Read the full judgment text of HCCW 263/2020 on BabelCite. This Court of First Instance judgment was delivered on 11 March 2021 before Hon Harris J.
Insolvency law – cross-border insolvency – recognition and assistance – modified universalism – winding-up petition – foreign company incorporated in Bermuda – listed on SEHK – centre of main interests (COMI) – place of incorporation – soft-touch provisional liquidation – restructuring – adjournment of petition – pari passu distribution – common law development – letterbox jurisdictions – Singapore approach – Cayman approach – creditor views – comity. The Petitioner issued a winding-up petition against a Bermuda-incorporated company listed on the SEHK whose business, assets, management and creditors were connected with Hong Kong and the PRC. The undisputed debt of HK$10,200,000 arose under Hong Kong law-governed bonds issued to Mainland residents to support immigration investment applications. After the Hong Kong petition was presented on 20 August 2020, the company petitioned in Bermuda on 30 October 2020 for winding up and the appointment of soft-touch provisional liquidators, whose recognition and assistance had been granted by the Hong Kong court (first by the Chief Justice and then by Harris J on 23 November 2020). The court considered whether to make an immediate winding-up order or to adjourn the petition to allow restructuring. On the principles of private international law and modified universalism, a winding up in a company's place of incorporation is generally given extra-territorial effect, divests the company of beneficial ownership of its assets, and subjects them to a statutory trust for pari passu distribution under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32). The English common law limits recognition of foreign insolvencies to liquidators appointed in the place of incorporation. The court accepted the reasoning in Opti-Medix Limited [2016] SGHC 108 and held that there is no doctrinal reason preventing the Hong Kong common law from being developed to permit recognition of insolvency proceedings in a company's COMI or a jurisdiction with which it has a sufficiently strong connection, consistent with commercial practice in Hong Kong and the Mainland and the prevalence of letterbox offshore holding companies. Where there is a contest between insolvency proceedings in the place of incorporation and at the COMI, the court set out a non-exhaustive approach: the place of incorporation is the starting point, but the court will consider whether the company is a holding company requiring the place of incorporation for group restructuring, the artificiality of giving primacy to the place of incorporation in light of the COMI connection, and the views of creditors. The court also referred to the Cayman principles in Re Sun Cheong Creative Development Holdings Limited, including the relevance of comity and the requirement of a genuine intention to present a plan of reorganisation. Applied to the facts, the company's COMI was in Hong Kong, no creditor opposed the petition, and the restructuring evidence was scant and unconvincing – a June 2020 term sheet was terminated, replaced by November 2020 term sheets which were also terminated, and no credible restructuring plan was presented. The court considered that the Bermuda application was an attempt to engineer a de facto moratorium, which is a questionable use of soft-touch provisional liquidation. The court made the normal winding-up order and adjourned the recognition and assistance application so the JPLs could consider its position in light of the decision. The court indicated that, going forward, similar applications for recognition made after a winding-up petition has been presented in Hong Kong would not be dealt with on the papers unless the agreement of the petitioner and supporting creditors has been obtained in advance.
Legal issues: Extension of common law to recognise foreign insolvencies at a company's COMI · Resolution of a contest between insolvency proceedings in place of incorporation and place of COMI · Whether to adjourn the winding-up petition to permit restructuring
Outcome: Winding-up order made in favour of the Petitioner; the application for recognition and assistance of the JPLs was adjourned to allow them to consider how to proceed in light of the decision.
Cited by 10 cases · Cites 5 cases