Our Partner Mathew Liu hosted an insightful specialty group session for the International Lawyers Network (ILN) online.

Mathew led a compelling discussion on “Best Practices for Compromising Debts of an Insolvent Company: Scheme of Arrangement”. This topic is particularly pertinent given the ongoing global economic challenges.

In Hong Kong, schemes of arrangement have long been utilized for debt restructuring. However, as participants noted, the regulations governing these schemes in EU jurisdictions are still evolving.

Mathew and the attendees highlighted a notable trend in drafting these schemes: they are increasingly lengthy and presented in a binary format. While comprehensive, this length can detract from readability and focus. Many schemes now only outline two scenarios—liquidation and restructuring—potentially misleading creditors into believing that insolvency is imminent if the scheme is not approved. This poses significant challenges for drafters, who must strike a balance between providing complete information, ensuring clarity, and being persuasive.

The discussion also delved into practical experiences around engaging creditors, including the collection of votes and gauging positions prior to meetings. Given that the process is democratic, it is essential for creditor classes to make informed decisions. Moreover, the court’s role is not merely passive; practitioners must be prepared to make compelling submissions to satisfy the court’s requirements for approving these schemes.

Sit, Fung, Kwong & Shum proudly stands as one of only three members from Hong Kong in ILN, a prestigious association dedicated to creating a global platform for high-quality legal services, particularly for clients with international needs.