RE AKAI HOLDINGS LTD (In Compulsory Liquidation)

HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

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(Heard Together)

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D E C I S I O N

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1. I have before me two identical summonses issued by the liquidators of Kong Wah Holdings Limited (In liquidation) and Akai Holdings Limited (In liquidation) (collectively "the Companies") in each of the winding up proceedings relating to the company in question. The summonses are issued under section 200(3) of the Companies Ordinance, Cap. 32, which provides that the liquidator may apply to Court for directions "in relation to any particular matter arising under the winding up".

2. The summonses were served on the Official Receiver. The Official Receiver has no comment or objection to the applications and has sought to be excused from attendance.

3. In each summons, the liquidators seek an order that they be empowered and authorised to enter into and implement a cross-border protocol between themselves and the liquidators of the Companies appointed by the Supreme Court of Bermuda (who are the same individuals appointed as liquidators by the Hong Kong Court) and an order that the protocol be approved.

4. Similar applications were made by the Bermudian liquidators to the Supreme Court of Bermuda and an order was granted in each of the proceedings relating to the Companies on 8 January 2004.

5. I was reminded by Mr Bartlett, who appeared for the liquidators, that the courts in Hong Kong have approved protocols in similar forms in a number of cases, and he has given the examples of Peregrine Investments Holdings Limited, Greater Beijing Expressways Limited, and Jinro (HK) International Limited.

6. The general approach of the Court in this kind of application is to adopt a limited supervisory role. The Court will of course not approve whatever protocol is placed before it without the exercise of its own discretion. Having said that, in ordinary situations, there is no reason why the court should not accept the professional judgment of insolvency practitioners appointed to act as liquidators who have put together the protocol as a pragmatic solution to harmonise and co-ordinate concurrent liquidations (see Cross-Border Insolvency by Philip Smart, 1998 ed, pages 336 to 337).

7. In this instance, there are concurrent liquidations proceeding in Hong Kong and Bermuda with the Bermudian liquidation being the principal liquidation as the Companies were incorporated in Bermuda. As mentioned, the same individuals were appointed as liquidators for each of the Companies in the two jurisdictions. Most, if not all, of the creditors have already submitted proofs of debt in one or other of the jurisdictions. The insolvency laws in Hong Kong and Bermuda are largely identical.

8. The objective of the protocols is that whilst acknowledging Bermuda as the primary liquidation, both the Hong Kong liquidation and the Bermudian liquidation are to be administered simultaneously from Hong Kong, which was the principal place of business of the Companies. The protocols are drafted to take into account the relevant provisions of Hong Kong and Bermudian insolvency laws and rules, to be consistent with generally accepted notions of comity, not to infringe on the jurisdictions of either of the two courts, and to enable the liquidators to administer both liquidations in the most economical way, reducing the conflicts and complications which may arise in cross-border insolvency matters.

9. I am satisfied that the protocols do not conflict with any principle of comity. In the situation of a liquidation or some other form of collective insolvency process, the principle of comity has been expressed by the United States Court of Appeals, Second Circuit, in Cunard Steamship Company Limited v. Salen Reefer Services AB 773F 2d 452(1985) at 458 as follows:

"The granting of comity to a foreign bankruptcy proceeding enables the assets of a debtor to be dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic or piecemeal fashion. Consequently, American courts have consistently recognised the interest of foreign courts in liquidating or winding up the affairs of their own domestic business entities. ... It has long been established that foreign trustees in bankruptcy were granted standing as a matter of comity to assert the rights of the bankrupt in American courts. Although the early cases upheld the priority of local creditors' attachments ... the modern trend has been toward a more flexible approach which allows the assets to be distributed equitably in the foreign proceeding."

10. Here, there is no question of one party or one court seeking to impose terms on another. The liquidators in Hong Kong and Bermuda have consensually adopted by way of contract, subject to approval by the courts in the two jurisdictions, protocols for the purpose of co-ordinating the concurrent liquidations. No issue arises of any dis-application of the Hong Kong statutory scheme of distribution, unlike In Re Bank of Credit and Commerce International SA (No. 10) [1997] Ch 213.

11. I am also satisfied that the liquidators have endeavoured to observe the principle of equality of treatment for all creditors in the protocols.

12. Unlike the United Kingdom, we have no legislative provision equivalent to section 426 of the Insolvency Act 1986. In the absence of legislation to deal with matters affecting cross-border insolvency, the pragmatic exercise proposed to be adopted by way of the protocols does seem to me to best serve the interests of creditors.

13. I therefore grant the reliefs sought in the summons as per the draft orders submitted to the Court.