Navigating Corporate Restructuring and Insolvency: A Tax Perspective

Daniel Chow and I had the honor of being invited to engage in and deliver a presentation at a dynamic seminar hosted by the Taxation Institute of Hong Kong. The seminar attendees primarily consisted of skilled tax practitioners and accountants in Hong Kong. During the discussion, we provided the participants with an overview of restructuring and insolvency, along with the most recent market advancements. 

Here are a few key topics we addressed during the seminar:
 

• Typical Business Life Cycle and the Genesis from Various Stages: Both restructuring and insolvency are important in different phases of a business's life cycle. Restructuring services offer the company viable solutions and mechanisms when it faces financial distress, while insolvency enforcement allows creditors to pursue debts and safeguard their interests in an insolvency scenario.
• Various Types of Liquidation: Many people associate liquidation with insolvency, but in some cases, liquidation services also apply to solvent companies. Under the current insolvency regulations in Hong Kong, a solvent company can undergo a members’ voluntary liquidation to dissolve its status on the Companies Registry. Solvent liquidation provides the company and its directors with an appropriate and comprehensive mechanism to wind down its business and affairs and ultimately distribute any remaining assets to its shareholders.
• Various Types of Official Appointments: In Hong Kong, in addition to the appointment of liquidators and receivers, certain regulatory authorities possess statutory authority to designate professional firms to assume control of regulated corporate entities. These appointments may not always be labelled as liquidators or receivers; depending on the relevant laws and regulations, they may instead be referred to as "Administrator" or "Manager." The responsibilities and authority of these specially appointed positions are generally confined to those outlined in the relevant ordinance.
• Lack of a Corporate Rescue System and Legislative Progress: Presently, Hong Kong does not have a comprehensive corporate rescue system that allows a financially troubled company to pursue restructuring without a formal moratorium. Although a corporate rescue bill was proposed by the government in 2000, the most recent effort occurred with the government's introduction of the bill in late 2020. Overall, the discussions underscored the necessity for a corporate rescue bill and the significance of establishing a legal framework that enables distressed companies to navigate financial challenges and re-emerge as viable entities.
• The Responsibilities of a Tax Accountant in an Insolvency Scenario: Given the predominance of tax accountants among the participants, the seminar also emphasised the responsibilities of tax accountants in an insolvency scenario. Generally, tax accountants are urged to support and respond to information requests from liquidators, enabling them to fulfil their obligations effectively. Moreover, liquidators may at times need professional tax guidance to address complex tax-related conflicts. During the session, Daniel also recounted his involvement in a prior liquidation case involving intricate tax disputes, specifically the liquidation of Moulin Global Eyecare Trading Limited.

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