The Importance of Including Debt Restructuring in Hong Kong’s Legislative Agenda

In a rare and dramatic scene, a Hong Kong courtroom was packed with journalists, corporate consultants, and restructuring specialists for Evergrande’s winding-up hearing. Judge Linda Chan made a decisive ruling, issuing a liquidation order and declaring “enough is enough” in the landmark case involving China’s once-largest property developer with over $300 billion in liabilities.

This high-profile case has brought Hong Kong’s legal framework for resolving debt problems into the spotlight. Since China’s real estate crisis began in 2021, more than 20 Chinese developers have faced winding-up petitions in Hong Kong, with at least five being ordered to be wound up by a judge.

Unfortunately, this outcome is far from ideal for all parties involved. Described as a “nuclear option” and a lose-lose scenario by lawyers, winding-up court proceedings often result in minimal returns for creditors and lengthy legal battles.

Experts argue that Hong Kong’s legal framework for debt restructuring options falls short compared to financial hubs like London, New York, and Singapore. Despite discussions on a restructuring bill for over 20 years, the plan has been repeatedly delayed due to other legislative priorities and lack of consensus.

With offshore creditors increasingly using Hong Kong courts to push distressed Chinese developers into restructuring, the need for a comprehensive restructuring bill is more pressing than ever. Such a bill would impose a statutory moratorium after appointing a supervisor for debt restructuring, preventing rushed winding-up petitions.

Legal experts emphasize the importance of addressing mainland Chinese assets in the restructuring bill to ensure a fair and effective process for all stakeholders. The introduction of a restructuring bill would not only align Hong Kong with international standards but also provide companies and creditors with more options for consensual restructuring.

As the industry awaits legislative action, stakeholders hope that the Hong Kong government will prioritize the restructuring bill to enhance the city’s position as a leading financial center.