Case: The joint administrators of African Minerals Limited (in administration) v Madison Pacific Trust Limited and Shangdong Steel Hong Kong Zengli Limited (HCMP 865 of 2015)

The effect of the Privy Council’s recent decision in Singularis (Singularis Holdings Limited v PricewaterhouseCoopers [2014] UKPC 36) is already being felt by English office holders in cross-border insolvency proceedings.  The Hong Kong High Court has refused to grant assistance to English administrators by way of a stay on enforcement on the basis that the assistance was not available under the common law of Hong Kong. 

The case illustrates the limitations on common law assistance in the light of the UK courts’ recent approach to cross border insolvencies.  

Background

The applicant administrators were appointed over a Canadian-incorporated company, African Minerals Limited, by order of the English High Court.  The company, through its Bermudan subsidiaries, was involved in mineral exploration and development in Sierra Leone.  Through its subsidiaries, the company held 75% of three operating companies in Sierra Leone.  Shangdong Steel held the remaining 25% of shares. As security for group lending, the company had granted a share charge in favour of Standard Bank over shares in two of the Bermudan subsidiaries. 

The company ran into financial difficulties and the lenders gave notice that they had novated their rights in favour of Shangdong Steel.  A notice of acceleration was served on the same day and Madison, a Hong Kong company, replaced the original agent and security agent.

Upon the administrators’ appointment, a statutory moratorium arose under paragraph 43 of Schedule B1 to the Insolvency Act 1986. 

The administrators were concerned that Madison would dispose of the shares to a member of the Shangdong Steel group at an undervalue and applied to the English High Court for relief and a letter of request This letter asked the Hong Kong Court to recognise and give effect to the paragraph 43 moratorium pending determination by the English Court as to whether the moratorium had extra-territorial effect. 

Armed with the letter of request, the administrators applied to the Hong Kong High Court for an order that no steps be taken by Madison to enforce security over the company’s property without the consent of the administrators or the English Court.

Readers will recall that in Singularis the Privy Council held the Bermudan Court could not assist Cayman liquidators in relation to an application for the disclosure of information belonging to the company’s auditors.  The Privy Council held that the power to assist must exist under the law of the office holder’s home jurisdiction and also at common law in the jurisdiction where assistance is sought.

No common law power

The Hong Kong Court held that there was no equivalent of administration proceedings under Hong Kong law and no statutory or common law power to impose a moratorium.  Following the line of authority since the Supreme Court’s decision in Rubin, the Hong Kong Court could not apply foreign (English) law and could not extend the scope of assistance available to foreign office holders under the common law in the way the administrators requested.

Comment

While this is a decision of the Hong Kong Court, it demonstrates the practical effect recent decisions of the English courts have had on office holders seeking assistance in cross border insolvencies and the limitations of modified universalism.  It is a reminder that the recent trend of the courts can have frustrating consequences for English office holders seeking assistance abroad.