In the United Kingdom, the enactment of the Companies Act 2006 has created a venue for corporations to return the capital investment to their shareholders to the detriment of their creditors. With more liberal provisions on the distribution of profits to it investors (see UK companies Act 2006 Sections 830 - 831), UK companies have more leeway when it comes to giving out dividends. Like in the United Kingdom, there are also provisions in the Hong Kong Companies Ordinance (Caption 32) that give companies more room to maneuver the release of funds of the company to its shareholders.
Provisions on the maintenance of legal capital, the reduction of capital and shares buy backs in the Hong Kong Companies Ordinance give plenty of options to companies in terms of redistribution of capital shares to shareholders. Moreover, the Hong Kong Companies Ordinance is now going through a review process and during the series of consultation conducted by the government; some sectors believe that the revisions in the Companies Ordinance would make it easier for companies to circumvent the protection of legal capital3.
Since there are provisions of the law that give more powers to the company to return capital to its shareholders, there are many sectors that believe that the protection of creditors under the legal capital rules is dead4. Their argument is that if the companies can reduce the amount of capital, buy back their shares of stocks at lower prices and distribute profits to its shareholders even if the company still have to recovered losses from previous years, creditors may not be able to collect their money in due time5.
Despite the fact that the protection of creditors under the rules of legal capital has already been eroded, we cannot really say that this protection is already dead or totally useless. We have to understand that under Hong