
Oliver Payne 彭奥礼
Partner 合伙人 | Legal
Hong Kong

Oliver Payne 彭奥礼
Partner 合伙人
Hong Kong
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The decision of the Grand Court of the Cayman Islands (‘the Cayman Court’) to grant common law recognition and assistance to liquidators appointed by the High Court of Hong Kong (‘the Hong Kong Court’) over an exempted Cayman Islands incorporated company – without parallel insolvency proceedings in Cayman – is likely to be welcomed widely by insolvency practitioners and lawyers involved in cross-border restructuring and insolvency in common law jurisdictions.
Mr Justice Segal’s judgment in In the matter of China Agrotech Holdings Ltd (FSD 157 of 2017 (NSJ)) shows that there is scope for the Cayman Court to exercise its common law power to provide effective judicial assistance to foreign liquidators – even within the limits imposed by the majority judgments in Singularis and Rubin.
The written ruling was made on an ex parte application before the Cayman Court and granted recognition and assistance to liquidators appointed by the Hong Kong Court, inter alia, to present a scheme of arrangement under s 86 of the Companies Law (as revised) (‘the Law’) on behalf of the Company.
To the author’s knowledge, the decision is the first time since 2010 (In the Matter of Fu Ji Food and Catering Services Holdings Ltd (FSD Cause No. 222 of 2010): a summary of the facts and the decision is provided in the Chief Justice’s article published in the Beijing Law Review, 2011, 2, 145-154) that the Cayman Court has considered the existence and scope of its jurisdiction to recognise and assist foreign liquidators of a Cayman incorporated company in circumstances where there are no parallel insolvency proceedings in Cayman.
Following a review of leading texts and key authorities since 2010, including Cambridge Gas v Navigator (2007 1 AC 508, Privy Council, on appeal from the High Court of Justice of the Isle of Man), Rubin v Eurofinance ([2013] 1 AC 236, UK Supreme Court), and Singularis Holdings Ltd v PwC ([2014] UKPC 36, Privy Council, on appeal from the Court of Appeal of Bermuda), the Hon Justice Segal considered that:
In principle, submission by a company to a foreign court can be a sufficient and separate basis for recognition of the foreign liquidator's powers to act for the company.
The company
China Agrotech Holdings Ltd (‘the Company’) was incorporated in the Cayman Islands as an exempted company in September 1999. The Company is an investment holding company which has been engaged principally in businesses related to fertilizers and agricultural chemicals. It has substantial connections with Hong Kong, having been: (i) registered under Part XI of the former Hong Kong Companies Ordinance (Cap. 32) since November 1999; (ii) administered from Hong Kong (with all the directors having addresses in Hong Kong or the PRC); and (iii) listed on the Main Board of the Hong Kong Stock Exchange (HKSE) since 2002 (although its shares were suspended from trading on the HKSE on 18 September 2014). Almost all of the Company’s shareholders are located in Hong Kong and over 75% of proofs of debts received by the Liquidators were filed by persons located in Hong Kong or the PRC.
Hong Kong court proceedings
On 11 November 2014, a creditor’s winding up petition was presented against the Company on the ground that the Company was insolvent and unable to pay its debts. A winding up order was made by the High Court of Hong Kong (‘the Hong Kong Court’) on 9 February 2015 (Hong Kong Winding Up Order). Stephen Liu Yiu Keung and David Yen Chin Wai (‘the Liquidators’) were appointed by Order of the Hong Kong Court on 17 August 2015.
The Liquidators have been exploring restructuring options. To resume trading in the shares of the Company on the Main Board of the HKSE, the Company was required to submit a viable resumption proposal to the HKSE. Accordingly, on 24 August 2016 a resumption proposal was submitted to the HKSE (Resumption Proposal). The Resumption Proposal involves a reverse takeover of a new business, with a view to the Company resuming its listing if the Resumption Proposal is approved by the HKSE. Completion of the Resumption Proposal is subject to, inter alia, a scheme of arrangement being approved both by the Hong Kong Court and the Cayman Court.
On 19 July 2017, following an application of the Liquidators, Mr Justice Harris, sitting in the Hong Kong Court issued a letter of request to the Cayman Court (Letter of Request) seeking that the Liquidators be treated ‘in all respects in the same manner as if they had been appointed as joint and several provisional liquidators’, including having the authority to present a scheme of arrangement on behalf of the Company (as a means by which the Resumption Proposal is to be effected). The Letter of Request also sought the assistance that no action or proceeding should be proceeded with or commenced against the Company within
the Cayman Islands except with leave of the Cayman Court.
Cayman Court proceedings
On 1 August 2017, the Liquidators applied to the Cayman Court for recognition and assistance in similar terms to the Letter of Request.
Mr Justice Segal’s starting point was the majority speeches in Singularis, describing them as ‘the most recent, detailed and significant analysis of the juridical nature and basis of the non-statutory jurisdiction to recognise and assist’ foreign court appointed liquidators. Based on those speeches, and Lord Collins’ judgment in Rubin v Eurofinance, Mr Justice Segal considered:
In the context of China Agrotech, Mr Justice Segal considered that:
Exercise of Discretion Issue
The judge considered that the power to recognise and assist did arise and apply even where the foreign liquidator had been appointed in a place other than the country of incorporation, and that the power is capable of a wider application than the rules of private international law.
Mr Justice Segal found that in the present case the conditions for the exercise of the non-statutory power were, in principle, satisfied such that the Liquidators could be recognised and authorised to make an application under s 86(1) of the Companies Law and to consent to the proposed scheme on the Company’s behalf, with a direction that any proceedings commenced or any winding up petition presented against the Company be assigned to Mr Justice Segal to ensure appropriate case management orders are made to stay or adjourn such proceedings pending completion of the scheme process.
In reaching the above conclusion, Mr Justice Segal relied on and followed the approach of Kawaley CJ in the Bermudian case of In re Dickson Group Holdings Ltd ([2008] SC (Bda) 37 Com (9 May 2008)) and the approach of Smellie CJ in the Cayman case of Fu Ji Foods (In the Matter of Fu Ji Food and Catering Services Holdings Ltd, supra), subject to an updating of and adjustment to the analysis of the common law power to reflect the judgments in Rubin and Singularis. Both the In re Dickson and Fu Ji cases involved applications for recognition and assistance for liquidators appointed by the Hong Kong Court to present schemes of arrangement. Mr Justice Segal also confirmed that he agreed with the result, if not the reasoning, in Re Opti-Medix Ltd (in liquidation) ([2016] SGHC 108), a post-Rubin case, in which the High Court of Singapore recognised a Japanese liquidation of BVI companies.
Although not forming part of the ratio decidendi of his decision, Mr Justice Segal’s judgment contains a helpful consideration of the proposition that submission by a company to the jurisdiction of the foreign court in which the winding up order is made and the foreign liquidator is appointed constitutes a separate ground
to justify the requested court recognising (and indeed requiring the requested court to recognise) the powers of the foreign liquidator to act on behalf of the company.
Albeit described as preliminary views reached in the context of an ex parte application with limited evidence and limited submissions on the issue, Mr Justice Segal considered that:
Winding up a company in its place of incorporation will remain the default option for most stakeholders, not least because it brings with it the effect under the ordinary principle of private international law that only the jurisdiction of a person’s domicile can effect a universal succession to its assets. But significantly, the China Agrotech decision shows that in the post-Singularis and Rubin world, winding up a company in a jurisdiction other than its place of incorporation, without any parallel insolvency process in that place, will not necessarily preclude effective cross border re-structuring solutions from being available to the foreign liquidators.
This article first appeared in Corporate Rescue and Insolvency.
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