E. Alternatives to winding-up

E. Alternatives to winding-up

A petition has been presented against my company which is in heavy debt and is obviously insolvent. We have managed to locate an investor but the capital injection the investor can provide is not sufficient to pay off all of the company's debts. What options are available to the company to avoid its being wound up?

The company may try to negotiate with the creditors in order to reach a compromise regarding the repayment of the debts, and see if the creditors can be persuaded to withdraw the petition.

Alternatively, the company can propose a scheme of arrangement under section 674 of the Companies Ordinance (Cap.622). Upon application by the company, the creditors, or the liquidator (in the case where a winding-up order has been granted), the Court may order a meeting of all the relevant parties be held to discuss and negotiate the details of an arrangement for debt repayment. 

If a majority in number representing at least three-fourths in value of the creditors (who are voting either in person or by proxy at the meeting) agree to any compromise or arrangement, the compromise or arrangement shall be binding on all the creditors if it is also sanctioned by the court. Sometimes the approved arrangement may involve the re-organization or transfer of the company's share capital, or even the merging of 2 or more companies.

The above procedures are complex and are usually carried out with the assistance of lawyers and professional financial advisors.

Another note is that whilst it is in the power of the Court to adjourn (postpone) winding-up proceedings, in order to enable a scheme of arrangement to be put in place, any such adjournment would generally only be ordered in the absence of opposition from the petitioning creditor. Even then that should only be done in circumstances where the court can see that there would be a realistic probability for a scheme of arrangement to be approved and can be sure that no adverse consequence to the parties involved will be occasioned as a result of the order made. (You may read the judgment from the case of Credit Lyonnais v SK Global Hong Kong Ltd for more details.)