On 8 February 2018, the Hong Kong Court of First Instance (the “Hong Kong Court“) ruled that the common law power to recognise and assist foreign insolvency proceedings extends to voluntary liquidations – this is the first authority on this issue in Hong Kong.

Case: IN THE MATTER of an application for recognition and assistance by the Joint Liquidators of Supreme Tycoon Limited (in liquidation in the British Virgin Islands) [2018] HKCFI 277

On 8 February 2018, the Hong Kong Court of First Instance (the “Hong Kong Court“) ruled that the common law power to recognise and assist foreign insolvency proceedings extends to voluntary liquidations – this is the first authority on this issue in Hong Kong.

Case: IN THE MATTER of an application for recognition and assistance by the Joint Liquidators of Supreme Tycoon Limited (in liquidation in the British Virgin Islands) [2018] HKCFI 277

Background

Joint liquidators were appointed by a written shareholder’s resolution to Supreme Tycoon Limited (the “Company“), a company incorporated in the British Virgin Islands. The joint liquidators obtained a letter of request from the East Caribbean Supreme Court for recognition of their appointment in Hong Kong to obtain information, books and records about the Company’s affairs from various third parties in Hong Kong. This letter of request was issued on 17 March 2017 and considered by the Hong Kong Court.

Decision

His Honourable Justice Harris specifically declined to follow obiter of the Singularis[1] decision, where the Privy Council (by a majority) suggested that the common law power to recognise and assist foreign insolvency proceedings would not extend to voluntary liquidations:

…The limits of this power [the common law power of recognition and assistance of foreign winding up] are implicit in the reasons for recognising its existence. In the first place, it is available only to assist the officers of a foreign court of insolvency jurisdiction or equivalent public officers. It would not for example, be available to assist a voluntary winding up, which is essentially a private arrangement…”[2]

His Honour provided the following reasons in rejecting the restrictive approach of obiter in Singularis:

  • It is not obvious that the principle of modified universalism, the rationale underlying the common law power of assistance, and the purpose of cross-border insolvency assistance would call for a distinction between compulsory and voluntary winding-up.
  • While there is no doubt a difference between compulsory and voluntary winding-up in terms of the level of court supervision, the difference is one of degree, not of kind.
  • What matters for cross-border insolvency assistance is not whether the foreign insolvency officeholder is or is not an officer of the foreign court. What matters is whether the foreign proceeding is collective in nature, in the sense that it is “a process of collective enforcement of debts for the benefit of the general body of creditors”. It is with collective insolvency proceedings that the principle of modified universalism is concerned.
  • The purpose of cross-border insolvency assistance consists in meeting the foreign insolvency officeholders’ practical needs. It would seem arbitrary and unduly restrictive to insist that they are not entitled to assistance merely because they were not appointed by the foreign court.

His Honour made it quite clear however, that such recognition would not expand to foreign solvent liquidations (for instance, a members’ voluntary liquidation) as they are not a “collective insolvency proceeding” and are more akin to a “private arrangement”. This view explicitly diverges from the Singapore court’s decision in Re Gulf Pacific Shipping Ltd[3] which relied on the US Bankruptcy Court’s decision in In re Betcorp Limited[4] which concerned an Australian members’ voluntary liquidation being recognised under Chapter 15 of the US Bankruptcy Code – which decision has since been considered controversial from the perspective of the UNCITRAL Model Law on Cross-Border Insolvency.

Conclusions

The Hong Kong Court has shown its willingness to use the principle of modified universalism in a pragmatic manner. This decision forms part of a series of other decisions of the Hong Kong Court that explicitly recognise the international nature of insolvency proceedings and the need for courts to assist insolvency practitioners of companies whose compositions have multijurisdictional dimensions in a practical manner through assistance and/or recognition.[5]

The Hong Kong Court’s decision can also be seen as a workaround to advance international comity in Hong Kong given that Hong Kong is not a party to the UNCITRAL Model Law on cross-border insolvency.