RE HONG KONG FRESH WATER INTERNATIONAL GROUP LTD (IN LIQUIDATION) (“COMPANY”)

HCMP 300/2022

[2022] HKCFI 924

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 300 OF 2022

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D E C I S I O N

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The Application

1.  The Liquidators of Hong Kong Fresh Water International Group Limited (“Company”) have issued an application for a letter of request to be issued to the Shanghai No.3 Intermediate People’s Court (“Shanghai Court”) pursuant to what I shall refer to as the “Cooperation Mechanism”, which provides a procedure for mutual recognition of insolvency processes and office holders by the High Court of Hong Kong and the Intermediate People’s Courts in three jurisdictions: Shenzhen, Shanghai and Xiamen.  The Cooperation Mechanism consists of two documents, which in English are called the “Record of Meeting of the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region and Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Court of the Mainland and the Hong Kong Special Administrative Region” and the Supreme People’s Court’s “Opinion on taking forward a pilot measure in relation to Recognition and Assistance to Bankruptcy (Insolvency) Proceedings in the Hong Kong Special Administrative Region” (“SPC Opinion”).

2.  This is the first application pursuant to the Cooperation Mechanism for a letter of request to be issued to the Shanghai Court.  There have been three letters of request issued to the Shenzhen Intermediate People’s Court[1] pursuant to the Cooperation Mechanism and in Re CEFC Shanghai International Group Ltd[2] I granted recognition of liquidators appointed in Shanghai at the request of the Shanghai Court (that application being made before the Cooperation Mechanism was introduced).

The Company, its financial problems and the need for recognition and assistance in Shanghai

3.  The Company was incorporated in Hong Kong on 31 August 2010.  The Company is part of a corporate group (“Group”) headed by Ozner Water International Holding Limited (“Parent”) which is a Cayman-incorporated entity listed in Hong Kong.  The Group’s business is or was in three principal areas, namely:

(1)  water purification services;

(2)  air sanitisation services; and

(3)  supply chain services.

4.  The Company serves as an intermediate holding company within the Group. The Company’s main assets in the Mainland are its shareholding in wholly-owned subsidiaries incorporated in Shanghai (“Shanghai Subsidiaries”), namely:

(1)  Shanghai Haoze Environmental Technology Co., Ltd（上海浩泽环保科技有限公司）;

(2)  Shanghai Haoze Water Purification Technology Development Co., Ltd（上海浩泽净水科技发展有限公司）;

(3)  Haoze (Shanghai) Environment and Science Co., Ltd（浩泽（上海）环境科技有限公司）and

(4)  Small Dragon (Shanghai) Lease & Finance Co., Ltd（小龙虾（上海）融资租赁有限公司）.

5.  The Company also has a key subsidiary in the Shaanxi province, namely, Shaanxi Haoze Environmental Technology Group Co., Ltd) （陕西浩泽环保科技集团有限公司）.

6.  The Shanghai Subsidiaries’ principal businesses are or were:

(1)  water purification services;

(2)  air sanitisation services;

(3)  environmental science and technology; and

(4)  finance leasing, factoring and lending business.

7.  Because of lack of cooperation from the Company’s former management and the Shanghai Subsidiaries’ management, the Liquidators have only limited information about the financial health of the Shanghai Subsidiaries.  However, based on the Group’s interim report for the six months ended 30 June 2020, the Shanghai Subsidiaries were, as at 30 June 2020, balance sheet solvent.

8.  Both the Parent and the Company are in liquidation in Hong Kong.  In 2020, the Group encountered financial difficulties.

(1)  In respect of the Parent:

(a)  On 17 March 2021, upon the petition of DBS Bank Ltd, Hong Kong branch (“DBS”), Master Lai made a winding-up order against the Parent on grounds of the Parent’s insolvency.

(b)  On 16 April 2021, I granted a regulating order appointing the Liquidators as liquidators of the Parent.

(2)  In respect of the Company:

(a)  The Company was at least as at 30 June 2020 balance-sheet solvent, and is cashflow insolvent.

(b)  On 14 December 2020, DBS issued a winding-up petition against the Company because the Company owed DBS some US$25 million.

(c)  On 17 March 2021, Master Lai made a winding-up order against the Company.

(d)  On 27 July 2021, Master Lai appointed the Liquidators.

9.  Since their appointment, the Liquidators have been investigating the Company’s affairs and preserving the Company’s assets.  The Liquidators need to obtain recognition and assistance in the Mainland in order to take possession of and deal with the Company’s substantial assets in the Mainland, in particular the Shanghai Subsidiaries.

10.  The Liquidators’ need to control the Shanghai Subsidiaries has become pressing because the Liquidators’ investigations show that the management of the Shanghai Subsidiaries have apparently diverted the Shanghai Subsidiaries’ business and continued to use the association with the Parent as a listed entity, while they have ignored the Liquidators’ request for information.

11.  I recently granted a letter of request to the Liquidators in respect of their capacity as the liquidators of the Parent in order to facilitate their efforts to take control of the Parent’s assets in Shenzhen: Re Ozner Water International Holding Ltd[3].

The principles governing the grant of a letter of request

12.  These I explain in [7]–[9] of my decision in Re Samson Paper Co Ltd[4].

“7. The technique of issuing letters of request to foreign courts to facilitate the task of the liquidator who seeks assistance from a foreign court appears to be a creature of the common law. Letters of request are a private international law response to ancient public international law notions of territorial sovereignty, according to which the jurisdiction of the courts of one sovereign state does not run beyond that sovereign state’s own territorial limits [5].

8. The law is well-settled that the Court has an inherent jurisdiction to grant a letter of request in order to permit Hong Kong liquidators to seek recognition and assistance in another jurisdiction [6]. In considering whether to grant a letter of request, the Court has to consider which jurisdiction is the most appropriate or convenient forum for the determination of the issue in question applying generally applicable jurisdictional principles [7].

9. The granting of a letter of request in the present case would be consistent with these principles.  The Liquidators have a duty to collect in the Company’s assets.  The assistance that the Liquidators need in the Mainland relate to conventional asset collection action [8]. In order to carry out this function the Liquidators have an express statutory power in Hong Kong to commence legal proceedings to recover assets and this includes commencing proceedings outside Hong Kong [9].”

Procedure for recognition specified in the SPC Opinion

13.  These I explain in [10] of my decision in Re Samson Paper Co Ltd[10].

“10. Article 6 of the SPC Opinion sets out the procedure for an application by a Hong Kong liquidator (清盤人):

‘ 六、申請認可和協助香港破產程序的，香港管理人應當提交下列材料：

(一) 申請書；

(二) 香港特別行政區高等法院請求認可和協助的函；

(三) 啟動香港破產程序以及委任香港管理人的有關文件；

(四) 債務人主要利益中心位於香港特別行政區的證明材料，證明材料在內地以外形成的，還應當依據內地法律規定辦理證明手續；

(五) 申請予以認可和協助的裁判文書副本；

(六) 香港管理人身份證件的複印件，身份證件在內地以外形成的，還應當依據內地法律規定辦理證明手續；

(七) 債務人在內地的主要財產位於試點地區、在試點地區存在營業地或者在試點地區設有代表機構的相關證據。向人民法院提交的文件沒有中文文本的，應當提交中文譯本。

6. The Hong Kong Administrator applying for recognition of and assistance to Hong Kong Insolvency Proceedings shall submit the following materials:

(1) an application;

(2) a letter of request for recognition and assistance issued by the High Court of the Hong Kong Special Administrative Region;

(3) the relevant documents on the commencement of the Hong Kong Insolvency Proceedings and in relation to the appointment of the Hong Kong Administrator;

(4) materials showing that the debtor’s centre of main interests is in the Hong Kong Special Administrative Region, and if any of such materials was issued outside the Mainland, it shall be certified in accordance with the law of the Mainland;

(5) a copy of the judgment in respect of which the application for recognition and assistance is made;

(6) a copy of the identity document of the Hong Kong Administrator, and if such identity document was issued outside the Mainland, it shall be certified in accordance with the law of the Mainland;

(7) evidence showing that the debtor’s principal assets in the Mainland are in a pilot area, or that it has a place of business or a representative office in a pilot area.

Where a document to be submitted to a people’s court of the Mainland is not in the Chinese language, a Chinese translation shall be submitted.”’

Liquidators’ function and powers

14.  For the benefit of the Judges of the Shanghai Court who will deal with the Liquidators’ application for recognition and assistance it will be helpful if I summarise the Liquidators’ powers and function under Hong Kong law.  Under Hong Kong law and, in particular section 251 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, the Liquidators are authorised jointly and severally to exercise the following functions and powers:

(1)  take into their custody, or under their control, all the property and things in action to which the Company is or appears to be entitled;

(2)  sell the real and personal property and things in action of the Company by public auction or private contract, with power to transfer the whole of the property and things in action to any person or company, or to sell them in parcels;

(3)  do all acts and execute, in the name and on behalf of the Company, all deeds, receipts and other documents, and for that purpose use, when necessary, the Company’s seal; and

(4)  do all other things as may be necessary for winding up the affairs of the Company and distributing its assets.

Determination

15.  I am satisfied for the reasons explained in [3]–[10] above that it is desirable that the Liquidators’ appointment is recognised and assisted in Shanghai.  I am also satisfied, as I was in the case of the Parent, that although not incorporated in Hong Kong, the Company’s centre of main interests (“COMI”) was in Hong Kong where the Parent was listed.  In the case of the Company its affairs have been managed since at least March 2021 in Hong Kong by the Liquidators and this alone is enough to satisfy the COMI test as the Cooperation Mechanism requires the COMI to have been in Hong Kong for six months prior to the application being made.

16.  I will, therefore, make an order in the terms of the application and issue the letter of request.