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The Joint Official Liquidators Of A Company v B And Another

Judgment Cited authorities 8 Cited in 20 Precedent Map Related
Vincent
Judgment Date21 July 2014
Subject MatterMiscellaneous Proceedings
Judgement NumberHCMP902/2014
CourtHigh Court (Hong Kong)
HCMP902/2014 THE JOINT OFFICIAL LIQUIDATORS OF A COMPANY v. B AND ANOTHER

HCMP 902/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 902 OF 2014

_________________

IN THE MATTER OF A COMPANY

_________________

BETWEEN
THE JOINT OFFICIAL LIQUIDATORS OF A COMPANY Applicants

and
B 1st Respondent
C 2nd Respondent

_________________

Before: Hon Harris J in Chambers (Not Open to the Public)
Date of Reasons for Decision: 21 July 2014

___________________________

REASONS FOR DECISION

___________________________

1. I have before me a number of applications made by the liquidators of a company incorporated in the Cayman Islands which has been wound up by order of the Grand Court of the Cayman Islands, which I shall refer to as the “Cayman Court”. Given the confidential nature of the applications I will refer to the company in liquidation simply as the “Company”. The applications were for the following orders:

(1) A confidentiality order.

(2) Recognition of the liquidation in the Cayman Islands and the appointment by the Cayman Court of the liquidators.

(3) An order that the respondents produce certain documents to the liquidators concerning the details of bank accounts into which substantial sums of money were paid by the Company in circumstances, which suggest they may have been part of a fraudulent scheme.

2. The applications were made pursuant to a letter of request. By that letter the Cayman Court requested the High Court of Hong Kong to make the orders briefly described above. In substance the third order sought was of the type made in Hong Kong under section 221(3) of the Companies Ordinance, cap. 32, in a domestic liquidation on the application of a liquidator or a provisional liquidator. A similar provision exists in section 103 of the Companies Law (Cayman Islands). The respondents did not oppose the applications and I granted the orders. These are my reasons for doing so.

3. Perhaps surprisingly this appears to be the first application of this sort to the Companies Court in Hong Kong, at least of which I am aware, although Mr. Karas told me that he had experience of similar applications in the 1990s in connection with the collapse of the Bond Group, but reasons for the orders that were granted appear not to have been produced. It is helpful to start by recalling the established principles of private international law that apply to foreign companies. This is most conveniently approached by reference to the rules set out in The Conflict of Laws, Dicey, Morris & Collins, 15 ed:

(1) Rule 174 - the existence or dissolution of a foreign corporation duly created or dissolved under the law of a foreign country is recognised in England.

(2) Rule 175 – (i) the capacity of the corporation to enter into any legal transaction is governed both by the constitution of the corporation and by the law of the country which governs the transaction in question; (ii) all matters concerning the constitution of the corporation are governed by the law of the place of incorporation.

(3) Rule 179 - the authority of the liquidator appointed under the law of the place of incorporation is recognised in England.

4. These rules recognise that, as one would expect, generally matters concerning the constitution and management of the affairs of a foreign company are determined by the laws of the place of its incorporation. The authors of Conflict of Laws explain in paragraph 30‑102 of the 2nd volume that Rule 179 is justified because the law of the place of incorporation determines who is entitled to act on behalf of a corporation and in footnote 430 various authorities are cited as establishing this principle. The authors go on in the same paragraph to explain that “If under that law [the law of the place of incorporation] a liquidator is appointed to act then his authority should be recognised here”. It follows that if a person in Hong Kong receives a request or instruction from a liquidator of a foreign corporation, with which if it had come from the board of directors of that foreign corporation he would have complied, he should once he is satisfied that the liquidator was properly appointed in the place of incorporation act upon the request or instruction. In practice this is not what happens. It appears to be a common response of banks and other parties to a request for information from a foreign liquidator, and was so in the present case, that his appointment is not effective in Hong Kong and that they require an order from the Hong Kong Courts before they will act.

5. This lack of cooperation from banks, and also in my experience auditors, has been cited to me on a number of occasions as one of the reasons why a foreign liquidator has sought to wind up in Hong Kong the company over which he has been appointed in its place of incorporation. It should not be necessary to do this simply to enable a foreign liquidator to obtain information and documents in Hong Kong. The reason in my experience why the Companies Court receives petitions to wind up foreign companies, which can be problematic because of the restricted circumstances in which the Court will wind up a foreign company[1], rather than applications for more focused assistance is identified, in my view correctly, by Professor Ian Fletcher at paragraph 4.02 of the second edition of Insolvency in Private International Law:

“However, certain factors appear to militate against the English courts’ powers of assistance being more frequently invoked, even against a background of steady growth in the numbers of insolvencies with cross-border aspects. One reason is the relatively under-publicised state of the law, much of which is contained in reports of cases originally decided many years ago. Unfamiliarity with these Common Law precedents and with their significance from the standpoint of obtaining active assistance from the English courts is likely to be one reason for their underutilisation ……….”

6. A distinction does, however, need to be made between information and assets. Unlike the position in personal bankruptcy the common law maintains that a foreign liquidation has no automatic consequences in relation to the property of a foreign company in a local jurisdiction[2]. As a consequence an application needs to be made by a foreign liquidator for an order vesting him with the title to the local property.

7. The present application is important for two reasons. First, because it provides an opportunity to state, what should never have been in doubt, namely, that Rule 179 applies in Hong Kong. Secondly, because it demonstrates that there is in Hong Kong a mechanism available to foreign liquidators for obtaining information and documents without having to wind up a company.

8. Applications of the sort before me are commonly made in other common law jurisdictions and granted. The reasons and justification for so doing are considered in paragraphs 11 to 34 of the judgment of Lord Collins in Rubin v Eurofinance SA [3]. These paragraphs repay careful study. I would emphasise a number of matters discussed in those paragraphs.

9. Lord Collins in paragraph 14 draws attention to the pressing need for international cooperation in cross-border insolvencies. This is becoming the case in Hong Kong as the Companies Court receives increasingly frequent applications which have a cross-border dimension. A recent example is Re China Medical Technologies Ltd [4]; a company incorporated in the Cayman Islands, listed on NASDAQ and having its operating subsidiaries in the Mainland.

10. The trend, certainly in the common law world, towards what is commonly referred to as “universalism” or “modified universalism”. In the case of personal bankruptcy the idea that there should be one process for the distribution of a bankrupt’s property, and that it should be administered by his place of domicile, has a long...

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    ...of foreign insolvency proceedings is considered in a relevant way is my own decision is Joint Official Liquidators of A Co v B [2014] 4 HKLRD 374. In that decision I recognise that the Courts of Hong Kong will recognise a liquidator appointed in the place of a company’s incorporation. I do ......
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