|
HCMP 644/2022
[2022] HKCFI 1789
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 644 OF 2022
________________
| |
IN THE MATTER of an application for recognition and assistance by the provisional liquidator of Global Brands Group Holding Limited (in liquidation) |
| |
and |
| |
IN THE MATTER of the inherent jurisdiction of the Court |
________________
| BETWEEN |
|
|
| |
PROVISIONAL LIQUIDATOR OF GLOBAL BRANDS GROUP HOLDING LIMITED
(IN LIQUIDATION)
|
Applicant |
| |
and |
|
| |
COMPUTERSHARE HONG KONG TRUSTEES LIMITED |
1st Respondent |
| |
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED |
2nd Respondent |
________________
| Before: |
Hon Harris J in Chambers |
| Date of Hearing: |
1 June 2022 |
| Date of Decision: |
23 June 2022 |
__________________
D E C I S I O N
__________________
The Application
1. On 25 May 2022 the Provisional Liquidator of Global Brands Group Holdings Limited (“Provisional Liquidator” and the “Company” respectively) issued an originating summons to which Computershare Hong Kong Trustee Limited (“Computershare”) and The Hong Kong and Shanghai Banking Corporation Limited (“HSBC”) are Respondents seeking an order for recognition and assistance. The Company is incorporated in Bermuda and was wound up in Bermuda on 5 November 2021. The circumstances of the application provide an opportunity to consider in more detail an issue I discuss in Re Li Yiqing v Lamtex Holdings Limited[1], namely, whether in future the Hong Kong court will recognise and assist a foreign insolvency process conducted in the place of company’s centre of main interests (“COMI”) and it is not sufficient, nor necessary, that the foreign insolvency process is conducted in a company’s place of incorporation.
Background
2. The Provisional Liquidator, John McKenna, had been appointed on 16 September 2021 and continued in office on the making of the winding-up order. The principle reason for seeking recognition and assistance from the Hong Kong court is to obtain the proceeds of the sale of shares held by Computershare in Hong Kong on behalf of the Company, totalling approximately HK$9 million, and the rather more modest balance held by HSBC in the Company’s bank account in Hong Kong, which totals approximately US$5,000. The originating summons also seeks certain other general powers. I will explain them later in this judgment.
3. In his affidavit in support of the application the Provisional Liquidator explains the background to the Company and the circumstances leading up to its liquidation in Bermuda. The Company is an investment holding company. The Company, along with its subsidiaries (“Group”), were engaged in the business design, development, marketing and sale of branded children’s, men’s and women’s apparel, footwear, fashion accessories and related lifestyle products in North America and Europe. The Company and its subsidiaries were also engaged in brand management and offered expertise in expanding its clients’ branded assets new product categories, new regions and retail collaborations, as well as assisting in distribution of licensed products on a global basis.
4. The Company was listed on the Main Board of The Stock Exchange of Hong Kong (“HKEX”) Limited in 2014 as a result of a spin-off from Li & Fung of which it had formed part. Due to the ongoing COVID-19 pandemic and geopolitical uncertainties, as well as structural shifts in the retail industry, the business of the Company and its subsidiaries was seriously challenged. As a result, the Company had been facing immense financial difficulties since 2020. For the year ended 31 March 2020, the Group reported: (a) a net loss after tax of US$586,590,000; (b) current liabilities exceeding current assets by US$772,125,000; and (c) cash and cash equivalents amounting to US$83,880,000. For the six months ended 30 September 2020, the Group reported: (a) a net loss after tax of US$119,838,000; (b) that current liabilities exceed current assets by US$899,391,000; and (c) that the Group’s cash and cash equivalents were US$55,805,000.
5. From around January 2021, the Company actively engaged in discussions with the lenders of a syndicated loan to the Group (“Lenders”) of which the Company was a guarantor, other creditors, and potential investors in relation to revising repayment obligations of loans and injecting new equity from prospective investors. The Company also explored different debt restructuring options including potential transactions or corporate actions involving the sale, disposal and/or restructuring of various assets or businesses of the Group (collectively, “Restructuring”).
6. While the Company explored various restructuring options to improve its financial position, the board of the Company resolved that it was in the interests of the Company and its creditors to commence its own winding-up proceedings and apply to the Bermuda Court to appoint a provisional liquidator with limited powers, which could maximise the chance of success of the restructuring and provide a moratorium on claims against the Company to avoid a potential disorderly liquidation by the Company’s creditors. The appointment was apparently intended to create an environment for a successful restructuring. The board could continue to manage the Group’s business operations, a provisional liquidator would monitor and consult with the board on implementing a group-wide and coordinated debt restructuring plan, and the business of the Group could continue to operate to generate revenue as a whole instead of assets being subject to fire sale at a significant discount.
7. On 10 September 2021, the Company presented a petition to the Bermuda Court for the winding-up of the Company (“Petition”) and made an application for appointment of Mr McKenna as provisional liquidator of the Company on a “limited powers” basis for restructuring purposes only. Suffice to say the attempts to restructure proved unsuccessful, the board recognised that a winding-up would be in creditors’ best interests and the Company applied successfully for a winding-up order on 5 November 2021.
8. Since his appointment, the Provisional Liquidator has been trying to take possession of the Company’s assets in Hong Kong. The Company’s assets in Hong Kong are:
(1) cash balances in the sum of about HK$8 million held by Computershare, which represents a surplus arising from the Group’s employee share schemes; and
(2) cash balances in the sum of about US$4,800 held in the Company’s bank accounts with HSBC.
Both Computershare and HSBC require the Provisional Liquidator to obtain a recognition order before they will release the cash balances. Nearly all the Company’s creditors are in Hong Kong. As is to be expected as it is a holding company, the creditors are largely financial or professional companies and are all unsecured. The remainder of the liquidation will be straightforward. The Provisional Liquidator will adjudicate proofs, which seems likely to be uncontroversial, and declare a dividend to be paid out of the assets, which he will receive if a recognition and assistance is granted, which consists of the monies I have referred to in the previous paragraph.
9. The Provisional Liquidator accepts that before the Bermuda liquidation the Company’s COMI was probably in Hong Kong. In the light of the Provisional Liquidator’s activities after the Bermuda liquidation commenced the COMI may have become either Hong Kong or Bermuda. For the purposes of this decision the Provisional Liquidator accepts that the core requirements that need to be satisfied before the Hong Kong court will exercise its winding-up jurisdiction over a foreign company are satisfied[2].
Recognition and Assistance in Hong Kong—Background
10. Commencing in 2014 recognition and assistance has increasingly been used to address issues arising in transnational restructuring and insolvency in Hong Kong that largely arise as a consequence of the extensive use of holding companies incorporated in offshore jurisdictions rather than Hong Kong or the Mainland, although the business groups affected commonly consist of operating and asset owning companies in Hong Kong and the Mainland. This practice has become the norm in the case of companies listed on the HKEX. The operating and asset owning subsidiaries are commonly separated from the holding company by a layer of intermediate subsidiaries incorporated in an offshore jurisdiction different from the holding company. The most common structure recently adopted would appear to involve a Cayman holding company and intermediate subsidiaries incorporated in the British Virgin Islands. The business groups have no assets, creditors or debtors in the offshore jurisdictions. When such business groups encounter financial difficulties and creditors and the companies themselves are considering what steps to take to protect their interests they encounter problems arising from the artificial structure of the group, which it is difficult to address because unlike comparable jurisdictions Hong Kong has neither legislation dealing with rehabilitation of distressed businesses nor legislation dealing with transnational insolvency other than the discretionary power given to the court by section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32 (“Ordinance”), to wind up a foreign company. The absence of the tools available in other jurisdictions, including the Mainland, to address these...
| 
