Re The Liquidator of Shenzhen Everich Supply Chain Co, Ltd

HCMP 708/2020

[2020] HKCFI 965

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 708 OF 2020

(INTENDED ACTION NO 123 OF 2020)

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Before:  Hon Harris J in Chambers

Date of Written Submission:  19 May 2020

Date of Decision:  26 May 2020

Date of Reasons for Decision: 4 June 2020

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R E A S O N S   F O R   D E C I S I O N

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1.Shenzhen Everich Supply Chain Co, Ltd (深圳市年富供应链有限公司) (“Company”) is incorporated in the Mainland[1]. On 19 December 2019, the Shenzhen Intermediate People’s Court of Guangdong Province (廣東省深圳市中級人民法院) (“Shenzhen Court”) ordered that the Company be wound up on the grounds of insolvency. On 26 December 2018, the Shenzhen Court appointed Shenzhen Zhengyuan Liquidation Co, Ltd (深圳市正源清算事务有限公司) as the administrator (管理人) of the Company. The administrator plays the same role as a liquidator in our system. I shall refer to the administrator as the “Liquidator”.

2.On 3 April 2020, Judge Tang Shan (唐姗) of the Bankruptcy Court of the Shenzhen Court issued a letter of request to the Hong Kong court seeking recognition and assistance of the Liquidator [2]. The Liquidator has applied for recognition of the winding-up of the Company in the Mainland and the Liquidator’s appointment and status.  In addition to recognition the court is asked to grant various powers to assist the Liquidator to do various things in Hong Kong that the Liquidator believes are necessary to progress the winding-up of the Company.

3.This is the 2^nd application to the Hong Kong court by a Mainland liquidator for recognition and assistance. The relevant principles are discussed comprehensively in my recent judgment in Re CEFC Shanghai International Group Ltd [3]. It is not necessary to repeat the analysis, but I will quote the most immediately relevant paragraphs:

“8. As I have already mentioned in recent years this Court has dealt with a large number of applications for recognition and assistance from various jurisdictions. These have principally been common law jurisdictions such as the Cayman Islands, Bermuda and the British Virgin Islands reflecting the fact that many Hong Kong listed companies are incorporated in one or other of those jurisdictions. One application has been granted in respect of a Japanese trustee in bankruptcy appointed by a Japanese court over a company incorporated in Japan, which is a civil law jurisdiction (eg Re Takamatsu).[4] From these decisions the following criteria emerge, which must be satisfied before recognition and assistance will be granted.

(a) the foreign insolvency proceedings are collective insolvency proceedings: Re Joint Provisional Liquidators of China Lumena New Materials Corp [5]; and

(b) the foreign insolvency proceedings are opened in the company’s country of incorporation: Re Joint Liquidators of Supreme Tycoon Ltd [6].

9. Provided the above criteria are satisfied, the Court may recognise insolvency proceedings opened in a civil law jurisdiction (Re Takamatsu).[7]

10. Upon the foreign insolvency proceedings being recognised, the Court will grant assistance to the foreign officeholders by applying Hong Kong insolvency law. The reasons for so doing are explained in the judgment of the Privy Council delivered by Lord Hoffmann in Cambridge Gas Transportation Corp v Official Committee of Unsecured Creditors of Navigator Holdings plc:[8]

11. The Companies Court does not, however, grant a foreign liquidator, whose appointment it has recognised all the powers available to a liquidator appointed by it pursuant to the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (‘Ordinance’). The principles that circumscribe the limits of the common law power of assistance are explained by Lord Sumption in Singularis Holdings Ltd v PricewaterhouseCoopers [9]:

(a) The power of assistance exists for the purpose of enabling foreign courts to surmount the problems posed for a world-wide winding up of the company’s affairs by the territorial limits of each court’s powers. Therefore, the power of assistance is not available to enable foreign officeholders to do something which they could not do even under the law by which they were appointed.

(b) The power of assistance is available only when it is necessary for the performance of the foreign officeholder’s functions.

(c) An order granting assistance must be consistent with the substantive law and public policy of the assisting court.

12. Accordingly, in Re Joint Liquidators of Supreme Tycoon Ltd [10] I held that ‘[i]n the case of liquidators appointed in jurisdictions with similar insolvency regimes to Hong Kong, the assistance may extend to granting orders that give the foreign liquidators substantially similar powers’.”

4.I am satisfied that the winding-up in the Mainland is a collective insolvency proceeding in the Company’s place of incorporation and that the Liquidator has been appointed by the Shenzhen Court to wind up the Company.  I will, therefore, order that the winding-up and the Liquidator are recognised.

5.The order that I made in Re CEFC was appended to the decision.  This was in order that practitioners and Mainland judges could see the powers of assistance that in standard cases the Hong Kong court is willing to order.  I had hoped that it would encourage letters of request to be framed in a way which reflected the form of order that the Hong Kong court commonly grants as this assists in dealing with such applications.  The letter of request issued by the Shenzhen Court does not track the order in Re CEFC although in substance it seeks (with one qualification that I address below) the same powers.  It would be helpful if lawyers advising administrators in the Mainland could frame the letter of request that they seek in terms which, in translation, track the order in Re CEFC.  It makes it easier and quicker to check the papers.

6.Unlike Hong Kong the Mainland Liquidator is a company rather than an individual or individuals.  The order seeks recognition of the Liquidator and a particular authorised representative of the Liquidator, who is conducting the winding-up: Mr Yao Kun (姚坤).  This is the same as was the case in Re CEFC.  I see nothing objectionable in the order identifying a specific person, who third parties can assume is the duly authorised representative of the Liquidator and able to act on its behalf.

7.The remainder of the order I am asked to make is the same as the order in CEFC except that the Liquidator wishes to insert a new paragraph (vi), which provides “To take control of and exercise all rights that the Company may have in relation to any of its subsidiaries, joint ventures, associated companies or other entities in which the company has an interest (whether directly or indirectly).”  The need for this order goes directly to the main reason why the Liquidator applied for the letter of request.  The Company has two subsidiaries in Hong Kong: Shing Tat (HK) Limited and Luen Fu International Development Limited.  In short, the position in respect of these companies is as follows:  Both companies have one director, who has been arrested in the Mainland.  They have no management.  Between them they have RMB12.5 million in various bank accounts in Hong Kong, which for all practical purposes have been frozen.  Between them they have very significant external trade receivables totalling approximately RMB4.1 billion.  There is nobody able to manage and collect the receivables.  It seems to me that, in these circumstances, an express right to take control in Hong Kong of the subsidiaries of the Company is necessary and I will make the order I have quoted above.

8.The only other matter arising from the language of the order that requires consideration is this.  The letter of request seeks the recognition of both Mr Yao and Mr Ma Zenghui (马增辉) and power for both of them or either of them to act for the Liquidator.  As I have mentioned the order that is sought only provides for Mr Yao to be identified as the Liquidator’s authorised representative with power to act on the Liquidator’s behalf in Hong Kong.  The reason for this is that in practice Mr Ma works under Mr Yao’s direction.  The Liquidator, therefore, takes the view that it is probably more appropriate for only Mr Yao to be identified as the Liquidator’s authorised representative.  This would seem to me to be sensible and I will, therefore, make an order in the terms proposed by the liquidator, which is appended to this decision.

Mr Look Chan Ho and Mr Tommy Cheung, instructed by Sit, Fung, Kwong & Shum, for the Mainland liquidator

Appendix

Order

1. The liquidation of Shenzhen Everich Supply Chain Co., Ltd. (深圳市年富供应链有限公司) (in Liquidation in the Mainland of the People’s Republic of China) (“Company”) and the appointment of Shenzhen Zhengyuan Liquidation Co., Ltd (深圳市正源清算事务有限公司) of Room 802, Jiangsu Building, Yitian Road, Futian District, Shenzhen, Guangdong Province, China, 518000 (with Mr Yao Kun (姚坤) being the authorised representative) as the liquidator of the Company (“Liquidator”) be recognised by this Court;

2. The Liquidator do have and may exercise in the Hong Kong Special Administrative Region the following powers:

(i)    To request and receive from third parties documents and information concerning the Company and its promotion, formation, business dealings, accounts, assets, liabilities or affairs including the cause of its insolvency;

(ii)   To locate, protect, secure and take into its possession and control all assets and property within the jurisdiction of this Court to which the Company is or appears to be entitled;

(iii)  To locate, protect, secure and take into its possession and control the books, paper, and records of the Company including the accountancy and statutory records within the jurisdiction of this Court and to investigate the assets and affairs of the Company and the circumstances which gave rise to its insolvency.  The books, records and documents of the Company include:

(a)  Emails exchanged and other correspondence between the Company and its auditors, and the Company and other third parties; and

(b)  Documents and information provided by the Company to its auditors and provided by the auditors to the Company in relation to the audit work;

(iv)  To take all necessary steps to prevent any disposal of the Company’s assets and, in particular, to secure any credit balances in any bank accounts in the name or under the control of the Company within this jurisdiction;

(v)   To operate and open or close any bank accounts in the name and on behalf of the Company for the purpose of collecting the assets and paying the costs and expenses of the Liquidator;

(vi)  To take control of and exercise all rights that the Company may have in relation to any of its subsidiaries, joint ventures, associated companies or other entities in which the Company has an interest (whether directly or indirectly);

(vii) To retain and employ barristers, solicitors or attorneys and/or such other agents or professional persons as the Liquidator considers appropriate for the purpose of advising or assisting in the execution of its power and duties under this Order; and

(viii)So far as may be necessary to supplement and to effect the powers set out herein, to bring legal proceedings and make all such applications to this Court, whether in its own name or in the name of the Company, on behalf of and for the benefit of the Company, including any applications for:

(a)  Orders for disclosure, the production of documents and/or examination of third parties which may be made by the Liquidator to facilitate its investigations into the assets and affairs of the Company and the circumstances which gave rise to its insolvency; and/or

(b)  Ancillary relief such as freezing orders, search and seizure orders in any legal proceedings commenced;

3. Anything that is authorised or required to be done by the Liquidator may be done by its authorised representative and the application of the common chop of the Liquidator entitled “深圳市年富供应链有限公司管理人”;

4. For so long as the Company remains in liquidation in the Mainland of the People’s Republic of China, no action or proceeding by any party other than the Liquidator shall be proceeded with or commenced against the Company or its affairs, property or assets within the jurisdiction of this Court, save with the leave of this Court and subject to such terms as this Court may impose. Any such application for leave shall in the first instance be made in writing to the Companies Judge, or another Judge if the Companies Judge is unavailable;

5. The Liquidator do have liberty to apply; and

6. The costs of this application be paid out of the assets of the Company as an expense of the liquidation.