Hong Kong Court assists locally appointed liquidators over foreign company

Key takeaways

In a recent decision, the Hong Kong Court (“Court”) confirmed its willingness to render necessary assistance to a locally appointed liquidator appointed over a company incorporated overseas: Wing Sze Tiffany Wong v Wong Sai Chung [2023] HKCFI 2346.

In this instance, the Court ordered an ex-director of a company in liquidation to transfer his control in the BVI subsidiaries to the liquidators, notwithstanding that the ex-director had commenced BVI proceedings seeking to contest the same. The Court declined to follow a suggestion in an earlier judgment that the Court would not do so.

Background

The case concerned the demise of China Properties Group Limited (“Company”), a Mainland real estate developer listed in Hong Kong. The Company’s corporate structure was of a kind commonly seen in Hong Kong-listed companies: a Cayman Islands listco; BVI and Hong Kong intermediate subsidiaries; and Mainland asset-holding and operating companies. Upon the application of a judgment creditor, the Company was wound up in Hong Kong and the Court appointed liquidators (“Liquidators”).

The Liquidators nonetheless faced various difficulties in securing the cooperation of the Company’s management, particularly that of Mr Wong, an ex-director. At the Liquidators’ request, the BVI registered agent replaced Mr Wong with one of the Liquidators as the sole director of the BVI subsidiaries on the registers. Mr Wong countered by commencing proceedings in the BVI, alleging that the Liquidators could not take over the BVI subsidiaries without formal orders of recognition and assistance from the BVI Court. The Liquidators thus applied to the Court seeking, among other things, to compel Mr Wong to confirm by written resolution their appointment as directors of the BVI subsidiaries.

The Court’s judgment

The Court ordered Mr Wong to make the requested written resolution for the following reasons:

1. The Court has the duty to assist liquidators appointed by it to effectively and efficiently discharge their professional duties in the best interest of the general body of creditors.  As such, the liquidators should be given “all statutory armory to facilitate an orderly, speedy and cost effective liquidation”.
2. The directors are expected to cooperate with the liquidators as necessary.
3. The Liquidators were entitled to act on behalf of the Company to effect changes of directorship in the Company’s wholly-owned BVI subsidiaries.
4. Mr Wong was subject to the personal jurisdiction of the Court. Given Mr Wong’s stance and action, the Court needed to assist the Liquidators by ordering him to sign the relevant resolution. The Court declined to follow Re Grand Peace Group Holdings Ltd [2021] HKCFI 2361 where the Court doubted whether it should assist in a similar situation.
5. The Court disagreed that making such an order would usurp the jurisdiction of the BVI Court. To decide otherwise would pass the burden onto the BVI Court and lead to separate application there that is cost-ineffective. The Court further opined that, in the spirit of comity and judicial cooperation in cross-border insolvency matters, there was no reason why the BVI Court would not assist the Liquidators, given the Company did not challenge that Hong Kong was its centre of main interest (“COMI”) in the winding-up proceedings.

In deciding the issue of comity, the Court applied the concept of COMI. This is consistent with the Court’s trend of considering the company’s COMI in the context of cross-border insolvency, which was first mentioned in Re Lamtex Holdings Ltd [2021] HKCFI 622 and subsequently adopted in Re Global Brands Group Holding Ltd (In Liq) [2022] HKCFI 1789. We have previously addressed this topic here.