Wai Yee Wan

Directors' duties of loyalty to the company have been diffused across the common law world and are a central tenet of corporate governance. Despite the apparent similarity of these duties, not much is known about how and why the duty diverges in its effectiveness across countries. Our study sheds light on the phenomenon by drawing on a comprehensive ten-year database of handcollected judicial decisions across five jurisdictions in common law Asia. We find that the unified simplicity of law on the books belies the individual, diverse pathways in functional application in each jurisdiction. We investigate the underlying reasons, including the differences in enforcement mechanisms across jurisdictions, functional substitutes, and contextual influences. Implications for regulatory enforcement are considered, including the potential for civil proceedings to facilitate public enforcement of directors' duties of loyalty.

The COVID‐19 crisis has triggered unprecedented governmental responses around the world to mitigate the effects of the pandemic, with particular attention being given to small and medium‐sized enterprises (SMEs). Governments around the world have implemented economic measures in the form of direct subsidies or government‐guaranteed loans, and legislated to provide mandatory relief from contractual obligations. In addition, increasing recognition of the limitations of insolvency regime in addressing the crisis for SMEs prompted many jurisdictions to change their laws. However, consistent with its free market principles, Hong Kong has only adopted economic measures and has provided limited contractual relief in favour of SME tenants. There is no SME‐specific insolvency law nor is the Hong Kong government currently considering any such law reform. This article reviews the need for a temporary insolvency regime to cater to distressed but economically viable SMEs restructure their debts. Drawing on a set of interviews with Hong Kong SME owners, this author finds that they are often unaware of how insolvency law operates, their unsecured creditors are apathetic, and bankruptcy stigmatism is high. Based on a review of the frameworks in the other advanced common law jurisdictions such as the United States, Australia and Singapore, a recommendation for a simplified restructuring and liquidation framework is developed. The process is designed to be simplified and expedited and it incentivises early negotiations with creditors.

A growing number of jurisdictions have adopted bankruptcy law reforms to aid debt restructuring. By utilizing a difference-in-differences model based on bankruptcy law reforms across six economically advanced jurisdictions, we discover that firms adopt more diversified debt instruments following the law reforms. This impact is predominantly observed in firms that are more vulnerable to a potential tightening of credit supply due to the law reforms. Such firms also decrease their overall debt borrowing and investment. Moreover, we find that affected firms rely less on secured debt, aligning with the idea that these legal reforms diminish the protection of secured creditors. Our findings also indicate that borrowing costs rise and debt maturities shorten after the reforms, implying that creditors may adjust debt contract terms to counterbalance the reduced legal protection. Overall, our analysis suggests that bankruptcy law reforms promoting debt restructuring could potentially negatively impact credit supply and impede the debt financing of some types of firms.

Corporate restructuring law aims to effectively reorganise debts of viable but otherwise financially distressed enterprises and allow non-viable companies to fail. Preserving the going-concern value will be a social benefit if that benefit exceeds the liquidation value of the debtor. In chapter one, I explained that the incentives of the various key stakeholders of a distressed firm, including its creditors, shareholders and managers, are often very different and at odds with one another. For instance, shareholders may wish to continue trading, in the hope that the company will turn around its fortune, even when there is doubt that the creditors will be paid. Hence, the goal of an effective regime is to minimise the agency costs of restructurings due to friction arising from the manager–creditor and shareholder–creditor relationships and different classes of creditors. This chapter addresses strategies to minimise agency costs arising from the manager–creditor and shareholder–creditor relationships in the debt restructuring of Asian companies. For reasons explained below, given the concentration in shareholdings of Asian companies, it is appropriate to discuss in this same chapter the costs arising from manager–creditor and shareholder–creditor relationships as the managers are often appointed by the controlling shareholders. The US Chapter 11, a debtor in possession (DIP) regime, is widely regarded as pro-debtor and pro-restructuring, and is highly flexible. Chapter 11, the choice for large firm restructurings, is designed to encourage efficient consensual bargaining by parties to maximise the debtor’s assets and minimise the collection costs of creditors. To this end, a price discovery of the restructuring plan by committees of creditors supported by a mandatory disclosure regime addresses the question of how assets are to be deployed. Creditors’ or shareholders’ hold-outs, or both, on how assets are to be distributed are addressed by the court’s ability to impose a cram-down, either within-class or cross-class. For the cross-class cram-down to be exercised, the absolute priority rule (APR) found in distributions in liquidation, that is, requiring that senior classes must be paid in full before junior classes can receive any payment in the absence of consent by the class in question, must be respected. In theory, shareholders of a company that is insolvent should be wiped out if the APR is strictly applied. Deviations from the APR are rare and judicially supervised. In the UK, there are two possibilities for effecting a restructuring using a court-supervised process. The first is the traditional Part 26 of the Companies Act 2006 (Companies Act), which provides only for a within-class cram-down for the English schemes of arrangement. To effect a de facto cross-class cram-down and to squeeze out the junior creditors and shareholders, the process is more complex; this will involve the twinning of the English scheme with administration under the Enterprise Act of 2006 in a pre-packed plan. The English or English-modelled scheme is a DIP model but is classified as a secured creditor-in-control model in chapter one, as no restructuring can take place without the secured creditors’ consent. The second is a recent innovation; since June 2020, a new Part 26A of the Companies Act allows for a restructuring plan where a cross-class cram-down is possible. As explained in chapter one, each of the four Asian jurisdictions under study has adopted significant restructuring reforms based on the US/UK model. Hong Kong’s scheme of arrangement draws on the UK case law on English schemes, being a secured creditor-in-control model, though Hong Kong may be moving ahead with bankruptcy reforms that are likely to include a corporate rescue mechanism. Under a secured creditor-in-control model, no restructuring is possible without the consent of the secured creditors. It is not possible to effect a pre-package plan using the scheme twinned with administration in Hong Kong due to the absence of an equivalent UK administration process. In the case of Singapore, prior to the enactment of the amendments to the company legislation and insolvency law framework in 2017, its regime was distinctly secured creditor-in-control model, that is similar to Hong Kong. Following the 2017 reforms, Singapore’s scheme of arrangement has shifted distinctly to a DIP model. Mainland China explicitly adopted Chapter 11 reforms in its restructuring framework, though with important local variations as to how the distribution of the proceeds of the restructuring takes place, and in particular, in the application of the APR. Mainland China adopts a hybrid of the DIP and practitioner in possession (PIP) model where either the administrator (if he/she is in charge of the management of the business or property) or the debtor (if it is in charge of the management of the business or property) can propose the plan. The debtor can continue to manage the business and operations whilst in reorganisation, with the approval of the court, whilst the administrator supervises the process. India enacted the Indian Insolvency and Bankruptcy Code (IBC) in 2016, and the solution in ensuring that the insolvency practitioner takes control of the assets is similar to the PIP model found in the UK’s administration proceedings under the Enterprise Act 2002. The issue of distribution of assets is a complex issue, and as discussed below, is determined by a modified form of the APR, including ensuring priority to secured creditors and preventing promoter shareholders and their connected parties from reacquiring their assets unless they clear their outstanding debts, ensuring that the promoter ranks behind creditors. However, whilst the Asian jurisdictions have transplanted the US/UK-style systems, the broader issue is whether transplantation is appropriate given the inherent...

Blockchain and distributed ledger technology (DLT) has generated much excitement over the past decade, with proclamations that it would disrupt everything from elections to finance. Unsurprisingly, the much-maligned corporate form is also considered ripe for disruption. While certainly imperfect, and currently serviced by creaking legal infrastructure premised upon direct shareholdings, are its problems ones of centralization/intermediation? What exactly are the limits of DLT? In this chapter, we propose to expose the ignorance behind the hype that the venerable corporation will either be revitalized by DLT or replaced by Decentralised Autonomous Organisations (DAOs). We will demonstrate that proponents of DLT disruption either overestimate the potential of the technology by taking at face value its claims of security without unpacking what said security entails (and what it does not) or lack awareness of the history of and market demand for intermediation as well as the complexities of modern corporations.