From a civil litigation and insolvency perspective, we look at the key impacts of the Hong Kong Courts’ recent General Adjournment of Proceedings (GAP) from 7 March 2022 to 11 April 2022 and related governmental closures.
1. The recent implementation of GAP has resulted in a de facto stay of new actions and proceedings, and adjournment of existing actions, including bankruptcy and winding-up petitions.
2. While monitoring the GAP situation, debtors and creditors should consider out-of-court options including voluntary liquidations, turnaround and restructurings.
3. Court users should be prepared for backlogs and delays when court business incrementally resumes after GAP.
GAP of Hong Kong Courts
On 4 March 2022, the Hong Kong Judiciary announced a second period of ‘general adjournment of proceedings’ (GAP) from Monday 7 March 2022 to Monday 11 April 2022. During GAP, all levels of Hong Kong courts and tribunals (“Courts“) and their respective registries (“Court Registries“) are closed, save for the exceptions listed in the Courts’ guidelines issued on the same day (“Guidance“). This is the second period of GAP since the start of the COVID-19 pandemic. The first GAP took place from 28 January 2020 to 28 February 2020 during the first wave of COVID-19, and full service only resumed after 3 May 2020.
What are the exceptions to the GAP?
Annex 1 of the Guidance specifies the limited categories of ongoing business that can continue during GAP, with the directions of the Courts. Examples of civil proceedings (including debt recovery, bankruptcy and liquidation matters) that can continue during GAP, as directed by the Courts, are:
1. Court of Final Appeal proceedings
2. Urgent civil appeals and urgent applications before the Court of Appeal, and appeals that can be conducted remotely or on paper
3. At the Court of First Instance (CFI) level, where bankruptcy, companies court and winding-up matters are heard:
a. Court hearings and appeals originally listed during GAP
b. Urgent (and yet to be filed urgent) applications by a trustee in bankruptcy or creditor applying to suspend discharge from bankruptcy (under Section 30A of the Bankruptcy Ordinance (Cap. 6) (BO)) with imminent dates of discharge of bankruptcy (“Suspension of Discharge from Bankruptcy Applications“)
c. Urgent applications for non-commencement orders under Section 30AB of the BO
d. Urgent matters dealt with by the Duty Judge or Master of the CFI (or District Court); e.g., interim injunctive relief.
Closure of Court Registries and coinciding closures of the Companies Registry and Official Receiver’s Office
GAP has had an immediate effect on litigation, bankruptcy and liquidation matters as new actions and applications cannot be taken out and documents cannot be filed, subject to the exceptions under the Guidance, as the Court Registries have shuttered their doors. GAP coincides with the closing of public-facing services at the Hong Kong Companies Registry since 18 February 2022 and the Official Receiver’s Office (ORO), the Hong Kong government bureau overseeing insolvency and bankruptcy matters since January 2022. While the Courts have not provided alternative arrangements for e-filing, e-searches and sealing of orders in most instances, the Companies Registry and the ORO have encouraged online filing and searches in lieu of physically attending their offices. The ORO has also launched new online portals, e.g., for filing of creditors’ proof of debts and applying for Certificates of Non-Bankruptcy. Creditors are also encouraged to submit proxies by fax in lieu of attending creditors’ meetings hosted at the ORO.
Are there any exceptions for filing when the Court Registries are closed?
Annex 2 of the Guidance provides a number of exceptions where filings are allowed, for example:
1. Originating process for claims subject to a time bar that expires during GAP under the Limitation Ordinance (Cap. 347)
2. Documents pursuant to an unless order that expires during GAP
3. ‘Urgent applications,’ e.g., urgent probate applications, urgent registration of enduring powers of attorneys or powers of attorney
4. Documents in support of Suspension of Discharge from Bankruptcy Applications; and urgent applications to validate dispositions of the bankrupt’s property under Section 42 BO
What can those affected by GAP do?
Those with active or anticipated civil proceedings should:
- Monitor the judiciary website for further guidance and updates in the daily cause list
- Monitor incoming correspondence from counterparties, in particular paying attention to any timelines for exchange of documents, where Court filing can follow or documents that do not require Court filing at all
- Consider if the parties can agree to timelines to mitigate the effect of GAP by consent summons to be filed after the Courts resume normal business
For bankruptcy and liquidation practitioners, creditors and debtors:
- Debtor companies should consider voluntary liquidations that do not require a court application, for instance, an international gym chain recently announced its voluntary liquidation on 16 March 2022.
- Special precautions may be taken for social distancing when holding contributories’ and creditors’ meetings during the pandemic, including considering the feasibility of virtual meetings as endorsed by the ORO and the Courts, or applications for regulating orders where there are large numbers of creditors / members (see the ORO’s letter of guidance to the Hong Kong Institute of Certified Public Accountants on 26 January 2022; and Re Hsin Chong Construction Co Ltd  HKCFI 559, , per Harris J).
- As the GAP operates as a stay against the majority of new actions and petitions, creditors and debtors may use this time to consider turnaround and restructuring options while seeking advice on obligations that continue to run notwithstanding the GAP.
- Non-Hong Kong companies registered in Hong Kong should assess whether there is a risk of debt recovery or winding-up petitions being brought in other jurisdictions during the GAP.
Are there any reference points from the last GAP in 2020?
The total number of petitions, bankruptcy and winding-up orders in 2020 were on par with 2018, 2019 and 2021. During these four years, the annual number of bankruptcy petitions ranged between 7,197 to 8,693; the number of bankruptcy orders ranged between 6,685 to 7,762; the number of compulsory winding-up petitions and orders ranged between 367 to 493 petitions per year and 234 to 299 orders per year, respectively. Up to February 2022, 1,060 bankruptcy petitions and 68 compulsory winding-up petitions have been filed; 863 bankruptcy orders were granted and there were 43 compulsory winding-up orders (per the Statistics of the ORO).
There was a significant increase in petitions in May 2020, as there were no bankruptcy and winding-up petitions and no orders granted in February 2020 during the last GAP and filing quotas during the incremental resumption of work in March to April 2020 which limited the number of petitions that could be filed in March and April 2020, with priority given to the most urgent and essential cases.
|Year – Month||Bankruptcy Petitions||Bankruptcy Orders||Compulsory Winding-up Petitions||Winding-up Orders||Weekly court petitions hearings|
Source: Statistics of the ORO
The above suggests there may be a flood of bankruptcy and winding-up petitions when the CFI registry reopens after GAP. Intended parties should prepare for potential filing quotas and delays.