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The Restructuring Review - Hong Kong

  • Hong Kong
  • Restructuring and insolvency

27-10-2015

Reproduced with permission from Law Business Research Ltd. This article was first published in The Restructuring Review - Edition 8 (published in August 2015 – editor Christopher Mallon)

Hong Kong is consistently ranked as one of the top international financial centres in the world, and is known to be among the world’s freest economies. Hong Kong prides itself on its market policy of minimum intervention in the way in which the market operates.

On 1 July 1997, Hong Kong reverted to Chinese sovereignty and became the Hong Kong Special Administrative Region (Hong Kong) of the People’s Republic of China (PRC or China). The Basic Law of Hong Kong (Basic Law), which was adopted on 4 April 1990 by the National People’s Congress of the PRC (NPC), is now applicable to Hong Kong. The concept of laissez faire free market is so important in Hong Kong that it is constitutionally enshrined in the Hong Kong Basic Law.

Article 8 of the Basic Law provides that the laws previously in force in Hong Kong (i.e., the common law, rules of equity, ordinances, subordinate legislation and customary law) shall be maintained, except for any that contravene the Basic Law, and subject to any amendment by the legislature of the Hong Kong. Under Article 160 of the Basic Law, the laws of Hong Kong in force from 30 June 1997 were adopted as the laws of Hong Kong, except for those which the Standing Committee of the NPC declared to be in contravention of the Basic Law. To give effect to this, the Hong Kong Reunification Ordinance was adopted by the Hong Kong legislature on 1 July 1997 (Ordinance No. 110 of 1997). Section 7 of this Ordinance provides that ‘the laws previously in force in Hong Kong, that is the common law, rules of equity, ordinances, subsidiary legislation and customary law, which have been adopted as the laws of the Hong Kong, shall continue to apply’.

Shortly after reversion to Chinese rule, Hong Kong was severely affected by the 1997 Asian financial crisis. During the Asian financial crisis, several brokerage firms collapsed (e.g., CA Pacific Group and the Peregrine Group) resulting in significant client losses. Hong Kong, like much of Asia, also experienced extraordinary turmoil in the currency, securities and futures market, which the government attributed to hedge funds speculating against the Hong Kong dollar’s link to the United States dollar. This crisis was made worse by the spread of the SARS virus in Asia in 2003, which drove many businesses into insolvency.

A decade after the Asian financial crisis, in September 2008, the global financial system experienced its first systemic crisis since the Great Depression of 1930 following the collapse of Lehman Brothers. Significant interventions by the governments around the world have so far avoided a global financial system collapse. Hong Kong was also affected; however, so far the impact on Hong Kong has been relatively limited, as Hong Kong was not at the epicentre of this crisis.

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