Law and regulation of Covid-19 loan moratoriums in Hong Kong

1.1 Is there a moratorium on loans legislation implemented in your jurisdiction?

No.

The Hong Kong Government announced on 6 January 2020 a plan to revive consideration of a corporate rescue bill that would include provisions mirroring Chapter 11 of the United States Bankruptcy Code.

The government intends to begin a new round of public consultation in the coming months with the goal of introducing a draft amendment bill to the Legislative Council in October 2020. 
The COVID-19 crisis has highlighted the necessity of this reform and instilled a renewed urgency to the proposals.

Prior to the announcement, the Hong Kong Government conducted public consultations in 2009.  Subsequently, detailed proposals on the proposed corporate rescue procedure were developed in 2014, taking into account feedback from the public and stakeholders.

1.2 If no: Are there any ongoing discussions regarding a potential introduction of such measures?

The primary reforms, advocated in the 2014 proposals, were the introduction of provisional supervision and a moratorium.

Provisional supervision allows a third party to be appointed as the provisional supervisor to manage and control the company. This process can be initiated by the company, a provisional liquidator or liquidator subject to certain requirements. A key advantage of this process is that no court order is necessary. Procedurally, the company would make filings with the Companies Registry, publish the provisional supervisor’s appointment in the local newspapers and confirm that it has a valid insurance policy to cover its employees’ compensation liabilities.

The proposed period for the moratorium was 45 business days commencing from the date that the provisional supervisor was appointed. The creditors may vote to extend the moratorium for up to 6 months. However, the notable claim exceptions to the moratorium included any claims by employees for their outstanding entitlements and unfair prejudice claims by minority shareholders.

1.3 What is the name of the relevant legislation (the “Relevant Act”)?

N/A

See point 1.1 above.

1.4 What is the duration of the measures (period of moratorium)?

N/A

See point 1.1 above.

1.5 Does the legislation provide for an extension of the period of moratorium?

N/A

See point 1.1 above.

1.6 Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?

N/A

See point 1.1 above.

2.1 Is the moratorium available for both corporate and consumer loans?

The proposed changes would affect companies only (local companies and those foreign companies registered as a non-HK company in Hong Kong).

2.2 Who are the affected Lenders?

Any lender. Although the bill has not been introduced, the 2014 proposals suggested that no creditor would be able to bring an action against a company during the provisional supervision/moratorium (subject to limited exceptions mentioned above, such as employee claims for wages). 

However, in the 2014 proposals, prior written consent from the major secured creditor was required to initiate the provisional supervision and for the appointment of the provisional supervisor. Where the company did not have a major secured creditor, it was discussed that prior consent from all secured creditors should be required before the company could initiate the corporate rescue procedure.

2.3 Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?

As the consultation is ongoing, this issue has not been determined.

3.1 Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?

As the consultation is ongoing, this issue has not been determined.

3.2 Does the moratorium apply to principal only, or also to interest and/or fees?

The moratorium in the 2014 proposals prevented creditors from enforcing their rights generally subject to certain provisos and was not limited by the nature of the amount owed.

3.3 Will the maturity of the loan automatically be extended by the moratorium period?

As the consultation is ongoing, this issue has not been determined.

3.4 Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?

As the consultation is ongoing, this issue has not been determined.

3.5 Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?

As the consultation is ongoing, this issue has not been determined.