workouts which are against their commercial judgment. instead, we try to achieve our objectives through moral suasion. looking ahead, it is essential that the process of corporate debt restructuring in hong kong should operate as effectively and smoothly as possible. this is particularly the case as we contemplate the task of restructuring the mainland - related companies such as guangdong enterprises which are currently in financial difficulties. the scale of these problems and the unfamiliarity with the workout concept on the mainland will pose particular challenges. the lending banks will need to exercise patience while the borrowers and their shareholders must face up to the need for transparency and openness with their creditors. this is going to be a long and arduous process which has only just begun, but the gitic liquidation provides a clear example that the alternative is even more unpalatable. i will close with some thoughts on how we might take forward the task of improving the workout process in hong kong to deal with the challenges ahead. one thing that will help is the proposal to introduce provisional supervision in hong kong. the aim of the proposal is to facilitate a company in working out a voluntary arrangement with creditors. it would do so by imposing a moratorium on legal proceedings against the company which could be extended for up to 6 months or even beyond with the consent of the creditors. during this time a provisional supervisor would take control of the company and formulate a restructuring proposal to be put to creditors which are bound by the moratorium. a statutory framework of this kind has its own drawbacks, but the general view seems to be that it would be particularly useful in giving a breathing space to smaller companies and freeing the lead banks from the effort of having to keep creditor banks in line in such cases. the non - statutory form of workout will however still be required even if the proposed legislation on provisional supervision goes ahead. to make this work more effectively, it would appear to be timely to review the operation of the hkab guidelines a year after they were launched. it may be desirable to issue additional guidelines on various aspects of the workout process, for example on the role of the steering committee, the operation of a standstill or the provision of new money. there may also be scope for clarification of the role of the investigating accountants, in particular whether they should be appointed by the borrower, as at present, or by the banks. even if the guidelines themselves remain as they are, and there is some merit in the flexibility which their current br

enforce the standstill, to negotiate with the company and its financial advisers and to share information with the other lending banks. the lead bank will be assisted in this process by a steering committee, normally consisting of about 4 - 6 banks. it is important to note that while the steering committee may recommend a restructuring plan to the bank group as a whole, it cannot commit them to it. this means that a workout can only go ahead if there is unanimous agreement among all the banks involved. obviously this can delay the whole process - a point to which i will return later. this is only a very short description of the mechanics of a workout and hardly does justice to what can be an enormously complicated exercise involving banks with widely different levels of security as well as non - bank creditors whose interests also need to be taken into account. but i hope that i have given you enough to illustrate the central principles of the process : a willingness by the debtor to recognize that there is a problem and to approach the banks to seek assistance, matched by support and forbearance by the banks and a willingness to work together to reach a solution by consensus. that solution may not be the optimum one for every individual bank but the objective should be that each bank is at least better off than it would be in a liquidation and is treated fairly vis - a - vis others. in the course of preparing this speech i have had the benefit of talking to a number of market participants about how effectively the workout process in hong kong and the hkab guidelines are working. it is fair to say that there are varying shades of opinion on this point, but there is general agreement that the guidelines have made an important contribution in codifying what is expected of banks in hong kong. it is equally true that there may be room for improvement in the workout process. let me highlight some of the main areas of concern about the current arrangements : * first, the sheer number and diversity of banks involved in some workouts can make it extremely difficult to achieve the necessary consensus on restructuring proposals. this is compounded by the point i have already mentioned that a number of foreign banks are reducing their commitment to hong kong. this increases the possibility that some banks, particularly those with a small exposure may be tempted to take a hard line by threatening legal action or refusing to sign restructuring agreements in the hope of extracting better terms for themselves or being bought out by the other banks. head offices sometimes encourage such an attitude. this indicates a lack of