Recognition of foreign insolvency processes in Hong Kong – a company’s centre of main interest as the primary criterion
Introduction
Historically, the Hong Kong courts have
generally recognised foreign insolvency proceedings commenced in the
jurisdiction in which the company is incorporated. In the recent case of Provisional
Liquidator of Global Brands Group Holding Ltd v Computershare Hong Kong
Trustees Ltd [2022] HKCFI 1789, Harris J introduced a new
approach of recognising foreign insolvency proceedings in the jurisdiction
of the company’s “centre of main interest” (“COMI”). His Lordship held that for the purpose of recognition and
assistance of foreign liquidators, the fact that the foreign insolvency process
is conducted in a company’s place of incorporation will not be sufficient, nor
necessary.
Background
Global Brands Group Holding Limited (in
liquidation) (the “Company”) is an investment holding company
incorporated in Bermuda. The Company is listed on the Hong Kong Stock Exchange.
Due to the ongoing COVID-19 pandemic, the business of the Company and its
subsidiaries was seriously challenged. As a result, the Board of the Company
decided it was in the Company’s interest to commence winding-up proceedings and
applied to the Bermuda Court to appoint a provisional liquidator (the “PL”) with limited powers to help
restructure the Company’s debts. The restructuring attempts were however
unsuccessful and the Bermuda Court made a winding-up order against the Company
on 5 November 2021.
The PL had been trying to take possession of
the Company’s assets in Hong Kong, which included (i) approximately
HK$8 million cash balances held by Computershare Hong Kong Trustee Limited (“Computershare”) arising from the
Company group's employee shares schemes; and (ii) some small balances held in
the Company's bank account with HSBC. The PL sought an order from the Hong Kong
Court for recognition and assistance in order to take control of the relevant
assets of the Company in Hong Kong.
Recognition of foreign liquidation in Hong Kong
– the new approach
In considering whether or not a foreign
liquidation should be recognised in Hong Kong, the Court introduced a new
approach as follows:
1.
whether the foreign proceedings constitute a collective insolvency
process; and
2.
whether the foreign proceedings (subject to limited exceptions below)
are conducted in the jurisdiction in which the company's COMI is located at the
time the application for recognition is made.
The relevant factors for determining a
company’s COMI include the location where a company conducts its management and
operations, has offices, holds its board meetings, has its officers residing,
has its bank accounts, maintains its books and records, has conducted or is
conducting its restructuring activities, etc.
Further, Harris J noted that if the foreign
liquidation is not taking place in the jurisdiction of the company’s COMI,
recognition and assistance ought to be declined unless the assistance sought is
limited in nature, i.e. it falls in one of the following two categories:
1.
if the liquidator is appointed in the place of incorporation, the
application is limited to recognising a liquidator’s authority to represent a
company and seeking orders that are an incident of that authority, which might
be described as “managerial assistance“; and
2.
if the liquidator is appointed in the place of incorporation and the
circumstances do not fall within the first exception above, then recognition
and limited and carefully prescribed assistance may be given as a matter of
practicality.
Decision
On the facts of the case, the Court granted the order for recognition to
the PL but the assistance granted is limited to the power to receive and
transfer out of Hong Kong the balances held with Computershare and HSBC. The
recognition was granted on the basis that the PL was appointed in
the Company’s place of incorporation (instead of its COMI which was probably in
Hong Kong) and the PL was given powers incidental to his authority -
i.e. the PL only requires an order to demonstrate to Computershare and
HSBC that as the lawful agent of the Company he is entitled to direct the
monies to be transferred to another bank account. This comes within one of
the exceptions to the COMI test as mentioned above. Such assistance is also consistent
with common law assistance which is justified by establish principles of
private international law. The order is attached to the Court’s decision.
Key takeaway
This decision signals a significant change in
the Court’s approach in recognising foreign liquidation proceedings. It is
anticipated that going forward it would be difficult for debtors who rely on
“offshore soft-touch provisional liquidation” to oppose a Hong Kong winding up
petition especially where the appointment of provisional liquidators is
considered by the court to be artificial or devoid of real connections to the
company’s activities in its COMI. The decision however is not entirely
consistent with the recent judgment in Re
Up Energy Development Group Limited [2022] HKCFI 1329, in which Madam
Justice Linda Chan suggested that no power at all could be conferred to a
foreign appointed liquidator at common law. It remains to be seen how the
future roadmap in cross-border insolvency will unfold.
For enquiries, please
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Important: The law and
procedure on this subject are very specialised and complicated. This article
is just a very general outline for reference and cannot be relied upon as
legal advice in any individual case. If any advice or assistance is needed,
please contact our solicitors. |
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Published by ONC Lawyers
© 2022 |
