In the case of Re China Properties Group Limited (in Liquidation) [2023] HKCFI 2346, the Hong Kong Court has shown its commitment to providing assistance to local liquidators appointed by it by asserting in personam jurisdiction over a Hong Kong based director of a company incorporated in a foreign jurisdiction. This case has led to a widespread discussion in relation to whether it is necessary to seek assistance and recognition of Hong Kong insolvency practitioners appointment going forward, whether in the place of incorporation of the relevant company or otherwise.

Background

The case involved China Properties Group Limited (the “Company“), a Mainland China real estate developer listed in Hong Kong and incorporated in the Cayman Islands. The Company has subsidiaries in both Hong Kong and the BVI, along with asset-holding and operating companies domiciled in Mainland China. This is a corporate structure commonly found among Hong Kong-listed companies.

Following the winding-up of the Company in Hong Kong, liquidators were appointed by the Hong Kong Court. However, these liquidators encountered challenges in obtaining cooperation from the former directors of the Company. Specifically, the liquidators requested the BVI registered agent of four BVI subsidiaries within the group to update their registers and replace Wong Sai Chung (“Mr. Wong“), a former director, with one of the liquidators as the sole director of these BVI subsidiaries.

In response, Mr. Wong initiated proceedings in the BVI, seeking to establish his rights as a director. He argued that the liquidators could not assume control over the BVI subsidiaries without formal recognition and assistance from the BVI court, as this would encroach upon the jurisdiction of the BVI court. The liquidators sought relief from the Hong Kong courts and asked Mr. Wong to confirm their appointment as directors by way of a written resolution on behalf of the BVI subsidiaries.

The Hong Kong court granted interim relief to the liquidators and ordered Mr. Wong to sign the resolutions. In doing so, the Court exercised its in personam jurisdiction against Mr. Wong, based on “an implied jurisdiction to make whatever orders are necessary to give effect to its own judgments.“

Decision of the Hong Kong Court

In reaching its decision, the Hong Kong Court considered several factors. The Court recognized its jurisdiction and authority to exert control over companies operating within its jurisdiction. The Hong Kong Court has a duty to assist liquidators in effectively and efficiently carrying out their obligations for the benefit of creditors. It emphasized the significance of providing the necessary tools to facilitate an orderly, expeditious, and cost-effective liquidation process. The Court reaffirmed the general principle that liquidators assume the powers of directors upon the winding-up of a company. Furthermore, the Court emphasized that it expected directors to cooperate with duly-appointed liquidators.

The Court dismissed the argument that its order would infringe upon the jurisdiction of the BVI court. It explained that it would not be economically viable for the liquidators to seek fresh winding-up orders in the BVI courts for each company. This acknowledgment reflects the commercial reality that many listed companies in Hong Kong adopt similar corporate structures involving offshore entities. Moreover, the Hong Kong Court reasoned that such an approach would run counter to the principles of comity and judicial cooperation in cross-border insolvency matters. The Court underscored, from its perspective, the relevance and importance of the Company’s centre of main interests (i.e. “COMI”), and highlighted recent decisions of the Hong Kong Court that support a broader understanding of common law recognition of insolvency proceedings based on the debtor’s COMI, rather than solely relying on the place of incorporation. As the Company acknowledged Hong Kong as its COMI in the winding-up proceedings, the Hong Kong Court considered that there was no reason for the BVI Court to refuse to assist the liquidators.

Analysis

This decision by the Hong Kong Court follows previous cases that have addressed the relevance of COMI in cross-border insolvency and restructuring matters, such as Re Lamtex Holdings Ltd [2021] HKCFI 622 and Re Global Brands Group Holding Ltd (In Liquidation) [2022] HKCFI 1879.

It will be interesting to monitor whether or not other jurisdictions agree with the reasoning and approach adopted by the Hong Kong Court, including where this rationale is tested in the relevant place of incorporation of any particular company.

It should be noted that the in personam order granted in this case was made under specific factual circumstances. For example, if the former directors of the Company are not within the in personam jurisdiction of the Hong Kong court (which is often the case), even on the Hong Kong Court’s analysis, it would still be necessary to seek formal recognition and assistance in the place of incorporation.

Further, whilst the Hong Kong Court in this case endeavoured to find a practical solution for the benefit of the local liquidators to allow them to discharge their duties, this approach may lead to inconsistency and legal uncertainty, which may ultimately need to be resolved by way of inter-court cooperation based on the long-standing principles of comity and guidelines adopted by many of the leading jurisdictions in this space.

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