JOINT PROVISIONAL LIQUIDATORS OF CECEP COSTIN NEW MATERIALS GROUP LTD (IN PROVISIONAL LIQUIDATION) v. RSM NELSON WHEELER (a firm) AND ANOTHER

HCMP 1011/2019

[2021] HKCFI 794

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1011 OF 2019

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D E C I S I O N

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1.  The Applicants are the Joint and Several Provisional Liquidators of CECEP Costin New Materials Group Limited. I shall refer to them as the JPL and the Company respectively. The Company is incorporated in the Cayman Islands. On 14 November 2017 the Grand Court of the Cayman Islands appointed the JPL as the provisional liquidators of the Company. I made an order of recognition and assistance on 3 April 2018 at the request of the Grand Court. The Respondents were the auditors of the Company. On 12 July 2019 the JPL issued an originating summons pursuant to section 286B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“Ordinance”) seeking disclosure of documents from the Respondents concerning the affairs of the Company and its subsidiaries for the period 31 December 2010 to 31 December 2015 [1]. Essentially what is sought are the documents that came into the Respondents’ possession in their capacity as auditors of the Company and its consolidated group financial statements. In addition an order is sought that the Respondents file an affirmation deposing to the following matters:

“2(a)  For the years ended 31 December 2010 to 31 December 2015 and for the period from 1 January 2016 to the date of the order to be made herein:

(i)  Details as to whether the Respondents have conducted any audit work on any of the subsidiaries of the Company and, if so, the period concerned. In the event that other audit firms were responsible for the audit of the subsidiaries of the Company, schedule containing the name of the entity, the relevant audit firm, the firm’s address and contact details of key team members;

(ii)  Details of investments made by the Company and the Group (including without limitation in respect of any joint ventures of the Company and the Group).”

2.  When the matter first came on before me on 5 November 2019 I made an order in terms of [1] of the summons save for audit working papers as defined by the Hong Kong Standard on Auditing 230.  Paragraph 1 of the originating summons listed the various classes of documents the JPL sought.  Essentially this was everything one might expect the auditor of the Company to have.  The issue of whether or not the audit working papers should be disclosed was adjourned for argument.

3.  When the skeleton arguments were served it became apparent that central to RSM’s opposition to production of the audit working papers was the submission that the court has no power to order their production under s286B or common law.  The JPL now accept that s286B has no application, because the Company is not a “company” within the definition of s2 of the Ordinance.  RSM argue that an order for production of audit working papers cannot be granted by way of common law assistance as a power to order production of the audit working papers does not exist in the Cayman Islands.  If the power to make the order sought does not exist in the jurisdiction in which the Company is incorporated and is being wound up, this court should not grant such an order by way of common law assistance.  It is well-established that the power of common law assistance should only be used to assist a foreign liquidator to do what he is able to do in the jurisdiction in which the liquidator is appointed [2].

4.  The JPL assumed after RSM took the point that as a matter of Cayman Islands law the court could not order RSM to disclose the audit working papers to the JPL, that the issue of Cayman Islands law should be determined by this court.  In my view this is wrong.  This is a question to be determined by the Cayman court, which has wound up the Company, appointed the JPL and is clearly better placed to determine it than I am.  As it would appear to be a matter of some importance it also seems to me desirable that the Cayman court determines it rather than this court do so on the basis of opinion evidence filed by Cayman lawyers.  It was suggested by Ms Lam that to require the matter to be determined in the Cayman Islands first was cumbersome and it was unclear how if it is determined in the JPL’s favour the matter should be brought back before me.  I can see no problems at all.  The necessary application is made in the Cayman Islands and depending on the outcome an order can be sought here.  If it is necessary for a new letter of request to be issued then sobeit.  Such problems as have arisen have done so because it was not appreciated at the outset that s286B has no application.  If it had been appreciated it may have been that more careful thought would have been given to the jurisdiction of both the Cayman court and the Hong Kong court to grant the orders the JPL believe they need, and the issue I have described identified at the outset, I assume that if it had been it would have been appreciated that it was necessary to clarify with the Cayman court whether the JPL could obtain disclosure of the audit working papers in the Cayman Islands.

5.  RSM have confirmed through counsel that it will appoint lawyers in the Cayman Islands to accept service on proceedings in the Cayman Islands and that it will not destroy the audit working papers pending the determination of the application.  I have adjourned the application sine die.  So far as the costs of the hearing on 24 June 2020 is concerned I will reserve them.  I anticipate that I will order that the costs of the 24 June hearing are borne by the JPL, but I will await the outcome of the application in the Cayman Islands in case the decision has any bearing on costs.