Insights

Hong Kong Judicial Assistance to Foreign liquidators: Ripe for Appeal?

June 17, 2019
By Timothy Loh with Cheryl Ho

Though Hong Kong has yet to enact legislation to deal with cross-border insolvency, the Court of First Instance has taken the pragmatic position that it has the jurisdiction to assist liquidators appointed under a winding-up in a foreign jurisdiction by making orders to recognize those liquidators in Hong Kong and to require persons in Hong Kong to produce documents to those liquidators, to submit to examinations by those liquidators and to stay proceedings. This is so even though the Hong Kong statutory provisions governing these matters in a winding-up in Hong Kong have not been invoked through a winding-up in Hong Kong. The absence of legislation providing jurisdiction for this position raises an issue as to whether persons in Hong Kong who are subject to such orders by a foreign liquidator may wish to consider challenging such orders.
 

Hong Kong is not a party to the UNCITRAL Model Law on cross-border insolvency and there are no legislative provisions dealing with cross-border insolvency. As a result, there is no statutory basis providing jurisdiction for a Hong Kong court to recognize and assist liquidators appointed in foreign jurisdiction. Nevertheless, the Court of First Instance in Hong Kong has repeatedly held that it has the jurisdiction to do so in the case of requests for information. It is apparent however, that although the position of the Court of First Instance is convenient, there is some question as to whether it would be held to be correct if it were appealed. As a result, persons who are subject to orders for examination or production of documents to assist foreign liquidators or provisional liquidators may wish to consider whether it is appropriate for them to accede to those orders without contest.

Origins of Position

The starting point for the discussion is In The Joint Official Liquidators of A Company v. B, a 2014 case in which the liquidators of a Cayman incorporated company sought recognition of the winding-up in the Cayman Islands and their appointment in the Cayman Islands and an order for persons in Hong Kong to produce documents. Prior to the decision, the practice would have been for the Cayman liquidators to apply to wind-up the company in Hong Kong and to invoke the powers available to liquidators in a winding-up under Hong Kong law.

The court did not consider that this practice was necessary, holding that as Cayman law governed the authority of the liquidators, persons in Hong Kong should recognize that authority. On this basis, the court recognized the winding-up and the appointment of the liquidators and granted the order.

Whilst it is undoubtedly true that the Cayman liquidators were authorized to act on behalf of the company, it does not follow that a court in Hong Kong should make an order for a person in Hong Kong to comply with a demand by the liquidators merely because the liquidators are authorized under Cayman law to make such a demand. The court itself recognized this limitation in 2 ways.

First, it held that mere authority under Cayman law was insufficient to found the jurisdiction to make an order in respect of the disposition of assets.

Secondly, it held that despite the authority, it would require in future cases that the foreign liquidation must have an insolvency regime substantively similar to that in Hong Kong and the order sought must be one which is available under Hong Kong insolvency law. It is unclear how if the authority of the liquidators founds the jurisdiction of the court to make the order, the similarity of the insolvency regime in the jurisdiction in which the liquidators were appointed is relevant. Equally, it is unclear how if such authority founds the jurisdiction to make the order, the availability of similar relief in Hong Kong is relevant. In either case, there is no doubt that the liquidators have the authority in the foreign jurisdiction, whether or not the law of insolvency in that jurisdiction is similar to that in Hong Kong and whether or not Hong Kong insolvency law offers relief similar to that sought.

Expansion of Power

In a series of decisions subsequent to In The Joint Official Liquidators of A Company v. B, the Court of First Instance not only re-affirmed that decision, relying heavily upon the decision of the Privy Council in Singularis Holdings v. Pricewaterhouse Coopers, but expanded the scope of the type of assistance it was prepared to offer foreign liquidators.

Thus, for example, the Court of First Instance has held that, even without a provisional liquidation or winding-up order in Hong Kong, it could order a director in Hong Kong to submit to an oral examination by provisional liquidators of a Cayman company subject to the limitations imposed under the Companies (Winding-up and Miscellaneous Provisions) Ordinance (“CWUMPO”), s. 221, the equivalent provision (now repealed) in Hong Kong for oral examination of directors of a company in winding-up.

Equally, for example, the Court of First Instance has held that in recognizing foreign liquidators of a Cayman company, it could order that no person could commence any actions against the company in Hong Kong without leave of court. It did so on the basis that in a Hong Kong winding-up, CWUMPO, s. 186 provides that once a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding may be commenced or proceeded with except by leave of the court. Significantly, in this case, no winding-up order had been made and no provisional liquidator had been appointed in Hong Kong.

Finally, for example, the Court of First Instance has held that it can recognize a foreign liquidator and provide assistance even where the liquidation is a voluntary liquidation rather than a compulsory liquidation by a court. Though the court acknowledged that the U.K. Privy Council in Singularis Holdings v. Pricewaterhouse Coopers specifically held that a court should not assist a foreign liquidator in a voluntary liquidation, the Hong Kong court considered that the need for orderly cross-border winding-ups does not justify a distinction between a voluntary and a compulsory winding-up.

Analysis

The Court of First Instance has taken a strong view of its position and in one case, where a bank sought recognition of foreign liquidators before acceding to a request for production of documents, the court held that the bank would have been liable for costs on an indemnity basis but for other factors which militated against such an order.

A question is whether the conviction of the Court of First Instance in its position is indeed justified. Although there is no doubt that the court’s position is pragmatic, powers to compel a person to produce documents and to undergo an examination are powers that would normally be the subject of legislation, not least because they intrude heavily into personal rights and are therefore rightfully the subject of public consultation and debate.

Given these considerations, it is unsurprising that in Singularis Holdings v. Pricewaterhouse Coopers, the Privy Council itself was divided 3:2 on whether or not it was appropriate to develop the common law to enable a court to assist a foreign liquidator by making orders for examination and production of documents. Even the 3 members of the court who favoured the development of the common law in this fashion treaded cautiously, an approach that contrasts with the strident view taken by the Court of First Instance.

The expansion in jurisdiction has real potential prejudicial effects in Hong Kong which have yet to be ventilated through public consultation. For example, as the court itself recognized when it ordered that no proceedings should be continued against a company without leave of court, there is no mechanism for any person making a claim against a company to be made aware of the existence of such an order. In contrast, where a company is wound-up in Hong Kong, any person seeking to make a claim against the company may search the Companies Registry to ascertain whether there is any prohibition on proceedings against the company.



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