First Of Its Kind: The Hong Kong Companies Court Recognises A Japanese Winding Up.

 

21 June, 2019

 

 

In recent years, the Hong Kong courts have been required to deal with a significant number of cases concerning cross border insolvency.  Most notably, a number of cases have arisen where insolvency practitioners appointed by overseas courts seek recognition of their authority to act on behalf of overseas companies placed in liquidation or a similar insolvency regime, and to seek authority to use powers equivalent to those granted to liquidators by the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) to gather in assets that the company may hold in Hong Kong or to gather information about the company’s affairs.

 

In the absence of legislation dealing with the matter, the Companies Court has developed a standard practice on such applications whereby the Court will recognise foreign insolvency proceedings that comply with the following criteria:-

 

1. The foreign insolvency proceedings are collective insolvency proceedings which is a process of collective enforcement of debts for the benefit of the general body of creditors; and
2. The foreign insolvency proceedings are opened in the company’s country of incorporation.

 

Most decisions granting recognition of foreign insolvency proceedings and foreign office holders relate to companies placed into liquidation in Common Law jurisdictions such as the Cayman Islands or the British Virgin Islands, which have similar insolvency procedures to Hong Kong.  On 25 March 2019, however, in handing down his judgment in the case of Re Kaoru Takamatsu [2019] HKCFI 802, the Honourable Justice Harris granted an order recognising the Japanese liquidation of Japan Life Co. Ltd (Company) and providing assistance to the Japanese trustee in bankruptcy. As far as we are aware, this is the first application for recognition by a trustee in bankruptcy appointed in Japan over a Japanese incorporated company, and possibly the first application by an insolvency office holder from a civil law jurisdiction. This case helpfully summarises the principles by way of which the Companies Court determine applications for recognition of foreign insolvency proceedings in Hong Kong.

 

The Company was ordered to be wound up by the District Court of Tokyo and a trustee in bankruptcy (Trustee) was appointed. The Trustee sought recognition by the Hong Kong Court and an order giving him powers to deal with the Company’s affairs in Hong Kong. The Trustee had obtained a letter of request from the District Court of Tokyo asking the Hong Kong Court to grant recognition and assistance. The application was made by way of written submissions by the Trustee’s solicitors. 

 

The Honourable Justice Harris commented in his judgment that the law is well-settled that the Hong Kong Court will recognise foreign insolvency proceedings that comply with the criteria referred to in paragraphs 1 and 2 above. 

 

The Honourable Justice Harris noted that although Japan adopts a civil law system, the Company is in a collective insolvency proceeding in its place of incorporation and accordingly that proceeding should be recognised. The Judge also found, having considered evidence filed by the Trustee, that the status and powers of a trustee in bankruptcy appointed in Japan are similar to those of a liquidator appointed in Hong Kong, including the vesting of company property and the right to inspect books and documents relating to the estate. Accordingly, the Judge found it consistent with established principle for the Court to grant the Trustee general powers to administer the Company’s affairs, including its assets and seeking documents and information located in Hong Kong.

 

The Judge stated that recognition applications may be granted very quickly on a written application, and reminded applicants to comply with Practice Direction 3.5 (Applications in writing in the Companies Court) and in particular, to ensure that the application is accompanied by a paginated and indexed hearing bundle to assist the Court in processing them quickly.  Applicants should also take note of the standard-form order for these sort of applications which is set out in the case of Re Joint and Several Liquidators of Pacific Andes Enterprises (BVI) Ltd [2017] HKEC 146.

 

It is also of note that the Judge was prepared to grant the recognition order notwithstanding the fact that in the period between the District Court of Tokyo having wound up the Company and the Trustee having issued his recognition application, employee creditors of the Company (which was registered as a Non Hong Kong Company under the Companies Ordinance (Cap 622)) had issued a winding up petition against the Company in Hong Kong.  The authors understand that this petition was stayed, having not yet been heard, after the recognition order was granted.   It appears that in such situations the foreign office holder’s application may take precedence over a petition issued locally, although the timing of the commencement of insolvency proceedings in each jurisdiction may become a factor if this issue arises again.   

 

It is encouraging for foreign office holders from civil jurisdictions and for practitioners who feel that ancillary winding up proceedings can cause more problems than they solve, that the Companies Court is continuing to readily accept applications for recognition and assistance, provided that the 2 criteria mentioned above are satisfied, and that it seems to be possible to apply for recognition of an insolvency commenced in a civil law system as long as the status and powers of the foreign trustee in bankruptcy are similar to those of a liquidator appointed in Hong Kong.

For further information, please contact:

 

Cathy Wu, Deacons

cathy.wu@deacons.com.hk