This article discusses how Hong Kong courts, as the court of a company’s COMI (centre of main interest) could lend assistance to local liquidators appointed over a foreign company – which goes as far as to compel a Hong Kong ex-director passing resolutions to appoint the liquidator as director of foreign subsidiaries in place of himself.

The subject company (“Company“) in Re China Properties Group Limited (in Liquidation) [2023] HKCFI 2346 has a structure commonly seen in Hong Kong-listed companies (see Re NewOcean Energy where we previously discussed the second requirement to wind up foreign companies). The top-co is a Cayman company which directly holds 4 BVI subsidiaries, which in turn hold various Hong Kong subsidiaries. These Hong Kong subsidiaries then directly hold Mainland subsidiaries which own substantive assets and operations of the Company ([7]) – foreshadowing that the ex-director being Hong Kong-based is a key consideration in this case (more on this later).

At issue is that the ex-directors were being extremely difficult and uncooperative in the liquidation process where no progress has been made for about 3 months. For example, none of the directors filed statement of affairs and the liquidators were prevented from accessing the Company’s books and records ([12]). Worse still, one of the ex-directors commenced proceedings in the BVI seeking declaratory relief that he is the sole director of the BVI subsidiaries when the liquidators took out an inter-partes summons in Hong Kong seeking orders against the directors of the Company so as to give effect to the winding-up order ([14]-[15]). This, culminated into the present urgent summons – if the ex-director was successful in the BVI proceedings, it would give him power to appoint further directors, which would make it difficult for the liquidators to take control of the BVI subsidiaries (and their assets) ([18]).

The General Principles and In Personam Jurisdiction 

Recorder William Wong SC held at [19] that Hong Kong courts “have a duty to assist liquidators appointed [by the same] to effectively and efficiently discharge their professional duties in the best interest of the general body of creditors“. In this regard, an “orderly, speedy and cost effective liquidation for the best interest of all stakeholders” is key for Hong Kong to maintain its status as an international financial centre and insolvency hub ([20]). It was with this in mind, he adopted Re Yung Kee Holdings Limited (2015) 18 HKCFAR 501 to order the ex-director who is indisputably subject to the in personam jurisdiction of the Hong Kong courts to pass the written resolutions so as to facilitate the effective administration of the liquidation. In particular, citing [39] of Re Yung Kee that,

“Every court…has an implied jurisdiction to make whatever orders are necessary to give effect to its own judgments. In the present case all the individual respondents reside in Hong Kong are subject to the in personam jurisdiction of the Hong Kong court. Accordingly were this Court to be of the view…that a winding up order ought to be made…we would propose to give leave to the…liquidator to apply to the Court of First Instance for such orders…as may be necessary to make the underlying assets of the Company available to the liquidator.”

Comity

Insofar one was to doubt whether such order by the Hong Kong courts usurped the jurisdiction of the BVI court, Recorder Wong SC provided a three-fold answer.

First, following the line of authorities Re Lamtex Holdings Ltd [2021] HKCFI 622 and Re Global Brands Group Holdings Ltd (in Liquidation) [2022] HKCFI 1789, Hong Kong laws have past the point where assistance was only to given by courts of the place of incorporation. In the spirit of comity, and more importantly to reflect the commercial reality that these companies often have a top-co in “letterbox” offshore jurisdiction which have no connection other than formality and registration, Hong Kong courts as the court of COMI are prepared to lend assistance to local liquidators appointed over foreign entities.

Secondly, while the ex-director was entitled to take out whatever proceedings he thinks fit (whether in Hong Kong or the BVI), it is paramount that “this Court discharges its own facilitative duties to promote the effectiveness and efficiency of liquidations in this jurisdiction” ([40]). Recorder Wong SC was of the view that it is not right for the Hong Kong courts to stand by and simply pass on the burden to the BVI courts.

Thirdly, judicial comity dictates that within the four corners of local laws, courts should offer mutual assistance to each other so that orders of courts can be given their full effects in the best interest of cross-border liquidations. Bearing in mind the abovementioned General Principles, it will not be cost effective for the liquidators, in every case, to have to apply for a winding up order against the subject company in the place of incorporation and to ask that court to appoint them to be liquidators ([41]-[42]).

Implications

Re China Properties Group Limited is a timely reminder that directors of a company in liquidation are meant to render assistance to liquidators and there is nothing spectacular or oppressive for them to do so. If they are being difficult about it, the courts would be prepared to grant suitable orders to compel their cooperation. Further, we can be sure that COMI, rather than the place of incorporation is the criteria the courts are concerned with in recognising and assisting liquidators of companies wound up in Hong Kong.

See full judgment here: https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=154981&QS=%28tiffany%2Bwong%29&TP=JU&currpage=T