Hong Kong Court Emphasizes Center of Primary Interest Rather Than Place of Incorporation When Recognizing Foreign Insolvency Proceedings | Hogan Lovells

In Provisional liquidator of Global Brands Group Holding Limited (in liquidation) against Computershare Hong Kong Trustees Limited and other [2022] HKCFI 1789, Global Brands Group Holding Limited (the Company) was an investment holding company incorporated in Bermuda with shares listed on the HKEx.

The company was facing significant financial difficulties and believed it was in the interests of the company and its creditors to initiate liquidation proceedings by applying to the Bermuda court for the appointment of a provisional liquidator for the purposes of restructuring. The restructuring failed and a liquidation was completed in Bermuda in November 2021.

A significant portion of the company’s assets were held in Hong Kong, including proceeds from the sale of shares and cash balances held in the company’s bank account. In order for the provisional liquidator to take possession of the company’s assets in Hong Kong, a recognition order had to be obtained from the Hong Kong court.

The court’s decision

Harris J stated that the correct approach to assessing whether or not a foreign liquidation should be recognized is to first determine whether, at the time the application for recognition is made, the foreign liquidation is taking place in the jurisdiction of the center of general interest of society. If not, recognition and assistance should be denied unless the request falls into one of the following categories:

  • If the application is limited to the recognition of the authority of a liquidator, where the liquidator is appointed at the place of incorporation of a company, to represent a company and the orders which are incidental to the authority, which, according to Justice Harris, can be described as “management assistance”;

  • limited and carefully prescribed recognition and assistance which does not fall into the first category and which is required by a liquidator of the place of incorporation for practical reasons.

The court granted a recognition order to the provisional liquidator of the company, on the grounds that the provisional liquidator only needed an order to demonstrate that he was the legal agent of the company and had the right to transfer the Hong Kong company assets in Bermuda.

Harris J also explored the basis on which the Hong Kong court should grant recognition and assistance to foreign insolvency practitioners in the future.

COMI of a company

Harris J noted that historically, the court in Hong Kong has had no problem recognizing a liquidator appointed instead of a company’s incorporation. However, this has not always been a useful test for the courts as often Hong Kong-listed companies with mainland operations may be incorporated overseas where they do not carry on any significant business, in letterbox jurisdictions.

Given the importance of “judicial” law in Hong Kong – in the absence of any statutory insolvency regime – Harris J opined that the location of a company’s center of main interests should in the future be the main criterion for determining recognition and assistance, as it better reflects business practice in Hong Kong. He stated that “to treat the place of incorporation in such circumstances as the natural domicile or the most commercially relevant jurisdiction of the company for the purposes of determining which jurisdiction is the appropriate place for the seat of a main winding-up is highly artificial”.

Citing the English authority of SingularisJudge Harris’s judgment suggested the obvious need in his view to further develop the common law in order to bring Hong Kong into line with other jurisdictions so that bankruptcy proceedings in a company’s home jurisdiction receive universal recognition .

Contrasting views

Harris J noted the recent judgment in Energy Development Group Re Up Limited [2022] HKCFI 1329, in which the Honorable Madam Justice Chan suggested that no power could be given to a foreign liquidator appointed at common law (see Hogan Lovells client alert Deja vu? Hong Kong court orders liquidation of list based in Bermuda despite PL’s objections).

Harris J felt he was “fully consistent with modified universalism and established common law principles of recognition and assistance in court in Hong Kong to grant powers intended to assist a foreign liquidator appointed in the jurisdiction of a company’s center of main interests to effectively exercise the rights arising from the status of the liquidator in the jurisdiction of the COMI”.

Judicial debate on cross-border insolvency issues continues apace.

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