Reply to Consultation Paper

On Treatment of Employees in "Provisional Supervision"

Our Ref : 51/WKC/066

1 March 1999

Miss Julina Chan

Principal Assistant Secretary (Companies)

Financial Services Bureau

18/F Tower 1 Admiralty Centre

18 Harcourt Road

Hong Kong

Dear Miss Chan

Treatment of Employees in “Provisional Supervision”

Thank you for offering the Coalition the opportunity to comment on the “Consultation Paper on Corporate Rescue and the Protection of Wages on Insolvency Fund”.

The HKCSI has consistently supported the introduction of a corporate rescue regime in Hong Kong. Our position has been expounded, as you may recall, in a “Position paper on corporate rescue” last September. The economic downturn has meant there is now a much greater urgency to introduce the rescue procedure as proposed by the Law Reform Commission.

We appreciate that in establishing such a rescue regime, the interest of the employees, especially those who are laid off, will need to be dealt with satisfactorily. However, we would emphasise that the very aim of provisional supervision is to preserve, not to take away, jobs. If there were to be no provisional supervision it would be very likely for the company in question to be wound up or liquidated. In other words, the company will have to be in very deep trouble, and the employees would end up being jobless if no action were taken.

On the other hand, the company's trouble must not be so deep as to make it beyond rescue. There will be provisional supervision only if there is a reasonable chance of saving the company from liquidation. Although there is no guarantee, provisional supervision is meant to succeed, and it is not unreasonable to assume that the majority of the workforce would not be laid off if the business were to be successfully preserved.

In dealing with employees affected by provisional supervision, therefore, the implication is that they should be compensated in a manner as if the company was insolvent, and in such a way as not to jeopardise the chance of a successful rescue. We share, therefore, the Hong Kong Society of Accountants’ analysis that none of the options proposed, other than Option A, would be viable.

In conclusion, we would support Option A, that is, employees affected by provisional supervision should be compensated under the Protection of Wages on Insolvency Fund

I hope the above comments are useful.

Yours sincerely

Dr W K Chan

Secretary General