Just in time for the Chinese New Year, a Hong Kong court has taken a major step forward in the developing law on cross-border insolvency by recognizing a mainland Chinese liquidation for the first time. In the Joint and Several Liquidators of CEFC Shanghai International Group Ltd [2020] HKCFI 167, Mr. Justice Harris granted recognition and assistance to mainland administrators in Hong Kong so they could perform their functions and protect assets held in Hong Kong from enforcement.

The Hong Kong Court of Appeal has suggested that a previous Court decision may have overstepped the mark by suggesting that an arbitration clause in a client agreement should generally take precedence over a creditor's right to present a winding-up petition.

On 8 February 2018, the Hong Kong Court of First Instance (the “Hong Kong Court“) ruled that the common law power to recognise and assist foreign insolvency proceedings extends to voluntary liquidations – this is the first authority on this issue in Hong Kong.

Case: IN THE MATTER of an application for recognition and assistance by the Joint Liquidators of Supreme Tycoon Limited (in liquidation in the British Virgin Islands) [2018] HKCFI 277

Key Points

• A binding contract by exchange of email did not arise where parties were simply exploring a potential deal.

• Sale by auction is often appropriate where an asset is difficult to value.

• Where no differential treatment of creditors, unfair harm requires that a decision does not withstand logical analysis.

The Facts

Investors may, for reasons outside of their control, find themselves with a financially distressed company in their portfolio and possibly in unfamiliar territory. Consequently, it is not just those investors who actively seek out opportunities within the distressed space who should be mindful of the implications of insolvency processes (most commonly administration which can often also be used as part of a wider restructuring).

Key points

• Failure to comply with sections 333 and 363 of the Insolvency Act constitutes contempt of court for which a committal order may be obtained.

• A trustee in bankruptcy should not usually require permission to apply for a committal order.

• Correct procedure for application confirmed by the court.

Key points

• Information obtained by compulsion can be shared between officeholders of connected estates (parent/subsidiary)

• There must, however, be a possibility that there will be a surplus in the subsidiary estate

• The prospect must be real as opposed to fanciful

The facts

Key points

• Court reiterated circumstances in which it will sanction a proposed course of action by administrators

• Requirement that the course of action be “particularly momentous”

• Court sanctioned proposed settlement in the circumstances

The Facts

Key Points

Key Points

• Floating charge is valid even where there are no unencumbered assets at the time it is taken
• Crystallisation of prior ranking floating charge does not impact enforceability of second ranking floating charge

The Facts