Further to our news article published on 28 June 2022, the Honourable Madam Justice Linda Chan revisited the second requirement under Section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32) (“Second Requirement“) in Re NewOcean Energy Holdings Limited [2022] HKCFI 2501 on 8 August 2022. In granting the winding up order against the Bermuda-incorporated and Hong Kong-listed NewOcean Energy Holdings Ltd (“Company“), the Court indicated that it will readily make a winding up order against Hong Kong-listed foreign companies with substantial assets in Hong Kong.

The Second Requirement

The issue in this case was whether the assets of the sub-subsidiaries of the Company (“Hong Kong Subsidiaries“) in Hong Kong could be considered as a “benefit” in satisfying the Second Requirement. In this regard, the Honourable Madam Justice Linda Chan observed that,

• First, the recognition of foreign liquidators is a question of fact.
• Since the Company had already been wound up in its country of incorporation by the Court of Appeal in Bermuda, there was no basis to suggest that Bermuda-appointed liquidators would not be recognised in BVI, the country of incorporation of the immediate holding company of the Hong Kong Subsidiaries (“BVI Company“).
• Secondly, the assets and directors of the Hong Kong Subsidiaries were subject to the jurisdiction of Hong Kong courts. Therefore, even if the Hong Kong directors were unwilling to cooperate, liquidators appointed by Hong Kong courts under Cap.32 would be able to bring proceedings against the Hong Kong Subsidiaries and tap into their underlying assets. The making of a winding-up order would thus serve some “useful purpose” to the creditors and was considered as a “benefit” in satisfying the Second Requirement.

Reconciliation with Re China Huiyuan

Earlier, in Re China Huiyuan Juice Group Limited [2020] HKCFI 2940, the Honourable Mr Justice Harris decided that the common law default position was that the court will recognise only the authority of a liquidator appointed under the law of the country of incorporation of the company. The limited exception to the default position related to the recognition for the purpose only for a foreign liquidator introducing a scheme of arrangement (see Re China Huiyuan at [37-38]).

Against this backdrop, one of the creditors in Re NewOcean Energy relied on Re China Huiyuan to assert that Hong Kong-appointed liquidators would not be recognised in BVI and thus would not be able to get control of the BVI Company. However, the context of Re NewOcean Energy distinguishes from Re China Huiyuan in that the present proceedings concerned an ancillary liquidation where the Company had already been wound up in its country of incorporation. Thus, the two cases are not in conflict as the recognition of foreign liquidators is, as mentioned above, ultimately a question of fact.

In fact, the Honourable Madam Justice Linda Chan’s approach can be seen from her decision earlier this year in Re Up Energy Development Group Limited [2022] HKCFI 1329 where she held that in a Hong Kong ancillary liquidation, it would be “unreal or artificial to suggest that the Hong Kong Companies Court should ignore all the affairs carried out by the company in Hong Kong … and leave the control and supervision over the winding up to the court of the place of incorporation. This is particularly so where the company was incorporated in offshore jurisdictions like the BVI, Cayman Island and Bermuda which do not require the company to carry on any business or meaningful activity in the place of incorporation …” (see Re Up Energy at [48]).

As more and more overseas companies with similar corporate structure come before the Hong Kong Companies Court, the judgment in Re NewOcean Energy consolidates the reasoning in Re Up Energy and seemingly so, has reduced Hong Kong courts’ deference to the courts of the country of incorporation when considering whether to wind up a foreign company. This judgment is of importance as it demonstrates that the Hong Kong courts will readily wind up foreign companies with directors and assets located in Hong Kong, particularly when liquidators are likely to benefit from the exercise of their powers under Hong Kong legislation.