Further clarification on the jurisdiction of the Hong Kong courts in offshore shareholder disputes

In the decision of Re Yung Kee Holdings Ltd HCCW 154/2010, the Hong Kong Court of First Instance laid down certain principles as to when the Hong Kong courts have jurisdiction to wind up a company incorporated offshore. The case is of significant importance as it is common for business owners in Hong Kong, principally for tax related reasons, to own their businesses through shareholdings in offshore investment holding companies.

Harris J, who heard the Yung Kee case, has subsequently provided further clarification of the approach of the Hong Kong Courts to this question in Re Pioneer Iron and Steel Group Co Ltd HCCW 322/2010. Here, the British Virgin Island liquidators of Pioneer Iron and Steel Group Company Limited (the “Company”) had filed a petition to wind up the Company in Hong Kong so as to avail themselves of the investigatory powers of a Hong Kong liquidator. Harris J confirmed that the Court would have jurisdiction to wind up an unregistered company if three core requirements are satisfied: that (a) there is sufficient connection with Hong Kong, (b) there is a reasonable possibility that the winding up order would benefit those applying for it, and (c) the Court will be able to exercise jurisdiction over the persons interested in the distribution of the company’s assets.

Unlike in Yung Kee, the Court found that all three core requirements were satisfied. Specifically, as the Company’s sole shareholder and director had made major decisions regarding the Company’s affairs in Hong Kong, this constituted a substantial connection with Hong Kong. At the same time, Harris J emphasised that that there was no basis for adopting a less stringent approach in assessing whether there is sufficient connection with Hong Kong, even where the application is made by an unregistered company which is already in liquidation in its home jurisdiction and it would be desirable to obtain the assistance of the Hong Kong courts.

Nevertheless, the Court concluded that the correct petitioner for the winding up petition was the Company and not its liquidators, and the petition was adjourned on that basis for an application for substitution to be heard.