The recent case of Perfect Direct Ltd & Anor v Dejin Resources Group Co Ltd unreported, HCCW 76/2014 (19 June 2015) suggests that a petition to wind up a foreign company is not necessarily doomed to fail if the 3 core principles identified in Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313 are not all satisfied.

Background

Dejin Resources Group Company Limited (“the Company”) is a company listed on the Hong Kong stock exchange. It was incorporated in Bermuda and registered in the Hong Kong Company Registry as a non-Hong Kong Company.

The Petitioner held convertible notes issued by the Company (“the Notes”) in the amount of $399 million. The Petitioner was not paid the amount due on maturity of the Notes and applied to wind up the Company on the ground of insolvency.

Issues before the Court

The Company opposed the winding-up petition on 2 grounds which Deputy High Court Judge Manzoni SC had to decide on:

1.          whether the Hong Kong court has jurisdiction to wind up the Company; and

2.          whether there is a bona fide dispute on substantial grounds on the basis that a promissory estoppel arises by virtue of an undertaking signed by the Petitioner to extend the maturity date of the Notes.

The Company’s Argument on Jurisdiction

The Company argued that the 3 core principles set out in Yung Kee must be satisfied before a Hong Kong court has jurisdiction to wind up a foreign company. The 3 core requirements were stated as follows:

1.          there must be a sufficient connection with Hong Kong, but this does not necessarily have to consist of the presence of assets within the jurisdiction;

2.          there must be a reasonable possibility that the winding up order would benefit those applying for it; and

3.          one or more persons interested in the distribution of the company’s assets must be persons over whom the court is able to exercise jurisdiction.

On the basis that all 3 core principles need to be satisfied, the Company argued that the Court has no jurisdiction to wind it up because the second core requirement was not established. The Company contended that as its subsidiary is a BVI company, those assets are not in Hong Kong, and as other assets of the group are generally outside Hong Kong, there is nothing which the liquidator can do within the jurisdiction so as to benefit the petitioner.

Findings of the Court on Jurisdiction

The Court rejected the proposition that in order to establish jurisdiction to wind up a foreign company, it is inevitably necessary to establish all the 3 core principles.

The Court followed the decision in Re China Medical Technologies Inc [2014] 2 HKLRD 997. In that case, Harris J concluded that the first two core principles were met but not the third. Harris J was of the view that the case was not necessarily fatal if the court was satisfied that “the connection with Hong Kong was sufficiently strong and the benefits of a winding-up order were sufficiently substantial that a court considers it a proper case in which to exercise its discretion despite the third core requirement not being satisfied.”

While Re China Medical Technologies Inc was a situation where the third core principle was not met and the present case allegedly lacked the second core principle instead, however, DHCJ Manzoni SC agreed with Harris J’s interpretation on the 3 core principles in Yung Kee as not going to jurisdiction, but discretion – that is, all 3 core principles are only guidance as to the circumstances in which the court’s discretion to wind up a foreign company should be exercised. Therefore, the Court would look at the entirety of the company’s overall connection to Hong Kong and the second and/or third core requirement are not in themselves determinative.

In the present case, on the issue of jurisdiction, the Court found that it had jurisdiction to wind up the Company, because there are quite a number of facts showing its connections to Hong Kong such as being listed on the Hong Kong stock exchange and having its principle place of business in Hong Kong etc. DHCJ Manzoni SC went on to decide that if he were wrong in finding discretion based on those facts, the second core principle should be satisfied because (1) the listed status constituted something that would permit a benefit to be derived in a liquidation and (2) notwithstanding the Company’s subsidiary is a BVI company, liquidators would be able to exercise control over those overseas assets and hence benefit the petitioner.

On finding jurisdiction, the Court went on to decide on the other issue for winding-up as to whether there was a substantial dispute on the Notes being due to be paid by the Company. The petition to wind up the Company was dismissed at the end because the Court found a bona fide dispute.

Conclusion

The decision of Perfect Direct Ltd is an application of the principles in Re China Medical Technologies Inc and suggests that the 3 core principles in Yung Kee are guidance as to the circumstances in which the court should exercise its discretion to wind up a foreign company. Therefore, it may not be necessary to satisfy all the 3 core principles in order to establish jurisdiction to wind-up.

 

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: insolvency@onc.hk                                   T: (852) 2810 1212 W: www.onc.hk                                             F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

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.

Published by ONC Lawyers © 2015