Restructuring & Turnaround in China: Expert Insights

At Valtus Alliance, restructuring is always shaped by local realities — and nowhere is that more evident than in Asia, where legal frameworks, stakeholder dynamics, and informal influence intersect.

In this interview, Thaddaeus Mueller (Valtus Alliance Partner) sits down with Paul Mol (Interim CFO and Founder, Mol & Partners) to explore how restructuring works across Hong Kong, Mainland China, and Southeast Asia — and what it takes to execute successfully in this environment.

Two Systems, Two Realities

Thaddaeus

What makes the restructuring framework unique in China and Hong Kong?

Paul

Hong Kong and Mainland China operate under fundamentally different systems.

Hong Kong follows a common law framework, similar to the UK. It is relatively structured and creditor-focused, with restructuring typically carried out through schemes of arrangement or negotiated workouts. However, it lacks a true debtor-in-possession model or automatic stay, so success depends heavily on creditor cooperation.

Mainland China is different.

It operates under the Enterprise Bankruptcy Law, which is conceptually modern but applied inconsistently across regions. While there are pilot programs for pre-restructuring, they are still developing and lack standardisation.

More importantly, restructuring in China is not purely legal.

Local governments often play a decisive role, particularly when employment or social stability is involved. Legal outcomes are influenced not only by statutes, but also by relationships and local dynamics.

Limited Formal Protection, Greater Dependence on Negotiation

Thaddaeus

Are there equivalents to protective frameworks like StaRUG or Chapter 11?

Paul

Not in the same way.

In Hong Kong, schemes of arrangement are the closest tool. They require creditor approval and court sanction but do not provide automatic protection. Companies must separately secure breathing space through legal measures.

In Mainland China, there is no robust pre-insolvency framework comparable to European systems.

Some courts have experimented with pre-restructuring mechanisms, but these are inconsistent and offer limited protection. In practice, most restructurings are negotiated informally with banks, authorities, and key stakeholders.

This makes the process flexible — but also less transparent and less predictable.

Thaddaeus

How are employees treated in insolvency?

Paul

In Hong Kong, employees are relatively well protected. They are treated as preferential creditors and can access a government-backed fund to recover unpaid wages, within certain limits.

In Mainland China, employee claims also have statutory priority. But enforcement varies significantly.

In reality, payroll often becomes a social issue. Local governments may step in to ensure wages are paid, particularly in larger companies or where unrest is a risk.

Securing Interim Leadership Compensation

Thaddaeus

How do interim managers protect their remuneration?

Paul

It comes down to structure and clarity.

In Hong Kong, fees are typically secured through formal agreements, often supported by lenders or board approval.

In China, it is more complex. Contracts tend to be shorter, milestone-based, and carefully structured. Legal support is essential.

If no funds are reserved, or if the process drags on, getting paid can become difficult. That is why we structure engagements very carefully from the outset.

The Power of Networks in Execution

Thaddaeus

Can you describe your restructuring network?

Paul

Over time, I’ve built a network across legal, financial, and governmental circles.

This includes lawyers, auditors, restructuring specialists, corporate secretaries, and local advisors. In Asia, and especially in China, this network is critical.

You are not just bringing in an individual. You are bringing in access — to knowledge, to influence, and to execution capability.

In many cases, informal influence can matter more than formal authority.

Collaboration: Structured vs. Relationship-Driven

Thaddaeus

How efficient is collaboration between stakeholders?

Paul

In Hong Kong, it is structured and predictable.

Courts are reliable, processes are clear, and if stakeholders are aligned, things can move efficiently.

In China, it is different.

Collaboration is less institutionalised. Banks, local governments, and courts all play roles, but not always in a formalised way. In many cases, negotiations outside the courtroom are more important than those inside.

The Role of Relationship Banks

Banks are central in both systems, but their behaviour differs.

In Hong Kong, banks can act as partners — provided they trust the company and believe in the plan. If credibility is lost, they can quickly become blockers.

In China, banks often take a more cautious, state-influenced position. They may align with regulators or government priorities, which makes early engagement essential.

If communication is weak or delayed, situations escalate quickly.

Government Involvement: Selective but Influential

Thaddaeus

Does the government support companies in crisis?

Paul

In Hong Kong, support is limited and typically short-term.

In China, government involvement is more active — but not guaranteed.

Local authorities may step in to protect employment or regional stability. This can include tax relief, regulatory flexibility, or facilitating agreements with banks.

But this support is selective and varies widely depending on the situation.

The Role of the Interim CFO

Thaddaeus

What role does an interim CFO play in restructuring?

Paul

In crisis situations, alignment is more important than analysis.

An interim CFO brings objectivity, speed, and credibility. The role starts with understanding the facts — cash flow, covenants, creditor positions — but quickly moves into execution.

Equally important is communication.

You need to align local management, headquarters, banks, auditors, and suppliers. In Asia, where reporting standards and expectations vary, this alignment becomes critical.

You need someone who can understand both the numbers and the context.