The status of foreign liquidators recognised in Hong Kong

The recent case of The Joint Official Liquidators of A Company v B and Another has confirmed that a liquidator of a foreign company can seek the Hong Kong Companies Court's assistance by applying for orders for the production of information and documents without the need to also apply to wind up that company in Hong Kong.

Background

In this case, the Companies Court received a letter of request from the Court in the Cayman Islands.   By way of that request, the liquidators of A Company, which was registered and then wound up in the Cayman Islands, applied for three Court orders to be made in Hong Kong, namely:

(1)           a confidentiality order;

(2)           recognition of the liquidation in the Cayman Islands and the appointment of the liquidators by the Court in the Cayman Islands; and

(3)           an order that the respondents produce certain documents to the liquidators.

The orders sought were substantially the type of orders that can be made in relation to winding up in Hong Kong pursuant to s.221(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32).

If a party in Hong Kong receives a request or instruction from a liquidator of a foreign corporation which would have been actioned had it come from the board of directors of that foreign corporation before it was wound up, then, once the party is satisfied that the liquidator was properly appointed in the place of incorporation, the party should act upon such a request or instruction.   However, as Harris J of the Hong Kong Court of First Instance observed in this case: "In practice, this is not what happens.  It appears to be a common response of banks and other parties to a request for information from a foreign liquidator, and was so in the present case, that his appointment is not effective in Hong Kong and that they require an order from the Hong Kong Courts before they will act ...  It should not be necessary to do this simply to enable the foreign liquidator to obtain information and documents in Hong Kong."

Hong Kong is not a party to the UNCITRAL Model Law on cross-border insolvency and, unlike the UK (which has s.426 of the Insolvency Act 1986), there are no statutory provisions in Hong Kong providing for its courts rendering assistance in cross-border insolvencies.

However, at common law, the Court has the power to recognize and grant assistance to foreign insolvency proceedings.   Accordingly, this case provided the Court with the opportunity to state that the authority of the liquidator appointed under the law of the place of incorporation of the company is recognized in Hong Kong, and to demonstrate "that there is in Hong Kong a mechanism available to foreign liquidators for obtaining information and documents without having to wind up a company."

Common law mechanisms and findings

Having considered various common law authorities and commentaries from other jurisdictions, Harris J found that the common law has developed to the point where Courts in such jurisdictions consider that they can assist Courts in the place of incorporation of an insolvent company which operates a similar insolvency regime in ensuring that the affairs of the company are properly investigated, and that the Hong Kong Companies Court can and should adopt a similar approach.

Accordingly, Harris J also found that the Hong Kong Court "… may, pursuant to a letter of request from a common law jurisdiction with a similar substantive insolvency law, make an order of a type which is available to a provisional liquidator or liquidator under Hong Kong's insolvency regime."   For this reason, Harris J granted the orders for which the liquidators applied.

In doing so, the Court drew the distinction between information and assets.  In this regard, Harris J found that "Unlike the position in personal bankruptcy the common law maintains that a foreign liquidation has no automatic consequences in relation to the property of a foreign company in a local jurisdiction.  As a consequence an application needs to be made by a foreign liquidator for an order vesting him with the title to the local property."

Commentary

This decision confirms that, if foreign liquidators experience a lack of co-operation from local parties such as banks and auditors, then the Hong Kong Companies Court is willing to exercise its common law jurisdiction to grant an order to assist them in carrying out their investigations of the type made under s.221(3) C(WUMP)O, without their having to also go through the process of winding up a foreign company in Hong Kong, if:

(1)           the liquidator is properly appointed in the place of the company's incorporation;

(2)           the letter of request is from a common law jurisdiction with a similar insolvency law regime;

(3)           the order sought is available under Hong Kong law; and

(4)           the order sought is in relation to seeking information and documents, rather than assets.

Such recognition by the Hong Kong Courts of the status of foreign liquidators should be of some welcome relief to them and to creditors (who would avoid the costs of having to go through winding up proceedings in Hong Kong), particularly as cross-border insolvencies are becoming increasingly common.

Please click here to read our previous post on winding up an unregistered overseas company in Hong Kong.

If you wish to discuss about the scope of your duty to disclose documents to a foreign liquidator or generally about the topic, please contact Gareth Thomas or Damien Whitehead of our Hong Kong Dispute Resolution team.