Re The Joint Provisional Liquidators of China Lumena New Materials Corp (in Provisional Liquidation)

HCMP 494/2017

[2018] HKCFI 276

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 494 OF 2017

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REASONS FOR DECISION

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1.On 14 March 2017, I granted on the applicants’ written application an order recognising the applicants, namely Man Chu So, Yat Kit Jong and Simon Conway, as the joint provisional liquidators (“Provisional Liquidators”) of China Lumena New Materials Corp (“Company”). They were appointed Provisional Liquidators by the Grand Court of the Cayman Islands (“Cayman Court”). Such routine recognition order does not usually require written reasons as the basis of such recognition has already been rehearsed at length elsewhere.[1] However, the applicants in this case have sought the court’s clarification on the need for a court order authorising the transfer of the Company’s funds in its accounts with various banks in Hong Kong.

2.On 25 February 2015, the Cayman Court ordered the provisional liquidation of the Company.  Mr So explains in his affirmation in support of the application that the Provisional Liquidators had some difficulties in taking control of the Company’s bank accounts in Hong Kong, with some banks wanting to see a Hong Kong court order before they would be prepared to comply with the Provisional Liquidators’ request for a transfer of the Company’s credit balances.  Accordingly, in September 2016 the Provisional Liquidators applied to the Cayman Court to issue a letter of request to this Court for recognition of the Provisional Liquidators’ appointment on terms that would allow them to advance their efforts to collect in the Company’s assets (including credit balances in bank accounts).  The letter of request was issued on 21 October 2016.

3.As I explained in my judgment in Bay Capital Asia Fund, LP v DBS Bank (Hong Kong) Ltd,[2] where foreign insolvency officeholders are appointed by the court in the country of incorporation of the company, their ability to obtain documents relating to the company’s bank accounts located in Hong Kong is generally not dependent on getting a prior Hong Kong court order:

“[I]f a bank receives a request from liquidators of a company which has an account with them, once it is satisfied, which should be straightforward, that the liquidators have been properly appointed by the court of the place of the company’s incorporation they will hand over documents to which the directors of the company would have been entitled.”

4.In Bay Capital Asia Fund, LP v DBS Bank (Hong Kong) Ltd, I went on to explain that if the foreign insolvency officeholders would like to deal with assets located in Hong Kong, they should obtain a prior Hong Kong court order.  Therefore, in relation to the company’s bank balances in Hong Kong, the foreign insolvency officeholders should make an application to the court for an order authorising the transfer of the balances.  The order authorising the transfer of bank balances need not be a vesting order, although the foreign insolvency officeholders may apply for a vesting order if they need it for the performance of their functions.

5.The Provisional Liquidators have sought to argue that, if the Provisional Liquidators could request banks to provide bank account documents without a prior Hong Kong court order on the basis that the directors of the Company would be entitled to obtain the documents from the banks, logically the Provisional Liquidators could also request the banks to transfer the credit balances without a prior Hong Kong court order because the directors of the Company would be entitled to make the same request of the banks.  No meaningful distinction needs to be made between information and assets.

6.I see the logic of the Provisional Liquidators’ argument.  Pursued to its logical conclusion, foreign insolvency officeholders appointed in the country of incorporation of the company would be able to do everything in Hong Kong that are within the powers of the company’s directors without a prior Hong Kong court order.  For instance, without obtaining a Hong Kong recognition order, the foreign insolvency officeholders would be able to dispose of Hong Kong assets or transfer Hong Kong assets to other jurisdictions. However, this in my view would be going too far and would go even further than international insolvency standards embodied in the UNCITRAL Model Law on Cross-Border Insolvency (see Article 21).

7.In my view, a balance has to be drawn between the foreign insolvency officeholders’ need for convenience and the need for court supervision which the creditors may expect.  Therefore, a distinction does have to be drawn between the foreign insolvency officeholders’ information needs and their ability to deal with assets in Hong Kong.  Provided the directors of the company could obtain the information, the foreign insolvency officeholders as agents of the company should be able to obtain the same information from third parties, such as bank account documents in Hong Kong, without a prior Hong Kong recognition order.  This would help simplify the foreign insolvency officeholders’ investigative functions.

8.However, if the foreign insolvency officeholders propose to take possession of or deal with assets in Hong Kong, it would be appropriate for them to obtain a Hong Kong recognition order first.  Lest it be thought that this would impose a significant burden on foreign insolvency officeholders, practitioners are reminded that this Court has already developed a standard practice on applications for recognition orders and such applications may be granted very quickly.

Mr Justin Tang, of Linklaters, for the applicants