Re The Joint And Several Liquidators Of Cefc Shanghai International Group Limited (In Liquidation In The Mainland Of The People’s Republic Of China

HCMP 2295/2019

[2020] HKCFI 167

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2295 OF 2019

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D E C I S I O N

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The Application

1. CEFC Shanghai International Group Limited (“Company”) is in insolvent liquidation in the Mainland and has substantial assets in Hong Kong which are subject to pending creditor’s enforcement. The Company’s Mainland [1] administrators — (i) King & Wood Mallesons (Shanghai Office) (北京市金杜律师事务所上海分所), (ii) Shanghai Fangda Partners (上海市方达律师事务所) and (iii) Shanghai AllBright Law Offices (上海市锦天城律师事务所) (“Administrators”)[2], who were appointed by the Shanghai No 3 Intermediate People’s Court (“Shanghai Court”), seek recognition and assistance in Hong Kong in order to perform their functions and in particular to protect the Company’s Hong Kong assets from pending creditor’s enforcement. The Administrators have the function played by liquidators in the Hong Kong system. I discuss their powers in detail in [23]–[24].

2. Although, the Hong Kong Court routinely grants orders of recognition and assistance to liquidators of companies incorporated in other jurisdictions appointed by the court of those jurisdictions, this is the first application, of which I am aware, for an order by administrators of a company in liquidation in the Mainland for recognition of their appointment and judicial assistance at common law. It is certainly the first such case in Hong Kong. It is not, however, the first case of recognition of Mainland insolvency proceedings overseas. I am aware of two cases of recognition under Chapter 15 of the United States Bankruptcy Code. The first in 2014 concerned Zhejiang Topoint Photovoltaic Co, Ltd, in respect of which the United States Bankruptcy Court, District of New Jersey, granted recognition on 12 August 2014 [3]. More recently in October 2019, and in the face of creditor objection, the United States Bankruptcy Court, Southern District of New York, granted Chapter 15 recognition of the Mainland liquidation of Re Reward Science and Technology Industry Group Co, Ltd [4].

3. Given the size of the Mainland economy and the financial problems increasingly experienced by Mainland businesses, which increasingly have assets located overseas, this is an application of considerable importance and it is necessary to consider in some detail the relevant principles, which this Court has developed in recent years and how they apply to a company incorporated in the Mainland, which as will be appreciated operates in many respects a significantly different economic and legal model to that in Hong Kong. It is also an opportunity to consider whether in the light of the House of Lords’ decision in Galbraith v Grimshaw [5] a garnishee order nisi should be made absolute if, after the service of the garnishee order nisi, a foreign bankruptcy order is made. This I do in [16]–[21].

Background

4. The Company is a Mainland-incorporated investment holding company and is part of a conglomerate whose business includes capital financing, petroleum refining and infrastructure. On 15 November 2019, pursuant to the Shanghai Court’s order under the Enterprise Bankruptcy Law (“EBL”), the Company went into insolvent liquidation. On 24 November 2019, the Shanghai Court appointed the Administrators.

5. The Company’s assets in Hong Kong include a claim against its Hong Kong subsidiary, Shanghai Huaxin Group (Hong Kong) Limited (“HK Subsidiary”), amounting to some HK$7.2 billion (“HK Receivable”). As the HK Subsidiary is in liquidation in Hong Kong, the Company has submitted a proof of debt in respect of the HK Receivable in the HK Subsidiary’s liquidation. After their appointment, the Administrators discovered the following. On 24 August 2018, Right Time Global Investment SPC-Right Time Value Investment Fund SP (“Right Time Fund”) obtained a default judgment against the Company in Hong Kong for some €29 million (“Default Judgment”). On 12 August 2019, in order to enforce the Default Judgment, Right Time Fund obtained a garnishee order nisi in respect of the HK Receivable. The hearing to show cause for the garnishee order was scheduled for 11 December 2019 before a Master.

6. In order to prevent Right Time Fund from obtaining a garnishee order absolute, the Administrators made an urgent application to me for recognition and assistance, and requested the Master to adjourn the garnishee proceedings until after the determination of the Administrators’ recognition application. On 11 December 2019, the Master adjourned the garnishee proceedings to 8 January 2020.

7. In view of the urgency of the matter, on 10 December 2019, the Shanghai Court issued a letter of request to facilitate the Administrators’ recognition application, which I heard in the afternoon of 18 December 2019 [6]. I granted an order in the terms appended to these reasons for that decision.

The principles of recognition of foreign insolvency proceedings relevant to this application

8. As I have already mentioned in recent years this Court has dealt with a large number of applications for recognition and assistance from various jurisdictions. These have principally been common law jurisdictions such as the Cayman Islands, Bermuda and the British Virgin Islands reflecting the fact that many Hong Kong listed companies are incorporated in one or other of those jurisdictions. One application has been granted in respect of a Japanese trustee in bankruptcy appointed by a Japanese court over a company incorporated in Japan, which is a civil law jurisdiction (eg Re Takamatsu [7]). From these decisions the following criteria emerge, which must be satisfied before recognition and assistance will be granted.

(a) the foreign insolvency proceedings are collective insolvency proceedings: Re Joint Provisional Liquidators of China Lumena New Materials Corp [8]; and

(b) the foreign insolvency proceedings are opened in the company’s country of incorporation: Re Joint Liquidators of Supreme Tycoon Ltd [9].

9. Provided the above criteria are satisfied, the Court may recognise insolvency proceedings opened in a civil law jurisdiction (Re Takamatsu [10]).

10. Upon the foreign insolvency proceedings being recognised, the Court will grant assistance to the foreign officeholders by applying Hong Kong insolvency law. The reasons for so doing are explained in the judgment of the Privy Council delivered by Lord Hoffmann in Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plc [11]:

11. The Companies Court does not, however, grant a foreign liquidator, whose appointment it has recognised all the powers available to a liquidator appointed by it pursuant to the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“Ordinance”). The principles that circumscribe the limits of the common law power of assistance are explained by Lord Sumption in Singularis Holdings Ltd v PricewaterhouseCoopers [12]:

(a) The power of assistance exists for the purpose of enabling foreign courts to surmount the problems posed for a world-wide winding up of the company’s affairs by the territorial limits of each court’s powers. Therefore, the power of assistance is not available to enable foreign officeholders to do something which they could not do even under the law by which they were appointed.

(b) The power of assistance is available only when it is necessary for the performance of the foreign officeholder’s functions.

(c) An order granting assistance must be consistent with the substantive law and public policy of the assisting court.

12. Accordingly, in Re Joint Liquidators of Supreme Tycoon Ltd [13] I held that “[i]n the case of liquidators appointed in jurisdictions with similar insolvency regimes to Hong Kong, the assistance may extend to granting orders that give the foreign liquidators substantially similar powers”.

13. As the principles are now well-settled in Hong Kong, the Court has provided a standard-form recognition order to guide applicants, as set out in Re Joint and Several Liquidators of Pacific Andes Enterprises (BVI) Ltd [14], which was revised by me in Re Joint Provisional Liquidators of Hsin Chong Group Holdings Ltd [15] to grant powers, which allowed soft-touch provisional liquidators appointed by the Bermuda Court over a company incorporated in Bermuda and listed on the Main Board of The Stock Exchange of Hong Kong Limited to progress a restructuring of the Company’s debt through a scheme of arrangement in Hong Kong.

14. The applications are now normally made in writing. It is common for them to be made in circumstances, which require them to be dealt with promptly. This is not unusual and examples of foreign insolvency officeholder applying for urgent recognition and assistance, such as a...