Hong Kong: Recognition Of Liquidator Not Appointed In Place Of Incorporation

Last Updated: 19 August 2016
Article by John M. Marsden, Richard M. Tollan, Thomas A. Pugh and Edmund M.S. Ma
Most Read Contributor in Hong Kong, September 2016

Originally published 16 August 2016.

A key factor contributing to the vitality and development of the common law is that judges can have the benefit of authorities from other jurisdictions with a comparable legal framework. This has proved and will be increasingly important in areas such as cross-border insolvency, where modified universalism has been the catchword in recent years.

As noted in our Legal Update of 4 February 2016 (" Cross-border Insolvency: Guidance from the Companies Judge"), there have been a number of decisions by the Honourable Mr. Justice Harris (the Companies Judge of the Hong Kong High Court) establishing and clarifying the principles on recognition of foreign liquidators. In Joint Administrators of African Minerals Ltd v. Madison Pacific Trust Ltd [2015] 4 HKC 215 (paragraph 9), his Lordship commented in these terms on one issue that arose:

"The first issue that the application gives rise to is whether or not the Hong Kong Companies Court should provide assistance at all to the administration as it is not an insolvency proceeding in its place of incorporation. The only authority in Hong Kong of which I am aware in which recognition of foreign insolvency proceedings is considered in a relevant way is my own decision [in] Joint Official Liquidators of A Co v. B [2014] 5 HKC 152, [2014] 4 HKLRD 374. In that decision I recognise that the Courts of Hong Kong will recognise a liquidator appointed in the place of a company's incorporation. I do not address whether or not the Courts of Hong Kong will recognise liquidators, or some person exercising similar powers, appointed in a jurisdiction other than the place of incorporation. This is open to argument... I shall assume, without deciding, that the Hong Kong courts can, in principle, recognise liquidators appointed in a jurisdiction other than the place of incorporation or administrators appointed by the High Court of England."

If the Companies Court is faced with another case involving similar facts, assistance may be derived from the decision of the High Court of Singapore in Re Opti-Medix Ltd [2016] SGHC 108. In brief, two companies were incorporated in the British Virgin Islands but carried on business primarily in Japan. In 2015, the Tokyo District Court made bankruptcy orders against them and appointed a Bankruptcy Trustee. The companies have several creditors in Singapore and appear to have held some monies in bank accounts there.

The Bankruptcy Trustee sought to exercise his powers under the Japanese bankruptcy orders to ascertain, administer and dispose of the companies' assets in Singapore. To this end, he applied for and obtained recognition by the Singapore Court of his appointment. In addition, on the basis of the Bankruptcy Trustee undertaking to pay all preferential debts and other debts in Singapore before any funds are remitted out of the jurisdiction, it was ordered that the companies' moveable assets and records be vested in him, and that he be empowered to collect and recover them.

The learned Judicial Commissioner Aedit Abdullah observed as follows in paragraph 16 of his Grounds of Decision dated 1 June 2016:

"The primary issue in this case was whether liquidation in a jurisdiction other than that of the place of incorporation should be recognised. The fact that a company is in liquidation in a particular country does not by itself give rise to a basis to recognise that liquidation in Singapore. Something more has to be shown. In this case, that was the fact that the jurisdiction in question was where the bulk of the business and transactions of the Companies occurred."

In substance, this is a reference to the company's "centre of main interest" (COMI). Whilst acknowledging that "a liquidator properly appointed under the law of incorporation would be recognised by the Singapore court", the learned Judicial Commissioner held that this principle does not preclude "recognition of such a liquidator on other grounds, such as COMI", and "The approach of identifying the COMI has much to commend it as a matter of practicality" (paragraphs 18 and 23).

On the facts, it was clear "the COMI of the Companies was Japan... Where the interests of the forum are not adversely affected by a foreign order, the courts should lean towards recognition... In the present case, the interests of Singapore creditors were protected by the undertaking [mentioned above] and there was no competing jurisdiction interested in the winding-up of the Companies. On the other hand, the jurisdiction which had the greatest interest, Japan, had moved in favour of liquidation. To hinder the orderly dissolution of the Companies in this situation would serve no purpose..." (paragraphs 25 and 26). Recognition was granted accordingly.

As is pointed out in the Grounds of Decision, the current position in Singapore is that "the legislative regime is silent on the recognition of foreign insolvency proceedings" (paragraph 22). The same is true in Hong Kong. This adds to the value of Opti-Medix as an authority of which insolvency practitioners not just in Singapore, but also in Hong Kong, should be aware.

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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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