L v. G LTD

HCCW 318/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 318 of 2015

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DECISION

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1. On 29 September 2015 the Petitioner issued a petition to wind up the Company on the grounds of insolvency. The Company is incorporated in the Cayman Islands and is listed on the main board of TheStock Exchange of Hong Kong Limited. On the same day the Petitioner sought an early hearing of an application to appoint provisional liquidators. This came on before me on 2 October 2015.

2. Although the matter was not made as clear as it might have been in the supporting affirmation it became clear during the course of the hearing that the Company had issued a petition for its own winding up in the Cayman Islands and that an application to appoint provisional liquidators, supported by evidence which included an affirmation from the Petitioner, was to be heard on 8 October 2015. I took the view that unless there were some pressing need why provisional liquidators needed to be appointed immediately in Hong Kong the matter should be left to the Cayman Court to decide because it was the court of the place of the Company’s incorporation and it was already seized of the matter. Ithought it fairly clear that on the evidence before me there was no reason why the matter could not wait for another 6 days. I adjourned the application pending the determination of the Cayman Islands Court. On8October 2015 the application was not opposed and Mr. Justice JonesQC appointed insolvency practitioners from KPMG in the Cayman Islands and Hong Kong as provisional liquidators.

3. The matter came back before me on 16 October 2015 and it seems to me, however the Petitioner may have attempted to dress up the matter, what I was being asked to do was determine costs. Before turning to the details of the present case it will be helpful to summarise the relevant principles that govern cross-border insolvencies in Hong Kong as they have emerged from decisions of this Court during recent years and how, in practice, matters of this sort should be dealt with.

4. As the Court has stated in a number of authorities dealing with applications to wind up both solvent companies and insolvent companies incorporated in a foreign jurisdiction, there is a strong presumption that the appropriate jurisdiction in which to petition for a winding‑up order is that of the company’s place of incorporation[1]. However, section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32 gives the Court jurisdiction to wind up a foreign company in the circumstances specified in sub‑section (3). Thatjurisdiction is discretionary[2]. The authorities referred to in footnote1 set out the circumstances in which the Companies Court will exercise the discretion conferred by section 327 to wind up a foreign company. It is not necessary to repeat them here.

5. It is common in Hong Kong for there to be foreign incorporated companies which have some presence or activities in Hong Kong. This is normal in the case of companies listed here, as the Company is, which are commonly incorporated in jurisdictions such as the Cayman Islands, the British Virgin Islands and Bermuda. The fact that such a company is wound up in its place of incorporation rather than Hong Kong does not mean that its liquidators are unable to deal with its affairs in Hong Kong. As I explain in Joint Official Liquidators of A Co v B[3] at common law the court has the power to recognise foreign liquidators and to assist them in carrying out their functions. In the case of liquidators appointed in jurisdictions with similar insolvency regimes to Hong Kong assistance may extend to granting orders that give foreign liquidators substantially similar powers to, for example, investigate the affairs of a company by examination and orders for the production of documents as a domestic liquidator would have. Recently the Privy Council has in Singularis Holdings Ltd v PricewaterhouseCoopers[4] confirmed this and explained comprehensively the applicable common law principles and the limitations on the power to extend assistance to foreign liquidators.

6. It follows from these principles that in the conventional case one would expect an insolvent company to be wound up in its place of incorporation and for its liquidators to consider whether or not it is necessary to seek recognition and potentially assistance from the court in Hong Kong. If they do the most straightforward way for them to proceed is to obtain a letter of request from the local court and then apply exparte on paper for a recognition order. If a matter is straightforward an order recognising a foreign appointment will be granted very swiftly. If the liquidators think that it is desirable that the foreign company is put into liquidation in Hong Kong and they are satisfied that they will be able to demonstrate to this court that the criteria by which such petitions are assessed are satisfied, they can apply for a winding‑up order and if the circumstances require it apply for themselves to be appointed provisional liquidators in Hong Kong pending the determination of the petition.

7. There may be exceptional cases in which a creditor of a company already in liquidation in its place of incorporation may wish to seek a winding up here even if the liquidators are hesitant, but I anticipate that this will be very uncommon.

8. In the present case I decided on 2 October 2015 that the Petitioner had not demonstrated that there was any reason for this court to pre‑empt the decision of the court in the Cayman Islands. The Petitioner may have had genuine concerns when he approached lawyers about the state of the Company’s affairs in Hong Kong, in particular this appears to have related to the risk of documents being destroyed or moved, but it seems to me that such fears were not based on matters which necessitated the application to appoint provisional liquidators in Hong Kong. On the assumption, which in my view was the correct one, that the matter would be dealt with properly before the Cayman Islands Court it should have been anticipated that provisional liquidators would be appointed there and then they would be able to seek recognition and assistance here and, if in due course they considered it desirable, apply for their appointment here. Today Mr. William Wong SC, who appeared for the Petitioner, has sought to persuade me that the Petitioner was entitled to present the Petition and his concerns were justified. He also sought to persuade me that the application should be adjourned in case the liquidators do not progress matters satisfactorily and his client decides that he should come back to court to obtain a recognition order or appointment of provisional liquidators. Iwill deal with the latter argument first.

9. It seems to me entirely fanciful to suggest that KPMG will not deal with the matter with sufficient alacrity and that there is any real possibility of a further application and the court disagreeing with the views of KPMG. KPMG’s current position is that they do not need an immediate recognition order, but that they are reviewing the position. This seems to me sensible. I will dismiss the application.

10. I accept Mr. Wong’s submission that his client was entitled, inthe sense of having locus, to present the Petition and apply for provisional liquidators, but it seems to me that that is not the relevant issue. Therelevant issue is whether or not there was any need to do so. In my view there was not.

11. Mr. Wong further argued that the application would not have been necessary if the Company or the opposing creditors and contributories had been candid and admitted that KPMG, in their position as inspectors appointed by the Cayman Court, had prepared a report by the time the matter came on before me confirming that the Company was insolvent and acknowledging that the provisional liquidators were necessary and withdrawn their opposition to the application in the Cayman Islands. Mr. Maurellet who appeared for the opposing creditors and contributories acknowledged that his clients had been aware of the report, but told me that they had been advised that they could not refer to it without the leave of the Cayman Court and, presumably, it was not possible to get that in the limited time available. Be that as it may, it does not seem to me to matter. As I have already said, in my view the application was not necessary and should not have been made.

12. So far as the opposing creditors and opposing contributories are concerned, they seek their costs on an indemnity basis from the Petitioner. I agree that the opposing creditors were justified in attending Court and ensuring that it was made aware of the application in the Cayman Islands given the obscure way this was dealt with in the supporting affirmation. As they knew the Company was insolvent it does not seem to me that the opposing contributories had any interest in the matter and their involvement was not necessary. However, it does not seem that it was necessary for the opposing creditors to file the lengthy affirmation in opposition that was produced or that there is any reason to order costs on an indemnity basis. I will order that the Petitioner pays 50% of the opposing creditors’ costs of the application on a party and party basis.