In recent years, investigative journalism1 and international corruption prosecutions2 have trained a spotlight on the world of offshore finance, frequently used by ultra-high net worth individuals to insulate their assets from their personal liabilities and fend off creditors and prosecutors alike.
One of the underlying premises of this strategy is to spread assets across as many corporate shell companies incorporated in as many jurisdictions as possible, with the goal of intensifying the headache faced by creditors and prosecutors seeking to recover assets. This strategy is often aided by courts' application of corporate and trust law principles that, while having legitimate uses, are a boon to those who would misuse them.
One of these debtor-friendly doctrines that makes a frequent appearance in U.S. litigation is the so-called "internal affairs" rule. Under that doctrine, the legal obligations between a corporate entity and its owners—including, in some circumstances, alter ego claims—are generally assessed under the law of incorporation of the entity. In reliance on this doctrine, recalcitrant debtors who are subject to jurisdiction in the U.S. can, in a matter of minutes, incorporate shell companies in overseas jurisdictions with no or very limited alter ego doctrines, and place their assets in these shell companies. With the benefit of this juridical separation, they then feel insulated from U.S. courts attempting to recover assets for the benefit of victims or creditors. Indeed, the internal affairs doctrine can be used not only to avoid substantive relief afforded by U.S. courts, but is often invoked by debtor-affiliated corporate entities trying to avoid U.S. jurisdiction (and discovery) entirely.
That is what happened in the case of Despins v. ACA Capital Group Ltd. et al. (In re Kwok) in the U.S. Bankruptcy Court for the District of Connecticut. Laudably, in an opinion issued on April 23, 2025, the Bankruptcy Court in Despins declined to play along with this shell game. Instead, it applied federal common law to determine its own jurisdiction, rather than giving the debtor the benefit of the asset protection scheme he is alleged to have created.
In Despins, the bankrupt debtor is an individual named Ho Wan Kwok. According to criminal charges brought to the Department of Justice (and of which Kwok was convicted in July 2024), he "led a complex conspiracy to defraud thousands of his online followers out of over $1 billion dollars."3 As the charged conspiracy collapsed, Kwok sought bankruptcy protection in the District of Connecticut in February of 2022. A Trustee was then appointed to marshal Kwok's assets, and has initiated several adversary proceedings against the entities and individuals related to Kwok.
One of these cases is styled Despins v. ACA Capital Group Limited et al., in which the Trustee sought to recover the assets of shell companies affiliated with Kwok by asserting alter ego claims under U.S. law and similar equitable ownership or proprietary claims under the England-premised laws of the jurisdictions where the shell companies were incorporated (the UK, British Virgin Islands, Hong Kong, and Australia).4 Importantly, while the foreign entities themselves had scant connections to the U.S., the Trustee premised personal jurisdiction on the theory that the entities were alter egos of Kwok, over whom the Court plainly did have jurisdiction.5
The non-U.S. entities moved to dismiss for lack of personal jurisdiction, arguing (among other things) that under Connecticut's choice-of-law rules and Connecticut's internal affairs doctrine, the restrictive theories of alter ego and veil piercing under English law should be applied in deciding whether alter ego personal jurisdiction was proper. The Court declined the invitation, concluding that Connecticut's choice-of-law rules favored application of the federal common law of alter ego, rather than the alter ego law of the entities' jurisdictions of incorporation.6 In reaching this conclusion, the Court emphasized that application of federal common law of alter ego served the interests of certainty and predictability in U.S. courts. The Court also reasoned that, while the federal common law of alter ego may differ somewhat from English law principles, English law does allow veil piercing in some analogous circumstances. Thus, the Court determined, application of federal common law would not be anathema to English law. Finally, it appeared to have been significant to the Court that the Trustee was asserting substantive legal claims against the foreign entities under English law—in the Court's words, the Trustee was not "seeking a remedy beyond what" could have been "achieve[d] under English law." Applying federal common law, the Court determined that the Trustee had comfortably stated an alter ego claim necessary to support personal jurisdiction.
One might ask: why is this jurisdictional ruling important if the Trustee's substantive claims were under English law? The answer is two-fold: First, having all entities roped into one litigation massively increases the efficiency of proceedings, and deprives the debtor of one of the goals of asset protection—multiplying proceedings across jurisdictions in search of a settlement discount. Second, the benefit of subjecting these entities to U.S.-style discovery (which is not the norm worldwide, particularly in offshore asset havens) cannot be overstated, and is a significant victory for the Trustee and Kwok's victims attempting to untangle the web.
Simply put, the Bankruptcy Court's decision in Despins is a welcome development for the asset recovery community seeking to subject offshore shell companies to jurisdiction in U.S. courts. The defendants have sought to appeal that decision to the U.S. District Court for the District of Connecticut, and so it is possible that the Bankruptcy Court's opinion is not the last word on this issue. Here's hoping that American courts continue to cut through these asset protection structures and decline the invitation to play along in the shell game.
Footnotes
1. See, e.g., the International Consortium of Investigative Journalists' coverage of the so-called "Panama Papers," available at https://www.icij.org/investigations/panama-papers/ and the "Paradise Papers," available at https://www.icij.org/investigations/paradise-papers/.
2. See, e.g., Press Release: Malaysian Financier Low Taek Jho, Also Known As "Jho Low," and Former Banker Ng Chong Hwa, Also Known As "Roger Ng," Indicted for Conspiring to Launder Billions of Dollars in Illegal Proceeds and to Pay Hundreds of Millions of Dollars in Bribes (Nov. 1, 2018), available at https://www.justice.gov/archives/opa/pr/malaysian-financier-low-taek-jho-also-known-jho-low-and-former-banker-ng-chong-hwa-also-known.
3. See Press Release: Ho Wan Kwok, A/K/A "Miles Guo," Arrested For Orchestrating Over $1 Billion Dollar Fraud Conspiracy, available at https://www.justice.gov/usao-sdny/pr/ho-wan-kwok-aka-miles-guo-arrested-orchestrating-over-1-billion-dollar-fraud-conspiracy.
4. Despins v. ACA Capital Group Ltd. et al., No. 24-05249, 2025 Bankr. LEXIS 1000 (Bankr. D. Conn. Apr. 23, 2025).
5. See, e.g., So. New Eng. Tel. Co. v. Glob. NAPs Inc., 624 F.3d 123, 138 (2d Cir. 2010) ("It is also well established that the exercise of personal jurisdiction over an alter ego corporation does not offend due process.")
6. Despins, 2025 U.S. Bankr. LEXIS 1000, at *19-23.
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