The High Court recently issued its ruling in the matter of Re Avanti Communications Limited (in administration). It is the first major case since the pivotal 2005 House of Lords decision of Re Spectrum Plus  to examine the characteristics of fixed and floating charges.

Key points

If a debt arises from a contract that contains an exclusive jurisdiction clause (EJC) in favour of a foreign court, how will the Hong Kong court deal with a bankruptcy petition based on that debt? A highly anticipated judgment from Hong Kong’s highest court suggests that the bankruptcy petition will likely be dismissed, and that the foreign EJC will be given effect. But, as we will discuss below, the Court seems to leave other possibilities open, depending on the facts in a particular case.

In the current times of financial stress, a borrower seeking to renegotiate or refinance existing financing arrangements may be asked by its lender to enhance or refresh its security package through the grant of a new floating charge.

The question of whether a floating charge can be avoided due to section 245 of the Insolvency Act 1986 ("IA 1986") can arise in such a context.

Void floating charges under section 245 of the IA 1986

A recent Hong Kong Court of Appeal decision examined a creditor’s right to commence bankruptcy/insolvency proceedings where the petition debt arises from an agreement containing an exclusive jurisdiction clause in favour of a foreign court: Guy Kwok-Hung Lam v Tor Asia Credit Master Fund LP [2022] HKCA 1297.

Historically, the Hong Kong courts have generally recognised foreign insolvency proceedings commenced in the jurisdiction in which the company is incorporated. This may no longer be the case in Hong Kong following the recent decision of Provisional Liquidator of Global Brands Group Holding Ltd v Computershare Hong Kong Trustees Ltd [2022] HKCFI 1789 (Global Brands).

Historically, the common law has only recognised foreign insolvency proceedings commenced in the jurisdiction in which the company is incorporated. This may no longer be the case in Hong Kong. Going forward, a Hong Kong court will now recognise foreign insolvency proceedings in the jurisdiction of the company’s “centre of main interests” (COMI). Indeed, it will not be sufficient, nor will it be necessary, that the foreign insolvency process is conducted in a company’s place of incorporation.

On 6 June 2022, Mr Justice Harris sanctioned a Hong Kong scheme of arrangement for Rare Earth Magnesium Technology Group (the Company) in re Rare Earth Magnesium Technology Limited [2022] HKFCI 1686 (Rare Earth).

The issue

A "no action" clause will appear in almost all English law-governed bond trust deeds.

A no action clause provides that a bondholder (or anyone entitled to payments on the bonds) cannot, initially, proceed directly against the issuer. Instead, the right to bring a cause of action resides with the trustee and it is only if the trustee, having become bound to take action, fails to do so within a reasonable time (with the failure continuing) that a bondholder can then itself proceed directly against the issuer.

We previously wrote about the Court’s attitude to liquidators’ applications for directions on matters arising in a compulsory winding up (i.e., by the court) under section 200 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap.

In Re Grand Peace Group Holdings Limited [2021] HKCFI 2361, the Hong Kong Court refused to exercise its discretionary jurisdiction to wind up an offshore holding company due to difficulties in the recognition of Hong Kong liquidators in the BVI.

Background