In Provisional Liquidator of Global Brands Group Holding Limited (in liquidation) v Computershare Hong Kong Trustees Limited and Another [2022] HKCFI 1789, Global Brands Group Holding Limited (the company) was an investment holding company incorporated in Bermuda whose shares were listed on the HKEx.
The company faced significant financial difficulties and took the view that it was in the best interests of the company and its creditors to commence winding-up proceedings by applying to the Bermuda court for the appointment of a provisional liquidator for the purposes of restructuring. The restructuring was unsuccessful and a winding-up was concluded in Bermuda in November 2021.
A significant amount of the company’s assets were held in Hong Kong, including the proceeds of the sale of shares and cash balances held in the company bank account. In order for the provisional liquidator to take possession of the company’s assets in Hong Kong, a recognition order had to be obtained from the Hong Kong court.
The court’s ruling
Harris J said the correct approach to assessing whether or not a foreign liquidation should be recognized is first to determine if at the time the application for recognition is made, the foreign liquidation is taking place in the jurisdiction of the company’s COMI. If it is not, then recognition and assistance should be declined unless the application falls into one of the following categories:
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If the application is limited to recognition of a liquidator’s authority, where the liquidator is appointed in a company's place of incorporation, to represent a company and orders that are incidental to the authority, which Harris J said may be described as “managerial assistance”;
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recognition and limited and carefully prescribed assistance which does not fall into the first category and which is required by a liquidator in the place of incorporation as a matter of practicality.
The court granted an order for recognition to the provisional liquidator of the company, on the basis that the provisional liquidator only required an order to demonstrate that it was the lawful agent of the company and was entitled to transfer the company’s assets in Hong Kong to Bermuda.
Harris J also explored the basis on which the Hong Kong court should grant recognition and assistance to foreign insolvency practitioners in the future.
A company’s COMI
Harris J noted that historically, the Hong Kong court has had no problems in recognizing a liquidator appointed in the place of a company’s incorporation. However, this was not always a useful yardstick for the courts given that often, Hong Kong-listed companies with operating businesses in the mainland may be incorporated offshore where they do not carry out any meaningful business, in “letterbox” jurisdictions.
Given the importance of “judge-made” law in Hong Kong – in the absence of any statutory insolvency regime - Harris J thought that the location of a company’s COMI should in the future be the primary criteria in determining recognition and assistance as it better reflects commercial practice in Hong Kong. He stated that “treating the place of incorporation in such circumstances as being the natural home or commercially most relevant jurisdiction of the company for the purpose of determining, which jurisdiction is the appropriate place for the seat of a principal liquidation is highly artificial”.
Quoting the English authority of Singularis, Harris J’s judgment suggested the clear need in his view for further development in the common law so as to bring Hong Kong into line with other jurisdictions so that a bankruptcy proceeding in a company’s home jurisdiction will receive universal recognition.
Contrasting views
Harris J noted the recent judgment in Re Up Energy Development Group Limited [2022] HKCFI 1329, in which the Honorable Madam Justice Chan suggested that no powers at all could be conferred to a foreign appointed liquidator at common law (see Hogan Lovells client alert Deja vu? Hong Kong court orders winding-up of Bermuda-based listco despite PLs’ objections).
Harris J took the view that it was “entirely consistent with modified universalism and the established common law principles of recognition and assistance for the Hong Kong court to grant powers intended to assist a foreign liquidator appointed in the jurisdiction of a company’s COMI effectively to exercise rights, which arise from the liquidator’s status in the COMI jurisdiction”.
Judicial debate as far as questions of cross-border insolvency are concerned, continues apace.
Authored by Jonathan Leitch, Nigel Sharman, and Fiona Wong.
