In a first in Hong Kong, the Companies Court has recently sanctioned a creditors' scheme of arrangement proposed by a Bermuda-incorporated, Hong Kong-listed company by approving an alternative process pursued by the company and its provisional liquidators so as to overcome the constraints in Re Legend International Resorts Ltd [2006] 2 HKLRD 192; that in Hong Kong, provisional liquidators cannot be appointed for the sole purpose of restructuring a company.

In the matter of Z-Obee Holdings Limited (Provisional Liquidators appointed in Bermuda) (the "Company"), a winding-up petition was initially presented in Hong Kong for the winding-up of the Company and on the same day, a summons was filed seeking the appointment of provisional liquidators. While provisional liquidators were initially appointed by the Companies Court so as to preserve the assets of the Company, once these duties had been discharged, the primary matter remaining for consideration by the provisional liquidators was a potential restructuring of the Company. Mindful of the potential limitations in Hong Kong, the provisional liquidators took steps to invoke the jurisdiction of the Company's place of incorporation (i.e., Bermuda), where provisional liquidators may be appointed, in appropriate circumstances, to facilitate a restructuring.

The Hong Kong provisional liquidators were appointed as provisional liquidators by the Bermuda court and obtained recognition in Hong Kong by a letter of request in a procedure that is now well-established in the Companies Court (see our Legal Update "Cross-border Insolvency: Guidance from the Companies Judge"). The Hong Kong provisional liquidators were then discharged, the Hong Kong winding-up petition stayed, and a restructuring of the Company has been proceeding with the Company having the protection of a statutory moratorium by reason of it being in provisional liquidation in Bermuda. This alternative process mitigates the risk that the Hong Kong court might proceed with the winding-up of the Company, which would preclude any restructuring. The schemes to implement the restructuring have now been sanctioned by the courts of both Hong Kong and Bermuda. Mayer Brown JSM acts as Hong Kong counsel for the provisional liquidators of the Company.