao at Grant Thornton says the role of insolvency practitioners should give international investors confidence, especially when they choose to invest in the city. “Of course, everybody wants their business to last for as long as possible, but when they face the possibility of needing to end it or they run into disputes, we insolvency practitioners are always there to assist in these situations.”

This is because insolvency practitioners also serve as a pivotal communication channel between business owners and relevant individuals, adds Lawrence. “We must ensure that from the start of a business, to running it and even to closing it down, that all the processes and procedures are in place and conducted in a fair and orderly manner,” he says. “This is important for business owners, stakeholders, creditors, suppliers and customers of a particular company. Once they receive assurance that, whatever the circumstances, their rights will be protected and they will be treated fairly and equally, they will have confidence in Hong Kong’s business environment.”

Corporate rescue bill

Insolvency practitioners are waiting eagerly for the introduction of the long-awaited corporate rescue bill. The bill, which was first mooted in 1996 just before the Asian Financial Crisis of 1997, seeks to introduce a procedure like the United Kingdom’s administration or the Chapter 11-procedure in the United States into the city’s laws. The latest draft of the bill was released in July by the Hong Kong government, which contains detailed legislative provisions for a statutory corporate rescue regime and insolvent trading.

A key aspect of the bill includes a moratorium of up to six months, which could protect debt-stricken companies from winding-up or liquidation proceedings. Currently, businesses are at risk of receiving winding-up petitions from multiple creditors as soon as they face major financial difficulties, due to a lack of any statutory “breathing space.”

Kenny Tam, Founder of Kenny Tam & Co. CPA Limited, welcomes the proposed moratorium. “The moratorium will provide time for liquidators and creditors to go through everything together,” he says. “As insolvency practitioners, it’s our objective to help companies continue. But right now, the lack of a moratorium means there isn’t enough time for practitioners to help in restructuring proceedings. This might make it easier for practitioners to turn down cases due to a lack of time.”

The bill also proposes the initiation of “provisional supervision,” which aims to provide distressed companies with an opportunity to have their business or part of their business saved as opposed to going into liquidation. This will see insolvency practitioners appointed as provisional supervisors (PS) and a moratorium put in place. As Lawrence Chan, Partner at Wilkinson & Grist, notes, companies currently have to be put into provisional liquidation, which can further complicate their situation. “Putting a company into provisional liquidation attaches a stigma to the company, and that can lead creditors, shareholders and stakeholders to lose confidence,” he says. “But with provisional supervision, the company, strictly speaking, hasn’t been put in any form of liquidation yet. So without this stigma, the insolvency practitioner will be in a better position to restructure the company.”

However, a few insolvency practitioners are concerned about increased personal liabilities that may come with taking on the role of a PS. As Kenneth Yeo, Director and Head of Specialist Advisory at BDO, explains, this may include shouldering liabilities such as a company’s rent, employee wages and creditor claims incurred by the company after the appointment of a PS, which might discourage some practitioners from taking on new rescue cases.

“Generally, we are all supportive of the bill – which has been long overdue – but the draft bill imposes too many obligations on the insolvency practitioner,” Yeo says. A PS would only have 16 days to negotiate with the company owners and creditors on how their liabilities could be waived or capped under any existing contracts that they take on. “Unlike a receivership appointment where the insolvency practitioner is indemnified by the client against all claims, the PS would only be indemnified by the assets of the group,” adds Yeo.

Tam agrees. “The moment we commit to rescuing a company, everyone’s counting on us and the clock starts ticking. Another passing day is a day’s worth of liability incurred – so this adds more pressure on those stepping into the rescue,” he says. “It’s about saving a company as soon as we can, while also balancing the needs of its stakeholders. If we’re forced to accept all these personal liabilities with the risk of not being fully compensated by a company’s assets, it will make things more difficult.”

The government is expected to hold more consultations before introducing the bill in the next legislative session. Yeo ultimately hopes amendments are made before its finalization. “The bill is still in its draft stage, so I am hoping changes to do with the PS’s liabilities are made during the review.”

A day in the life

The average day for an insolvency practitioner is anything but ordinary. It revolves around dealing with ongoing cases through frequent communications with both local and overseas teams, working with creditors, shareholders and banks, and attending court hearings.

For Jessica Zhao, Senior Associate, Restructuring, at Grant Thornton, each day presents more time to make further progress on an existing case. “I begin each day by replying to emails from different parties. I also carefully monitor the progress in terms of asset recovery,” she says. Other days, she adds, involve tasks more analytical in nature. “I might need to investigate a company’s historical transactions, look at financial records and then write a report based on my findings to formulate further actions and a working plan.” Zhao also needs to tend to inquiries from creditors, stakeholders, the tax department and banks.

Kenneth Yeo, Director and Head of Specialist Advisory at BDO, says his day is also largely spent on dealing with stakeholders, creditors and lawyers in finding ways to recover assets. “If I’m working on a live case, I’d be busy working and speaking with my team to address as many issues as we can on a daily basis, particularly in the first month of appointment,” Yeo says. In doing so, he may have to take cases to the court in order to proceed. “For example, if we can’t agree with stakeholders on any key matters during the liquidation, such as how to pursue the realization of an asset, we will seek a direction from the court, subject to funding being available to make such a court application.”

When Lawrence Chan, Partner at Wilkinson & Grist, isn’t busy meeting clients or attending court hearings, he works closely with his team on ongoing cases. “Normally, I schedule five to six meetings with my team members throughout the day to discuss ongoing cases,” he says. “This helps us to identify key factual and legal issues, discuss strategies, and the way forward.” He says meetings are an ideal opportunity for his colleagues to share their views and findings, and to ascertain that each individual is on the same page. “It’s important for our goals to be aligned before we proceed to doing substantive work.”

Getting connected

A career in restructuring and insolvency is a rewarding one, and CPAs who are interested in equipping themselves with a solid foundation in this specialization can enrol in the Institute’s Professional Diploma in Insolvency programme.

The programme, which consists of 56 contact hours, is made up of two modules and covers key topics such as liquidation, personal insolvency, corporate rescue and restructuring, and cross-border insolvency. “It was many weeks of hard work, but the lecturers and facilitators were very helpful and keen to share their knowledge and insight into the profession,” says Dick Tang, Manager, Strategy and Transactions at EY, who graduated from the course in 2019. “I apply a lot of what I learned in my day-to-day role, in restructuring, asset recovery and also how to prioritize the distribution of claims to creditors.”

Jessica Zhao, Senior Associate, Restructuring, at Grant Thornton, who also graduated from the diploma course in 2019, commends the programme’s facilitators and also says she learned a great deal from the guest speakers. “I really enjoyed hearing from insolvency practitioners who talked about their experiences and the difficulties they faced, and how they overcame them. It was very useful and interesting.” For the most benefit, she encourages future students to actively participate in class discussions and to dedicate ample time to reading the course materials, such as the handout provided and the insolvency manuals.

Students who complete the Professional Diploma in Insolvency programme are awarded the specialist qualification SQ (Insolvency), which indicates they have a strong knowledge and understanding of Hong Kong’s insolvency procedures, and also have the practical skills, as well as the legal and ethical knowledge required to carry out insolvency work.

The specialist designation SD (Insolvency) is a prestigious designation reserved for experts in the field who can demonstrate to the Institute that they have sufficient experience and technical knowledge to perform insolvency work, all while adhering to professional standards. It is an accreditation of an international standard for insolvency practitioners possessing a very high level of technical and interpersonal skills, judgement and expertise.

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