A company could initiate provisional supervision by obtaining the protection of the court against any proceedings against it for an initial period of 30 days during which time a qualified professional, the provisional supervisor, would attempt to put together a proposal for a voluntary arrangement to be entered into by creditors and the company.
After the initial 30 days the provisional supervisor could apply to the court for extensions to the moratorium for up to six months from the start of the provisional supervision.
The report emphasises that provisional supervision could not be used by unscrupulous company directors to avoid a company's creditors. By initiating the procedure directors would automatically relinquish control of the company to the provisional supervisor who would control the company during the provisional supervision period.
The provisional supervisor would be a highly qualified professional in company reconstruction matters who would usually be appointed from a panel to be administered by the Official Receiver.
In addition to the recommendation on provisional supervision, if a company failed and went into liquidation, the liquidator could take proceedings against those directors of the company who had allowed the company to trade while it was insolvent.
Directors found to have failed in their duty to prevent a company trading while insolvent could be personally liable to pay compensation to the company to up to the amount of the general deficiency of the company when it was wound up.
Senior management of a company would be under a duty to warn the board of directors when a company was or was about to trade while insolvent failing which they too could be liable to pay compensation to the company.
Anyone who wishes to have a copy of the report should contact the Secretary to the Commission, 20th floor, Harcourt House, 39 Gloucester Road, Wan Chai, Hong Kong. The report can also be accessed on the internet at http://www.info.gov.hk.
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