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Re The Joint And Several Provisional Liquidators Of Fdg Electric Vehicles Limited (Provisional Liquidators Appointed

Judgment Cited authorities 17 Cited in 17 Precedent Map Related
Vincent
Judgment Date19 November 2020
Neutral Citation[2020] HKCFI 2931
Judgement NumberHCMP1308/2020
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP1308/2020 RE THE JOINT AND SEVERAL PROVISIONAL LIQUIDATORS OF FDG ELECTRIC VEHICLES LIMITED (PROVISIONAL LIQUIDATORS APPOINTED)

HCMP 1308/2020

[2020] HKCFI 2931

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1308 OF 2020

________________

IN THE MATTER of FDG Electric Vehicles Limited (Provisional Liquidators Appointed)

and

IN THE MATTER of Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) and the inherent jurisdiction of the Court

________________

BY

THE JOINT AND SEVERAL PROVISIONAL LIQUIDATORS OF FDG ELECTRIC VEHICLES LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) Applicants

________________

Before: Hon Harris J in Chambers

Date of Hearing: 3 November 2020

Date of Decision: 3 November 2020

Date of Reasons for Decision: 19 November 2020

_________________________________

R E A S O N S F O R D E C I S I O N

_________________________________


The application

1. FDG Electric Vehicles Limited (“Company”) has been put into provisional liquidation in Bermuda where it is incorporated. The Joint and Several Provisional Liquidators (“PLs”) applied in writing for an order of recognition and assistance. As there were a number of matters arising from the form of the order that was sought about which I had questions I directed that a hearing take place. At the hearing an opposing subsidiary (FDG Kinetic Limited) appeared through Mr Look Chan Ho to address some of the matters about which I had questions. There is no suggestion that the PLs should not be recognised and some assistance granted. The two issues, which require consideration are as follows:

(a) Should the order contain a paragraph, which on its face gives the PLs the power to take control of all directly and indirectly owned subsidiaries of the Company?

(b) What, if any, stay should be ordered in respect of existing or prospective proceedings against the Company in Hong Kong?

2. As it transpired there was no issue in respect of the first matter as Mr Tom Ng, who appeared for the PLs, accepted Mr Ho’s submissions that the power to take control of subsidiaries should be limited to those which are incorporated in Hong Kong and held either directly or, if indirectly, through Hong Kong incorporated intermediate subsidiaries. The reason for this is as follows.

What assets can a foreign liquidator be empowered to take control of?

3. When the court recognises foreign corporate insolvency proceedings, the court may permit the foreign liquidator to take control of the Company’s assets in Hong Kong. This will extend, if relevant, to shareholdings in Hong Kong incorporated companies. It appeared initially that the PLs were seeking the power to take control of subsidiaries incorporated in other jurisdictions such as Bermuda. Mr Ho characterised this as being akin to asking the court to empower a foreign liquidator take control of the Company’s bank account in another jurisdiction, which would be impermissible judicial overreach. I agree.

4. The assumption that an order could be obtained giving a power to take control of subsidiaries without a jurisdictional qualification came, so it would appear, from my decision in Re Shenzhen Everich Supply Chain Co Ltd [1]. It is correct as can be seen from [2(vi)] that the express power did not contain any jurisdictional qualification. However, the power, which was sought was directed to Hong Kong subsidiaries (see [7] of the decision) and [2] of the order commences with “The Liquidator do have and may exercise in the Hong Kong Special Administrative Region the following powers”.

5. This application as originally formulated seemed to envisage a power to take control of foreign incorporated subsidiaries and in so doing overlooked the significance of two conflict of laws rules. First, property and contractual claims to shares in a company should be determined by the lex situs, and shares have their situs in the place of incorporation of the company: Chen Lingxia v 中國金谷國際信託有限責任公司[2]. Secondly, the question of whether foreign liquidators are agents of the debtor company is governed by the law of a company’s incorporation (lex incorporationis): Re Moody Technology Holdings Limited [3].

6. As originally formulated the application overlooked both that the scope of the PLs powers as representatives of the Company are governed by the law of Bermuda not Hong Kong law, and that the relevant Bermuda subsidiary is owned through the British Virgin Islands (“BVI”) subsidiaries. To take control of the Bermuda subsidiary thus involves taking control of the BVI subsidiaries. Assuming that the powers granted to the PLs extends to obtaining control of the BVI subsidiaries, whether the PLs are able to obtain control of the BVI subsidiaries is a matter of BVI law not Hong Kong law. One can test this by considering what the BVI registrar of companies is likely to want to see if the PLs attempt to change ownership of shares in the BVI companies and register the changes [4]. It seems to me obvious that the BVI registrar of companies would be interested in the powers conferred by the order appointing the PLs in Bermuda. He would have no interest in the powers purportedly conferred on the PLs in Hong Kong.

Staying proceedings in Hong Kong

7. The recognition orders that have until recently been granted have contained a paragraph in the following terms: “For so long as the Company remains in liquidation in [relevant jurisdiction], no action or proceedings shall be proceeded with or commenced against the Company or its assets or affairs, or their property within the jurisdiction of this Honourable Court, except with the leave of this Honourable Court and subject to such terms as this Honourable Court may impose”. This was intended to be in the nature of a case management provision, which would ensure that action would not take place in Hong Kong without the relevant parties being aware of the impact of the foreign insolvency proceedings and, if appropriate, a stay granted. However, I recognise that there are a number of questions that the order so worded gives rise to. First, that if (which was not the case with the initial orders that were granted) there are already proceedings on foot in Hong Kong, one would expect an application for a stay to be made in those proceedings. Secondly, whether or not it is appropriate to grant a stay in respect of unidentified prospective proceedings about which, necessarily, nothing is known. Both Mr Ng and Mr Ho agreed that the paragraph was more appropriately drafted in terms, which did not purport to impose a stay, but required appropriate applications in High Court proceedings to be issued and returnable before the judge granting the recognition order. The order that I will grant in the present case, and be amenable to granting in the future, is as follows:

“If the Provisional Liquidators wish to apply for a stay or other directions in respect of proceedings in the High Court of any sort as a consequence of the recognition of their appointment by this order such application shall be listed before the Honourable Mr. Justice Harris or such other judge as he shall direct. The Provisional Liquidators shall write to the clerk to the Honourable Mr. Justice Harris seeking case management directions for the determination of any application that they wish to make pursuant to this order”.

I note in passing that in a recent recognition and assistance decision in the Cayman Islands, Mr Justice Segal granted a similar order [5].

8. This order does not assist if the proceedings are in the District Court. It may also commonly be the case that other parties and their legal advisers are not familiar with the law in this area. It will, therefore, be useful if I say something about the court’s power to stay proceedings in Hong Kong in aid of foreign liquidations.

9. It is well established that the court has a power at common law to assist a foreign liquidation by ordering a stay of proceedings within its jurisdiction. This is explained by Lord Collins in [54] of his judgment in Singularis Holdings Ltd v PricewaterhouseCoopers [6]:

“Most of the cases fall into one of two categories. The first group consists of cases where the common law or procedural powers of the court have been used to stay proceedings or the enforcement of judgments. Several of these cases were mentioned in Rubin v Eurofinance SA [2013] 1 AC 236, para 33. They include (subject to what is said below) In re African Farms Ltd [1906] TS 373, where execution in Transvaal by a creditor in proceedings against an English company in liquidation in England was stayed by the Transvaal court, which was applied in Turners & Growers Exporters...

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