Provisional Liquidator of Global Brands Group Holding Ltd (in Liquidation) v. Computershare Hong Kong Trustees Ltd and Another
Read the full judgment text of HCMP 644/2022 on BabelCite. This High Court CFI judgment was delivered on 23 June 2022.
1. On 25 May 2022 the Provisional Liquidator of Global Brands Group Holdings Limited (“ Provisional Liquidator ” and the “ Company ” respectively) issued an originating summons to which Computershare Hong Kong Trustee Limited (“ Computershare ”) and The Hong Kong and Shanghai Banking Corporation Limited (“ HSBC ”) are Respondents seeking an order for recognition and assistance. The Company is incorporated in Bermuda and was wound up in Bermuda on 5 November 2021. The circumstances of the applica
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HCMP 644/2022 [2022] HKCFI 1789 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 644 OF 2022 ________________
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__________________ D E C I S I O N __________________ The Application 1.On 25 May 2022 the Provisional Liquidator of Global Brands Group Holdings Limited (“Provisional Liquidator” and the “Company” respectively) issued an originating summons to which Computershare Hong Kong Trustee Limited (“Computershare”) and The Hong Kong and Shanghai Banking Corporation Limited (“HSBC”) are Respondents seeking an order for recognition and assistance. The Company is incorporated in Bermuda and was wound up in Bermuda on 5 November 2021. The circumstances of the application provide an opportunity to consider in more detail an issue I discuss in Re Li Yiqing v Lamtex Holdings Limited[1], namely, whether in future the Hong Kong court will recognise and assist a foreign insolvency process conducted in the place of company’s centre of main interests (“COMI”) and it is not sufficient, nor necessary, that the foreign insolvency process is conducted in a company’s place of incorporation. Background 2.The Provisional Liquidator, John McKenna, had been appointed on 16 September 2021 and continued in office on the making of the winding-up order. The principle reason for seeking recognition and assistance from the Hong Kong court is to obtain the proceeds of the sale of shares held by Computershare in Hong Kong on behalf of the Company, totalling approximately HK$9 million, and the rather more modest balance held by HSBC in the Company’s bank account in Hong Kong, which totals approximately US$5,000. The originating summons also seeks certain other general powers. I will explain them later in this judgment. 3.In his affidavit in support of the application the Provisional Liquidator explains the background to the Company and the circumstances leading up to its liquidation in Bermuda. The Company is an investment holding company. The Company, along with its subsidiaries (“Group”), were engaged in the business design, development, marketing and sale of branded children’s, men’s and women’s apparel, footwear, fashion accessories and related lifestyle products in North America and Europe. The Company and its subsidiaries were also engaged in brand management and offered expertise in expanding its clients’ branded assets new product categories, new regions and retail collaborations, as well as assisting in distribution of licensed products on a global basis. 4.The Company was listed on the Main Board of The Stock Exchange of Hong Kong (“HKEX”) Limited in 2014 as a result of a spin-off from Li & Fung of which it had formed part. Due to the ongoing COVID-19 pandemic and geopolitical uncertainties, as well as structural shifts in the retail industry, the business of the Company and its subsidiaries was seriously challenged. As a result, the Company had been facing immense financial difficulties since 2020. For the year ended 31 March 2020, the Group reported: (a) a net loss after tax of US$586,590,000; (b) current liabilities exceeding current assets by US$772,125,000; and (c) cash and cash equivalents amounting to US$83,880,000. For the six months ended 30 September 2020, the Group reported: (a) a net loss after tax of US$119,838,000; (b) that current liabilities exceed current assets by US$899,391,000; and (c) that the Group’s cash and cash equivalents were US$55,805,000. 5.From around January 2021, the Company actively engaged in discussions with the lenders of a syndicated loan to the Group (“Lenders”) of which the Company was a guarantor, other creditors, and potential investors in relation to revising repayment obligations of loans and injecting new equity from prospective investors. The Company also explored different debt restructuring options including potential transactions or corporate actions involving the sale, disposal and/or restructuring of various assets or businesses of the Group (collectively, “Restructuring”). 6.While the Company explored various restructuring options to improve its financial position, the board of the Company resolved that it was in the interests of the Company and its creditors to commence its own winding-up proceedings and apply to the Bermuda Court to appoint a provisional liquidator with limited powers, which could maximise the chance of success of the restructuring and provide a moratorium on claims against the Company to avoid a potential disorderly liquidation by the Company’s creditors. The appointment was apparently intended to create an environment for a successful restructuring. The board could continue to manage the Group’s business operations, a provisional liquidator would monitor and consult with the board on implementing a group-wide and coordinated debt restructuring plan, and the business of the Group could continue to operate to generate revenue as a whole instead of assets being subject to fire sale at a significant discount. 7.On 10 September 2021, the Company presented a petition to the Bermuda Court for the winding-up of the Company (“Petition”) and made an application for appointment of Mr McKenna as provisional liquidator of the Company on a “limited powers” basis for restructuring purposes only. Suffice to say the attempts to restructure proved unsuccessful, the board recognised that a winding-up would be in creditors’ best interests and the Company applied successfully for a winding-up order on 5 November 2021. 8.Since his appointment, the Provisional Liquidator has been trying to take possession of the Company’s assets in Hong Kong. The Company’s assets in Hong Kong are:
Both Computershare and HSBC require the Provisional Liquidator to obtain a recognition order before they will release the cash balances. Nearly all the Company’s creditors are in Hong Kong. As is to be expected as it is a holding company, the creditors are largely financial or professional companies and are all unsecured. The remainder of the liquidation will be straightforward. The Provisional Liquidator will adjudicate proofs, which seems likely to be uncontroversial, and declare a dividend to be paid out of the assets, which he will receive if a recognition and assistance is granted, which consists of the monies I have referred to in the previous paragraph. 9.The Provisional Liquidator accepts that before the Bermuda liquidation the Company’s COMI was probably in Hong Kong. In the light of the Provisional Liquidator’s activities after the Bermuda liquidation commenced the COMI may have become either Hong Kong or Bermuda. For the purposes of this decision the Provisional Liquidator accepts that the core requirements that need to be satisfied before the Hong Kong court will exercise its winding-up jurisdiction over a foreign company are satisfied[2]. Recognition and Assistance in Hong Kong—Background 10.Commencing in 2014 recognition and assistance has increasingly been used to address issues arising in transnational restructuring and insolvency in Hong Kong that largely arise as a consequence of the extensive use of holding companies incorporated in offshore jurisdictions rather than Hong Kong or the Mainland, although the business groups affected commonly consist of operating and asset owning companies in Hong Kong and the Mainland. This practice has become the norm in the case of companies listed on the HKEX. The operating and asset owning subsidiaries are commonly separated from the holding company by a layer of intermediate subsidiaries incorporated in an offshore jurisdiction different from the holding company. The most common structure recently adopted would appear to involve a Cayman holding company and intermediate subsidiaries incorporated in the British Virgin Islands. The business groups have no assets, creditors or debtors in the offshore jurisdictions. When such business groups encounter financial difficulties and creditors and the companies themselves are considering what steps to take to protect their interests they encounter problems arising from the artificial structure of the group, which it is difficult to address because unlike comparable jurisdictions Hong Kong has neither legislation dealing with rehabilitation of distressed businesses nor legislation dealing with transnational insolvency other than the discretionary power given to the court by section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32 (“Ordinance”), to wind up a foreign company. The absence of the tools available in other jurisdictions, including the Mainland, to address these issues has been a well-publicised source of concern to those involved in restructuring and insolvency for over two decades. In the absence of any legislation to address these issues the Court has worked with practitioners to use common law techniques to address them so far as the common law permits. There have been two major problem areas. 11.The first concerns the restrictions that exist on winding up a foreign incorporated company. It is not necessary to explore this issue in depth as it is comprehensively dealt with in a number of authorities well known to practitioners. In summary the court has adopted what Ma CJ and Lord Millett NPJ refer to in the Court of Final Appeal’s judgment in Kam Leung Sui Kwan v Kam Kwan Lai[3] as “necessary self-imposed constraints on the making of a winding-up order against a foreign company”. In some cases, these are easy to satisfy. Others less so resulting in delay in creditors or shareholders being able to take action in Hong Kong to protect their economic interests while complicated questions concerning jurisdiction are resolved. It was this problem that led to the application and decision in Joint Official Liquidators of A Co v B[4]. The liquidators appointed in the Cayman Islands, where the Company was incorporated, initially sought (ultimately successfully) to wind up the Company in Hong Kong, but pending the determination of the petition wished to be able to obtain documents from the Company’s bankers in Hong Kong concerning a substantial fraud. The bankers refused to provide them without an order of the Hong Kong court confirming the liquidators’ authority to represent the company in Hong Kong. 12.The second issue concerns the problems caused by Hong Kong’s lack of any legislation facilitating debt restructuring and rehabilitation of financially distressed companies. In the period following the Asian Financial Crisis of 1997 and 1998 the practice was developed of companies, mainly listed companies, being put into a form of soft-touch provisional liquidation in Hong Kong to facilitate a debt restructuring. This practice was brought to a halt by the Court of Appeal’s decision in Re Legend International Resorts Ltd[5], which determined that the power to appoint provisional liquidators conferred by section 193 of the Ordinance could not be used to appoint provisional liquidators for the principle purpose of restructuring a company. Many of these companies were incorporated in offshore jurisdictions. To circumvent the practical problem to which the Court of Appeal’s decision gave rise a technique was developed[6], which involved a company incorporated in an offshore jurisdiction being put into soft-touch provisional liquidation in its domestic jurisdiction, the courts of those jurisdictions treating this as a proper use of the power to appoint provisional liquidators, and the provisional liquidators being recognised in Hong Kong and assistance being provided in the form of the limited powers necessary for provisional liquidators to participate in the restructuring process in Hong Kong. Unfortunately, it has become increasingly apparent that what is commonly referred to as the Z-Obee technique has been abused by certain insolvency practitioners and offshore law firms[7]. It seems to me tolerably clear that many of the offshore soft-touch provisional liquidations adopt a debtor in possession model, which has been rejected in Hong Kong, the principal purpose of which, viewed from the Company’s point of view, is to obtain so far as possible a moratorium on action being taken to recover unpaid debts. The application to appoint provision liquidators in the present case would appear to be an example. Hong Kong has consciously decided not to enact legislation that provides for this kind of debt moratorium. Although it is not an issue that I need to decide in the present case and is one which requires detailed consideration, my preliminary view is that in future the Hong Kong court should generally decline to recognise soft-touch provisional liquidators appointed by offshore jurisdictions on the kind of terms I have summarised. 13.There is another consideration. As I have already explained the businesses of companies of the sort with which I am concerned are carried on in China; primarily the Mainland. The Mainland has a different economic system to Hong Kong. Reconciling the differences between the Hong Kong and the Mainland systems can be challenging. It requires an understanding of the different insolvency systems and the different social and economic considerations, which are reflected in the differing statute law and the decisions that judges and others involved in the insolvency and restructuring process are required to make. To take one example, the Enterprise Bankruptcy Law gives primacy to rehabilitation of businesses reflecting the importance placed in the Mainland on maintaining economic and social stability. Consistent with this the Mainland favours debtor in possession solutions. As I have explained Hong Kong does not. Hong Kong and Mainland judges are familiar with these issues and are well placed to deal with them; courts outside China considerably less so. Relevant to this are the concerns that have recently been expressed by two leading academics in the field of international insolvency, Professor Jay Westbrook of the University of Texas at Austin and Professor Christoph Paulus of Humboldt-Universität zu Berlin[8], about judicial decision making and bankruptcy law becoming increasingly remote from territorial or political control. The suggestion that a Chinese business can avoid the supervision of its affairs by Chinese courts[9] when bankrupt by using a company incorporated in, what has been called by the European Court of Justice, amongst others, a “letter box jurisdiction”[10] invites the question that Professor Westbrook and Professor Paulus pose as to the extent to which it is congruent with the purpose of insolvency law and the expectations of creditors to allow a commercial enterprise to use a bankruptcy process in a jurisdiction with which it or its debt[11] has no economic or social connection rather than one in which it carries on business. The question is relevant to the issue, which I am considering, which in practice amounts to this: should a jurisdiction in which a company’s business is conducted recognise an insolvency process conducted in a place with which the company has no material economic connection. The Order 14.I will grant an order for recognition of the Provisional Liquidator with assistance limited to the power to receive and transfer out of Hong Kong the balances in the account to which I have referred in [8]. My reasons for so ordering are explained in [48]–[50]. The majority of the remainder of this decision concerns the basis on which in future Hong Kong should grant recognition and assistance to foreign insolvency practitioners. The decision is divided into sections addressing the following:
Principles of Common Law Recognition and Assistance 15.There is a distinction between recognition and assistance. Recognition concerns acknowledging and confirming the status of a foreign insolvency process and officer. Assistance involves granting expressly to the foreign insolvency officer powers to act in the local jurisdiction. The distinction is well understood. In Kireeva v Bedzhamov[12], Snowden J held:
In Net International Property Limited v ADV Eitan Erez[13], Webster JA explains the distinction in more detail:
A simple practical example of the distinction is to be found in my decision in Re China Bozza Development Holdings Ltd[14]. I held:
16.The authorities establish that the orthodox common law position is that the court may recognise foreign insolvency proceedings that comply with two criteria[15]. First, that the foreign insolvency proceedings are collective insolvency proceedings; and secondly, that the foreign insolvency proceedings are opened in the company’s country of incorporation. Part of the rationale for recognising and assisting foreign officeholders appointed in the country of incorporation is to be found in ordinary conflict of laws principles for corporations as opposed to pure insolvency law. As Lord Sumption explains in Singularis Holdings Ltd v PricewaterhouseCoopers[16]:
COMI as the criteria for recognition and assistance 17.To date the court in Hong Kong has not used COMI as the yardstick for granting common law recognition or assistance. The criteria applied are those explained in the previous paragraph. It is, however, open to the court as a matter of principle and authority to develop these common law principles. As the then Chief Justice Li observed in Solicitor (24/07) v Law Society of Hong Kong[17]: “[t]he great strength of the common law lies in its capacity to develop to meet the changing needs and circumstances of the society in which it functions”. For the reasons discussed in the remainder of this judgment in my view the criteria to be adopted in future in determining whether or not foreign insolvency proceedings should be recognised and assisted are, in short, that the foreign proceedings constitute a collective insolvency process and that the proceedings (subject to limited exceptions) are conducted in the jurisdiction in which the Company’s COMI is located. 18.As I have already explained Hong Kong is unusual in not having any legislation dealing with cross-border insolvency and restructuring. The Government has largely left it to the Judiciary to use common law tools to address the challenges that have arisen in this area as Hong Kong’s economy has developed in line with the Mainland’s rapid economic expansion. This is not an oversight. On 14 May 2021 the Secretary for Justice and the Supreme Court signed a “Record of Meeting of the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region on Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region”. This Cooperation Mechanism consists of two parts. The first is the Record of meeting. The second is “The Supreme People’s Court’s Opinion on Taking Forward a Pilot Measure in relation to the Recognition and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region.”[18]As is explained in both documents the purpose of the Mechanism is to facilitate economic integration and development in Hong Kong and the Mainland. Paragraphs 3 and 5 of the Record of Meeting make it clear that the parties expect the High Court to grant assistance to Mainland Administrators and cooperate on the implementation and improvement of the Mechanism. The absence of relevant legislation and the purpose of the Cooperation Mechanism are relevant to a consideration of the development of common law assistance in Hong Kong, its necessity and what form it might take. Hong Kong is not in the same position as jurisdictions, which have enacted comprehensive statutory codes to regulate recognition and assistance of foreign insolvencies. As the Cooperation Mechanism to which I have referred demonstrates, the absence of a statutory code to regulate recognition and assistance does not imply that the court is to take a restrictive view of its ability to develop the common law principles to address the issues that come before it. It is clear that the opposite is the case. 19.In Rubin v Eurofinance SA[19] Lord Collins at [129] describes the limits of a court’s ability to develop the law in this field. Lord Collins says this:
20.It can readily be understood why the courts in England would approach the development of the common law relating to international insolvency as Lord Collins describes. Judge initiated developments in the law, which in the context of a system, which has introduced deliberate and comprehensive legislation to regulate cross-border insolvency, may be viewed as judicial overreach, are not necessarily to be viewed similarly in a jurisdiction, which lacks comparable legislation and whose current circumstances justify modifying the common law to implement more effectively an established legal principle. The development of the basis upon which foreign liquidations are recognised which I am considering does not involve the creation of a new legal principle. It involves a modification of an existing one, namely, recognition and assistance of a foreign insolvency process. The purpose of the modification is to implement the principle in a manner better suited to the circumstances in which transnational insolvencies currently arise in Hong Kong and the development of the principle in comparable jurisdictions. 21.It is apparent from its terms that the Cooperation Mechanism is premised on the assumption that the common law as practiced in Hong Kong has developed to provide for judicial assistance to insolvencies conducted in different jurisdictions; albeit in the China context different legal jurisdictions within one unitary State. There are many examples of common law assistance being granted by the Hong Kong court to foreign insolvency office holders. In [43]–[44] I give a number of examples of the Court of Final Appeal and the Court of Appeal recognising the court’s power to do so. In the case of administrators from the Mainland the Court of First Instance has made a number of orders for recognition and assistance in recent years: Re Liquidator of CEFC Shanghai International Group Ltd[20]; Re Shenzhen Everich Supply Chain Co, Ltd[21]; Re HNA Group Co., Limited[22]; Nuoxi Capital Limited v Peking University Founder Group Company Limited[23]. Principles of recognition—modified universalism 22.Underpinning the principle of recognition is the principle that the insolvency law of a company’s home insolvency jurisdiction is applicable across the world. This is illustrated by the English Court of Appeal’s decision in Tchenguiz v Grant Thornton UK LLP[24], which concerned whether Icelandic Insolvency Law applied throughout the European Economic Area, including England, by virtue of Article 10 of the Parliament and Council Directive 2001/24/EC, given effect in England by the Credit Institutions (Reorganisation and Winding Up) Regulations 2004. Briggs LJ explains the character of the extraterritorial effect of Icelandic bankruptcy law in the following paragraphs[25]:
23.Consistent with this principle the aim of modified universalism is that there should be a unitary bankruptcy proceeding in the court of the home insolvency jurisdiction which receives world-wide recognition and it should apply universally to all the bankrupt’s assets. This is explained by Lord Hoffmann in Re HIH Casualty and General Insurance Ltd[26]:
24.Universalism is to be contrasted with territorialism where each country is regarded as determining according to its own law the distribution of the assets of an insolvent company located within its territorial jurisdiction[27]. Modified universalism is a compromise between these two opposites, recognising that the theoretical ideal of universality must in some circumstances give way to the practical reality of territorial or local interests. Lord Hoffmann describes the principle in HIH in the paragraph immediately following the one I have just quoted[28]:
This principle has been part of the English common law since the 18th century[29]. 25.In Singularis the Privy Council considered three propositions derived from the decision of the Privy Council in Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plc[30]. “First the principle of modified universalism, namely, that the court has a common law power to assist foreign winding up proceedings so far as it properly can. The second is that this includes doing whatever it [the court] could properly have done in a domestic insolvency, subject to its own law and public policy. The third (which is implicit) is that this power is itself the source of its jurisdiction over those affected, and that the absence of jurisdiction in rem or in personam according to ordinary common law principles is irrelevant.”[31] The Privy Council concluded that the 2nd and 3rd principles had been wrongly decided, but not the first, which Lord Sumption explains in [19]:
26.It is clear from this passage that modified universalism is the foundation of the common law power to recognise and assist a foreign insolvency process and that the power may be developed if the development is consistent with modified universalism and is consistent with the applicable domestic legal framework. Although the formulation of the principle in Singularis is considerably more restrictive than that to be found in Cambridge Gas, as is apparent from the final paragraph of the extract of Lord Collin’s judgment that I have quoted, it envisages further development of the common law power of assistance. Modified universalism—criteria for determining home or principle jurisdiction in comparative authorities 27.Universalism and modified universalism are premised on there being a home or principal insolvency jurisdiction. The criteria for determining the home or principal insolvency jurisdiction have evolved over time. First, there is the concept of the debtor’s domicile[32]. Secondly, there is the concept of the debtor’s country of incorporation: In Singularis, Lord Sumption talks of the common law principle of modified universalism treating the place of incorporation as being the principal insolvency jurisdiction:
Thirdly, there is the concept of COMI. Lord Hoffmann explains in HIH[34]. the emergence of the criteria for assessing the most appropriate country to be treated as the principal jurisdiction in which a transnational insolvency is to be conducted:
28.Assuming one uses the old concept of domicile, there appear to be two schools of thought on the meaning of “domicile” of a company. One view is that the domicile of a company is in its place of incorporation. Lord Collins explains this in Rubin v Eurofinance SA[35]:
The alternative view is that the domicile of a company is in its principal place of business, which may or may not be the country of incorporation. This is explained by Murison CJ in Re Lee Wah Bank[36]:
29.In Singapore, the common law recognition regime has developed to embrace the COMI concept for reasons explained by Abdullah JC in Re Opti-Medix Ltd[37]:
30.The position adopted in Hong Kong has historically been that a liquidator appointed in the place of incorporation is recognised[38]. However, it would be incorrect to say that the Hong Kong recognition criteria has exclusively been tied to the debtor’s country of incorporation. There are instances of the Hong Kong court granting, or being willing to grant, recognition to insolvency office-holders appointed in a foreign jurisdiction which was not the jurisdiction of incorporation. In Re The Russo-Asiatic Bank[39], the Court recognised liquidators appointed by the English court over a Russian bank. In Bank of Credit and Commerce International (Overseas) Ltd v Bank of Credit & Commerce International (Overseas) Ltd—Macau Branch[40], the Court of Appeal recognised liquidators appointed in Macau over a Cayman-incorporated bank. In Joint Administrators of African Minerals Ltd v Madison Pacific Trust Ltd[41], I took the view that there was no objection in principle to granting recognition to an English administrator over a Bermuda-incorporated company with its COMI in England. Adopting the COMI criteria in Hong Kong 31.In Re Li Yiqing v Lamtex Holdings Limited[42] at [22] and [26] I suggested that the Hong Kong court should, as Singapore has done, consider whether common law recognition based on place of incorporation is consistent with contemporary commercial practice in the SAR and the Mainland:
32.In my view the criteria for recognition should in future primarily be determined by the location of a company’s COMI. As I suggest in Lamtex[45], this better reflects the current commercial practice in Hong Kong. The use of companies incorporated in offshore jurisdictions as holding companies and intermediate subsidiaries for business groups conducting their activities in Hong Kong and the Mainland is widespread. The connection between such companies and the place of their incorporation is entirely formal. It is rare for such companies to conduct any business in the jurisdiction and I imagine commonly no director or employee ever visits them. Normally in my experience when such companies are put into provisional or final liquidation two or three liquidators are appointed by the offshore court at least one of whom, commonly two, are based in Hong Kong from where they conduct the liquidation. Treating the place of incorporation in such circumstances as being the natural home or commercially most relevant jurisdiction of the company for the purpose of determining, which jurisdiction is the appropriate place for the seat of a principal liquidation is highly artificial. It also encounters problems of the type discussed recently by Linda Chan J in Re Up Energy Development Group Limited[46], namely, the need in the case of a genuine liquidation (as opposed to the type of soft-touch provisional liquidation that I have referred to in [12]) for the liquidator to be able to access the wide, express powers provided for in the Ordinance, which cannot be granted by way of recognition at common law. I discuss Up Energy in more detail later in [46]. If a company’s COMI is in Hong Kong I would not normally expect there to be any difficulty in a petitioner demonstrating that the court can properly exercise its discretion to wind up a foreign incorporated company[47]. A winding up order made in Hong Kong will allow the liquidator to use the powers available under the Ordinance and, importantly, seek recognition and assistance in the Mainland, which is normally where a company’s business is primarily conducted and its assets located. The Cooperation Mechanism I have referred to in [18] permits the relevant Mainland courts to recognise liquidators appointed in Hong Kong over companies whose COMI is located in Hong Kong at the time the application for recognition and assistance is commenced. Adopting the COMI criteria would bring Hong Kong in line with the approach in the Mainland, which is of itself desirable. 33.Adopting and framing the COMI criteria requires consideration of five subsidiary questions. First, it is necessary to decide the relevant date for determining COMI. There are three alternatives:
34.Secondly, it is necessary to decide the elements of COMI. There are four established approaches. All are similar. Under the Cooperation Mechanism, COMI generally means the place of incorporation, although other factors are also relevant, including the place of the debtor’s principal office, the debtor’s principal place of business, and the place of the debtor’s principal assets (Article 4 of the Cooperation Mechanism). In the context of the common law Lord Hoffmann in HIH[49] regarded the following as the key COMI elements—the place of incorporation, the place of central management, and the location of assets and liabilities. In Re Opti-Medix Ltd[50], the Singapore court suggested the following common-law COMI test:
35.ICC Judge Mullen explains the key COMI considerations under the EU Insolvency Regulation, in Re Investin Quay House Ltd[51]:
36.The term COMI is not defined in the UNCITRAL Model Law on Cross-Border Insolvency. The key COMI considerations are summarised by Abdullah JC in Re Zetta Jet[52]at [29] and [85]:
37.A more comprehensive discussion of the criteria for determining COMI under the Model Law is to be found in the judgment of Glenn J in In re Ocean Rig UDW Inc[53], which concerned an application for recognition under Chapter 15 of the United States Bankruptcy Code. The case concerns the restructuring of the debt of four companies through a scheme of arrangement sanctioned in the Cayman Islands. One which was incorporated in the Cayman Islands was the holding company of the other three, which were incorporated in the Republic of the Marshall Islands. Until sometime in 2016 each of the companies had its COMI in the Marshall Islands. It was the companies’ case that subsequently the COMI was moved to the Cayman Islands. Whether or not this was correct was relevant because recognition under Chapter 15 requires that a company is in an insolvency process in the location of its “centre of main interests”, in which case it is a “foreign main proceeding”, or in a place in which it has an “establishment”, in which case it is a “foreign non-main proceeding”: the terms in quotes being defined in Chapter 15, which adopts the UNCITRAL Model Code on cross-border insolvency. The legal framework and the issue is summarised by Glenn J at page 695:
38.It is not necessary for me to consider the detailed analysis by Glenn J of the evidence relied on as demonstrating that the COMI for each company had moved from the Marshall Islands to the Cayman Islands. It is sufficient to note that Glenn J considered evidence of the following matters as being relevant: the location of directors and board meetings, the location of the companies’ principal officers, notices of relocation to the Cayman Islands, location of operations, location of assets, location of bank accounts, location of books and records and the location in which the restructuring activities took place. Glenn J concluded that the COMI of each of the companies was in the Cayman Islands and the proceedings in the Cayman Islands to restructure the debt were “foreign main proceedings”. His conclusion is contained in the following passages on page 704.
In my view similar matters are relevant to the Hong Kong court’s determination of whether or not the COMI of a company is in the jurisdiction of the foreign insolvency proceedings. 39.Thirdly, how the relationship between the COMI criteria and the Hong Kong court’s winding-up jurisdiction may be relevant; a subject I touched on in [32]. The position in my view is as follows. The recognition regime is distinct from the winding-up jurisdiction. The Court may recognise foreign insolvency proceedings whether or not the debtor may be wound up in Hong Kong: Singularis Holdings Ltd[54]. The fact that the debtor could be, or has been, wound up in Hong Kong is not of itself a bar to the Court granting assistance to the foreign insolvency office-holders. Recognition as an ancillary liquidation is one form of assistance that may be granted to foreign insolvency office-holders. 40.Fourthly, whether an inconsistency between the principles of private international law and the principles of recognition and assistance, the former supporting recognition of foreign office-holders appointed in the country of incorporation as the company’s lawful agents in accordance with agency theory and ordinary conflict of laws principles for corporations and the latter supporting recognition largely determined by COMI, will cause practical problems. In my view not. The COMI test is relevant in cases in which a foreign liquidator requires more than an order that confirms the liquidator’s status and rights arising from his appointment in the place of incorporation (which is justified by orthodox principles of private international law) and seeks a power necessary to exercise a right in furtherance of a liquidation (which engages the principle of modified universalism); the sort of order referred to by Lord Sumption in [23] of Singularis[55], albeit on the assumption that the Liquidator had been appointed in the place of incorporation and this justifies recognition:
41.Fifthly, cases where the location of the COMI is unclear. In my view where the location of COMI is unclear, the Court may nevertheless grant recognition and assistance if for practical reasons it is necessary and the foreign insolvency process is in the place of incorporation. This type of pragmatic approach was supported by Abdullah JC in Re Opti-Medix Ltd[56]:
42.In my view none of the subsidiary matters I have considered suggest that adopting the COMI criteria conflicts in a material and problematic way with other principles and practical considerations, which are potentially engaged. Authorities in Hong Kong 43.The authorities show the following types of specific assistance having been granted. In Re Irish Shipping Ltd[57] concerned a petition to winding up an unregistered company pursuant to section 327 of the Companies Ordinance, Cap. 32. The company was incorporated and in liquidation in Ireland. The petition was presented by the company’s liquidator. Jones J in accepting that assistance in the form of an ancillary liquidation should be granted says this:
In Re Information Security One Ltd[58] the winding-up petition was brought by the company in compulsory liquidation in the Cayman Islands in which it was incorporated acting by its joint and several liquidators. Kwan J as she then was held that:
Similarly, in Re China Medical Technologies Inc (No 1)[59] where the Court of Appeal permitted Cayman Liquidators to act on behalf of the debtor in Hong Kong. Barma JA explains the situation in [5]–[6] and [24]:
44.The following cases demonstrate that it is permissible for foreign insolvency office-holders to take possession of the debtor’s assets: In Singularis Holdings Ltd[60]Lord Sumption explains that:
The Court of Final Appeal in Chen Li Hung v Ting Lei Miao[61]recognised and assisted Taiwanese bankruptcy trustees. Bokhary PJJ held:
45.It is permissible to grant foreign insolvency office-holders the power to gather information from third parties. Continuing from his explanation quoted in [25] above Lord Sumption explains in Singularis[62]:
Also in Singularis a stay was imposed on creditors trying to levy execution against local assets[63]. Up Energy 46.Mr Ho drew my attention to a very recent decision of Linda Chan J in Re Up Energy Development Group Limited[64]. As Chan J notes in the first paragraph of her judgment Up Energy is an unusual case. Up Energy is incorporated in Bermuda, listed in Hong Kong and its business was conducted in the Mainland. The winding-up petition in Hong Kong came on for substantive hearing before Chan J on 10 January 2022. As I understand the position the company sought initially to have the petition adjourned until after a hearing to convene a meeting of creditors, which it intended would be made before me a few months later. Chan J was not satisfied that all the relevant issues had been properly addressed before her and adjourned the petition for further argument on 14 February 2022. Chan J ordered further submissions to be made. The company was wound up in Bermuda on 11 March 2022. The company had been put into soft-touch provisional liquidation in 2017, which was recognised by an order made by me in August 2017. Obviously this proved unsuccessful. The Company argued that it should not be wound up in Hong Kong and instead the liquidation in Bermuda should be recognised and the powers necessary to conduct the liquidation in Hong Kong extended to the liquidators by way of common law recognition. Chan J rejected this argument. Chan J held, and I simplify, that it was not possible for a foreign liquidator to conduct a winding up in Hong Kong, which required the liquidators to exercise the powers available to a Hong Kong liquidator under the Ordinance. The common law power of assistance did not permit the court “to make the provisions under the CWUO available to the Bermuda liquidators or the Company in the absence of a winding up order made by the Hong Kong court.”[65] Mr Ho in the present case agreed that Chan J’s conclusion represented the current orthodox view for the reasons explained in Rubin v Eurofinance[66] and Singularis[67]. I agree. So far as the present case is concerned what requires consideration is sub-paragraph (3) of [81], which contains Chan J’s determinations. Chan J says this: “In the absence of a winding up order [in Hong Kong] made against the [c]ompany, the court does not have power under the common law to confer any powers on the Bermuda Liquidators or make any provisions under the [Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32)] available to the [c]ompany.” Mr Ho quite properly brought it to my attention, because although the second part of the sentence, which concerns the issue that I understand was central in the case is not relevant to the present matter as the order sought does not require a power under the Ordinance to be extended to the Liquidator, the first part of the sentence suggests that no powers at all can be conferred at common law. 47.As I have explained, in the present case the order that I have made is justified by established principles of private international law. As Lord Sumption demonstrates in the parts of Singularis referred to in [16] above the court is not constrained from granting any assistance at all to a foreign liquidator. The court can grant assistance to facilitate a foreign liquidator whose appointment has been recognised on orthodox principles of private international and which engages the principles of modified universalism. As Chan J refers at length to Singularis in her judgment I think a fair reading of [81(3)] is that her Ladyship had in mind (A) an argument that the common law allowed powers analogous to those provided in the Ordinance to be granted to foreign liquidators rather than (B) powers intended to assist a foreign liquidator effectively to exercise rights that a domestic court recognises because the liquidator had been appointed in the place of incorporation; in other words the situation discussed by Lord Sumption in [23] of Singularis. I am concerned with the latter type of case. For the reasons I have explained in earlier paragraphs, in my view it is entirely consistent with modified universalism and the established common law principles of recognition and assistance for the Hong Kong court to grant powers intended to assist a foreign liquidator appointed in the jurisdiction of a company’s COMI effectively to exercise rights, which arise from the liquidator’s status in the COMI jurisdiction. Form of Order 48.I will grant an order in the form annexed to this judgment. In [1] I will order that the liquidation is recognised. This I do on the basis discussed in [39]–[40] alternatively on practical grounds. The Liquidator is the lawful agent of the Company as a matter of the law of its place of incorporation and entitled to direct that its assets are transferred from accounts in Hong Kong to accounts in Bermuda. Paragraph 2 confirms that the Provisional Liquidator has the power to secure and obtain the Company’s assets and documents in Hong Kong. This is simply confirming the position under orthodox principles of private international law and gives the Provisional Liquidator assistance, which might fairly be described as more managerial in nature than of a type associated specifically with insolvency. 49.Paragraph 3 permits the transfers of the relevant sums of money as directed by the Provisional Liquidator. Paragraphs 4 and 5 are self-explanatory. Conclusion 50.In my view the correct approach to assessing whether or not a foreign liquidation should be recognised is first to determine if at the time the application for recognition is made the foreign liquidation is taking place in the jurisdiction of the Company’s COMI. If it is not recognition and assistance should be declined unless the application falls within one of the following two categories. First, it is limited to recognition of a liquidator’s authority, if appointed in the place of incorporation, to represent a company and orders that are an incident of that authority; which might be described as managerial assistance. As the Provisional Liquidator in the present case only requires an order that demonstrates to Computershare and HSBC that as the lawful agent of the Company he is entitled to direct the monies to be transferred to another bank account in my view the application, when the superfluous paragraphs dealing with more general assistance in the originating summons are deleted, is justified by established principles of private international law. Secondly, recognition and limited and carefully prescribed assistance which does not fall within the first category required by a liquidator appointed in the place of incorporation as a matter of practicality; the type of situation in other words, which Abdullah JC describes as justifying assistance on practical grounds in Opti-Medix.
Mr Look Chan Ho, instructed by Stephenson Harwood, for the applicant The 1st respondent was not represented and did not appear The 2nd respondent was not represented and did not appear Appendix Order UPON the application of Mr. John Christopher McKenna of Finance & Risk Services Limited in his capacity as the sole provisional liquidator of Global Brands Group Holding Limited (In Liquidation in Bermuda) (“Company”) by way of ex-parte originating summons filed on 25 May 2022 AND UPON reading the Letter of Request issued by the Supreme Court of Bermuda dated 28 March 2022, the Affidavit of John Christopher McKenna filed on 26 May 2022 and the exhibit referred to therein, and the 2nd Affidavit of Lau Po Wa Vivian filed on 27 May 2022 and the exhibit referred to therein AND UPON hearing counsel for the Applicant, the 1st and 2nd Respondents being absent IT IS ORDERED THAT:-
[1] [2021] HKCFI 622; [2021] HKCLC 329. [2] Silver Starlight Ltd v China CITIC Bank Corporation Ltd, Tianjin Branch [2021] HKCA 1248; [2021] HKCLC 1347 at [15] (G Lam JA). [3] (2015) 18 HKCFAR 501. See [18]–[24] in which Ma CJ and Lord Millett NPJ explain the constraints, commonly referred to as “the 3 core requirements” and their application. [4] [2014] 4 HKLRD 374; [2014] HKEC 1244. [5] [2006] 2 HKLRD 192; [2006] 3 HKC 565. [6] Z-Obee Holdings Ltd [2018] 1 HKLRD 165; Re Joint and Provisional Liquidators of Hsin Chong Group Holdings [2019] HKCFI 805; Re Moody Technology Holdings Limited [2020] 2 HKLRD 187. [7] See for example Re China Bozza Development Holdings Ltd [2021] 2 HKLRD 977; [2021] HKEC 1993; [2021] HKCFI 1235. [8] International Insolvency Institute’s podcast 23 April 2022. [9] Whether the courts of the Hong Kong SAR or the Mainland. [10] In re Eurofood IFSC Ltd [2006] Ch 508; Creative Finance Ltd Case No. 14-10358 (REG) 13 January 2016; Re Bear Stearns High-Grade Strategies Master Fund, Ltd 381 B.R. 37 (Bankr. S.D.N.Y. 2007), aff’d 389 B.R. 325 (S.D.N.Y.) (Sweet J). [11] As opposed, for example, to US$ debt governed by United States Law, which would have an economic connection with the United States and might be compromised under Chapter 11 of the United States Bankruptcy Code and normally recognised in Hong Kong in accordance with the Rule in Gibbs, Antony Gibbs Sons v. La Société Industrielle Et Commerciale Des Métaux [1890] LR 25 QBD 399. [12] [2021] EWHC 2281 (Ch); [2021] BPIR 1465 at [107]. [13] (Eastern Caribbean Court of Appeal, 22 February 2021) at [19]–[21]. [14] [2021] HKCFI 1235; [2021] HKCLC 831 at [23]. [15] See Re CEFC Shanghai International Group Ltd [2020] HKCFI 167; [2020] HKCLC 1 at [8]. [16] [2014] UKPC 36; [2015] AC 1675. [17] (2008) 11 HKCFAR 117 at [19]. [18] 最高人民法院關於開展認可和協助香港特別行政區破產程序試點工作的意見 [19] [2012] UKSC 46; [2013] 1 AC 236. [20] Supra footnote 14. [21] [2020] HKCFI 965, [2020] HKEC 1188. [23] [2021] HKCFI 3817; [2021] HKEC 5793. [24] [2017] EWCA Civ 83; [2018] QB 695. [25] Ibid [68]. [26] [2008] UKHL 21; [2008] 1 WLR 852 at [6]. [27] Stichting Shell Pensioenfonds v Krys [2014] UKPC 41; [2015] AC 616 at [15] (Lord Sumption and Lord Toulson). [28] Supra at [7]. [29] Re HIH Casualty and General Insurance Ltd supra at [30]; Singularis Holdings Ltd v PricewaterhouseCoopers supra at [19] and [23]; Riverrock Securities Ltd v International Bank of St Petersburg (Joint Stock Co) [2020] EWHC 2483 (Comm); [2021] 2 All ER (Comm) 1121 at [80] (Foxton J); Kireeva v Bedzhamov [2022] EWCA Civ 35 at [81]–[88] (Newey LJ). [30] [2006] UKPC 26; [2007] 1 AC 508; [2006] 3 WLR 689; [2006] 3 AER 829. [31] Supra Lord Sumption [15]. [32] Re HIH Casualty and General Insurance Ltd supra at [6] and [8]; see also Stichting Shell Pensioenfonds v Krys supra at [14]. [33] Singularis Holdings Ltd v PricewaterhouseCoopers supra at [23]. [34] Supra at [31]. [35] Supra at [31]. [36] (1926) 2 Malayan Cases 81, 84. [37] Re Opti-Medix Ltd [2016] SGHC 108; [2016] 4 SLR 312 at [17]–[18] (Aedit Abdullah JC). [38] Re China Fishery Group Ltd [2019] HKCFI 174; [2019] HKCLC 45 at [24]–[25]. [39] (1929-30) 24 HKLR 16. [40] [1997] HKLRD 304. [41] [2015] HKCFI 645; [2015] HKCLC 323. [42] Supra footnote 1. [43] See the authorities discussed in Re China Huiyuan Juice Group Limited [2020] HKCFI 2940, [18]–[29]. [44] Supra at [11]. [45] Supra. [47] See [11]. [48] [2019] SGHC 53; [2019] 4 SLR 1343 at [52]–[61] (Aedit Abdullah J). [49] Supra at [31]. [50] Supra at [18] and [25]. [51] Re Investin Quay House Ltd [2021] EWHC 2371 (Ch) at [35]. [52] Supra. [53] 570 B.R. 687 (Bank. S.D.N.Y. Aug. 24, 2017); the decision was upheld on appeal 585 B.R. 31 (S.D.N.Y. April 5, 2018). [54] Supra at [5] and [13]. [55] Supra. [56] Supra at [26]. [57] [1985] HKLR 437, 439, 445 (Jones J). [58] [2007] 3 HKLRD 780 at [1]–[2] and [8] (Kwan J). [59] [2018] HKCA 111; [2018] HKCLC 65. [60] Supra at [10]. [61] (2000) 3 HKCFAR 9 at 16-17, 21. [62] Supra. [63] Supra at [12]–[14] and [19] (Lord Sumption), and [54] (Lord Collins). [64] Supra. [65] [59]. [66] Supra. [67] Supra. |
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