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In a recent decision, the Hong Kong Court ordered the winding up of Jingrui Holdings Limited (the "Company"), a Hong Kong-listed Chinese property developer incorporated in the Cayman Islands. In considering whether the Hong Kong Court should exercise jurisdiction to wind up this foreign Company, the Court considered that the ability of a Hong Kong liquidator to access Mainland assets through the pilot scheme for mutual recognition and assistance in cross-border insolvency matters between Hong Kong and the Mainland provides the necessary benefit to creditors of the Company.
Background
The winding up petition was presented by a creditor who had advanced a loan of approximately US$160 million to a wholly owned subsidiary of the Company. The Company guaranteed the loan. Despite repeated demands, the guaranteed debt remained unpaid.
As the Company was incorporated outside Hong Kong, the petitioner was required to satisfy three core requirements (as set out in Kam Leung Siu Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501) to justify the Court exercising its jurisdiction to wind up a foreign company. The requirements are: (i) demonstrating a "sufficient connection" with Hong Kong, (ii) showing a real possibility that the winding up order would benefit those applying for it, and (iii) establishing the existence of other persons interested in the distribution of the Company's assets.
The Company opposed the petition, arguing that the core requirements were not satisfied and that the debt was subject to an arbitration clause and should be resolved by arbitration instead.
Decision
The Court found a "sufficient connection" with Hong Kong as the Company was listed on the Hong Kong Stock Exchange and was registered in Hong Kong as a non-Hong Kong company under Part XI of the Companies Ordinance. The finance documents giving rise to the debt were also governed by Hong Kong law.
When determining whether a winding up order would confer a real benefit on the petitioner, the Court adopted a pragmatic and commercial approach (following Shangdong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd (2022) 25 HKCFAR 98). Whilst the petitioner initially relied on the presence of the Company's former director in Hong Kong, who could be examined on the Company's affairs, the Court held that this did not amount to a real benefit to the creditors, whose primary objective is the recovery of funds. The Court found that the real benefit lay in the ability of a Hong Kong liquidator to seek recognition and assistance in the Mainland under the pilot scheme for mutual recognition and assistance. Since the Company held assets in the Mainland, a Hong Kong winding up order would enable creditors to access those assets through recognition procedures.
The Court noted that whilst no Hong Kong liquidator of a foreign-incorporated company has yet been recognised by a Mainland court, this simply reflects the fact that no such application has been made. The pilot scheme clearly contemplates such assistance being available. The Court further observed that the centre of main interests (COMI) of a Hong Kong-listed company is arguably in Hong Kong, and the ability to gather Mainland assets, whether interests in subsidiaries or inter-company debts, represents a significant benefit to creditors.
The Court rejected the Company's reliance on the arbitration clause, finding no genuine intention to arbitrate. The Company invoked the clause late, took no steps to commence arbitration, and offered no satisfactory explanation for the delay. Moreover, the Company's substantive defences, principally that the guarantee was not validly executed as a deed, were without merit. The Court concluded that the debt was not subject to a bona fide dispute on substantial grounds and that the arbitration clause did not preclude the winding up petition.
The Court therefore made a standard winding up order against the Company.
Comments
This decision underscores the pragmatic approach of the Hong Kong Courts in assessing the "real benefit" requirement for winding up foreign companies. Where such companies have Mainland assets or operations, a Hong Kong winding up order may potentially provide creditors with access to those assets through the pilot scheme for mutual recognition and assistance, and that would be a factor in favour of exercising the Hong Kong Court's jurisdiction.
Whilst the Court observed that no recognition has yet been made in favour of a Hong Kong liquidator of a foreign company under the pilot scheme, this decision suggests that it is possible, at least from the Hong Kong Court's perspective. It remains to be seen whether the Mainland courts will take the same view.
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