THE JOINT ADMINISTRATORS OF AFRICAN MINERALS LTD (in administration) v. MADISON PACIFIC TRUST LTD

HCMP 865/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 865 OF 2015

____________________

____________________

________________

D E C I S I O N

________________

1. I have before me an urgent ex parte application on notice for an order that would restrain the enforcement of security over certain shares pursuant to a letter of request issued by Mr. Justice Newey in the English High Court on 13 April 2015. I decline to make the order sought.

2. African Minerals Limited (“Company”) was incorporated in Canada and continued in Bermuda.  Through 4 Bermudian subsidiaries it is involved in mineral exploration and development in Sierra Leone.  These companies hold 75% of three operating companies in Sierra Leone.  The remaining 25% of the Sierra Leone companies are owned by Shandong Steel Hong Kong Resources Ltd. 

3. On 5 April 2013 the Company, as guarantor, entered into a US$250m pre-export finance facility with certain of the Sierra Leone companies as borrowers, Standard Bank as lead arranger, Standard Bank as agent and Standard Bank as security agent.  In compliance with the facility the Company also charged its shares in 2 of the Bermuda mezzanine holding companies in favour of Standard Bank.

4. During 2014 the Company encountered financial difficulties owing, it is suggested, to a fall in iron ore prices in international markets and the Ebola epidemic in Sierra Leone.  This led to negotiations with the Shandong Group to address the Company’s financial problems.  These negotiations focused on disposing of the Company’s indirect interest in the major project in Sierra Leone.  The Shandong Group would not agree to this.  The Company began to discuss with the facility lenders alternative solutions.  On 27 February 2015 the Company received a number of transfer certificates certifying the novation of the lenders rights and obligations to Shandong Steel Hong Kong Zengli Limited.  On the same day, Standard Advisory London Limited, as agent, served a notice of acceleration on the borrowers in respect of all amounts due.  It has not been suggested before me that this was improper or ineffective.  The Company and the borrowers were also given notice of the resignation of the original agent and security agent, who were replaced by Madison, which is incorporated in Hong Kong and carries on business here, on 4 March 2015.  Discussions between the various interested parties took place.  They did not produce a resolution to the Company’s problems.  On 26 March 2015 the Applicants were appointed, by the High Court in London, joint administrators over the Company (“Administrators”).  Pursuant to paragraph 43(2) of Schedule B1 to the Insolvency Act 1986 a moratorium is imposed on the making of an administration order.  Paragraph 43(2) provides that, “no step may be taken to enforce security over the company’s property except (a) with the consent of the administrator, or (b) with the permission of the court.”

5. The relevant property is the charged shares. The Administrators concern is that Madison is conducting the sale of those shares in a manner which may enable the Shandong Group to acquire them at an undervalue and prejudice the equity of redemption and accordingly the interests of unsecured creditors and possibly shareholders.

6. On 13 April 2015 an application was made to the Chancery Division in London for an order for a letter of request.  Newey J heard the application and granted the order.  The order and the letter of request are appended as schedules 1 and 2 to this Decision.  On 14 April 2015 the Administrators’ solicitors wrote to my clerk seeking an appointment to make an urgent application for the order envisaged in the letter of request.  I fixed an ex parte hearing for 10am this morning in order that Madison had the opportunity to consider the papers and instruct counsel to appear at the hearing if they wished.  Subsequently an originating summons was issued in which the Administrators seek the following order:

“1.  Pending the final determination of the question as to whether the moratorium set out in paragraph 43(2) of Schedule B1 to the English Insolvency Act 1986 applies extra-territorially, no step be taken by the Respondent to enforce security over the property of African Minerals Limited (the “Company”) except (a) with the consent of the Applicants or (b) with the permission of the High Court of England.

2.  Further or alternatively, that such directions be given as may be necessary in connection with the determination of the question whether paragraph 43(2) of Schedule B1 to the Insolvency Act 1986 has (or should have) extra-territorial effect.”

7. The Administrators sought today an interim order in materially the same terms.  For the purposes of this application I have been given an affirmation of Richard Hornshaw made on behalf of the Administrators, which exhibits certain of the papers before Newey J.  I do not have the written submissions presented to the Judge, a transcript of that hearing or reasons for the decision.  It is, however, apparent from the witness statement of Colin Wormleighton that was before Newey J that the letter of request was sought because of the concern referred to above about the terms of sale of the shares.

8. As is apparent from the terms of the originating summons the Administrators do not seek an injunction to prevent an alleged breach of an obligation or a duty. This was confirmed by Mr. William Wong SC, who appeared for the Administrators, at the outset this morning.  What is sought is recognition of the English administration proceedings and an order restraining the enforcement of the security without the agreement of the Administrators or order of the High Court of England pending determination in London of whether the moratorium applies extra‑territorially.  It follows that I am not asked to determine at this stage whether or not there is an arguable case that the proposed sale of the shares will improperly prejudice the equity of redemption.  I am asked to determine a rather different type of question, namely, whether or not the Hong Kong Companies Court should provide assistance to the insolvency proceedings currently underway in London, which take the form of an administration under the supervision of the High Court.

9. The first issue that the application gives rise to is whether or not the Hong Kong Companies Court should provide assistance at all to the administration as it is not an insolvency proceeding in its place of incorporation.  The only authority in Hong Kong of which I am aware in which recognition of foreign insolvency proceedings is considered in a relevant way is my own decision is Joint Official Liquidators of A Co v B [2014] 4 HKLRD 374.  In that decision I recognise that the Courts of Hong Kong will recognise a liquidator appointed in the place of a company’s incorporation.  I do not address whether or not the Courts of Hong Kong will recognise liquidators, or some person exercising similar powers, appointed in a jurisdiction other than the place of incorporation.  This is open to argument, see for example, Millet J in Re International Tin Council [1987] Ch 419, at pages 446-447 and Lord Collins in Rubin v Eurofinance [2013] 1 AC 236 at paragraph 13.  I shall assume, without deciding, that the Hong Kong courts can, in principle, recognise liquidators appointed in a jurisdiction other than the place of incorporation or administrators appointed by the High Court of England.

10. In paragraph 18 of the Joint Official Liquidators of A Co v B, ibid, I say this:

“18. In my view the Hong Kong Companies Court can and should adopt a similar approach to applications for recognition and assistance to that described in [60] of Kawaley J’s judgment. The Companies Court may pursuant to a letter of request from a common law jurisdiction with a similar substantive insolvency law make an order of a type which is available to a provisional liquidator or liquidator under Hong Kong’s insolvency regime. For this reason I granted the orders referred to at the beginning of this decision.”

11. As this passage makes clear, although in my opinion the Hong Kong Court can take a generous view of its power to assist a foreign liquidation process this is limited by the extent to which the type of order sought is available to a liquidator in Hong Kong under our insolvency regime and common law and equitable principles. This is explained more fully in paragraph 19 of Lord Sumption’s recent judgment in Singularis Holdings Limited v PricewaterhouseCoopers [2014] UKPC 597:

“19. However, the first proposition, the principle of modified universalism itself, has not been discredited. On the contrary, it was accepted in principle by Lord Phillips, Lord Hoffman and Lord Walker in HIH (above), and by Lord Collins (with whom Lord Walker and Lord Sumption agreed) in Rubin v Eurofinance SA (above). Nothing in the concurring judgment of Lord Mance in that case casts doubt upon it. At [29]-[33] Lord Collins summarised the position in this way:

“29. Fourth, at common law the court has power to recognise and grant assistance to foreign insolvency proceedings. The common law principle is that assistance may be given to foreign office-holders in insolvencies with an international element. The underlying principle has been stated in different ways: ‘recognition … carries with it the active assistance of the court’: Re African Farms Ltd [1906] T.S. 373, 377; ‘This court ... will do its utmost to co‑operate with the US Bankruptcy Court and avoid any action which might disturb the orderly administration of [the company] in Texas under ch 11’: Banque lndosuez SA v Ferromet Resources Inc [1993] BCLC 112,117.

30. In Credit Suisse Fides Trust v Cuoghi [1998] Q.B. 818, 827, Millett L.J. said:

‘In other areas of law, such as cross-border insolvency, commercial necessity has encouraged national courts to provide assistance to each other without waiting for such co-operation to be sanctioned by international convention ... It is becoming widely accepted that comity between the courts of different countries requires mutual respect for the territorial integrity of each other's jurisdiction, but that this should not inhibit a court in one jurisdiction from rendering whatever assistance it properly can to a court in another in respect of assets located or persons resident within the territory of the former.’

31.  The common law assistance cases have been concerned with such matters as the vesting of English assets in a foreign office-holder, or the staying of local proceedings, or orders for examination in support of the foreign proceedings, or orders for the remittal of assets to a foreign liquidation, and have involved cases in which the foreign court was a court of competent jurisdiction in the sense that the bankrupt was domiciled in the foreign country or, if a company, was incorporated there.

…

33.  One group of cases involved local proceedings which were stayed or orders which were discharged because of foreign insolvency proceedings. Thus in Banque Indosuez SA v Ferromet Resources Inc [1993] B.C.L.C. 112 an English injunction against a Texas corporation in Ch. 11 proceedings was discharged; cf Re African Farms Ltd [1906] T.S. 373 (execution in Transvaal by creditor in proceedings against English company in liquidation in England stayed by Transvaal court), applied in Turners & Growers Exporters Ltd v The Ship Cornelis Verolme [1997] 2 N.Z.L.R. 110 (Belgian shipowner in Belgian bankruptcy: ship released from arrest); Modern Terminals (Berth 5) Ltd v States Steamship Co [1979] H.K.L.R. 512 (stay in Hong Kong of execution against Nevada corporation in Ch.11 proceedings in United States federal court in California), followed in CCIC Finance Ltd v Guangdong International Trust & Investment Corp [2005] 2 H.K.C. 589 (stay of Hong Kong proceedings against Chinese state-owned enterprise in Mainland insolvency). Cases of judicial assistance in the traditional sense include Re Impex Services Worldwide Ltd [2004] B.P.I.R. 564, where a Manx order for examination and production of documents was made in aid of the provisional liquidation in England of an English company:”

In the Board's opinion, the principle of modified universalism is part of the common law, but it is necessary to bear in mind, first, that it is subject to local law and local public policy and, secondly, that the court can only ever act within the limits of its own statutory and common-law powers. What are those limits? In the absence of a relevant statutory power, they must depend on the common law, including any proper development of the common law. The question how far it is appropriate to develop the common law so as to recognise an equivalent power does not admit of a single, universal answer. It depends on the nature of the power that the court is being asked to exercise. On this appeal, the Board proposes to confine itself to the particular form of assistance which is sought in this case, namely an order for the production of information by an entity within the personal jurisdiction of the Bermuda court. The fate of that application depends on whether, there being no statutory power to order production, there is an inherent power at common law do so.”

12. Hong Kong does not currently have any equivalent to administration and no statutory provision which provides for a moratorium on the enforcement of secured debt. A Hong Kong company or its liquidator could only seek an order which would achieve the effect of the order sought by the Administrators in limited circumstances.  They could do so if it could be demonstrated that the proposed enforcement would improperly prejudice the equity of redemption.  It might also be possible to do so if it could be demonstrated that the company after having failed to meet its payment obligations had become able to do so and thus it would be inequitable to allow enforcement of the security: see Cukurova Finance International Limited & others v Alfa Telecom Turkey Ltd [2013] ULKPC 2 at paragraph 90.  Applications made on either of these grounds would be for injunctions and it would be necessary for the applicants to establish an arguable case and comply with the requirements normally imposed on an applicant for an injunction such as the need to provide an undertaking in damages.  As I noted early in this Decision the application before me is not made on that basis.  It is made on the basis that I have the power at common law to grant an order that has the effect of restraining the sale of the charged shares to aid the administration in England despite the fact that in my view there is no equivalent statutory, common law or equitable power in Hong Kong.  It seems to me that this would be an impermissible extension of the common law principle that requires the court to recognise foreign liquidators and assist them.  For this reason I have refused the application.

2.  The Administrators are at liberty to take such steps as they think fit to bring the Letter of Request to the attention of the Hong Kong Court and to seek relief from the Hong Kong Court in accordance with the Letter of Request on an expedited basis.

3. Madison Pacific Trust Limited has liberty to apply within 3 days of the service of this

Order on it for the Letter of Request to be varied or revoked.

4. The remainder of the Application is adjourned generally with liberty to apply.

5. Costs reserved with liberty to apply.

Service of the order 

The Court has provided a sealed copy of this order to the serving party:

Akin Gump LLP, 41 Lothbury, London EC2R 7HF (ref: Richard Homshaw) (Administrators' Solicitors)

Schedule 2

IN THE HIGH COURT OF JUSTICE	Case No. ________
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF AFRICAN MINERALS LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986

LETTER OF REQUEST

To: High Court of the Hong Kong Special Administrative Region ("the Hong Kong Court")

WHEREAS the Companies Court of the Chancery Division of the High Court of Justice of England and Wales ("this Court")  is a court which has (and which exercises) jurisdiction in relation to insolvency law in England and Wales

AND WHEREAS  African Minerals Limited (the "Company") is a company incorporated under the laws of Bermuda which has its centre of main interests in England and Wales

AND WHEREAS,  on 26 March 2015, this Court appointed  Ian Colin  Wormleighton and Neville Barry Kahn of Deloitte LLP (the "Administrators") as the Joint Administrators of the Company, pursuant to Schedule B1 to the Insolvency Act 1986 (the "1986 Act")

AND WHEREAS  this Court held on that occasion that the centre of main interests of the Company is located in England and Wales  and  that  the  English administration  of  the Company is the main proceeding in respect of the Company within Article 3(1) of Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings

AND WHEREAS, as a matter of English insolvency law, under paragraph 43(2) of Schedule B1 to the 1986 Act, "No step may be taken to enforce security over the company's property except-(a) with the consent of the administrator, or (b) with the permission of the court"

AND WHEREAS "property" is defined by section 436 of the 1986 Act to include "money, goods, things in action, land and every description of propertywherever situated and also obligations and every description of interest, whether  present  or  future  or  vested  or contingent, arising out of, or incidental to, property" (emphasis added)

AND WHEREAS this Court considers that there is a good arguable case (a) that paragraph

43(2) of Schedule B1 applies extra-territoriality to the property of the Company wherever situated, including any property of the Company situated outside England and Wales and (b) that the Financial Collateral Arrangements (No 2) Regulations 2003 are inapplicable

AND WHEREAS Madison Pacific Trust Limited (the "Security Trustee")(a company incorporated  in  Hong  Kong), the security trustee for Shandong Steel Hong Kong Zengli Limited (the "Lender")(a company incorporated in Hong Kong) pursuant to a pre-export finance facility dated 5 April 2013, has the benefit of charges over the shares owned by the Company in (i) Tonkolili Iron Ore Limited (a company incorporated in Bermuda) and (ii) African Railway & Port Services Ltd (a company incorporated in Bermuda) (the "Security")

AND WHEREAS the evidence presented by the Administrators to this Court indicates that the Security Trustee is taking steps and/or proposing to take steps to enforce the Security without first obtaining the consent of the Administrators or the permission of this Court

AND WHEREAS this Court considers that it is desirable for the Hong Kong court: (i) to consider and determine whether it would be appropriate to make Orders in the exercise of its inherent common law and/or equitable powers which produce, in the territory of the Hong Kong Special Administrative Region, the same effect (or substantially the same effect) as paragraph 43(2) of Schedule B1 to the Insolvency Act 1986 on the steps which the Security Trustee is taking and/or proposing to take to enforce the Security; and, if so, (ii) to make such Orders in the exercise of its inherent common law  and/or  equitable  powers  as  may  be required in order to produce, in the territory  of  the  Hong  Kong  Special Administrative Region,  the same effect (or substantially the same effect) as paragraph 43(2) of Schedule B1 to the Insolvency Act 1986 on the steps which the Security Trustee is taking and/or proposing to take to enforce the Security, so that the Security Trustee is required to seek the consent of the Administrators or the permission of this Court before taking any or any further steps to enforce the Security

THIS COURT HEREBY REQUESTSthe Hong Kong court to assist and to act in aid of and be auxiliary to this Court by granting cross-border judicial assistance at common law by:

(1) considering and determining whether it would be appropriate to make Orders in the exercise of its inherent common law and/or equitable powers which produce, in the territory of the Hong Kong Special Administrative Region, the same or substantially the same effect as paragraph 43(2) of Schedule B1 to the Insolvency Act 1986 (as set out in the Recitals above) on the steps which the Security Trustee is taking and/or proposing to take to enforce the Security;

(2)  if so, making such Orders as may be required in order to produce, in the territory of the Hong Kong Special Administrative Region, the same or substantially the same effect as paragraph 43(2) of Schedule B1 to the Insolvency Act 1986 (as set out in the Recitals above) on the steps which the Security Trustee is taking and/or proposing to take to enforce the Security, so that the Security Trustee will be required to seek the consent of the Administrators or the permission of this Court before taking any or any further steps to enforce the Security; and

(3) giving such further or other relief or assistance by way of cross-border judicial assistance at common law as it may think just and convenient.

Signature

Dated this 13th day of April 2015