COMI as first port of call? Harris J lays out a modified common law framework for recognising foreign insolvency proceedings in Hong Kong

Historically, the Hong Kong courts have generally recognised foreign insolvency proceedings commenced in the jurisdiction in which the company is incorporated. This may no longer be the case in Hong Kong following the recent decision of Provisional Liquidator of Global Brands Group Holding Ltd v Computershare Hong Kong Trustees Ltd [2022] HKCFI 1789 (Global Brands).

In the Global Brands decision Justice Harris has suggested that in future a Hong Kong court will now recognise foreign insolvency proceedings in the jurisdiction of the company’s “centre of main interests” (COMI). Indeed, it is suggested that it will not be sufficient, nor will it be necessary, that the foreign insolvency process is conducted in a company’s place of incorporation.  

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Can a Chapter 15 order discharge US law governed debt for the purposes of the rule in Gibbs? The Rare Earth and Modern Land decisions

On 6 June 2022, Mr Justice Harris sanctioned a Hong Kong scheme of arrangement for Rare Earth Magnesium Technology Group (the Company) in re Rare Earth Magnesium Technology Limited [2022] HKFCI 1686 (Rare Earth).

In some obiter remarks made in the course of that decision, Harris J suggested that a common restructuring practice might not have the desired effect in Hong Kong. The practice involves compromising United States (US) law-governed debt through a scheme of arrangement in an offshore jurisdiction coupled with US recognition of that scheme under Chapter 15 of the US Bankruptcy Code.  Harris J suggested that a Chapter 15 order of this type may not be sufficient as a matter of law to discharge the debt under US law, and therefore the discharge might not be recognised as effective in Hong Kong for the purposes of the rule in Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) LR 25 QBD 399 (Gibbs).  

However, on 18 July 2022 (subsequent to the Rare Earth decision) the US Bankruptcy Court held, in the case of re Modern Land (China) Co., Limited (2022) (Modern Land), that an order made pursuant Chapter 15 can discharge US law-governed debt as a matter of US law and that the Court in Rare Earth had misinterpreted US law on this point. 

The Rare Earth decision gave rise to some potential uncertainty as to the appropriate manner to carry out restructurings of US law-governed debt by Hong Kong based companies incorporated in other jurisdictions. Hopefully these uncertainties have now been resolved with the Modern Land decision, allowing existing restructuring practice to continue.  However, we await a further decision of the Hong Kong court to understand if there are any further nuances to these interactions.

We discuss the issues arising from these cases further in this note.

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Nail in the coffin for truant foreign debtors with Hong Kong link – highest court’s pragmatic approach welcome

The Hong Kong Court of Final Appeal has taken a practical approach in interpreting the second core requirement, out of three needed, for a Hong Kong Court to exercise its discretion to wind up a foreign company. Bringing much relief to creditors, it has decided that commercial pressure to achieve repayment of a debt is sufficient benefit satisfying the requirement that there must be a reasonable possibility that the winding-up order would benefit those applying for it.  The benefit need not be monetary or tangible.  This is a welcome development for creditors seeking redress for unpaid debts from a foreign company with a substantial connection to Hong Kong.

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Herbert Smith Freehills secures further victory in Hong Kong’s Court of Appeal for bank in defending liquidator claim for fraud

Last week, the Hong Kong Court of Appeal refused to grant liquidators (the Liquidators) of Galleria (Hong Kong) Limited (Galleria), a Hong Kong company, leave to appeal to the Court of Final Appeal in relation to their action against one of Galleria’s former lenders (the Bank) for knowing receipt, dishonest assistance and fraudulent trading. The Court of Appeal’s decision marks yet another victory for the Bank in defending this piece of insolvency litigation, which commenced in 2016.

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Hong Kong Court issues letter of request under Mainland-Hong Kong arrangement for recognition in respect of Cayman company

In a further development to cross-border insolvency cooperation between Hong Kong and Mainland China, the Hong Kong Court has issued a letter of request to a Mainland Court requesting recognition and assistance of Hong Kong liquidators appointed over a Cayman company, under the mutual recognition arrangement introduced on 14 May 2021 (the Arrangement, see our previous update here), in Re Ozner Water International Holding Limited [2022] HKCFI 363.

The first case where the Hong Kong Court considered the relevant principles applicable to the issue of a letter of request was Re Samson Paper (which we wrote about here). However, the company in Re Samson Paper was incorporated in Hong Kong. In this case, the Hong Kong Court was asked to issue a letter of request in respect of a company incorporated in the Cayman Islands.

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Hong Kong court to adjudicate creditor rights under keepwell deeds despite Mainland China insolvency proceedings

In Nuoxi Capital v Peking University Founder Group Company Limited [2021] HKCFI 3817, the Hong Kong Court of First Instance (HK Court) examined the interplay between the determination of creditors’ contractual rights under keepwell deeds by way of proceedings in the HK Court and the impact of reorganisation proceedings in respect of the debtor in Mainland China taking place before the Beijing No.1 Intermediate People’s Court (Beijing Court).

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Hong Kong court considers grounds for striking out claims of dishonest assistance, knowing receipt and fraudulent trading

The Court of First Instance recently rejected an attempt by Bank of China (Hong Kong) Limited (BOCHK) to strike out various claims brought against it by the liquidators of China Medical Technologies (China Medical). The liquidators’ claims related to BOCHK’s handling of funds deposited with it by China Medical’s former officers, which were allegedly obtained by fraud.

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Hong Kong Court recognises Mainland China reorganisation proceedings for the first time

The Hong Kong Court has broken yet more new ground by recognising Mainland China reorganisation proceedings for the first time in Re HNA Group Co Limited [2021] HKCFI 2897.

Previously, Mainland China liquidation proceedings have been recognised by the Hong Kong Court (for the first time in CEFC Shanghai International Group Ltd [2020] HKCFI 965, and later in Shenzhen Everich Supply Chain Co Ltd [2020] HKCFI 96).

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It still counts: Hong Kong Court finds minority shareholding has reasonable possibility to benefit winding-up petitioner

It is well-established that certain core jurisdictional requirements must normally be met before a Hong Kong Court will exercise its discretion to wind up a foreign company (Core Jurisdictional Requirements). These were explained in our previous post:

  • there must be a sufficient connection with Hong Kong, but this does not necessarily have to consist in the presence of assets within the jurisdiction;
  • there must be a reasonable possibility that the winding-up order would benefit the petitioner; and
  • the Court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.

The Court has previously found that the second requirement is particularly essential. It is, in fact, also usually the most hotly-debated requirement.

In a recent case, the Hong Kong Court of Appeal found that the second requirement can be met by a minority shareholding in a Hong Kong private company, the assets of which are in mainland China.

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