20 November, 2015
Should a creditor of a foreign company with assets in Hong Kong apply for provisional liquidators in the Hong Kong Court pending the determination of the same application in the foreign company’s place of incorporation? This issue arose in the case of L v G Limited. The Court set out in the judgment a useful summary about the principles governing Hong Kong cross border insolvency.
Background of the case
On 29 September 2015, the petitioner in Hong Kong issued a winding up petition against a foreign company (incorporated in the Cayman Islands and listed on the main board of the Hong Kong Stock Exchange) (the “Company”) on the grounds of insolvency and in parallel applied to appoint provisional liquidators which was heard by the Companies Judge Harris J on 2 October 2015 (“Hong Kong Application”).
Prior to the hearing of the Hong Kong Application, the Company had already issued a petition for its own winding up in the Cayman Islands and an application to appoint provisional liquidators was to be heard on 8 October 2015 (“Cayman Islands Application”). Supporting evidence for the Cayman Island Application included an affirmation from the petitioner.
Harris J adjourned the Hong Kong Application to 16 October 2015 pending the determination of the Cayman Islands Court as he took the view that there was no reason to pre-empt the decision of the Cayman Island Court.
The Cayman Island Application was unopposed and provisional liquidators were appointed on 8 October 2015.
At the hearing on 16 October 2015, the petitioner argued that it had the requisite locus to present a petition against the Company in Hong Kong and that the application to appoint local provisional liquidators should be adjourned in case the foreign provisional liquidators did not progress matters satisfactorily.
The Court’s summary about Hong Kong cross border insolvency Law
Harris J succinctly summarized the law as follows:
There is a strong presumption that a company’s place of incorporation is the appropriate jurisdiction to petition for its winding-up.
Section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) gives the jurisdiction of the Hong Kong Court to wind up a foreign company in the circumstances specified in sub-section (3), and such jurisdiction is discretionary.
The circumstances in which the Hong Kong Court will exercise the discretion1 are that:
(1) There must be sufficient connection with Hong Kong which may, but does not necessarily have to, consist of assets within the jurisdiction.
(2) There must be a reasonable possibility, if a winding-up order is made, of benefit to those applying for the winding-up order.
(3) One or more persons interested in the distribution of assets of the company must be persons over whom the Hong Kong Court can exercise its jurisdiction.
Factors to take into account in order to establish sufficient connection may be different for petitions based on insolvency grounds and just and equitable grounds.
Liquidators appointed in the foreign company’s place of incorporation are able to deal with the company’s affairs in Hong Kong. Where the liquidators are appointed in jurisdictions with similar insolvency regimes to Hong Kong, assistance may extend to granting orders allowing them to investigate the affairs of a company by examination and orders for the production of documents; which are powers the Court would give to Hong Kong liquidators.
The most straightforward way to seek recognition and assistance from the Hong Kong Court is to obtain a letter of request from the foreign company’s place of incorporation and then apply ex parte on paper for a recognition order in Hong Kong.
If the liquidators consider it desirable to put the foreign company into liquidation in Hong Kong, they can apply for a winding-up order. In appropriate circumstances, they can also apply for themselves to be appointed as provisional liquidators in Hong Kong pending the determination of the petition.
There may be exceptional cases in which a creditor of a foreign company already in liquidation in its place of incorporation may wish to seek a winding up in Hong Kong even if the liquidators are hesitant, but this will be very uncommon.
The Court’s decision
While accepting that the petitioner has the locus to present the petition in Hong Kong and to apply for provisional liquidators, Harris J considered that the relevant issue was whether or not there was any need to do so. In the circumstances, Harris J considered that there was no such need.
The position of the foreign provisional liquidators was that they do not need an immediate recognition order in Hong Kong but were reviewing the position. Harris J considered that it was fanciful to suggest that the foreign provisional liquidators would not deal with the matter promptly and there was any real possibility of a further application. Harris J therefore dismissed the application.
It would be a rare situation where a creditor of a foreign company has the need to apply for the appointment of provisional liquidators in Hong Kong pending the outcome of the same application in the foreign company’s place of incorporation.
1 The Court did not cite these circumstances specifically in the judgment, but made reference to a number of authorities (e.g. Gottinghen Trading Liimted [2012] 3 HKLRD 453) which set out the circumstance.
