Speech at Council meeting-Temp Protection Measures for Business Tenants(COVID-19)Bill

Temporary Protection Measures for Business Tenants (COVID-19 Pandemic) Bill

MR CHAN CHUN-YING (in Cantonese): President, first of all, I work as a bank advisor. Since the Temporary Protection Measures for Business Tenants (COVID-19 Pandemic) Bill (“the Bill”) involves banks, I would like to declare my interests beforehand. In the meantime, I am also one of the members of the Bills Committee which scrutinizes the Bill.

The purpose of the Bill is to provide temporary protection to business tenants of specified sectors affected by the COVID-19 epidemic in order to help them resolve their short-term financial difficulties. Hong Kong has been plagued by the epidemic for over two years, and quite a number of enterprises have fallen into financial difficulties and on the verge of bankruptcy, with some even being forced to close down because they have long been unable to continue with their businesses. The Bill has good intentions and aims to provide specified sectors severely hit by the epidemic with a “breathing space” in the form of short-term measures, in the hope that when the protection period ends, a possible rapid economic recovery will follow, and these sectors will be able to quickly resume operation, so as to preserve their business and keep the jobs of employees.

However, it must be pointed out that both the contract of tenancy entered into between landlords and tenants as well as the mortgage or collateral contracts entered into between banks and borrowers are civil contracts voluntarily entered into between equal subjects, which, once signed, are protected by Hong Kong laws and are binding on both parties. In accordance with the characteristics of leasing and lending practices, these two types of contracts entitle landlords and banks to exercise a number of rights immediately in the event of default by tenants and borrowers, so as to ensure the interests of landlords and banks. Any change or cancellation of the contractual terms or rights of both parties will be in effect only after it is agreed by both parties after consultation or determined by courts.

As far as the temporary protection measures referred to in the Bill are concerned, it is the Government which will, by legislative means, bar landlords and banks from exercising their rights stipulated under legally valid contracts in the factual event of a breach of contract by tenants and borrowers. After listening to the views of various sectors, the Financial Secretary has made a series of amendments and added exemption clauses. However, this legislative exercise will inevitably have a significant impact on the contractual principles of civil contracts as well as the legal basis of property leasing and secured loans in Hong Kong. It is hoped that such measures are only a one-off exception to help SMEs tide over their pressing difficulties, and should not be used again in future unless absolutely necessary.

As no precedent can be cited, the Bill has enacted dozens of prohibitions that bar banks from exercising their creditors’ rights, so that what was originally intended to be the temporary protection measures for business tenants has lopsidedly become temporary protection measures for landlords who default on their loan repayments.

As we all know, when a borrower leases the property mortgaged to the bank to a tenant, it is necessary to obtain the consent of the mortgage bank. If the borrower defaults and the bank exercises its contractual rights accordingly, the interests of the tenant are still protected during the lease term. This means that any legal action or exercise of other rights by banks against defaulting tenants will not undermine the effect of the Bill in providing temporary protection to business tenants of other specified sectors.

Notwithstanding this, the Hong Kong banking sector has long before indicated that it will follow the detailed guidelines issued by the Hong Kong Monetary Authority to exercise flexibility if the repayment ability of any landlord is affected owing to reduction in rental income. Therefore, sections 7 and 8 of the Bill are in fact completely unnecessary. The Bill should focus on temporary protection measures targeted for business tenants.

At the special meeting of the Finance Committee earlier on, I specifically asked the authorities why the legislative approach has been adopted as the banking sector has all along supported and cooperated with the Government’s relief measures, and there is no evidence to show that banks are not cooperative. The authorities responded it was not that they had no confidence in the banks’ willingness to cooperate, but because representatives of landlords thought that it would be more reassuring to legislate to bar the debt collection activities of banks, so we in the banking sector cannot help but sigh.

Given that the Bill will only be effective for three months and the rights that have been suspended temporarily will be restored after three months, some definitions and period calculation in the Bill will be of little implication. Therefore, I do not support the amendments to the Bill proposed by Mr Louis LOONG.

President, in fact, the three-month protection period will soon be over. Can this protection period enable specified sectors to turn around, or will it just defer the crisis? Can more subsidies and protection get SMEs out of trouble? The most important thing is to restore the spending power of the market, and future prospects depend on the return of business.

I hope the Government will make good use of the precious time in these three months to lead Hong Kong to fight the epidemic together and to strive for the resumption of quarantine-free travel internally and externally, so that various sectors and trades can resume business and the economy can fully recover. If this vision can be achieved, the passage and implementation of the Bill will be of historical significance.

President, the Bill is not flawless, but after taking into account the rather special circumstances, I support the passage of the Bill and the amendments proposed by the Government. I so submit. Thank you, President.