The recent case of Re China Bozza Development Holdings Ltd [2021] HKLRD 977 demonstrated the attitude and increased scrutiny of the Hong Kong Companies’ Court towards offshore soft-touch provisional liquidation.

The leading authority on the meaning of soft-touch is the British Virgin Islands case of Re Constellation Overseas Ltd BVIHC (Com) 2018/0206,0207,0208, 0210 and 0212 . (§3) :

导言

Introduction

“Whenever any person (hereinafter called the insurer) is obliged to indemnify another person (hereinafter called the insured) in respect of any liability incurred by the insured towards a third party, the latter shall, on the sequestration of the estate of the insured, be entitled to recover from the insurer the amount of the insured’s liability towards the third party but not exceeding the maximum amount for which the insurer has bound himself to indemnify the insured” – s156 of the Insolvency Act, No 24 of 1936 as amended (Act).

In Hattingh v Roux NO & Others 2011 (3) SA 135 (WCC), the plaintiff, Hattingh, sought to show that the defendant, Roux junior, intentionally and unlawfully injured Hattingh by executing an illegal and highly dangerous manoeuvre during a scrum in an Under 19 rugby match between two Western Cape high school teams.

Among other issues considered by the court was the delictual ground of intent: whether Roux junior, if he had in fact executed the manoeuvre which injured Hattingh, acted negligently or intentionally in doing so.

Consider this situation: a dispute has arisen between two parties in relation to an agreement which is subject to an arbitration clause. Separately, a winding up application has been made against one of the parties to the arbitration in the jurisdiction in which it is incorporated. An arbitral award is obtained against the potentially insolvent company. That company has assets in Hong Kong, against which the creditor is now seeking to enforce their rights.

Foreign companies are frequently used to hold assets or other investments in Hong Kong. Some of these foreign companies are not registered under Part XI of the Companies Ordinance (“CO”) (“Unregistered Companies”). There are various reasons for not registering foreign companies in Hong Kong, including confidentiality and tax benefits. However, there may be some drawbacks to this approach.