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A proposal for a voluntary arrangement would be put together by a solicitor or accountant, known as a provisional supervisor, who would usually be appointed by the company. The provisional supervisor would have to ascertain a company's trading position as soon as possible and put a proposal to creditors, if appropriate, in as short a time as possible. The initial stay period would be one month, after which the court could extend the stay for a further five months.

During the provisional supervision period, the provisional supervisor would control the company in place of the directors, but he could delegate powers of management back to directors where appropriate.

A company's main secured creditors would have the power to elect whether to participate in provisional supervision. If these major secured creditors elected not to participate, preferring perhaps to liquidate the company or appoint a receiver over its assets, it would probably cause provisional supervision to end. It is anticipated that, in most cases, major secured creditors would have agreed to participate prior to a company going into provisional supervision.

Ultimately, the creditors would vote on any proposal. It would require a majority in number and in excess of two thirds in value of creditors for a proposal to be accepted. This requirement should protect the different interests of smaller creditors, who would comprise the majority in number, and major creditors, who would have the greatest value of debt.

Once a proposal was accepted, a supervisor, probably the provisional supervisor, would oversee the implementation of the voluntary arrangement.

It is also proposed that directors and senior management of a company could be held personally liable to compensate a liquidated company for losses incurred by a company if it traded while insolvent.

The consultation period will end on August 31. Written submissions can be sent

to the Law Reform Commission Secretariat before that date.

Copies of the consultation paper are available on request from the Law Reform Commission Secretariat, 20th Floor, Harcourt House, 39 Gloucester Road, Wan Chai, Hong Kong.

End/Friday, June 23, 1995