When the Hong Kong Court recognises offshore soft-touch provisional liquidation, will there be an automatic stay of proceedings in Hong Kong?
Recently, in Re FDG Electric Vehicles Limited [2020] HKCFI 2931, the Companies Court answered “no”. In doing so, the Court revisited the wording of the standard-form recognition order.
Soft-touch provisional liquidations
From 1 December 2020 new changes to the priority rules in insolvency will have a real impact on the recoveries achieved by secured creditors on the insolvency of a debtor. These new rules give HMRC priority above floating charge holders and ordinary unsecured creditors in relation to tax collected by an insolvent company from third parties, such as VAT, PAYE income tax and NICs.
Statutory demand is a common and important tool in the winding up process. But recently, the Hong Kong Court of First Instance has reminded us that it is by no means a must.
1. Introduction
The long-running saga between Shandong Chenming Paper Holdings (“Shandong Chenming“) and Arjowiggins HKK2 Ltd (“Arjowiggins“) has continued with the Court of Appeal handing down its judgment on an appeal against a lower court judgment which had dismissed Shandong Chenming’s application to injunct Arjowiggins from presenting a winding-up petition against Shandong Chenming (Shandong Chenming Paper Holdings Limited v. Arjowiggins HKK2 Limited [2020] HKCA 670).
The recent decision in Re The Liquidator of Shenzhen Everich Supply Chain Co, Ltd (in liquidation in the People’s Republic of China) [2020] HKCFI 965 reaffirms the willingness of the Hong Kong Companies Court (the “Companies Court”) to recognise the winding-up of a company in Mainland China and thereby grant recognition and assistance to liquidators appointed in the Mainland.
In The Joint and Several Provisional Liquidators of China Oil Gangran Energy Group Holdings Limited [2020] HKCFI 825, the Hong Kong Court continued a trend of recognising foreign soft-touch provisional liquidators.
The first reading of the Corporate Insolvency and Governance Bill (the "Insolvency Bill") took place on 20 May 2020. The Insolvency Bill will be debated by the House of Commons on 3 June 2020 and is proposed to be introduced as fast-track legislation.
During the COVID-19 crisis, many companies are facing unexpected financial distress, and taking steps to stabilise their business and bolster their finances.
Many directors will not have experienced these issues before, and should be aware of how their duties are impacted when the company is in financial distress.
This guide has been prepared on the basis of Hong Kong law principles. Many of the principles will also be applicable to other common law jurisdictions.
How are companies responding to the current crisis?