RE CHINA ELECTRONICS LEASING COMPANY LTD (in Liquidation in the Mainland of the People’s Republic of China)

HCMP 1676/2024

[2024] HKCFI 3457

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1676 OF 2024

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REASONS FOR JUDGMENT

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1.  There is before the court an ex parte originating summons filed on 4 September 2024 by Beijing JunZeJun Law Offices (北京市君泽君律师事务所), the administrators (“Administrators”)  appointed by the Beijing No.3 Intermediate People’s Court (北京市第三中级人民法院)  (“Beijing Court”)  over China Electronics Leasing Company Limited (中国电子租赁有限公司)  (“Company”), seeking recognition and assistance from the Hong Kong court.

2.  The application is made under the inherent jurisdiction of the court as the Company is not a company wound up by the court such that the provisions under the Companies (Winding Up and Miscellaneous Provisions)  Ordinance (Cap. 32)  have no application.

3.  At the hearing, I made an order in the terms set out in §23 below (“Order”).  These are the reasons for my judgment.

Background

4.  The Company was established in the Mainland on 20 December 1986.

5.  On 28 October 2013, the Company applied to the Beijing Court for liquidation and restructuring on the ground that it was grossly insolvent and unable to pay its debts.

6.  By judgment dated 24 January 2018 (“Judgment”), the Beijing Court accepted the Company’s application for bankruptcy restructuring and appointed the Administrators.

7.  The Company maintained a bank account at Bank of China (Hong Kong)  Limited (“BOC”)  with balances in the amounts of US$137,335.71 and HK$1,093,625.19 as at 14 August 2024 (“Account”).

8.  On 17 June 2021, the Beijing Court issued a letter of request (“Letter of Request”)  to the Hong Kong court in the following terms:  

“本法院兹请求高等法院作出以下命令及指示，以协助清盘程序及该管理人：

建议命令及指示

（在以下建议命令及指示里高等法院将简称为 “本法院”）

1.  中国电子租赁有限公司的破产清算（在中华人民共和国内地进行破产消算）（下称“公司”）以及被委任的破产管理人北京市君泽君律师事务所，北京市东城区金宝街89号金宝大厦11层作为公司的管理人（下称“管理人”）（钟向春先生为授权代表）获本法院承认；

2.  上述管理人在香港特别行政区拥有并可行使以下权力：

(i)  向第三方要求并索取有关公司及其市场推广、成立、业务往来、账目、资产、负债或其他事务（包括破产原因）的文件和资料；

(ii)  在本法院所在的司法管辖区内寻找、保护、保全、占有和控制所有公司有权或看似有权获得的财产和资产；

(iii)  寻找、保护、保全、占有以及控制账簿、文件和公司记录，包括在本法院所在的司法管辖区内的会计和法定记录，并调查公司资产以及导致破产的事务。上述账簿、文件和公司记录包括：

(a)  公司与其审计师、以及其他第三方之间的电子邮件往来和其他通信；以及

(b)  公司向其审计师提供并由审计师向公司提供的与审计工作有关的文件和信息；

(iv)  采取一切必要措施以防止处理公司资产的行为，特别是在本法院所在管辖区内以公司名义或在公司控制下的任何银行账户上取得任何余款；

(v)  以公司的名义代表公司经营、开立或关闭任何银行账户，以收集资产并支付管理人的成本和开支；

(vi)  以公司名义和代表公司将该资金调动及／或汇款至中华人民共和国司法辖区内属于公司之银行户口；

(vii)  聘用大律师、事务律师、其他律师和／或管理人认为合适的其他代理人和专业人士，以建议或援助他们行使本命令下的权力和职责；以及

(viii)  当有必要补充和执行本命令所述的权力时，可以其本人名义或者是代表公司利益使用公司名义向本法院提出申请，包括：

(a)  要求披露、提供文件和／或审查第三方的法庭令，以援助管理人调查公司的资产和事务，以及导致公司破产的情况；和／或

(b)  任何其他附属济助，例如冻结令、搜查令、检获令等法律程序；

3.  管理人授权或者要求完成的工作均可由所有或任何一名“中国电子租赁有限公司管理人”的授权代表，以利用管理人标有“中国电子租赁有限公司管理人”之印章盖印来完成；

4.  如果管理人基于本命令对其任命的承认，希望向本法院提出任何搁置诉讼程序的要求或其他指示，该申请应由尊敬的夏利士法官或根据他的指示由其他法官审理。申请人应使用书面方式向尊敬的夏利士法官的书记提出，寻求案件管理指示以处理他们希望根据本命令提出的任何申请；

5.  管理人有提交申请的自由；以及

6.  本次申请的费用将从公司资产中扣除，作为清算费用的一部分。”

“English translation:

This Court hereby requests the High Court to make the following orders and directions in order to assist the liquidation procedures and the Administrators:

Proposed orders and directions

(The High Court shall be referred to as “this Court” in the following proposed orders and directions)

1.  This Court shall recognize the bankruptcy liquidation (bankruptcy liquidation in the People’s Republic of China)  of China Electronics Leasing Company Limited (“Company” hereinafter)  and the appointment of Beijing JunZeJun Law Offices of 11/F, Jinbao Tower, 89 Jinbao Street, Dongcheng District, Beijing as the administrators of the Company (“Administrators” hereinafter)  (“Mr. Zhong Xiangchun as the authorized representative);

2.  The aforesaid Administrators are entitled to and may exercise the following rights:

(i)  To request and receive from third parties documents and information relating to the Company and its marketing, establishment, business dealings, accounts, assets, liabilities and other matters (including the reasons leading to its bankruptcy);

(ii)  To locate, protect, secure, take into their possession and control all the assets and property within the jurisdiction of this Court which the Company owns or appears to own;

(iii)  To locate, protect, secure, take into their possession and control the books, documents and records of the Company, including the accounting and statutory records in the jurisdiction of this Court and to investigate the Company’s assets and affairs leading to the Company’s bankruptcy. The aforesaid books, documents and records of the Company include:

(a)  E-mails exchanged and other letter correspondence exchanged between the Company and its auditor and other third parties; and

(b)  Documents and information provided by the Company to its auditor, and documents and information provided by the auditor to the Company in relation to audit works;

(iv)  To take all necessary measures to prevent any disposal of the Company’s assets and, in particular, to secure any balance in any bank account(s)  in the name of or under the control of the Company within the jurisdiction of this Court;

(v)  To operate, open or close any bank account(s)  in the name and on behalf of the Company, in order to collect assets of the Company and pay the costs and expenses of the Administrators;

(vi)  To transfer and/or remit the funds in the name and on behalf of the Company to the bank account(s)  of the Company within the jurisdiction of the People’s Republic of China;

(vii)  To retain and employ counsel, solicitors, other lawyers and/or other agents or professional persons as the Administrators think fit, in order to offer advice or assistance for the performance of duties by the Administrators; and

(viii)  So far as may be necessary to supplement and to effect the powers as set out in this order, to make applications to this Court in their own name(s)  or in the name of the Company, for the benefit of the Company for, including:

(a)  Court orders for disclosure, production of documents and/or examination of third party(ies)  to facilitate the Administrators to investigate on the company’s assets and affairs and reasons leading to the company’s bankruptcy; and/or

(b)  Any ancillary relief(s)  in legal proceedings, such as freezing orders, search and seizure orders, etc.

3.  Anything that is authorised or required to be done by the Administrators may be done by all or any one of its authorised representatives of the “中国电子租赁有限公司管理人” and the affixing of the common chop of the Administrators entitled “中国电子租赁有限公司管理人”;

4.  In the event that the Administrators wish to make request to this court for any stay of legal proceedings or other directions on the basis of the recognition of its appointment in this order, such an application shall be heard by The Honourable Mr. Justice Harris or other judges as directed by His Lordship.  The applicant shall make the application in writing to The Honourable Mr. Justice Harris to seek case management directions in order to deal with any application they wish make in accordance with this order;

5.  The Administrators do have liberty to apply; and

6.  The costs of this application shall be paid out of the assets of the Company as part of the expense of the liquidation.”

9.  The duties of the Administrators under the Enterprise Bankruptcy Law of the People’s Republic of China (2007)  (中华人民共和国企业破产法)  (“EBL”)  , as stated in the Letter of Request, are as follows:

“基于该裁定书，该管理人获授权及获赋予行使任何指明于企业破产法规定的权力并履行相应的职责，包括:

(a)  接管该公司财产、印章和账簿、文书等资料；

(b)  调查该公司财产状况；

(c)  决定该公司内部管理事务；

(d)  决定该公司日常开支和其他必要开支；

(e)  在第一次债权人会议召开前，决定继续或者停止该公司的营业；

(f)  管理和处分该公司的财产；

(g)  代表该公司参加诉讼、仲裁或者其他法律程序；

(h)  提议召开债权人会议；

(i)  本法院认为该管理人应当履行的其他职责。”

“English translation:

  Pursuant to the Judgment, the Administrators have been authorized and conferred powers to exercise all rights prescribed by the [EBL] and they shall perform relevant duties including:

(a)  Taking possession of the Company’s assets, chop, books and records, etc.;

(b)  Investigating the Company’s financial conditions;

(c)  Determining the Company’s internal management matters;

(d)  Determining the Company’s ordinary expenses and other necessary expenses;

(e)  Prior to the convening of the first creditors’ meeting, determining if the Company’s business should continue or be ceased;

(f)  Managing and distributing the Company’s assets;

(g)  Representing the Company in litigation, arbitration or other legal proceedings;

(h)  Convening creditors’ meetings;

(i)  Other duties deemed necessary for the Administrators to perform by this Court.”

Applicable Principles

10.  The principles governing an application for recognition of foreign insolvency proceedings and assistance to foreign office-holder are well established.  As summarised in Re Guangdong Overseas Construction Corporation (In Liq) [2023] 3 HKLRD 262 at §17:

“(1)  The power at common law to recognise 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 recognise 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

11.  By virtue of a consensus reached between the Supreme People’s Court and the Government of Hong Kong on 14 May 2021, there is now a cooperation mechanism for mutual recognition of and assistance to insolvency proceedings between the courts of Hong Kong and the Mainland courts located in the pilot areas, namely Shanghai, Xiamen, and Shenzhen. 

12.  In the present case, the request for assistance is made by the Beijing Court, which is not a court in the pilot areas.  This however is not a factor which militates against the court exercising its power to recognise and assist the Administrators given that reciprocity is not a requirement for recognition and assistance under common law, and the issue whether it is appropriate for a court outside the pilot areas to apply for recognition and assistance is a matter for the Supreme People’s Court (Re HNA Group Co., Ltd [2021] HKCFI 2897, §9; Re Guangdong Overseas, §§19-20).  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 (Re Guangdong Overseas, §21).

13.  I turn to consider whether the requirements for the court to grant recognition and assistance, as discussed in §10 above,  are satisfied.  

14.  First, the insolvency proceedings of the Company under the supervision of the Beijing Court are collective insolvency proceedings. This is reinforced by the Letter of Request, which provides that the Administrators have been authorised by and conferred with powers to exercise all rights prescribed by the EBL.

15.  Second, the insolvency proceedings of the Company are conducted in the Mainland, which is the place of incorporation of the Company as well as its centre of main interest for the reasons stated in p.2 of the Judgment.  

16.  As regards necessity, there are 2 matters which cast doubt on the Administrators’ contention that the Order sought is necessary for the performance of their functions in Hong Kong.

17.  The first matter is delay.

(1)  There was considerable delay on the part of the Administrators in making the present application, which was only filed more than 3 years after the Letter of Request had been issued by the Beijing Court.

(2)  The only explanation provided to the court is that the Administrators, having obtained the Letter of Request, decided that there was no pressing need to deal with the affairs of the Company in Hong Kong including taking control over the funds deposited in the BOC Account, and they should focus on negotiating with the relevant stakeholders to see if it was possible to restructure the Company’s debts.  The process of the restructuring took much longer than they expected due to COVID-19 pandemic and the social distancing measures which impeded the holding of creditors’ meeting.  They only managed to convene a creditors’ meeting on 3 July 2023 and a resolution was passed on 29 August 2023 to formally approve the present application. Thereafter, the Administrators sought legal advice on bringing the application.

(3)  In May 2024, the Administrators informed the Beijing Court that they would make the application for recognition and assistance.  No objection or concern has been received from the Beijing Court.

18.  I do not think that the explanation justifies the inordinate delay on the part of the Administrators in making the application, having regard to the following matters:

(1)  When the Administrators applied to the Beijing Court for assistance and issuance of the Letter of Request, their stated position must be that it was necessary to seek recognition and assistance from the court in order to carry out their duties in Hong Kong.  Having adopted such a position and successfully persuaded the Beijing Court to issue the Letter of Request, it was not properly open to the Administrators to turn around and decided that it was not necessary to make the application.  

(2)  This is particularly so when there is no suggestion whatsoever that there was any change of circumstances between the date when the Administrators applied to the Beijing Court for the Letter of Request and the date they decided not to pursue the application.

(3)  It is difficult to see why the Administrators thought that there was no pressing need to pursue the application given that on their own case, regardless of whether the proposed restructuring was successful, they still required an order of the Hong Kong court in order to take control over the funds deposited in the Account.

19.  The second matter concerns the stance of BOC.

(1)  It transpires at the hearing that until being asked by this Court, no attempt has been made by the Administrators to contact BOC to ascertain whether it would comply with their request.  This is undesirable. If and to the extent that BOC is concerned about the authority of the Administrators in acting on behalf of the Company, it would be open to the Administrators to provide all documents relating to their appointment to prove that they are and have since 24 January 2018 been the only persons having authority to act on behalf of the Company including giving instructions to BOC regarding the Account.  It is only if BOC refuses to comply with the Administrators’ request and insists on an order made by the Hong Kong court recognising their appointment that it would be necessary for the Liquidators to make the application.  

(2)  Even if there were any proper basis for the Administrators to believe that BOC would not comply with their request and would insist on the Administrators obtaining an order from the court recognising their appointment, it was incumbent upon the Administrators to enquire if BOC has any objection or comment on the application and, if so, to address their concern or incorporate their comments as appropriate.  

(3)  Neither has been done and no explanation has been proffered by counsel.  

20.  Despite the above misgivings, which concern the way the Administrators have handled the affairs of the Company, it seems to me that it would be in the interest of the creditors to make the Order sought, rather than adjourning the application.  This would avoid any further delay and the need for the Administrators to incur further costs in pursuing the application.

21.  In future, the court expects the office-holders appointed by the court of another jurisdiction to act promptly and make the application for recognition and assistance shortly after the court in that jurisdiction has issued the letter of request, and to make the application only if it is necessary in the circumstances faced by them.  

22.  Lastly, the Order sought is consistent with the substantive law and public policy of the Hong Kong court. 

23.  For the above reasons, this Court made the Order in the following terms:

(1)  The liquidation of China Electronics Leasing Company Limited (中国电子租赁有限公司)  in the Mainland of the People’s Republic of China (“Company”)  and the appointment of Beijing JunZeJun Law Offices (北京市君澤君律師事務所)  of 11/F, Jinbao Tower, 89 Jinbao Street, Dongcheng District, Beijing (北京市東城區金寶街89號金寶大廈11層)  as the administrators of the Company (“Administrators”)  by the Beijing No.3 Intermediate People’s Court (北京市第三中級人民法院)  be recognised by this Court;

(2)  The Administrators have and may exercise in the Hong Kong Special Administrative Region the following powers for the purpose of carrying out their functions as administrators of the Company:

(i)  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;

(ii)  to locate, protect, secure and take into their 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 credit balances now kept in the account numbered [redacted] held with Bank of China (Hong Kong)  Limited (“Account”);

(iii)  to take all necessary steps to prevent any disposal of the Company’s assets and to secure any credit balances in any bank accounts in the name or under the control of the Company within this jurisdiction, including those kept in the Account;

(iv)  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 Administrators; and

(v)  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 their 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 Administrators may be done by all or any one or more of the persons appointed; and

(4)  The Administrators do have liberty to apply.