THE JOINT PROVISIONAL LIQUIDATORS OF BJB CAREER EDUCATION CO LTD (IN PROVISIONAL LIQUIDATION) v. XU ZHENDONG

HCMP 1139/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1139 OF 2016

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D E C I S I O N

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Introduction

1.  BJB Career Education Company Limited (“Company”) is incorporated in the Cayman Islands.  Through its subsidiaries it has been engaged in the business of providing vocational technology education in the People’s Republic of China.  On 3 July 2016 it was put into liquidation by order of the Grand Court of the Cayman Islands and Yat Kit Jong and David Walker of PricewaterhouseCoopers in Shanghai and Cayman respectively were appointed joint provisional liquidators (“Provisional Liquidators”). On 14 March 2016 Mr Justice Segal made an order that the court should issue a letter of request, which it did on 16 March 2016 seeking this court’s assistance by exercising its common law powers if it considers it appropriate to make the following orders in respect of the respondent to this application, Xu Zhendong, the former chairman and director of the Company:

(i)   allow the Provisional Liquidators to examine and require Mr Xu to attend for oral examination by the Provisional Liquidators at a specified time and place in Hong Kong;

(ii)   require Mr Xu to swear an affidavit in answer to written interrogatories;

(iii)   require Mr Xu to transfer or deliver up to the Provisional Liquidators any property or documents belonging to the Company and in his custody or power;

(iv)   require Mr Xu to provide to the Provisional Liquidators in writing any other information relating to the Company which they may request in writing; and/or

(v)   require Mr Xu to attend for oral examination, transfer or deliver up such property and documents and provide such information as is mentioned in sub-paragraphs (i)-(iv) above.

2.  The Provisional Liquidators issued an originating summons seeking a recognition of their appointment and orders for Mr Xu to produce documents, answer interrogatories and attend court for oral examination.  The application initially came on before me on 23 September 2016.  Mr Xu was represented at that hearing and did not object to the orders sought.  I was satisfied that these orders were necessary and made a recognition order, but I adjourned the rest of the summons as I wished to receive further submissions on two matters.  First, the relevant common law principles, which justify making an order for delivery up of documents and oral examination and, thereby, making the type of order that would be made in the case of a domestic liquidation under section 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.  Second, whether such an order infringed Article 96 of the Basic Law.  I shall deal with each of these matters in turn.

Common Law Power of Assistance

3.  In Joint Official Liquidators of A Co v B [1] I explain the principles that underlie the common law power to provide recognition and assistance to a foreign liquidator and conclude in [18] that:

“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.”

In that case I made an order for recognition and the production of bank records.  Since Joint Official Liquidators of A Company there have been a series of applications for assistance from foreign liquidators, which has allowed the development of a standard order, which the court will normally be prepared to grant on the papers on receipt of a letter of request issued by the court of the jurisdiction of incorporation in support of an application for recognition and assistance. In Centaur Litigation SPC [2] I granted an order, which is appended to the decision, which reflected similar orders granted in England and which expressly empowers the foreign liquidators without further order of the court to take possession and control of the company’s property and investigate its affairs and to bring proceedings to facilitate these processes.  The order provides for an automatic stay of the commencement or continuation of proceedings against the company or its assets in Hong Kong without the leave of the court.  This is intended to broadly replicate the impact of the making of a winding up order in Hong Kong without the need for a petition and engagement of our entire insolvency regime.

4.  What has remained undecided, but is of considerable practical importance, is whether an order can be made for the oral examination of an officer of a foreign company or other persons in possession of information which the foreign liquidator requires to conduct properly his investigations into the company’s affairs.  In other words an order that would in the domestic context be made pursuant to section 221.

5.  Prior to the decision of the Privy Council in Singularis Holdings Ltd v PricewaterhouseCoopers [3] there were two reported cases in which an order for the production of documents or information had been made by way of common law assistance: Moolman v Builders Developers (Pty) Ltd [4] a decision of the Supreme Court of South Africa; and In re Impex Services Worldwide Ltd [5] a decision of the High Court of the Isle of Man.  In Singularis the Privy Council considered that these decisions were correct in principle, although not that part of their reasoning which explained the power to make the orders for examination by applying statutory powers by analogy. 

6.  In [25] of the judgment Lord Sumption explains the conditions to be satisfied before the court exercises its common law powers of assistance by ordering production of information in oral or documentary form, which is necessary for the administration of the foreign winding up.  The power exists for the purpose of enabling courts to surmount problems posed for a transnational liquidation by the territorial limits of court powers.  It is not, therefore, available to enable them to do something that they could not do under the law by which they were appointed.  It must also be consistent with the substantive law and policy of the assisting court.  It is not available for purposes which are properly the subject of other schemes for compulsory provision of information and cannot be used to obtain material for use in actual or anticipated litigation.

7.  The decision in Singularis establishes what was implicit in various paragraphs of Lord Collins judgment in Rubin v Eurofinance SA ^[6], namely, that the common law power of assistance extends to ordering an oral examination if such a power (a) exists in the jurisdiction of liquidation and that is the jurisdiction of the place of incorporation and (b) the power exists in the assisting jurisdiction; as is the case in Hong Kong.  Section 103 of the Companies Law in the Cayman Islands grants the court similar powers to order the production of documents by a director of a company and an oral examination of a director as are contained in section 221.  It follows that in the exercise of its common law powers the Hong Kong Companies Court can order the oral examination of a director of a Cayman Island company in liquidation in the Cayman Islands if satisfied that it is necessary and that it would not infringe the established limitations on the exercise of the power conferred by section 221.  As I have already indicated I am satisfied that the examination and order for production of documents is necessary and unless Article 96 provides an impediment to making such an order I will do so.

Article 96

8.  Article 96 of the Basic Law provides:

“With the assistance or authorisation of the Central People’s Government, the Government of the Hong Kong Special Administrative Region may make appropriate arrangements with foreign states for reciprocal juridical assistance.”

9.  The question is whether the granting of an order of recognition and assistance in response to a letter of request is caught by Article 96.  This requires a consideration of the juridical basis upon which the assisting court is providing assistance.  In Rubin v Eurofinance^[7] the Supreme Court was concerned with whether the common law requirement that in order for a foreign judgment in personam to be enforceable in England the judgment debtor had to be resident in the foreign country where the proceedings had been commenced, or had voluntarily submitted to the jurisdiction, applied in the case of a judgment in New York obtained in proceedings brought by the receivers of trust property who had filed for protection under Chapter 11 of the United States Bankruptcy Code.  The judgment was in respect of a claim that was the equivalent of an undervalue transaction and preference claim under sections 238 and 239 of the Insolvency Act 1986.  It was argued that a more liberal approach should be adopted in respect of the enforcement of judgments made in insolvencies in the interests of promoting the universality of bankruptcy proceedings.  The Supreme Court rejected this argument and determined that any change in the settled law of recognition and enforcement of judgments was a matter for legislation.

10.  In his comprehensive and compelling review of the law in this area Lord Collins explains in [127]:

“Outside the sphere of matrimonial proceedings (see Travers v Holley [1953] P 246, disapproved on this aspect in Indyka v Indyka [1969] 1 AC 33) reciprocity has not played a part in the recognition and enforcement of foreign judgments at common law. The English court does not concede jurisdiction in personam to a foreign court merely because the English court would, in corresponding circumstances, have power to order service out of the jurisdiction: In re Trepca Mines Ltd. [1960] 1 WLR 1273.”

This suggests that recognition and assistance is not founded in a process of reciprocal judicial assistance, but something else.

11.  In the context of personal bankruptcy the English courts have recognised since the mid-18^th century the effect of personal bankruptcies declared under the law of the domicile of the bankrupt: see Solomons v Ross ^[8] and the authorities discussed by Lord Collins in [12] and [13] of Rubin v Eurofinance.  Reciprocity is not a component of the principle that allows the court to recognise the effect of a foreign bankruptcy order.  Similarly, reciprocity is not a component of the established principles of private international law that the existence and dissolution of a foreign corporation duly created or dissolved under the law of a foreign country is recognised in England and Hong Kong^[9] and that the authority of the liquidator appointed under the law of the place of incorporation is recognised in England^[10].  In [29] to [34] of Rubin v Eurofinance Lord Collins considers in detail the common law power to recognise and grant assistance to foreign insolvency proceedings.  There is nothing to suggest in this analysis that it is based on notions of reciprocity, although his Lordship acknowledges in [28] that the introduction of regulations in respect of enforcement of judgments involves some degree of reciprocity as illustrated by the lengthy negotiation and consultation of the EC Insolvency Regulations and the Model Law.

12.  In Singularis after a consideration of the law from Cambridge Gas Transport Corp v Navigator Holdings plc ^[11] to Rubin v Eurofinance, Lord Sumption says this:

“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.

...

The principle of modified universalism is a recognised principle of the common law. It is founded on the public interest in the ability of foreign courts exercising insolvency jurisdiction in the place of the company’s incorporation to conduct an orderly winding up of its affairs on a world-wide basis, notwithstanding the territorial limits of their jurisdiction. The basis of that public interest is not only comity, but a recognition that in a world of global businesses it is in the interest of every country that companies with transnational assets and operations should be capable of being wound up in an orderly fashion under the law of the place of their incorporation and on a basis that will be recognised and effective internationally. This is a public interest which has no equivalent in cases where information may be sought for commercial purposes or for ordinary adversarial litigation. The courts have repeatedly recognised not just a right but a duty to assist in whatever way they properly can.” ^[12]

13.  It seems to me that these passages explaining the common law power of assistance support the view that reciprocity is not a necessary component of recognition and assistance and that it is erroneous to view an order recognising the appointment of a liquidator appointed in the place of a company’s incorporation and an order providing assistance to allow him to carry out his function as an arrangement for reciprocal juridical assistance.  The order that I am inclined to make does not, therefore, infringe Article 96.

14.  Once it is recognised that the power to provide judicial assistance is founded firmly in the common law (and as I explain in paragraph 5 the Privy Council in Singularis rejected the suggestion that the power of examination arises by utilising statutory powers by analogy) Article 8 becomes relevant:

“The laws previously in force in Hong Kong, that is, the common law... shall be maintained, except for any that contravenes this Law and subject to any amendment by the legislature of the Hong Kong Special Administrative Region.”

15.  Prior to 1997 the Hong Kong courts had in a number of cases used the common law power of assistance to aid foreign liquidators: Re Russo-Asiatic Bank ^[13], Modern Terminals (Berth 5) Ltd v States Steamship Co ^[14]  and; BCCI (Overseas) Ltd v BCCI (Overseas) Ltd – Macau Branch ^[15].  The common law power of recognition and assistance was clearly part of the laws in force in Hong Kong prior to 1997 and given their character in my view there is no reason to suggest that they contravene the Basic Law.

Conclusion

16.  For the reasons I have given I consider that there is no impediment to granting the order for the production of documents, interrogatories and oral examination that the Provisional Liquidators seek and I shall so order.