On 2 March 2018, the Hong Kong Court of First Instance (“CFI“) issued a notable decision which signifies a development of Hong Kong law in the contexts of insolvency and arbitration. The CFI held in Lasmos Limited v Southwest Pacific Bauxite (HK) Limited [2018] HKCFI 426 that a winding-up petition issued on the ground of insolvency should generally be dismissed if there is an arbitration clause contained in an agreement giving rise to a debt relied on to support the petition.
In Lasmos Ltd v. Southwest Pacific Bauxite (HK) Ltd (02/03/2018, HCCW 277/2017), [2018] HKCFI 426 (Lasmos), the Court of First Instance held that a winding-up petition based on a disputed debt may be dismissed if there was an arbitration clause in the underlying agreement, upon which arbitration has commenced.
Manley Toys Limited once claimed to be the seventh largest toy company in the world. Due to ongoing litigation and declining sales, it entered into a voluntary liquidation in Hong Kong. On March 22, 2016, the debtor’s appointed liquidators and foreign representatives filed a motion for recognition under chapter 15 of the Bankruptcy Code. The motion was opposed by ASI Inc., f/k/a Aviva Sports, Inc. (“Aviva”) and Toys “R” Us, Inc. (“TRU”).
The impact of an arbitration clause on the Court’s discretion to grant a winding up order was recently considered by the Court of First Instance in Hong Kong.
In Lasmos Limited v Southwest Pacific Bauxite (HK) Limited (HCCW 227/2017; [2018] HKCFI 426), the Court dismissed a winding up petition in view of an arbitration clause contained in the agreement between the parties and held that the dispute concerning the alleged debt should be dealt with in accordance with the arbitration clause.
Facts
In a recent winding-up case, Discreet Ltd v. Wing Bo Building Construction Co., Ltd [2017] HCCW 49/2017, the Court confirmed that when there is clearly a cross-claim which exceeds the sum claimed by the petitioner, and it is clear that the cross-claim is genuine and based on substantial grounds, the petition can amount to an abuse of process.
Background
In Bespark Technologies Engineering Ltd v JV Fitness Ltd the High Court recently took the opportunity to remind liquidators of their duty to give full and frank disclosure when making an ex parte (without notice) application to the court.(1) A failure to do so could have serious consequences, including a refusal to approve the appointment of a liquidator or an order for his or her removal. The duty to be full and frank applies to all ex parte applications, so there are general lessons to be learned.
In a precedent-setting decision delivered on 8 February 2018, the Hong Kong Court of First Instance has granted a recognition order in favour of foreign liquidators appointed in an insolvent liquidation commenced by a shareholders' resolution.
It is not uncommon to see that the law governing a loan document is different from that of the debtor company’s place of incorporation. Can the rights of the lender be altered by a restructuring plan sanctioned in the latter? The English court said “no” in a recent case1, applying the longstanding Gibbs rule that also applies under Hong Kong law.
Background