Would the Court wind up a foreign company which has already been wound up in its place of incorporation?
Introduction
The statutory jurisdiction of Hong Kong Courts to wind up a
foreign-incorporated company in Hong Kong is subject to self-imposed restraints
that have been articulated as the “three core requirements” which must be
satisfied before the court would exercise that jurisdiction.
In the
recent case of Re Guoan International Ltd [2023] HKCU 939, the Court of First Instance (“CFI”) considered whether to wind up a foreign-incorporated company which has already been wound up
by the court in its place of incorporation.
Facts
Road Shine Developments Limited (“Petitioner”), a creditor of Guoan
International Ltd (“Company”), presented a petition on 2 December 2022 seeking an ancillary
winding up order against the Company. The Company, which was incorporated in
the Cayman Islands, was wound up by the Grand Court of the Cayman Islands on 28
February 2022 and Mr Yuen Tsz Chun and Mr Martin Trott were appointed as its
liquidators on the same day (“JLs”).
Mr Chong Chin and Ms Yao Sze Ling, the opposing creditors (together “OCs”),
opposed the petition on 2 main grounds:
1.
the benefit pleaded in the petition does not amount to a legitimate
benefit which makes it appropriate to wind up the Company in Hong Kong; and
2.
substantial costs, time, and resources may be incurred (or even wasted)
if the insolvency regime in Hong Kong is triggered, and the Petitioner has not
explained why that is justified or desirable to do so. The potential wastage of
substantial costs will be prejudicial to the creditors in particular the OCs.
On 30 March 2022, the JLs obtained an
order recognising the liquidation of the Company and the appointment
of the JLs with, amongst others, powers to take all necessary steps to prevent
any disposal of the Company’s assets and, in particular, to secure any
bank balances in any bank accounts in the name or under the control of the
Company in Hong Kong (“Recognition Order”).
It is not in dispute that the
Company has very substantial connections with Hong Kong.
Legal
principles
The CFI cited the
three “core requirements” governing the exercise of the discretionary
jurisdiction to wind up a foreign company as stated by the Court of Final
Appeal in the case of Shandong Chenming Paper Holdings Ltd v Arjowiggins
HKK 2 Ltd (2022) 25 HKCFAR 98:
1.
there must
be a sufficient connection with Hong Kong, but this did not necessarily have to
consist in the presence of assets within the jurisdiction (the “First Core Requirement”);
2.
there must
be a reasonable possibility that the winding-up order would benefit those
applying for it (the “Second Core
Requirement”); and
3.
the Court must
be able to exercise jurisdiction over one or more persons in the distribution
of the company’s assets (the “Third Core
Requirement”).
In this case,
there is no dispute that the First and Third Core Requirements are satisfied. The OCs, however, contend
that the benefit pleaded in the petition does not satisfy the Second Core Requirement.
So far as the Second Core Requirement is concerned, the test is
whether “there is a reasonable prospect
that the petitioner will derive a sufficient benefit from the making of a
winding-up order, whether by the distribution of its assets or otherwise” (Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR
501, §24).
In respect of a
foreign company which has already been wound up at the place of incorporation
and is carrying on business “only for the purpose of winding up its affairs”,
the Court may make a winding up order against it under s.327(3)(a) of
the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap 32)
(“CWUO”). The winding up order made
by the domestic jurisdiction is regarded as ancillary to the winding up order
made by the Court of the place of incorporation.
Decision
and reasoning
The CFI ruled
that the Second Core Requirement is plainly satisfied for the following reasons:
1. The making of a winding up order against the Company is the only way
to bring into operation the statutory scheme of winding up under the CWUO. The
Company or the JLs would not be able to rely on or benefit from the use of any
of the provisions under the CWUO in the absence of a winding up order made by
the Hong Kong Court;
2. The OCs proceeded on the wrong assumption that the Recognition Order
confers power on the JLs to deal with and dispose the assets of the Company
within the jurisdiction:
a. The domestic Court (i.e. Hong Kong Court) does not have a common law
power to assist the foreign Court by doing whatever it could have done in a
domestic insolvency. It is by no means clear that the Recognition Order is one
which the Court has the power to make or that it will not be challenged by any
party in future; and
b. In any event, the Recognition Order does not in fact confer any
power on the JLs to deal with or dispose any assets of the Company.
As the JLs do not have power to deal with or dispose any assets of
the Company within the jurisdiction, it is plainly necessary and certainly in
the interest of the creditors for the Company to be wound up so that
provisional liquidator / liquidator can take steps to deal with and, if
necessary, dispose the assets of the Company.
3. Given that almost all the business and affairs of the Company
were conducted by the former directors and management in Hong Kong, it must be
in the interest of the creditors that liquidators are appointed in Hong Kong so
that they can conduct the liquidation under the supervision of the Hong Kong Court.
It is indisputable that the Hong Kong Court is best placed to consider and, if
necessary, decide what steps the liquidators should take when dealing with the
affairs and assets of the Company within the jurisdiction.
For the above
reasons, the Court is satisfied that there are substantial benefits to the Petitioner
(and, indeed, the creditors as a whole) if a winding up order is made against
the Company in Hong Kong.
Takeaway
The Court adopts a
pragmatic approach in assessing whether it would be useful to make a winding up
order against the foreign company, instead of any hard-and-fast
doctrinal rule regarding the relevant benefit. It is also
notable that given a majority of the listed companies in Hong Kong are
foreign incorporated companies (as in the case of Re
Guoan International Ltd), it is anticipated
that the Hong Kong Courts as the domestic jurisdiction would
make ancillary winding up orders against listed companies in Hong Kong,
although the exercise of the Court’s jurisdiction is discretionary and to be
determined on a case-by-case basis.
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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 © 2023 |
