|When a person has a serious health problem, he or she
sees a doctor. Family members gather in support and every
effort is made to save a life. But when one of Hong Kong's
corporate entities gets into serious financial trouble,
it is left to struggle pretty much on its own, waiting
for the creditors to move in for the merciless kill.
As such, labour unions seem to have forgotten that
their main role is to save jobs. Instead they have indulged
in regularly advising workers to petition for involuntary
windings-up so that workers can get their hands on the
fat pockets of the Protection of Wages on Insolvency
Fund (PWIF) - despite the possible delays and the limitations
inherent in this compensation.
It would be fair to say that nobody cares about the
demise of a corporate person. In the corporate world,
where only the fittest survive, the focus is clearly
on tearing off the last ounce of flesh before a company
goes under. This is not, however, the way it has to
be, albeit that Hong Kong's insolvency legislation is
antiquated. We can and should use our accountants as
corporate doctors in helping to implement corporate
rescues, a role that is often grossly misunderstood
and its value vastly underestimated.
From the outset of the financial turmoil early last
year, I have been appealing to the Government to review
urgently its insolvency legislation to help businesses
save jobs. But, despite having lobbied for this since
1998, the Government has done far too little, far too
late. At present, Hong Kong's regime only provides winding-up
procedures for companies in financial difficulty, resulting
in many long-established businesses, which may have
made just one mistake too many (perhaps a bad business
investment or a single unfortunate turn of events),
being forced to close down.
It is not surprising therefore that, in the attempt
to defer this 'capital punishment', many businesses
have tried to cover up their problems rather than deal
with them. Of course, a few unscrupulous businesses
may actually have chosen to squeeze dry their company's
assets leaving bewildered official receivers to clean
up the mess.
In many developed countries such as the US and Australia,
corporate rescue frameworks have been developed to supplement
insolvency legislation. In simple terms, companies are
given time off (i.e. a moratorium) from having to repay
their debts. Also, new investors who step-in to bail
companies out of short-term financial crises may be
given preferential treatment in terms of repayments
and security on assets.
Companies in these countries often call in professional
specialists to help them restructure their businesses,
i.e. to salvage any profitable operations and strengthen
the management. If these plans succeed, the viable part
of the business is saved and job losses are greatly
reduced. In the longer term, creditors may even be rewarded
with a better pay-off.
This is perhaps the formula originally envisaged by
the Law Reform Commission and by the Government in its
consultation paper 'Corporate Rescue and the Protection
of Wages on Insolvency Fund'. However, the Government's
proposals have shied away from taking a clear stance
when it comes to tackling workers' wages.
In the present political climate, unionists are vocal
and influential. Some may say that they are even enjoying
a disproportionate amount of sympathy and support from
the media. In light of this, it may be difficult to
change the regime given the unique set up of the PWIF,
which offers much desired cash relief to workers when
a company begins the winding-up process. Any changes
to the terms of protection are likely to attract serious
and strong political opposition.
In tackling this problem, I do not actually find the
unionists to be at all unreasonable. They appear to
be flexible enough to consider a proposal to set aside
adequate funds from the PWIF to deal with those affected
by corporate rescues. However, there is still a genuine
fear that corporate rescues are unlikely to revive companies
and that, after having paid the necessary fees to provisional
supervisors, they will still go under.
Surprising opposition to the pending legislation on
corporate rescue has come from the business community.
I suspect that some of our politicians with backgrounds
in manufacture exporting from the US may have suffered
from bad experiences with 'chapter eleven' type operations
and that as creditors they found their funds tied up
for long periods of time. They are also sceptical as
to the success of corporate rescues and the possible
professional fees involved.
Despite the lukewarm response from the business community,
however, I thought the bankers would be our likely allies.
But that anticipated support was not very forthcoming
- Hong Kong bankers are very conservative. This is particularly
the case when they are suffering from substantial bad
debts and are feeling averse to risk.
Hong Kong urgently needs a sound corporate rescue package
to save future corporate failures and job losses. But
misunderstandings regarding the technicalities of corporate
rescue, the lack of positive experiences and, above
all, political self-interests have all got in the way
of a timely and workable solution.
The Government also lacks courage and leadership in
this area. It is a great pity that Hong Kong has lost
its chance of doing something positive in times of financial
crisis - the Thais and Indonesians have had much more
If we are to introduce a desirable and workable corporate
rescue package, accountants must stand together to explain
to the Government, the business community, trade unionists
and the general public that we have the skills to revive
companies if it is not left too late; our fees are actually
reasonable and good value for money; the kind of corporate
rescue package we have in mind is unlikely to allow
the moratorium to drag on for more than six months and
that it will be under the strict supervision of the
court and creditors; and, last but not least, that the
protection of workers is our first priority.
If we persist, and the pending legislation passed,
there is still a chance that some rudimentary form of
corporate rescue package might be ready in time for
the next economic crisis.