THE JOINT LIQUIDATORS OF BULL’S-EYE LTD (IN LIQUIDATION) v. CHANGJIANG SECURITIES BROKERAGE (HK) LTD AND OTHERS

HCMP 1891/2024

[2024] HKCFI 3000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1891 OF 2024

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BETWEEN

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DECISION

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1.  By an originating summons dated 30 September 2024 (the “OS”), the Joint Liquidators (the “JLs”) of Bull’s-Eye Limited (the “Company”), a BVI company, seek (1) recognition of the Company’s insolvent liquidation and the JLs’ appointment by the Eastern Caribbean Supreme Court of the BVI (the “BVI Court”); and (2) assistance of this Court in the form of powers set out in the OS, including the taking of control of the Company’s assets in its accounts maintained with various banks and securities firms in Hong Kong.

2.  The JLs’ application is accompanied by a Letter of Request issued by the BVI Court on 2 August 2024.

Relevant background

3.  Chan Ho Yin (also known as Michael Chan) (“Mr Chan”) of Kroll (HK) Ltd and Elaine Hanrahan (“Ms Hanrahan”) were appointed JLs of the Company on 15 January 2024 by an order of the BVI Court (the “Appointment Order”).

4.  Since filing her affidavit on 24 September 2024 in support of the OS, Ms Hanrahan has resigned from Kroll Advisory (BVI) Limited. However, it is agreed between Ms Hanrahan and Mr Chan that it is appropriate for her to make this affidavit as she has conduct of the liquidation of the Company until the finalisation of the present application.

5.  Zhang Peter Yue (“Zhang”) and Deng Jie (“Deng”) were the sole directors and shareholders of the Company. They also founded Hua Han Health Industry Holdings Limited (in Compulsory Liquidation) (“HH”) a Cayman Islands company whose shares were previously listed[1] on the Main Board of the Hong Kong Stock Exchange Ltd (“HKEx”) and which holds a group of companies (“Group”) consisting of subsidiaries incorporated in the BVI, Hong Kong and the PRC.

6.  The Company holds 29.77% of the issued share capital of HH.

7.  The following chart depicts the structure of the Group and the Company:

Corporate Chart of the Group and the Company

8.  Ms Hanrahan is also a joint liquidator of Intended Features Limited (in Liquidation) (“IFL”), one of HH’s 2 wholly-owned subsidiaries, and the applicant for the appointment of JLs over the Company. The other of HH’s wholly-owned subsidiary is Queenherb Enterprises Limited (“QEL”).

9.  On 18 July 2019, the High Court of Hong Kong (“HK Court”) appointed Mr Chan and Chi Lai Man Jocelyn as joint and several provisional liquidators (“JPLs”) of HH. On 2 December 2019, it made a winding up order against HH and on 4 August 2020, it made a regulating order to appoint the JPL’s as the joint and several liquidators of HH.

10.  On 15 August 2022, the Company was adjudged liable to pay IFL, QEL and HH (collectively, “HCA Plaintiffs”) a sum in excess of HK$713 million, that sum being the amount of funds misappropriated by Zhang and Deng from the HCA Plaintiffs and knowingly received by the Company.

11.  On 29 November 2023, IFL’s liquidators applied to the BVI Court to put the Company into insolvent liquidation and also obtained the Appointment Order.

The Company’s assets

12.  The JLs have information that the Company currently maintains accounts with the following banks and securities firms:

(1) Haitong International Securities Limited (“HIS”);

(2) Changjiang Securities Brokerage (HK) Limited (“Changjiang”);

(3) China Merchants Securities (HK) Co., Limited (“China Merchants”);

(4) ABCI Securities Company Limited (“ABCI”);

(5) Guotai Junan Securities (Hong Kong) Limited (“GTJA”);

(6) Zhongtai International Securities Limited (“Zhongtai”);

(7) Everbright Securities International (“Everbright”);

(8) BOCOM International Securities Limited (“BOCOM”); and

(9) GF Securities (Hong Kong) Brokerage Limited (“GF Securities”).

13.  The SFC issued Restrictive Notices on 30 January 2019 in respect of the HIS and the Changjiang accounts when Zhang and Deng were still directors. They prohibit the 2 firms from disposing of the assets of the Company held in those accounts.

14.  The Hong Kong Police have issued Letters of No Consent in respect of the Company’s accounts with China Merchants, ABCI, GTJA and Zhongtai.

15.  Through their solicitors, Tanner De Witt (“TDW”), the JLs have written to the SFC, the Police as well as to each of the banks/securities firms set out in §12 above seeking their stance with respect to the present application.

16.  The SFC, the Police, HIS, China Merchants, ABCI, GTJA, Zhongtai and Everbright all take a neutral stance to this application and confirmed that they have no objection and, in Everbright’s case, provided that its reasonable costs and expenses are indemnified.

17.  The remaining 3 banks/securities firms, (i) BOCOM, (ii) Changjiang; and (iii) GF Securities were joined as defendants either because there was no reply by the date of the Summons or their answers were equivocal. They have all since provided confirmation that they will not object, provided, as regards (i) BOCOM, that they are indemnified for their reasonable costs and expenses, and (ii) Changjiang, that the Restrictive Notices are lifted and the JLs agree to pay $10,000 in respect of Changjiang’s costs.

18.  Haitong International Financial Products Limited (“HIF”) commenced a separate action against Zhang and Deng in the BVI and obtained judgment on 5 October 2020 for payment to HIF of the sum in excess of US$73 million together with interest.

19.  The BVI Court made a charging order in favour of HIF on 10 June 2021 pursuant to which Zhang and Deng’s shares in the Company were charged with payments to HIF and appointed joint and several receivers (“Receivers”) over those shares. Then, on 6 December 2021, the BVI Court authorised the Receivers to sell the assets of the Company, expressly authorising them to sell the stocks held by Company in the HIS Account.

20.  The Receivers have not been able to dispose of the assets because the HIS Account was subject to the Restrictive Notices. They have confirmed that they will not object to the present application upon the JL’s undertaking (given on 16 May 2024) to set aside HK$1.72 million from the proceeds of sale to cover the Receivers’ costs and expenses.

21.  In summary, all interested parties have indicated that they will either take a neutral stance or not object to the present case application. The upshot is that if the relief sought in the OS comports with the applicable legal principles, there would be no reason for this Court to withhold or deny the relief sought.

Applicable legal principles

22.  The Hong Kong Court will recognise foreign insolvency proceedings if (1) the foreign insolvency proceedings are collective insolvency proceedings; and (2) the foreign insolvency proceedings are opened in the jurisdiction in which the company’s centre of main interests (COMI) was located: Re Global Brands Group Holdings Limited [2022] 3 HKLRD 316 at §§16-17, 32, 34-38; Re Guangdong Overseas Construction Corporation [2023] 3 HKLRD 62 at §17.

23.  Where (2) above does not apply but the foreign insolvency proceeding is taking place in the place of incorporation, the Hong Kong Court may grant recognition and assistance if either (1) it is limited to recognition of a liquidator’s authority to represent a company and orders that are incidental to that authority which might be described as “managerial assistance”; or (2) a liquidator requires recognition and limited and carefully prescribed assistance as a matter of practicality: Re Global Brands at §50.

24.  Under established principles of private international law, the law of a company’s place of incorporation determines matters of internal management and authority to represent a foreign company: Re Silver Base Group Holdings Limited [2022] HKCFI 2386 at §3. Thus, limited recognition may be granted on the basis of managerial assistance where foreign insolvency officeholders appointed in the place of incorporation are the duly authorised agents of the company entitled to take action on its behalf or cause the company itself to instigate action, in order to advance or protect the company’s interest: Re RZ 3262019 Limited [2022] HKCFI 3602 at §3.

25.  Limited recognition and assistance may nevertheless be granted in cases that do not fall within “managerial assistance” where, for practical reasons, it is necessary and the foreign insolvency process is in the place of incorporation. So long as the interests of the forum are not adversely affected by a foreign order, the court should lean towards recognition: Re Global Brands at §41, citing Re Opti-Medix Limited [2016] 4 SLR 312 at §26.

26.  In determining the scope of assistance to be granted, the overarching consideration is that assistance is limited to enabling foreign officeholders to perform acts which they are empowered to do under the law by which they are appointed and which are necessary for the performance of the foreign officeholders’ 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: Re CEFC Shanghai International Group Limited [2020] HKLRD 676 at §11, citing Singularis Holdings Limited v PricewaterhouseCoopers [2015] AC 1675.

27.  The Court has provided a standard-form recognition order to guide applicants: see Re CEFC Shanghai at §13 and its Appendix.

28.  Where there are assets in Hong Kong, a recognition order would enable foreign insolvency officeholders to take possession of or deal with such assets: see Re China Lumena New Materials Corp [2018] HKCFI 276 at §8.

29.  The standard form order empowers foreign liquidators, inter alia, (i) to locate, protect, secure and take into their possession and control all assets and property to which the company is or appears to be entitled; (ii) so far as may be necessary to supplement and to effect the powers set out therein, bring legal proceedings and make all such applications to the court; (iii) to request and receive information concerning the company; operate, open and close any bank accounts in the name of and on behalf of the company; and to retain and employ agents and professional persons for the purpose of advising or assisting in the execution of the powers duties.

This application

30.  In the present case, having regard to the legal principles set out above, I have no doubt that the requirements for recognition and assistance are satisfied.

31.  As the Company maintains the accounts described in §12 above, recognition of the JLs’ status in Hong Kong is necessary to enable them to take possession of those assets and any other assets that may be located in Hong Kong and to realise them for distribution.

32.  I note that the powers sought in §2(a) to (g) (inclusive) of the OS are substantially similar to those set out in the standard form order and that the assistance sought is also consistent with the JLs’ powers under BVI law.

33.  I am satisfied that the order sought should be granted. Accordingly, I make an order in terms of the OS.