Re The Joint Liquidators of Nuoxi Capital Ltd (in Liquidation in the British Virgin Islands)

HCMP 219/2021

[2021] HKCFI 572

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 219 OF 2021

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BY

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Before: Hon Harris J in Chambers

Date of Hearing: 24 February 2021

Date of Decision: 24 February 2021

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D E C I S I O N

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1.The Liquidators of Nuoxi Capital Limited (“Company”), which is incorporated in the British Virgin Islands (“BVI”), have issued an originating summons for recognition of their appointment in the BVI and additional orders providing assistance for the steps that they anticipate they will have to undertake in Hong Kong to progress the liquidation.

2.The Court has developed a standard procedure and orders for such applications, which have become increasingly common for reasons explained in other decisions [1].  This is the 19th that I have dealt with since May 2020 when the general adjourned period necessitated by COVID-19 ended.  Nearly all applications involve Mainland business groups listed on the Main Board of the Hong Kong Stock Exchange.  Many are straightforward although their number is illustrative both of the financial problems caused by the pandemic and the strain put on judicial resources by a significant increase in restructuring cases.

3.This application has some novel components and requires amendment to the standard forms, which I explain.  The form of order I have granted is appended to these reasons.

4.The application is necessary because the Company has claims against various companies incorporated in Hong Kong including Founder Group (Hong Kong) Limited (“FGHK”).  In particular, the Liquidators intend to issue a petition to wind-up FGHK, which is insolvent, in order to protect claims FGHK has in the Mainland administration of the Peking University Founder Group Company Limited (“Peking Founder Group”).  The Company itself is an indirect subsidiary of Peking Founder Group.  It was a fund raising entity for the Peking Founder Group and the debt, which led to its liquidation arose from its issue and non-performance of bonds in respect of which Peking Founder Group and an associated company have issued keepwell deeds and undertakings.  It is enforcement of rights under those agreements in Hong Kong that is the catalyst for this application.

5.In the normal way the application is supported by a letter of request from the BVI Court.  It is well-established that the Hong Kong Court will recognise liquidators appointed in a company’s place of incorporation and provide assistance consistent with Hong Kong insolvency law and practice. In the case of applications from jurisdictions with similar insolvency law such applications are normally straightforward.  There are two particular matters, which were drawn to my attention during the application, which require modification to the standard form.

6.The first is that the Liquidators’ powers should include presentation of a winding-up petition against FGHK once the necessary sanction is obtained from the BVI court.  The second is contemplated action in Hong Kong to enforce rights under keepwell deeds, which are governed by Hong Kong law.  The relevant paragraphs of the order appended to this decision are [2(g)(iii) & (iv)].

7.As I explain in FDG Electric Vehicles [2] any order can only be granted to assist action taken to progress a liquidation within the jurisdiction of the Hong Kong Court.  It follows that this Court should only grant powers in respect of enforcement rights against assets that are situated in Hong Kong.  The principles of private international law, which determine the situs of assets for the purpose of determining whether or not Hong Kong is the jurisdiction in which enforcement action should be taken are clear.  It will suffice to refer to two authorities to demonstrate the principles relevant to the action the Liquidators contemplate taking in Hong Kong.

8.Generally, a claim against a Hong Kong incorporated debtor should be regarded as an asset situated in Hong Kong and, therefore, action intended to realise the value of that asset to satisfy a claim will generally be properly commenced in Hong Kong.  The relevant principles are explained by Peter MacDonald Eggers QC sitting as a Deputy High Court Judge in Hardy Exploration & Production (India) Inc v Government of India [3] at [82(4) & (5)]:

“(4) The principle determining the situs of the debt or other chose in action is ‘that debts or choses in action are generally to be looked upon as situate in the country where they are properly recoverable or can be enforced’: Martin v Nadel [1906] 2 KB 26, 31; see also Swiss Bank Corpn v Boehmische Industrial Bank [1923] 1 KB 673, 678-679; Richardson v Richardson [1927] P 228, 235-236; Kwok v Comr of Estate Duty, pp 1040-1041; Hillside (New Media) Ltd v Baasland [2010] 2 CLC 986, para 33; the Taurus Petroleum case, paras 30, 35-36, 124; Dicey, Morris & Collins, The Conflict of Laws, para 22R-023. That is, the debt or chose in action is situated in the country where it is properly recoverable and ‘can be discharged only by the law of the place where it is recoverable’: the Société Eram Shipping case, para 107. If the debt cannot be recovered or enforced within the jurisdiction, it is not situated in that jurisdiction: Richardson v Richardson, pp 235-236.

(5) The general rule or presumption is that the debt or chose in action is properly recoverable or enforceable in the place of residence, or domicile, of the debtor: New York Life Insurance Co v Public Trustee [1924] 2 Ch 101, 115, 119-120; Chaturbhuj Piramal v Chunilal Oomkarmal LR 60 Ind App 211, 220-222; Kwok v Comr of Estate Duty, pp 1040-1041; the Société Eram Shipping case, para 72; Hillside (New Media) Ltd v Baasland, para 33; the Taurus Petroleum case [2018] AC 690, para 30.  It is possible to interpret the authorities as suggesting that the debtor’s residence is the determinant of the situs of a debt, on the basis that that is the place where the debt is generally recoverable or enforceable (Dicey, Morris & Collins, The Conflict of Laws, paras 22-026, 22-029); however, I think that would be at odds with the purpose of identifying the situs as the place where the governing law will determine whether or not the debt has been discharged and where the existence or extent of the debt may be determined by the law of a jurisdiction other than the place of the debtor’s residence or domicile.  It would also add little to the express provision in CPR r 72.1(1) that the debtor must be within the jurisdiction.”

9.This is relevant to claims against FGHK, which will found presentation of a petition for its winding-up.  The claims are situated in Hong Kong and, therefore, the Liquidators require the assistance of the Hong Kong Court to take action to enforce those claims in Hong Kong.  This justifies the inclusion of [2(g)(iv)] of the order.

10.Secondly, claims against non-Hong Kong incorporated debtors, for example Peking Founder Group, which are enforceable in Hong Kong are to be treated as situated in Hong Kong.  I explain the relevant principles in Re Performance Investment Products Corporation Ltd [4]at [28(4)]:

“In determining the situs of a chose in action (such as the balance of a bank account), the general rule is that they are situate in the country where they are properly recoverable or can be enforced [8]. The lex situs in turn, will apply when determining entitlement to the chose in action, and how such entitlement is to be dealt with [9].”

11.This is relevant to applications made against Peking Founder Group in Hong Kong arising from the keepwell deeds.  This justifies the inclusion of [2(g)(iv)] of the order.

12.As I have already indicated I will make an order in the terms of the appended draft.

Mr Look Chan Ho, instructed by Addleshaw Goddard (Hong Kong) LLP,  for the applicants

Appendix

Order

1. The liquidation of Nuoxi Capital Limited (In Liquidation in the British Virgin Islands) (“Company”) and the appointment of Wesley Arthur Edwards of CVR Global (B.V.I.) Limited, PO Box 2295, 1^st Floor Folio Building, Road Town, Tortola, British Virgin Islands, Wing Sze Tiffany Wong of Alvarez & Marsal Asia Limited, Rooms 405-7, 4/F, St. George's Building, 2 Ice House Street, Central, Hong Kong, and Edward Simon Middleton of Alvarez & Marsal Asia Limited, Rooms 405-7, 4/F, St. George's Building, 2 Ice House Street, Central, Hong Kong (“JLs”), pursuant to the order of the Eastern Caribbean Supreme Court in the High Court of Justice, Virgin Islands (the “BVI Court”) dated 1 February 2021 (“BVI Order”), be recognised by this Court;

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

(a) 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;

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

(c) to locate, protect, secure and take into their possession and control the books, papers, 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:

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

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

(d) 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;

(e) 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 JLs;

(f) to retain and employ barristers, solicitors or attorneys, accountants and/or such other agents or professional persons as the JLs consider appropriate for the purpose of advising or assisting in the execution of their powers and duties under this Order; and

(g) subject to the JLs obtaining sanctions from the BVI Court pursuant to paragraph 4 of the Annexure to the BVI Order and 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 their own names or in the name of the Company, on behalf of and for the benefit of the Company, including any applications for:

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

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

(iii) orders and/or judgments to be made against Founder Group (Hong Kong) Limited and any other debtors identified during the course of the liquidation of the Company, including without limitation, the presentation of winding up petitions; and/or

(iv) any applications for orders and/or judgments to be made against Peking University Founder Group Company Limited (“PUFG”) for claims arising from Keepwell Deeds dated 20 April 2017 and 24 January 2018 between the Company, HongKong JHC Co., Limited, PUFG and the Bank of New York Mellon, London Branch.

3. Anything that is authorised or required to be done by the JLs may be done by all or anyone or more of the persons appointed;

4. If the JLs wish to apply for a stay or other directions in respect of proceedings in the High Court of any sort as a consequence of the recognition of their appointment by this order such application shall be listed before the Honourable Mr Justice Harris or such other judge as he shall direct. The JLs shall write to the clerk to the Honourable Mr Justice Harris seeking case management directions for the determination of any application that they wish to make pursuant to this order.

5. The JLs do have liberty to apply; and

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