RE SILVER BASE GROUP HOLDINGS LTD

HCCW 385/2021 & HCMP 859/2022
(HEARD TOGETHER)

[2022] HKCFI 2386

HCCW 385/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 385 OF 2021

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 859 OF 2022

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(HEARD TOGETHER)

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REASONS FOR DECISION

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1.  On 21 October 2021 Wang Jianfei issued a petition to wind up the Company on the grounds of insolvency. His Petition was amended on 16 December 2021. The Company is incorporated in the Cayman Islands and its shares were listed on the Main Board of the Stock Exchange of Hong Kong (“HKSE”). The Company applied successfully to be put into soft-touch provisional liquidation in the Cayman Islands on 11 November 2021. This was intended to facilitate a restructuring of its debt. The restructuring was unsuccessful. On 5 May 2022 the Company was put into liquidation in the Cayman Islands and liquidators appointed (“Cayman Liquidators”). The Hong Kong Petition is now unopposed. Initially the Cayman Liquidators applied for recognition in Hong Kong (“Recognition Application”). They no longer do so and take the view that the Company should be wound up here; although ideally the Hong Kong liquidators will be the same individuals as the Cayman Liquidators for reasons of economy and efficiency. I will make no order in respect of the Recognition Application with no order as to costs.

2.  As the matter has developed there are very limited issues for the Court to consider. As I have already explained, the Petition is no longer contested. As the Company is incorporated in the Cayman Islands it is necessary for it to satisfy the three core requirements[1] which guide the Court in determining whether or not it should exercise its statutory discretion pursuant to section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, which permits the court to order the winding up in Hong Kong of a foreign incorporated company. The three criteria in my view are clearly satisfied in the present case. First, the Company was listed in Hong Kong and this is enough to constitute sufficient connection. Secondly, there is a reasonable prospect of a winding up in order in Hong Kong benefiting the Petitioner. There are clearly assets here including cash in bank. The fact that the Cayman Liquidators consider it necessary that there is a liquidation in Hong Kong supports this conclusion. Thirdly, there are creditors in Hong Kong other than the Petitioner over whom the Court can exercise jurisdiction. I will, therefore, make the normal winding up, order one set of costs for the supporting creditors and also order that the Cayman Liquidators’ costs be paid out of the assets of the Company.

3.  There is one other matter that I will comment on, although it is not necessary for me to decide it. The Cayman Liquidators’ decision not to pursue their Recognition Application is partly a consequence of my recent decision in Re Global Brands Holding Ltd[2]. I held that in future foreign liquidators should be recognised and assisted if they were appointed in a company’s centre of main interests (“COMI”) rather than the place of incorporation, unless they happened to be the same. The Cayman Liquidators recognise that the Company’s COMI is not in the Cayman Islands. Initially they took the view that they could, however, properly seek limited recognition, what I call in Global Brands managerial recognition, of their authority as the duly appointed agents of the Company appointed in accordance with the law of its place of incorporation, which established principles of private international law recognise determines matters of internal management and authority to represent a foreign company. In Global Brands the company was not in liquidation in Hong Kong. It seems to me that if a foreign company is in liquidation in Hong Kong then the principle I have just explained may be qualified. A number of matters will need further consideration in the future:

(1) What, if any, recognition should be granted to a foreign liquidator appointed in the place of incorporation (if it is not the COMI) if the company is wound up in Hong Kong? In such circumstances should the Hong Kong court proceed on the basis that within its jurisdiction only the Hong Kong appointed liquidator is the duly authorised agent of the company?

(2) It is commonly assumed that if a company is in liquidation in its place of incorporation and wound up in another jurisdiction, the latter is to be treated as an ancillary liquidation[3]. Should this be the case if the place of incorporation is not the COMI and the reality is, as is commonly the case with letter box jurisdictions, that a company’s connection with it is formal and it has no assets, creditors or debtors located there? There is no practical reason for requiring realisations to be transferred to the liquidators appointed in the place of incorporation if all the creditors, or the large majority, are located in Hong Kong and the Mainland. On the contrary it just increases costs and delay. It also needs to be borne in mind that proceeding on the basis that the liquidation in the place of incorporation (which is not COMI) is the main liquidation involves recognising it; which is inconsistent with (1).

Mr Edward K H Ng, instructed by Katherine Chan Law Office, for the Petitioner

Mr Jason Yu, instructed by Karas LLP, for the joint official liquidators

Mr Look Chan Ho, instructed by Patrick Chu, Conti Wong Lawyers LLP, for the Supporting Creditor (Brender Services Limited)

H Y Leung & Co LLP, for the supporting creditors (Wang Qi & 王建東), did not appear

Attendance of D S Cheung & Co, for the company, was excused

Attendance of Gall, for the supporting creditor (Zhao Hong Li), was excused

Attendance of Li, Kwok & Law, for the supporting creditor (Huang Zeming), was excused

Attendance of Patrick Chu, Conti Wong Lawyers LLP, for the supporting creditor (Crosby Securities Limited), was excused

Attendance of the Official Receiver was excused

HCCW 385/2021

[2022] HKCFI 1241

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 385 OF 2021

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D E C I S I O N

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1.  On 21 October 2021 Wang Jianfei presented a petition to wind up the Company. Mr Wang is a Chinese citizen and lives in Ningbo in Zhejiang Province. The Company is incorporated in the Cayman Islands and listed on the Main Board of the Stock Exchange of Hong Kong Limited. The Company operates in three business areas. It distributes baijiu, distributes cigarettes and invests in residential property. All these businesses as I understand it are conducted in China. The Company’s connection with the Cayman Islands is nominal.

2.  Restrictions on court proceedings in Hong Kong have delayed the Petition coming on before a judge. It came on before me today in the Monday morning call over list.

3.  It is not disputed that the Company owes the Petitioner the debt on which the Petition is founded or that the Company is insolvent. It appears that some months after the Petition was presented the Company took the following steps in the Cayman Islands. On 11 November 2021 the Company presented a winding up petition in the Cayman Islands and applied to appoint provisional liquidators. The application came on before Mr Justice Doyle on 22 November 2021, who adjourned the application to 8 December 2021, because he was concerned at the very short notice of the application given to creditors. On 8 December 2021 an order was made appointing Chan Pui Sze and Mak Hau Yin of Briscoe Wong Advisory Limited and Martin Trott of R&H Restructuring (Cayman) Ltd as soft-touch provisional liquidators leaving management of the business of the Company in the hands of the existing board: it is effectively a debtor in possession procedure. The Petition was adjourned until 11 February 2022 and adjourned again until 5 May 2022.

4.  It maybe that developments in the Cayman Islands alerted the Petitioner’s lawyers to the implications of the Company being incorporated in that jurisdiction. On 16 December 2021 the Petition was amended to assert matters that addressed the question, which the Petition in its original form did not, of how the three core requirements, as they are known, which need to be satisfied before the court will exercise jurisdiction over a foreign incorporated company, are met in the present case.

5.  It was not until 12 April 2022 that the Company issued a summons seeking leave to file evidence out of time and in opposition (seeking to adjourn the Petition). No explanation has been given for the delay, although I assume that it is connected with the progress of the proceedings in the Cayman Islands. The Company also takes the point for the first time in counsel’s skeleton that the second requirement is not satisfied in the present case.

6.  It is unsatisfactory that the Company has waited until shortly before the Petition is fixed to be heard by a judge before descending to produce evidence explaining that it is attempting a restructuring and raising an objection to the Petition. The matter is not helped by the fact that, I think it reasonable to assume, the Petitioner was not advised of the complications that arise if a winding up order is sought of a foreign incorporated company and has filed no substantive evidence that shows how the second requirement is satisfied. I will adjourn the Petition for substantive argument until 27 July 2022 at 10am.

7.  The Company has leave to file further evidence in opposition and updating the court on the progress of the restructuring by 4:30pm 6 July 2022 and the Petitioner has leave to file evidence in reply by 4:30pm on 15 July 2022. The Petitioner is to file a proposed draft directions and written submissions by 4:30pm on 19 July 2022 and the Company is to file a proposed draft directions and written submissions by 4:30pm on 22 July 2022. I will reserve costs.