ENG-1992 — Page 86

FINANCIAL AND MONETARY AFFAIRS

62

Chinese Bank to terminate negotiations on the Provisional Agreement for the transfer of the assets and recorded liabilities of BCCHK which had come into effect on November 22, 1991. The termination of the agreement was necessitated by the emergence of large claims from the liquidators of the various BCCI group operations in other parts of the world which could not be researched or evaluated within a time-frame consistent with the take-over of the business, and in the absence of a sufficient guarantee against unrecorded liabilities. It was deemed necessary by the Provisional Liquidator in the interests of preserving assets of the bank to seek an order for the liquidation of the bank as an early solution to the problem appeared unlikely. Subsequently, the High Court ordered the formal liquidation of the bank on March 2, 1992.

In July 1992, the Liquidator announced a Scheme of Arrangement which would enable any unsecured creditor whose claim was HK$100,000 or less to receive the full amount in priority, or to continue to rank for dividend pari passu if his claim was greater than HK$100,000 unless he elected to accept HK$100,000 in full satisfaction of his claim. A simple majority in number and 75 per cent in value of creditors who would be receiving less than full payment (i.e. those with deposits in excess of HK$100,000) voting in favour of the scheme was required by law.

The scheme was approved at a meeting of scheme creditors on September 1 and was formally approved by the Court on September 14 with no opposition lodged. Payment under the scheme to the 30 000 creditors owed $100,000 or less began on September 21, 1992, while the other large creditors owed more than $100,000 are being paid a first dividend of 41 per cent from the same date as their claims are adjudicated and admitted, and further payments will be made to them in the course of the liquidation when further assets are recovered. This represented an unprecedented bank liquidation in that 85 per cent of creditors by number received payment in full only six months after the winding-up order was made. This was made possible by the relatively high liquidity and asset quality of BCCHK which had been ringfenced from the rest of the BCCI Group by effective supervisory measures.

Following the closure of BCCHK in July 1992, there was renewed pressure for the introduction of a deposit protection scheme (DPS) in Hong Kong, principally for the protection of the interests of small depositors in the event of bank failures.

To assess public opinion on the matter, a consultation paper was published in February 1992 inviting submissions by end of May. About 50 submissions from various organ- isations and individuals were received, and the views expressed were divergent. At the same time, other alternatives were also considered, including a proposal to afford priority claim to small depositors in the event of a bank liquidation. The Standing Committee on Company Law Reform was consulted at the end of October on the proposal. The Standing Committee gave its support to the concept. A decision was taken in January 1993 that a DPS should not be pursued, but instead legislative amendments should be sought to give effect to the proposal.

In 1992, the local financial scene was characterised by the following features. Firstly, the exchange rate of the Hong Kong dollar against the US dollar remained stable under the linked exchange rate system throughout the year. Secondly, local interest rates remained low and moved downward in line with the interest rates in the US. Thirdly, the growth rate of Hong Kong dollar domestic loans and advances slowed down during the year, while the growth in Hong Kong dollar deposits picked up strongly since the second quarter.