Stay of Hong Kong winding-up petition pending foreign appeal proceedings

In the recent case of In re Shiamas International Limited (HCCW 80/2014), the Hong Kong Court of First Instance refused to stay a winding-up petition on the ground of a pending appeal from a decision of the Paris Court of Appeal to the French Court of Cassation.  This case is a timely reminder of the difficulties in obtaining a stay of a winding-up petition, the applicable principles and shows that the Court is willing to allow some flexibility.

Background

In April 2013, the Paris Court of Appeal upheld an earlier decision of the Paris Commercial Court in ordering Shiamas International Limited (the "Company") to pay SAS Bailly Creations ("Bailly") over EUR1.3 million (the "Judgment"). The Judgment rendered the Company insolvent.  In August 2013, the Company appealed the Judgment to the French Court of Cassation.  However, the Company failed to pay the judgment sum into Court as required. As such, on 13 February 2014 the appeal proceedings were suspended.

Bailly, meanwhile pursued enforcement of the Judgment in Hong Kong.  On 8 January 2014, the Court of First Instance registered the Judgment, notice of which was served on the Company on 11 February 2014.  On 12 March 2014, Bailly served a statutory demand upon the Company, which went unanswered.  On 2 April 2014, a shareholder in the Company petitioned to wind it up on the grounds of insolvency, with Bailly's support ("Petition").

Paradoxically, the presentation of the Petition then allowed the Company to apply to the Court of Cassation in France to restore its appeal, which application was successful.  It was anticipated that the appeal would be heard between March and August 2015. The Company then sought adjournment of the Petition pending the appeal.  The Company claimed that a successful appeal may result in orders that would restore it to solvency.  However, Bailly pressed for the immediate winding up of the Company,

Principles for staying a winding-up petition pending appeal

The Hon Harris J considered the relevant principles from the authorities submitted which establish the criteria for staying a winding up petition under common law:

1. In the absence of an order for the stay of enforcement of a judgment, it is only in very limited circumstances that the Court will decline to make a winding up order until after the appeal of the judgment has been determined;
2. To justify the stay of a winding-up petition, there must be shown very strong prospects of an appeal succeeding. The requisite degree of strength is "not just arguable, but very strong prospects of the appeal succeeding" (see Re Rotegear Corporation Limited [2009] HKEC 1874);
3. Similarly, the "level of strength required has been described as so strong that something has gone grievously wrong with the process of law in the court below" (see Re Sky Talent Properties Limited [2004] HKEC 472); and
4. Normally, a foreign judgment registered in Hong Kong and not set aside would be dealt with in the winding-up context as if it were a Hong Kong judgment.

Application of the principles

Both sides had filed expert reports prepared by French lawyers commenting on the strength of the Company's appeal. Harris J accepted that it was not possible for him to determine the strength of the appeal. Although the appeal gave rise to serious issues and it was not frivolous, the expert reports did not go as far as to suggest that the appeal had very strong prospects of success.

Accordingly, Harris J found that the abovementioned criteria were not satisfied and the pending appeal in France was not a ground for declining to make a winding up order.

The Court held that "if a foreign judgment has been registered and an application to set aside the judgement is not made in time the Companies Court should approach the matter on the basis that the petitioner has a Hong Kong judgment, which is unpaid and in order for a company to avoid a winding up order on the grounds that the judgment is being appealed it will have to satisfy the high test referred [above]."

In doing so, the Court rejected the argument that it should have approached the issue of whether the Petition should be adjourned pending the appeal on the same basis that the Court should have approached an application to set aside registration of a foreign judgment pursuant to s.7(1) of the Foreign Judgment (Reciprocal) Enforcement Ordinance (Cap 319), if it had been possible to make such an application in time.

Special circumstances to be taken in account

Harris J considered that there were special circumstances in the present case in accepting that the Company could not have applied to set aside the registration of the Judgment in time, which justified a more flexible approach.  Such an approach included, in this case, taking into account that the Judgment was obtained in a foreign Court, "whether or not the Company appeared to be solvent, evidence of whether or not an application to stay the judgment has been made or is possible, how long it will take to conclude the appeal and any other matter that is relevant to its determination."

Balancing the above factors, particularly accounting for the special circumstances and allowing for flexibility, Harris J held that a stay of the Petition was inappropriate.

Commentary

This case is noteworthy in that:

1. It restates the high threshold that an application to stay a winding-up petition must meet, particularly pending an appeal, without a stay of the judgment;
2. Presentation of winding-up petition, and the winding up of a company, does not of itself prevent the appeal from going ahead, as it is open for the liquidators to prosecute the appeal if they feel it in the best interest of the company and creditors to do so, and they have funding; and
3. It shows that, in applying the usual principles, the Court is willing to adopt a more flexible approach where there are special circumstances justifying it.  In appropriate cases it is open for the Court to consider any matter that is relevant to the determination.

If you wish to discuss, please contact Gareth Thomas or Damien Whitehead of our Hong Kong Dispute Resolution team.