Re Guangdong Overseas Construction Corporation

HCMP 453/2023

[2023] HKCFI 1340

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 453 OF 2023

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J U D G M E N T

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1.There is before the court an application filed on 21 March 2023 by 廣州金股企業清算有限公司, the administrator (管理人) (“Administrator”) appointed by the Guangzhou Intermediate People’s Court of Guangdong Province (廣東省廣州市中級人民法院) (“Guangzhou Court”) over Guangdong Overseas Construction Corporation (廣東海外建設總公司) (“Company”), for recognition and assistance from the Hong Kong court. The application is made under the inherent jurisdiction of the court, as the Company is not a company wound up under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) such that the provisions under Cap. 32 have no application.

2.In their written submissions, counsel for the Administrator describe the terms of the order sought as the “standard form recognition order”. While this may be the terms of the orders granted by the court in the earlier cases, it should not be taken as the basis for seeking an order in the same terms regardless of the circumstances faced by the Administrator. In my view, it is incumbent upon the office-holder and those advising it to formulate the terms of order which suit the company in question. In particular, where as here the office-holder has already identified the asset which it seeks to take control, it should set out the details of such asset in the order. This is necessary to ensures that the order is sufficiently certain and effective in assisting the office-holder in carrying out its functions in Hong Kong.

Background

3.The Company is a private company established in the Mainland on 30 November 1992. Its registered capital is RMB 29.5 million. Until its bankruptcy, the Company carried on business in selling construction materials and hardware in the Mainland.

4.廣東海外建設發展有限公司 (香港) (Guangdong Overseas Construction Development Limited) (“GOCD”) is a company incorporated in Hong Kong. It has 4,000,000 issued shares of which 1,199,997 shares are registered in the name of the Company.

5.By a judgment dated 20 April 2016 granted by the Tianhe District Court in Guangzhou, the Company was adjudged liable to pay RMB2,746,320 together with interest to a creditor.

6.Following the Company’s default in payment, the creditor applied for a bankruptcy order against the Company. On 24 April 2020, the Guangzhou Court accepted the creditor’s application for a bankruptcy order against the Company pursuant to the Enterprise Bankruptcy Law (“EBL”), and appointed the Administrator over the Company.

7.On 23 July 2020, the Guangzhou Court appointed Mr. Gao Peng (高鹏) as the authorised representative of the Administrator.

8.On 17 May 2022, the Guangzhou Court made a bankruptcy order against the Company on the ground that it was insolvent and unable to pay its debts.

9.On 15 November 2022, Guangzhou Court issued a letter of request to the Hong Kong court (“Letter of Request”) requesting for recognition and assistance in the terms set forth below:

“為便於管理人處分廣東海外建設總公司在香港特別行政區的破產財產, 特請求香港特別行政區高等法院認可本法院依法決定的破產清算程序及破產管理人身份。

本法院茲請求香港特別行政區高等法院作出以下命令及指示, 以協助破產程序及管理人：

1. 認可廣東海外建設總公司破產清算程序;

2. 認可廣州金股企業清算有限公司為廣東海外建設總公司管理人身份;

3. 為廣東海外建設總公司管理人提供履職協助。

現謹確認並保證, 上述請求並未受到《中華人民共和國企業破產法》及相關司法解釋的限制。”

(English translation:

To facilitate the deposition of the bankruptcy property of [the Company] in the Hong Kong Special Administrative Region by the Administrator, it is hereby requested that the High Court of the Hong Kong Special Administrative Region recognizes the bankruptcy liquidation procedures and the status of the Administrator as decided by the Court according to the law.

This court hereby requests the High Court of the Hong Kong Special Administrative Region to make the following orders and directions to provide assistance in the bankruptcy liquidation procedures and to the Administrator:

1. To recognize the bankruptcy liquidation procedures of [the Company];

2. To recognize the status of 廣州金股企業清算有限公司 being the Administrator of [the Company];

3. To provide assistance to the Administrator of [the Company] in performing its duties.

This court hereby confirms and guarantees that the requests above have not been restricted by the [EBL] and the relevant judicial interpretations.)

10.In the Letter of Request, the Guangzhou Court described (1) the background leading to the appointment of the Administrator; (2) the duties of the Administrator under the EBL; (3) the 1,199,997 shares in GOCD registered in the Company’s name; and (4) the bankruptcy order made against the Company.

11.So far as the duties of the Administrator are concerned, it was stated in the Letter of Request in this way:

“根據《中華人民共和國企業破產法》的規定, 管理人依法履行職務，向本法院報告工作，並接受債權人會議和債權人委員會的監督。管理人的法定職責如下：

(一) 接管債務人的財產、印章和帳簿、文書等資料；

(二) 調查債務人財產狀況，製作財產狀況報告；

(三) 決定債務人的內部管理事務;

(四) 決定債務人的日常開支和其他必要開支；

(五) 在第一次債權人會議召開之前，決定繼續或者停止債務人的營業；

(六) 管理和處分債務人的財產；

(七) 代表債務人參加訴訟、仲裁或者其他法律程序；

(八) 提議召開債權人會議；

(九) 本院認為管理人應當履行的其他職責。”

(English translation:

According to the provisions of the [EBL], an administrator shall perform his duties in accordance with the law, report on his work to this court and be subject to supervision by the creditors’ meeting and the creditors’ committee. The statutory duties of an administrator are as follows:

(1) taking over the property, seals, account books, documents and other data of the debtor;

(2) investigating into the financial position of the debtor and preparing a report on such position;

(3) deciding on matters of internal management of the debtor;

(4) deciding on the day-to-day expenses and other necessary expenditures of the debtor;

(5) deciding, before the first creditors’ meeting is held, to continue or suspend the debtor’s business;

(6) managing and disposing of the debtor’s property;

(7) participating in legal actions, arbitrations or any other legal procedure on behalf of the debtor;

(8) proposing to hold creditors’ meetings; and

(9) performing other duties that this court deems that he should.)

12.It is not clear why the Administrator did not make the application shortly after the Letter of Request was issued by the Guangzhou Court, but waited until March 2023 to make the application.

13.In their submissions, counsel rely on the principles set out in Re CEFC Shanghai International Group Ltd (in liq) [2020] 1 HKLRD 676 (Harris J) and Re Shenzhen Everich Supply Chain Co., Ltd (in liq) [2020] HKCFI 965 (Harris J). In their supplemental submissions, counsel submit that the “Cooperation Mechanism” (as defined in §14 below) has no application to the Company as the Guangzhou Court is not a court of the 3 pilot areas designated by the Supreme People’s Court (“SPC”) under the Cooperation Mechanism.

Applicable principles

14.On 14 May 2021, the SPC and the Government of Hong Kong reached a consensus in relation to mutual recognition of and assistance to insolvency proceedings between the courts of the Mainland and of Hong Kong (“Cooperation Mechanism”) and published the following documents:

(1)  The “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” signed by the Secretary for Justice and the SPC on 14 May 2021 (“Record of Meeting”).

(2)  The “Procedures for a Mainland Administrator’s Application to the Hong Kong SAR Court for Recognition and Assistance - Practical Guide” issued by the Department of Justice (“Practical Guide”).

(3)  “The Supreme People’s Court’s Opinion on Taking Forward a Pilot Measure in relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region” (“SPC’s Opinion”).

15.The Record of Meeting describes the types of application for recognition and assistance which may be made as follows:

“1. Intermediate People’s Court in the pilot areas designated by the Supreme People’s Court may initiate cooperation with the courts of the Hong Kong Special Administrative Region on mutual recognition of and assistance to bankruptcy proceedings.

2. A liquidator or provisional liquidator in insolvency proceedings in the Hong Kong Special Administrative Region may apply to the relevant Intermediate People’s Court at a pilot area in the Mainland for recognition of compulsory winding up, creditors’ voluntary winding up and corporate debt restructuring proceedings brought by a liquidator or provisional liquidator as sanctioned by a court of the Hong Kong Special Administrative Region in accordance with the laws of the Hong Kong Special Administrative Region, recognition of his office as a liquidator or a provisional liquidator, and grant of assistance for discharge of his duties as a liquidator or a provisional liquidator.

3. An administrator in Mainland bankruptcy proceedings may apply to the High Court of the Hong Kong Special Administrative Region for recognition of bankruptcy liquidation, reorganisation and compromise proceedings under the [EBL], recognition of his office as an administrator, and grant of assistance for discharge of his duties as an administrator.”

16.The following points should be noted:

(1)  In respect of an application for recognition and assistance made by a Mainland court, the request has to be initiated by a court in the pilot areas designated by the SPC[1] (“Pilot Areas”) (§1). Although §3 of the Record of Meeting refers to an application made by a Mainland administrator to the Hong Kong court for recognition and assistance, it has to be read in the context that the Cooperation Mechanism is for mutual recognition and assistance between the courts of the Mainland and Hong Kong as stated in the first paragraph of the Record of Meeting.

(2)  Similarly, an application made by a liquidator[2] appointed by the Hong Kong court for recognition and assistance has to be made to a court in the Pilot Areas (§2).

(3)  The Practical Guide and the SPC’s Opinion prescribe the framework of mutual recognition and assistance of insolvency proceedings between the courts of the Mainland and of Hong Kong and inform the practitioners on the manner in which an application is to be made to the relevant court. They do not purport to confer jurisdiction on the relevant court to seek recognition and assistance. The jurisdiction is to be found in existing laws. As far as Hong Kong court is concerned, the jurisdiction to recognize and assist office-holder appointed by a court of another jurisdiction is to be found in common law (CEFC, §§8-12; Re Global Brands Group Holding Ltd (in liq) [2022] 3 HKLRD 316, §§15-21, per Harris J; Singularis Holdings Ltd v PricewaterhouseCoopers [2015] AC 1675, §§10-13 & 19, per Lord Sumption).

17.The approach of the court in dealing with an application for recognition of foreign insolvency proceedings and assistance to the foreign office-holder may be summarized as follows:

(1)  The power at common law to recognize and assist foreign office-holder does not depend on winding up proceedings having been commenced against the company in the assisting court, as the court is asked to recognize the office-holder appointed in the place of incorporation as the lawful agent in accordance with principle of private international law (Singularis, §§12, 19; Global Brands, §45).

(2)  The applicant has to satisfy the court that:

(a)  the foreign insolvency proceedings are collective insolvency proceedings which include proceedings opened in a civil law jurisdiction (CEFC §§8-9);

(b)  the foreign insolvency proceedings are conducted in the jurisdiction in which the company’s centre of main interest is located (CEFC §8; Global Brands, §§17, 31-42); and

(c)  the assistance is necessary for the administration of a foreign winding up or the performance of the office-holder’s functions, and the order is consistent with the substantive law and public policy of the assisting court so it is not available for purposes which are properly the subject of other schemes (Singularis, §25).

(3)  As to the extent and terms of assistance to be provided to the office-holder, the authorities show that the court has granted assistance to a foreign office-holder (a) to take control of the assets of the company; (b) to stay the local proceedings against the assets of the company; and (c) to obtain and gather information and documents relating to the company from third parties (Singularis, §§10, 19, 25; Global Brands, §45).

Discussion

18.In the present case, the request for assistance is made by the Guangzhou Court, which is not a court in the Pilot Areas. The first question is whether, in light of the terms of the Cooperation Mechanism, a court outside the Pilot Areas may initiate a request for assistance to the Hong Kong court.

19.In Re HNA Group Co., Ltd [2021] HKCFI 2897, the 3 individuals representing the administrator appointed by the Hainan Province Higher People’s Court applied for recognition and assistance from the Hong Kong court in respect of the reorganisation process of the company as approved by the Hainan Court. The administrator applied for and obtained a letter of request addressed to the Hong Kong court seeking recognition of the reorganisation and providing powers of assistance to the 3 individuals. Harris J considered that although the Cooperation Mechanism does not extend to the Hainan Court, this is not a consideration which should be taken into account as (1) reciprocity is not a requirement for recognition and assistance under common law; and (2) the issue whether it is appropriate for a court outside the Pilot Areas to apply for recognition and assistance is a matter for the SPC (§9).

20.I respectfully agree with the view of Harris J. Although the Letter of Request did not refer to the involvement of the SPC, given the relatively few applications which have been made to the Hong Kong court[3], it is reasonable to assume that the SPC would have been informed about the Letter of Request before it was issued to the Hong Kong court.

21.More importantly, as stated in §16(3) above, the Cooperation Mechanism and the Practical Guide merely prescribe the procedure and the manner in which an application is to be made. The power of the court to recognize and assist office-holder appointed by a court of another jurisdiction derives from common law, and the approach of the court is to ask whether the criteria for recognition and assistance are satisfied by the applicant.

22.Having said that, as a matter of practice and to ensure consistency in which the application is made, in future, it would be desirable for an applicant seeking recognition and assistance of the insolvency proceedings to follow the Practical Guide when making the application to the Hong Kong court even though the letter of request is issued by a court outside the Pilot Areas.

23.I turn to the fact of the present case. I am satisfied that this is an appropriate case for the court to make the Order set out in §24 below for the following reasons:

(1)  The insolvency proceeding of the Company is a collective insolvency proceeding under the supervision of the Guangzhou Court (CEFC §23). This is reinforced by p.2 of the Letter of Request which describes the duties of the Administrator under the EBL (see §11 above).

(2)  The insolvency proceeding of the Company is conducted in the Mainland, which is both the place of incorporation of the Company and its centre of main interest.

(3)  The assistance sought in the Letter of Request is necessary for the administration of the Company and the performance of the Administrator’s functions given that the Company has valuable asset in Hong Kong (i.e. the shares in GOCD) and the Administrator is under a duty to take control of such asset and apply it in accordance with the insolvency scheme under the EBL.

(4)  The Order is consistent with the substantive law and public policy of the court.

24.The Order is in the following terms:

(1)  The liquidation of Guangdong Overseas Construction Corporation (廣東海外建設總公司) in the Mainland of the People’s Republic of China (“Company”) and the appointment of 廣州金股企業清算有限公司 of Room 803-805, West Tower, Time Square, 28 Tianhe North Road, Guangzhou, the People’s Republic of China (中國廣州市天河北路28號時代廣場西座803-805), the administrator (管理人) (“Administrator”) appointed by the Guangzhou Intermediate People’s Court of Guangdong Province (廣東省廣州市中級人民法院) be recognised by this Court;

(2)  The Administrator has and may exercise in the Hong Kong Special Administrative Region the following powers for the purpose of carrying out its functions as administrator of the Company:

(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 its possession and control all assets and property within the jurisdiction of this Court to which the Company is or appears to be entitled including the 1,199,997 shares in 廣東海外建設發展有限公司(香港) (Guangdong Overseas Construction Development Limited), a company incorporated in Hong Kong (company number 457692) (“Shares”);

(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 including the Shares and 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 Administrator;

(f)  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;

(3)  Anything that is authorised or required to be done by the Administrator may be done by all or any one or more of the persons appointed;

(4)  If the Administrator wishes to apply for a stay or other directions in respect of any proceedings commenced against the Company or the Shares in the High Court or otherwise as a consequence of the recognition of their appointment by this Order, such application shall be listed before the Companies Judge;

(5)  The Administrator 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.

Mr Stephen Siu (written submissions only) and Ms Christy Chak, instructed by Ling & Lawyers, for the Administrator