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HKICPA publishes advisory for business and individuals to manage financial distress

02 April 2020

(Hong Kong, 2 April 2020) The ongoing COVID-19 pandemic is hitting Hong Kong with the full force of its health and economic effects. The Hong Kong Institute of Certified Public Accountants (“HKICPA”) believes that the community needs to take precautions to mitigate the risk of financial distress. With this in mind, the HKICPA’s Restructuring and Insolvency Faculty Executive Committee (“RIFEC”) has published quick guidance, “How to manage financial distress”, giving important information to businesses and individuals, and its members who advise them, on dealing with their difficulties.

As the courts have been operating on a more restricted basis over the past several weeks, statistics from the Official Receiver's Office (“ORO”) on corporate winding up and bankruptcy petitions, interim orders made, and individual voluntary arrangements entered into may not yet reflect the full picture of the economic situation. The government meanwhile is predicting that things will get worse before they get better. 

 “The impact of the current situation in Hong Kong is likely to be worse than during SARS (Severe Acute Respiratory Syndrome) in 2003, which was relatively short-lived. Economic activities started to weaken significantly from the second half of 2019 due to the international trade tensions and the local social unrest, and now the COVID-19 pandemic has exacerbated the problems. The uncertainties in the global and domestic environments have heightened the challenges for Hong Kong’s economy,” said Mr. Johnson Kong, President of HKICPA.

“Given the deteriorating economic outlook, directors, business owners, employees and members of the public should take steps to prepare themselves for all possible financial eventualities.

“We believe that, in the present climate, it is important to raise awareness of, and consolidate, this key information and advice for members of the public and businesses, as well as our own members. This is why we have taken the initiative to publish this material in a quick guide,” Mr. Kong continued. “The HKICPA can help as its Restructuring and Insolvency Faculty is the main forum for professionals in this field, in Hong Kong”, he added. 

There are various options, including debt relief measures, available in the market both for companies and individuals to mitigate the risk of corporate or personal insolvency. In circumstances where companies are unable to meet their financial obligations, even though their business is viable, directors are encouraged to explore restructuring options that may rehabilitate and safeguard the interests of stakeholders, creditors, employees and others, as early as possible. Companies with bank loans facing short­term cash flow constraints and difficulties servicing their debts should consider talking to their lenders. Many banks are prepared to discuss debt-restructuring possibilities. In these difficult times, some landlords may also be willing to talk to tenants and make specific arrangements in relation to rental payments. Some industries and small and medium size business may be eligible for government financial assistance and relief measures, recently introduced or enhanced, to help businesses to weather the storm.

Employees losing their jobs due to redundancy could easily face personal financial hardship and mounting debts. Individuals owing money to banks, including credit card debts, and unable to make their payments on time, should contact their banks, as banks are often willing to consider adjusting repayment schedules, as an alternative to bankruptcy. “There are also debt counselling services offered by non-government organisations in Hong Kong, and statutory arrangements, called individual voluntary arrangements, which may be preferable to declaring bankruptcy,” said Mr Terry Kan, RIFEC Chairman. 
Where other options are really not tenable, companies and individuals should avail themselves of the statutory winding up and bankruptcy procedures, and ensure that they are aware of their obligations under the law, including an employer’s obligations to pay wages on time. Employees should also be aware of their rights. Relevant information can be found on the websites of the Official Receiver’s Office and the Labour Department.

On a note of caution, debtors may also be approached by financial intermediaries offering “informal” debt restructuring arrangements, which often involve taking out further loans negotiated by the intermediaries to pay off existing debts. Debtors should think very carefully before being induced to enter into such arrangements because, in practice, they may merely defer bankruptcy and the debtor may end up owing a larger debt.

For more details of “How to manage financial distress”, please visit



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