Hong Kong – Cross Border Insolvency – Private Examination Powers Granted To Foreign Liquidators.

 

9 December, 2016

 

 

The Joint Provisional Liquidators of BJB Career Education Company Limited and Xu Zhendong – HCMP 1139 of 2016 (date of judgment 18 November 2016)

 

This is the first Hong Kong decision where the Hong Kong Court has granted powers to foreign liquidators permitting them to orally examine a company director in Hong Kong pursuant to a letter of request made by a foreign Court.

 

BJB Career Education Company Limited (the “Company”) is a company incorporated in the Cayman Islands which provided vocational technology education through its subsidiaries in the People’s Republic of China.  The Company went into liquidation on 3 July 2016 by an order of the Grand Court of the Cayman Islands and joint provisional liquidators (the “Provisional Liquidators”) were appointed.

 

A letter of request was made by the Cayman Court seeking assistance from the Hong Kong Court to make orders against the former Chairman and director of the Company compelling him to produce documents, answer interrogatories and attend the Hong Kong Court for an oral examination by the Provisional Liquidators.

 

Previously it was the practice of foreign liquidators to wind up foreign companies in Hong

Kong to avail themselves of the same investigative powers as a Hong Kong liquidator. 

 

This inevitably incurred substantial time and costs.  Also, there were occasions where the necessary jurisdictional nexus to wind up a foreign company were not met. 

 

Since the landmark case of Joint Official Liquidators of A Co and B [2014] 4 HKLRD 374, there has been a flurry of assistance afforded by the Hong Kong Court to foreign liquidators. Annex A to this bulletin is a summary of these judgments.  

 

Harris J explained that the common law power of assistance extends to ordering an oral examination if such a power (a) exists in the jurisdiction of the place of the liquidation, which is also the place of incorporation of the company and (b) the power exists in the assisting jurisdiction (citing the Privy Council judgment in Singularis Holdings Ltd v PricewaterhouseCoopers [2014] 2 BCLC 597 and the UK Supreme Court judgment in Rubin v Eurofinance SA [2013] 1 AC 236).

 

An interesting point which Harris J addressed was whether such recognition infringes Article 96 of the Basic Law. This provides that Beijing’s authorisation is required before the Hong Kong Government can enter into a reciprocal judicial arrangement with a foreign state.  

 

Harris J accepted that recognition and assistance to foreign liquidators is founded in the common law rather than reciprocity, and therefore did not infringe Article 96.  His Lordship noted that there were a number of cases prior to 1997 where the Hong Kong Courts had used the common law to assist foreign liquidators, and Article 8 of the Basic Law allows the laws in force in Hong Kong prior to 1997 (i.e. the common law) to be maintained.  

 

Over the past two years, case law on the recognition and assistance to foreign liquidators has developed rapidly in Hong Kong.  Foreign liquidators are now equipped with more useful tools to properly conduct investigations into the foreign company’s affairs in cases where information is available in Hong Kong.

 

Annex A