Statutory Cross-Border Insolvency Regime

In the closing paragraph of the judgment in Re CW Advanced Technologies Ltd [2018] HKCFI 1705, the court had this to say about the lack of any statutory regime for cross- border insolvency recognition in Hong Kong:

“From the perspective of Hong Kong policy-makers, this case underscores again the urgent need to enact a statutory cross-border insolvency regime.”

The background to the case is a little complicated but aspects of it will be familiar to insolvency practitioners in Hong Kong. The company was a private company incorporated in Hong Kong, in the business of (among other things) supplying contracts for industrial machinery and equipment. Its group company appears to have run into some financial difficulties. The group company was headquartered in Singapore, where its principal place of business was. The holding company was incorporated in the Cayman Islands, managed from Singapore, listed in Hong Kong and registered as a non-Hong Kong company. The company itself appears to have been owned by a BVI company within the group.

Initially the company petitioned to be wound-up in Hong Kong and for provisional liquidators to be appointed. Those applications appear to have been part of a coordinated attempt in various jurisdictions to assist the group’s restructuring efforts in the Singapore courts (pursuant to legislative changes adopted there in 2017). As events transpired, the company withdrew its applications in Hong Kong and its largest creditor obtained an order for the appointment of provisional liquidators instead. That order did not need to provide for powers to pursue a debt restructuring.

That said, given that the background to the case involved important cross-border issues and the new Singapore restructuring regime, the court asked to be addressed on the cross-border implications, “including the possibility of recognising and assisting the Singapore proceedings”. Central to the court’s obiter comments was (among other things) the thorny issue of whether it could recognise a “foreign collective insolvency proceeding” (assuming that is what it was) where the foreign jurisdiction (Singapore) was not the country of incorporation (the Cayman Islands).

The case is important reading for insolvency practitioners; particularly, the warning in the penultimate paragraph of the need for careful cross-border planning in such circumstances.

The case also brings into stark contrast the insolvency and restructuring procedures between Singapore and Hong Kong. It is over twenty years since a Sub-committee of the Law Reform Commission considered the adoption of the UNCITRAL Model Provisions on Cross-border Insolvency. The Companies (Corporate Rescue) Bill 2001 lapsed in the Legislative Council in 2004. There was also no mention of cross-border insolvency issues in the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance, that came into operation in 2017.

Similar to the court’s remarks, the Law Society of Hong Kong noted in its impressive submission on the “Introduction of a Statutory Corporate Rescue Procedure and Insolvent Trading Provisions” (dated 29 May 2018 and available on its website):

“18. We have been waiting for a statutory corporate rescue regime for more than twenty years. We are very keen to see a real progress in the introduction of a statutory corporate rescue procedure and insolvent trading provisions into Hong Kong’s insolvency law.

19. We, once again, strongly urge the Government to take active steps to push ahead the reform for corporate rescue procedure.”

Jurisdictions: 

Senior Consultant, RPC

Partner, RPC