Will the Court render assistance to liquidators in handling offshore subsidiaries when there is no recognition order obtained from the relevant offshore courts?
It is not uncommon to see offshore companies being used by a Hong Kong company for structure planning despite that its centre of main interest (“COMI”) is in Hong Kong and its owners and/or business operations have no connection with the relevant offshore jurisdiction. However, when the Hong Kong company is ordered to be wound up and liquidators are appointed to take control of all its assets including its offshore subsidiaries, things may get complicated.
In the recent case of Wing Sze Tiffany Wong v Wong Sai Chung  HKCFI 2346, the Court considered, in a liquidation involving offshore companies, (i) whether recognition by courts of the place of incorporation of the offshore companies is necessary for the liquidators to deal with the offshore companies; and (ii) whether the Court will render necessary assistance to liquidators when order of recognition from the relevant offshore courts is not obtained.
China Properties Group Limited (in liquidation) (the “Company”) was incorporated in the Cayman Islands and listed on the Main Board of the Hong Kong Stock Exchange. It is the registered shareholder of four wholly and directly owned subsidiaries in the British Virgin Islands (the “BVI Subsidiaries”). The BVI Subsidiaries hold various Hong Kong subsidiaries which in turn hold the subsidiaries in Mainland China.
On 31 May 2023, a winding up order was made against the Company. However, the liquidators (the “Liquidators”) has made no progress for about three months in relation to the liquidation because the management of the Company, in particular, the Respondent (being an ex-director of the Company) has refused to render any assistance to the Liquidators. At the request of the Liquidators, the registered agent of the BVI Subsidiaries updated the registers by appointing one of the Liquidators as the sole director in place of the Respondent (the “Appointment”). To challenge the Appointment, the Respondent commenced proceedings in the BVI against the Liquidators on the basis that, without a formal recognition order from the BVI courts, the Liquidators’ act in respect of the Appointment should be invalid (the “BVI Proceedings”).
The Liquidators therefore took out the present action, applying for, inter alia, a mandatory order that the Respondent do, within 3 calendar days, duly acknowledge and irrevocably ratify the Appointment by written resolutions.
Decision and reasoning
The Court ruled against the Respondent, and ordered him to sign the written resolutions to confirm the Appointment. The key principles are highlighted as follows:-
1. The Court’s role and duty is to assist liquidators appointed by the Court to effectively and efficiently discharge their professional duties in the best interest of the general body of creditors;
2. Liquidators should be given all statutory armory to facilitate an orderly, speedy and cost effective liquidation for the best interest of all stakeholders;
3. Every court has an implied jurisdiction to make whatever orders that are necessary to give effect to its own judgments;
4. The Court can properly order the Respondent to sign the written resolutions to facilitate the effective administration of the liquidation because the Respondent is resident within the territory and subject to the in personam jurisdiction of the Court;
5. Directors of a company in liquidation are meant to render assistance to liquidators;
6. The Respondent’s argument that recognition by courts of the place of incorporation (i.e. BVI) is not relevant. In the spirit of comity and judicial co-operation in cross-border insolvency matters, one would expect that courts of competent jurisdictions would give assistance to liquidators appointed by the courts of a company’s COMI;
7. In light of the BVI Proceedings and other steps taken by the Respondent, there is a necessity to make the orders as sought by the Liquidators;
8. Under company law, shareholders of a company can by proper resolutions remove and appoint new directors. Given that the Liquidators are entitled to act on behalf of the Company, they are also entitled to effect change of directorship in the BVI Subsidiaries; and
9. The Court disagreed that any facilitative orders to be made would usurp the jurisdiction of the BVI courts, and opined that it is not right for the Court to simply pass on the burden to the BVI courts.
In this case, the Court emphasized its role in rendering assistance to liquidators so that the liquidation can be conducted effectively and efficiently and opined that recognition by relevant offshore courts is not necessary in handling cross-border insolvencies. From a cost saving or efficiency perspective, this is good news to liquidators as well as creditors since any fresh application to the relevant offshore courts for a winding up order or recognition order will not be required.
For enquiries, please feel free to contact us at:
E: email@example.com T: (852) 2810 1212
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 © 2023