Background
Beauty China Holdings Limited (the "Company") was incorporated in the Cayman Islands and its shares were listed on the main board of the Singapore Exchange Securities Trading Limited. It was not registered under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (the "Companies Ordinance") and was an unregistered company within the meaning of section 326 of the Companies Ordinance.
A creditor's petition to wind up the Company was presented by a syndicated group of lenders comprising among others Industrial and Commercial Bank of China (Asia) Limited ("ICBC Asia"). ICBC Asia was the successor agent of a term loan facility in the sum of HK$135 million (the "Loan Agreement").
The Company opposed the petition on the ground that the Hong Kong court should decline to exercise its winding-up jurisdiction against a foreign company.
Court's Decision
The court following the principles laid down in earlier cases including Re Zhu Kuan Group Co Ltd [2004] HKCU 1047 affirmed that it had jurisdiction to wind up an unregistered company under section 327(1) of the Companies Ordinance.
The core requirements for exercising this jurisdiction are as follows :-
(a) there had to be a sufficient connection with Hong Kong, but this did not necessarily have to consist in the presence of assets within the jurisdiction;
(b) there must be a reasonable possibility that the winding-up order would benefit those applying for it; and
(c) the court must be able to exercise jurisdiction over one or more persons in the distribution of the company's assets.
There was no dispute that requirement (c) was satisfied. The court was able to exercise jurisdiction over some of the petitioners and the supporting creditor.
As regards requirement (a), the Company was an investment holding company and did not directly carry out any manufacturing or trading activity. It had a number of wholly-owned subsidiaries incorporated in the British Virgin Islands, Macau, Hong Kong, the PRC and Samoa and some of these subsidiaries were engaged in the manufacturing and trading of cosmetic products. On the evidence, the Company had maintained an office in Hong Kong and had carried on business at such office. Further, the Loan Agreement was prepared, negotiated and approved in Hong Kong. The principal sum of the Loan Agreement was remitted to the Company's bank account in Hong Kong. The governing law of the Loan Agreement was Hong Kong law and the Company agreed that any legal action or proceedings arising out of or relating to the Loan Agreement might be brought in the Hong Kong courts and submitted to the non-exclusive jurisdiction of the Hong Kong courts. The Company had two wholly-owned subsidiaries in Hong Kong. On the evidence, the Company had sufficient connection with Hong Kong to justify the Hong Kong court setting in motion its winding-up procedures. The requirement (a) was satisfied.
As regards requirement (b), one of the Company's wholly owned subsidiaries in Hong Kong ("HK Subsidiary") had a wholly owned subsidiary in the PRC with a paid-up capital of HK$20 million. The HK Subsidiary also had among its current assets, amounts due from fellow subsidiaries of HK$6.3 million odd and had cash and cash equivalents of HK$1.6 million odd. The Company was not virtually worthless. The fact that the liabilities of the HK Subsidiary exceeded its assets did not mean there was no prospect of some recovery for creditors of the HK Subsidiary.
The significant subsidiary of the Company was a company in Zhuhai engaged in the manufacturing of cosmetic skin care products with a registered capital of HK$70 million. In view of the proximity of Hong Kong to Zhuhai and that there was some prospect of recovery by the Company as a creditor of HK Subsidiary, there was a reasonable possibility of some benefit accruing to creditors from a winding-up order in Hong Kong. Requirement (b) was therefore satisfied.
The court held that it was appropriate in all the circumstances to exercise jurisdiction to wind up the Company. Accordingly, the court made a winding-up order.
Conclusion
Based on the decision of this case, it is clear that the Hong Kong court has jurisdiction to wind up an unregistered foreign company as long as the three core requirements for exercising this jurisdiction are satisfied.
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