Cross-Border Update

Hong Kong’s lack of a statutory regime for cross-border insolvency is in stark contrast with Singapore, which adopted the UNCITRAL Model Law on Cross-Border Insolvency in 2017. It is worth remembering that approximately three-quarters of listed companies in Hong Kong are incorporated offshore. There is also no reciprocal arrangement for cross-boundary insolvency or restructuring matters between the Mainland and Hong Kong, although many debt restructurings involve Mainland companies doing business in Hong Kong.

In the meantime, the Hong Kong companies court makes do by applying and refining the principles for recognition of foreign insolvency proceedings to cases that come before it. In two of the more recent cases, the court took the opportunity to summarise those principles. They include:

• that the foreign insolvency proceedings are “collective insolvency proceedings”; and

• that the foreign insolvency proceedings are commenced in the company’s country of incorporation.

Re Takamatsu [2019] HKCFI 802 appears to be the first occasion that a Hong Kong court has recognised and granted assistance to a trustee in bankruptcy appointed in Japan over a Japanese incorporated company in compulsory liquidation in Japan. In Re Joint Provisional Liquidators of Hsin Chong Group Holdings Ltd [2019] HKCFI 805 the court recognised and granted assistance to the provisional liquidators appointed in Bermuda over a company incorporated there and listed in Hong Kong.

In both cases the court referred to the standard practice on applications for recognition of foreign insolvency proceedings (and Practice Direction 3.5 – “Applications in writing in the Companies Court”). In order to help facilitate the grant of recognition orders on the papers and to guide practitioners, in both cases the court also referred to the standard form of order for the grant of recognition – the orders are appended to the court’s decisions.

Once recognition is granted, the degree of assistance that a Hong Kong court will provide to a foreign insolvency office holder will vary according to each case. However, basic principles of reciprocity require that the degree of assistance must be consistent with the laws pursuant to which the foreign insolvency office holder is appointed and that are available in Hong Kong. As to illustrate the point, paragraph 2 of the order in both cases reads as follows (with the differences shown in square brackets for ease of reference):

“The [Trustee] [Joint Provisional Liquidators] [has] [have] and may exercise such powers as are available to [him] [them] as a matter of [Japanese] [Bermuda] law and would be available to [him] [them] under the laws of Hong Kong as if [he] [they] had been appointed [liquidator] [provisional liquidators] of the Company under the laws of Hong Kong …”.

In Re Takamatsu the judge acknowledged that Japan was a civil law system. However, this was no bar to recognition because the winding up proceedings in Japan were a collective insolvency proceeding and the status and powers of the Japanese trustee in bankruptcy were similar to those of a liquidator appointed in Hong Kong. It remains a point for another day whether a Hong Kong court would recognise a Japanese civil rehabilitation procedure in the absence (for now) of an equivalent procedure in Hong Kong.

Cases such as these further illustrate the need for Hong Kong to make progress with a statutory regime empowering the courts to recognise and provide assistance to foreign insolvency office holders. In the meantime, the Singapore High Court has recognised its first US bankruptcy proceedings as foreign main proceedings under the local companies legislation that adopts the UNCITRAL Model Law on Cross-Border Insolvency (Re Zetta Jet Pte Ltd [2019] SGHC 53).

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