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Legal Update

Cross-border Insolvency: Guidance from the Companies Judge

4 February 2016
Mayer Brown JSM Legal Update

The last two years have seen a number of foreign incorporated companies generating court decisions in Hong Kong that provide timely and important guidance in windings-up with cross-border issues.1 The decision of the Honourable Mr. Justice Harris in L v. G Limited (HCCW 318/2015) is a recent addition to this stream of authorities.

The subject company in this case (G Ltd) was incorporated in the Cayman Islands and is listed in Hong Kong. An application to appoint provisional liquidators (PLs) came before the learned Companies Judge on 2 October 2015, when G Ltd. had petitioned the Cayman Islands court for its own winding-up and its application to appoint PLs was due to be heard in the Cayman Islands on 8 October 2015.

His Lordship adjourned the application pending the outcome of the hearing in the Cayman Islands. PLs were appointed there on 8 October 2015. The adjourned hearing of the application in Hong Kong took place before his Lordship on 16 October 2015.

The Hong Kong application was dismissed, with the Cayman Islands court having been seized of the matter and having appointed the PLs, because “at common law the [Hong Kong] court has the power to recognise foreign liquidators and to assist them in carrying out their functions” (paragraph 5). On the facts, the PLs saw no need to seek recognition here immediately, and his Lordship considered this position sensible.

Although the Hong Kong proceedings in this case were commenced by an individual referred to as “L” by his Lordship, the decision contains statements of principle relevant to other fact patterns. As noted in the previous paragraph, the Hong Kong court would take into account the view of the office-holders appointed in the overseas jurisdiction as to whether parallel proceedings in Hong Kong would serve any benefit. The office-holders should turn their minds to the usefulness of parallel proceedings, irrespective of whether they, or some other party, were to commence the same.

Related to this aspect, insolvency practitioners would do well to bear in mind paragraph 6 of the decision:

“… in the conventional case one would expect an insolvent company to be wound up in its place of incorporation and for its liquidators to consider whether or not it is necessary to seek recognition and potentially assistance from the court in Hong Kong. If they do the most straightforward way for them to proceed is to obtain a letter of request from the local court and then apply exparte on paper for a recognition order. If a matter is straightforward an order recognising a foreign appointment will be granted very swiftly. If the liquidators think that it is desirable that the foreign company is put into liquidation in Hong Kong and they are satisfied that they will be able to demonstrate to this court that the criteria by which such petitions are assessed are satisfied, they can apply for a winding‑up order and if the circumstances require it apply for themselves to be appointed provisional liquidators in Hong Kong pending the determination of the petition.”

In short, an office-holder appointed elsewhere is expected to decide proactively whether to seek recognition and potentially, assistance in Hong Kong, or to commence parallel proceedings here. Whilst it is not the first time this prevailing approach is stated, the difficulty (as is often the case) lies not in stating the principle but in applying it.2 Where the court disapproves of the procedure chosen, the office-holder may be placed in the unenviable position of having to justify his/her costs vis-à-vis the estate and to deal with the costs of any opposing party.3

Cross-border insolvency law has been developing at great pace recently throughout the common law world, including Hong Kong, especially after the Privy Council’s seminal decision in Singularis Holdings Ltd. v. PricewaterhouseCoopers4. Insolvency practitioners handling cases with international elements should stay abreast of the developing case law and be proactive in considering with their lawyers how best to approach cross-border appointments.

1 The high watermark is the Court of Final Appeal’s judgment in the Yung Kee case discussed in our Legal Update of 27 November 2015 (“Yung Kee – the Final Word”).

2 For example, judicial assistance was granted in Joint Official Liquidators of A Co v. B [2014] 4 HKLRD 374 but not in Re African Minerals Ltd (In Administration) [2015] 4 HKC 215.

3 Party L in the present case was ordered to pay the costs of certain opposing creditors who addressed the court, although the liability was discounted by 50% because his Lordship took the view that part of the costs incurred by the opposing creditors were unnecessary.

4 [2014] UKPC 36, [2015] 1 AC 1675. It is noteworthy that less than 3 weeks after deciding Singularis, the Privy Council gave judgment in another winding-up case, namely Stichting Shell Pensioenfonds v. Krys [2014] UKPC 41, [2015] AC 616.


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