HCMP 2271/2019
[2020] HKCFI 416
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 2271 OF 2019
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IN THE MATTER OF MOODY TECHNOLOGY HOLDINGS LIMITED (滿地科技股份有限公司) (IN PROVISIONAL LIQUIDATION FOR RESTRUCTURING PURPOSES) |
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and |
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IN THE MATTER OF THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE (CAP.32) AND THE INHERENT JURISDICTION OF THE COURT |
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THE JOINT PROVISIONAL LIQUIDATORS OF MOODY TECHNOLOGY HOLDINGS LIMITED |
Applicants |
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(滿地科技股份有限公司) (IN PROVISIONAL LIQUIDATION FOR RESTRUCTURING PURPOSES) |
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Before: |
Deputy High Court Judge William Wong SC in Chambers |
Dates of Hearing: |
23 & 24 January 2020 |
Date of Reasons for Decision: |
12 March 2020 |
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REASONS FOR DECISION
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Application
1. On 10 December 2019, the Joint and Several Liquidators (the “JPLs”) of Moody Technology Holdings Limited (the “Company”) appointed by the Order of the Supreme Court of Bermuda (the “Bermuda Court”) dated 24 October 2019, by an Ex Parte Originating Summons, applied to this Court for the recognition of their appointment and their powers as set out in the Letter of Request issued by the Chief Justice of the Supreme Court of Bermuda dated 20 November 2019.
Background and Procedural History
2. The Company is a company incorporated in the Cayman Islands on 29 April 2013. On 23 May 2019, the Company changed its domicile to Bermuda, and it now continues as an exempted company under the laws of Bermuda.
3. The Company is listed on the Main Board of Hong Kong Stock Exchange (“HKSE”) with stock code 1400 since 25 April 2014, and it is a China-based investment holding company principally engaged in manufacturing and sales of fabrics and yarns, which also engages in shoes and clothes trading.
4. On 29 September 2019, a winding up petition was presented against the Company in Hong Kong by Mr Su Dajie, the Petitioner in HCCW No.283 of 2019 (the “Petition”) on the ground that the Company has failed and refused to settle a debt due to the Petitioner in the sum of HK$2,890,247.13.
5. On 10 October 2019, the Company presented a winding up petition against itself to the Supreme Court of Bermuda (the “Bermuda Petition”).
6. On 15 October 2019, the Company made an application for the appointment of joint and several provisional liquidators on a “light touch” basis for restructuring purposes.
7. On 20 November 2019, the Chief Justice of the Bermuda Court made an Order (the “Letter of Request Order”) that a Letter of Request directed to the Hong Kong Court seeking its assistance and recognition of the appointment of the JPLs in aid of the Bermuda Court proceedings be issued (the “Letter of Request”).
8. Mr Tai for the JPLs drew this Court’s attention to the details of the restructuring proposal and submitted that judicial assistance and recognition should be given pursuant to the Letter of Request.
9. As a recognition order by this Court would inevitably affect the interest of the Petitioner, the supporting creditor and the Company, I directed that notice be given to parties to the Petition. At the hearing on 24 January 2020, both the Petitioner and the supporting creditor, Mr Wang Zhiyong, through their solicitors’ letters, informed this Court that they adopt a neutral stance to the recognition application.
10. It is clear that the JPLs are attempting to restructure the Company and its debts in Bermuda. The question is whether Hong Kong Courts should give recognition to the same when it entails a moratorium. Further, under our current law, provisional liquidators cannot be appointed for the sole purpose of propounding a scheme of arrangement. (See Re Legend International Resorts Ltd [2006] 2 HKLRD 192)
Legal Analysis
11. In Re Joint Provisional Liquidators of Hsin Chong Group Holdings Ltd [2019] HKCFI 805, Harris J recognised provisional liquidators appointed in Bermuda on a soft-touch basis and granted restructuring powers to the provisional liquidators by way of common law assistance.
12. Mr Justice Harris recognised and assisted the Bermuda soft-touch provisional liquidators even though the Hong Kong Court could not appoint provisional liquidators solely for the purpose of enabling a corporate rescue to take place. At §9, the learned Judge said:
“ …It is not in my opinion inconsistent with Hong Kong law for restructuring powers to be granted by way of assistance to a provisional liquidator appointed over a foreign company by the court of its place of incorporation, in which a soft-touch provisional liquidation is permissible, as such powers can be granted, albeit in the more limited circumstances discussed in China Solar, to a Hong Kong provisional liquidator.”
What is soft-touch provisional liquidation?
13. As the High Court of the British Virgin Islands (“BVI”) explained in Re Constellation Overseas Ltd (5 February 2019) at §3 per Adderley J:
“ The essence of a “soft touch” provisional liquidation is that a company remains under the day to day control of the directors, but is protected against actions by individual creditors. The purpose is to give the Group the opportunity to restructure its debts, or otherwise achieve a better outcome for creditors than would be achieved by liquidation. It may be appropriate where there is no alleged wrongdoing of the directors.” (Emphasis added.)
14. However, because of the Court of Appeal decision in Re Legend International Resorts Ltd (supra), soft-touch provisional liquidation is at present impermissible in Hong Kong.
15. In this regard, the present Hong Kong position is an uncommon and peculiar one in the common law world. As the authorities reviewed in Re Constellation Overseas Ltd show, soft-touch provisional liquidation is consistent with the insolvency legislation in England, Bermuda, the Cayman Islands and BVI, which is in pari materia with section 193 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“Ordinance”). Indeed soft-touch provisional liquidation is commonplace in offshore jurisdictions.
What is ‘recognition’ and ‘assistance’ in the context of cross-border insolvency?
16. In Re Da Yu Financial Holdings Ltd [2019] HKCFI 2531 at §§ 49-50, I explained the notion of recognition in the context of cross-border insolvency thus:
“ Requiring foreign office-holders to commence parallel proceedings is the very antithesis of cross-border insolvency cooperation. A crucial feature of cross-border insolvency cooperation is the recognition of foreign proceedings. In Look Chan Ho, Cross-Border Insolvency: Principles and Practice (Sweet & Maxwell, 2016), the learned author at p. 61 said:
‘Recognition of international bankruptcy orders and judgments is particularly needed because the equitable and orderly distribution of a debtor’s property requires assembling all claims against the limited assets in a single proceeding.’
The raison d’être for recognising foreign proceedings is the avoidance of parallel proceedings. As pointed out by Lord Hoffmann in Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plc [2007]1 AC 508 at §22, “[t]he purpose of recognition is to enable the foreign office holder or the creditors to avoid having to start parallel insolvency proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum”.”
17. Recognition carries with it the active assistance of the recognising Court (Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36; [2015] AC 1675 at §19 per Lord Sumption).
18. In Re CEFC Shanghai International Group Limited [2020] HKCFI 167 at §§10-11, Harris J explained the notion of cross-border assistance as follows:
“ Upon the foreign insolvency proceedings being recognised, the Court will grant assistance to the foreign officeholders by applying Hong Kong insolvency law…
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 ... The principles that circumscribe the limits of the common law power of assistance are explained by Lord Sumption in Singularis Holdings Ltd v PricewaterhouseCoopers … :
(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.”
19. However, it is important to note that despite obtaining recognition and assistance from Hong Kong Courts, the foreign officeholders will not be acting as, acting in the capacity of, or having the status of officeholders appointed by Hong Kong Courts in a domestic insolvency.
20. In this regard, the English Court of Appeal decision in Candey Ltd v Crumpler [2020] EWCA Civ 26 is instructive. The material facts for present purposes are these. In February 2016, the BVI court wound...
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