Re Dickson Group Holdings Ltd (in Hong Kong Liquidation)
| Jurisdiction | Bermuda |
| Judge | Kawaley, J. |
| Judgment Date | 09 May 2008 |
| Court | Supreme Court (Bermuda) |
| Docket Number | 94 of 2008 |
| Date | 09 May 2008 |
Supreme Court
Kawaley, J.
94 of 2008
Ms. Jennifer Fraser, Appleby, for the applicant.
Jurisdiction - Supreme Court — Recognition of foreign proceedings — Whether the court could recognise foreign winding-up orders in respect of local companies.
The applicant, acting by its Hong Kong Joint Liquidators, applied pursuant to section 99 of the Companies Act 1981 by Originating Summons dated April 29, 2008 for leave to summon a meeting to consider a scheme of arrangement (“the Scheme”). The applicant, a Bermudian incorporated company, has not only been placed into provisional liquidation in Hong Kong, but a winding-up order has been made and permanent liquidators appointed by the Hong Kong Court.
Implicit in the application, which arose on what appeared to me to be unusual facts, was a request that this court not simply accede to a routine section 99 application, but also both (a) recognise the orders of the Hong Kong Court winding-up the Company and appointing permanent joint liquidators, and (b) cooperate with the Hong Kong Court in supervising the promotion and potential implementation of parallel schemes of arrangement under Bermudian and Hong Kong law designed to restructure the Company's debt and capital so that its shares (substantially under new ownership) can once again trade on the Hong Kong Stock Exchange.
This court has cooperated with foreign insolvency courts in the context of restructurings where a Bermuda company has been in provisional liquidation here but the US Bankruptcy Court has assumed the role of the primary liquidation court. It seemed to be unprecedented, however, for this court to recognise and enforce insolvency orders of a foreign court in respect of a Bermudian company in circumstances where (a) no parallel insolvency proceedings have been commenced in Bermuda, and (b) the Bermudian company has not only been placed into a restructuring proceedings abroad, but has been placed into “full-blown” liquidation in what amount to primary (as opposed to ancillary) proceedings abroad.
In advance of the ex parte hearing counsel was requested to address the jurisdictional issues raised by the application. Counsel satisfied the court that the jurisdiction to grant the application clearly existed and that commercial logic strongly supported such a result as well. It was obvious without the need for any reasoned analysis that the court could properly accede to the application for leave to convene a section 99 meeting on its merits. After deciding to grant the application, I indicated that I would give reasons for what appeared to me to be a novel jurisdictional decision.
Ms. Fraser firstly explained the commercial background to the proposed application. Although the Company was incorporated in Bermuda, no business activities took place here. The main focus of its business was Hong Kong and elsewhere in the People's Republic of China.
Secondly, counsel pointed out that although the Company had been placed into liquidation in Hong Kong, the aim of the Scheme was to restructure its affairs leaving it in a solvent position. The estate was relatively small, the winding-up took place on a creditor's petition and the Hong Kong liquidators had seen no need for a winding-up in Bermuda. The directors had remained in place for Bermuda law purposes, and they had passed a resolution supporting the present application.
Accordingly, bearing in mind that section 99 of the Companies Act 1981 implicitly permitted the promotion and sanctioning of schemes of arrangements in relation to insolvent companies independently of liquidation proceedings, it was submitted that the application could properly be granted without any need to formally recognise the foreign winding-up order or the appointment of the permanent liquidators. Re APP China Group Ltd. [2003] Bda LR 50 was cited as an illustration of an insolvent scheme being approved by this court outside of a liquidation proceeding.
Ms. Fraser accepted that no precedents existed for parallel schemes of arrangement being implemented in Bermuda and elsewhere in circumstances where the Bermudian company was only in liquidation abroad. However, she referred by way of analogy to the unreported case of Interform Ceramics Technology Ltd., Supreme Court of Bermuda, Civil Jurisdiction 2001: 12, as an example of a case where parallel schemes of arrangement were implemented in Bermuda and Hong Kong in relation to a Bermudian company which was only in receivership in Hong Kong. Nevertheless it was clear that if the court was required to recognise the Hong Kong winding-up and liquidator appointment orders, the jurisdiction to do so existed and there were good grounds for this court exercising its discretion to do so.
Counsel referred to the leading authority on the common law power to recognise foreign corporate rescue proceedings without the need to commence parallel proceedings in the place of incorporation: Cambridge Gas Transportation Corp. v. Committee of Unsecured Creditors [2007] 1 A.C. 508 (PC). She fairly conceded that there was no judicial authority illustrating the recognition of a foreign winding-up order in respect of a local company. However, counsel referred to academic authority which suggested that any general rule that such an order would not ordinarily be recognised was subject to an exception. The exception was that where there was no likelihood of a winding-up at all in the place of incorporation, which was precisely the present case, the foreign order might be recognised by the courts of the company's domicile: Smart, ‘Cross-Border Insolvency’ (Butterworths: London, 1998) pages 178-180; Lawrence Collins (ed.), ‘Dicey and Morris on the Conflict of Laws’ 13th edition, paragraph 30-094.
However Ms. Fraser also made the subtle yet practical point that in substance the foreign winding-up order was really irrelevant, because the ultimate goal of the Scheme was to permanently stay the foreign winding-up proceedings [If approved, the Scheme will discharge the Company's debt to its unsecured creditors, so that a new investor can acquire most the Company's shares which will be re-listed on the Hong Kong Stock Exchange. While the liquidation return to unsecured creditors is likely to be only 4%, the return if the Scheme is approved is likely to be in the region of 9%]. Counsel insisted that although cases might exist where this court would be reluctant to assist the foreign liquidation of a Bermudian company in the absence of parallel proceedings here, the facts of the present case did not give rise to such concerns.
Two issues of legal principle arose for consideration. Firstly, and most technically, did this court possess the jurisdictional competence to recognise the winding-up order made in Hong Kong and the related order appointing the Hong Kong liquidators, both made in relation to a Bermudian company which was not being wound-up in its place of incorporation.? Secondly, and more practically, what factors were relevant to the exercise of any discretion the court possessed to recognise the foreign proceedings, and were the principles governing recognition of and judicial cooperation with foreign restructuring proceedings brought into play?
Two important factual issues arose for determination. Firstly, and more technically, could the court simply dodge any recognition bullets on the grounds that in substance the application for leave to promote the Scheme was made on behalf of the Company and its directors, as a matter of Bermuda law, despite the fact that the application was on its face made by the Company in liquidation under Hong Kong law? Secondly, and more substantively, did the present case not in real terms essentially fall within the well recognised parameters of this court playing an ancillary role in relation to a primary foreign insolvency proceeding aimed at restructuring a Bermudian company whose business was more closely tied to the foreign forum than to Bermuda?
Jurisdiction to recognise foreign winding-up orders in respect of local companies
In the absence of statutory provisions delineating the circumstances in which foreign winding proceedings, orders and appointments of liquidators may be recognised, recourse must be had to the common law. The present concern is not the commonplace issue of recognising foreign ancillary proceedings in respect of a local company; rather it is how the courts of a company where a company is incorporated should respond to foreign proceedings which have been prosecuted as if they were a liquidation taking place in the company's place of incorporation. The common law position appears to be that this court undoubtedly possesses a discretionary jurisdiction to recognise foreign primary or non-ancillary insolvency proceedings in relation to a Bermudian company, although the conditions governing the exercise of that discretion are not crystal clear. This conclusion may be supported as a matter of inference by a review of some of the leading academic texts. The learned authors of such texts appear to assume that jurisdiction to recognise foreign proceedings in relation to a local company exists and merely question whether or not and, if so, in what precise circumstances, such jurisdiction would be exercised. By common accord, no direct judicial authority on point can be found.
In Lawrence Collins (ed.), ‘Dicey and Morris on the Conflict of Laws’, 12th edition, Rule 160 provides as follows [(Sweet and Maxwell: London, 1993), Volume 2, page 1137]: “The authority of a liquidator appointed under the law of the place of incorporation is recognised in England.” The learned authors caution against regarding this statement as representing the global position:
“Rule...
To continue reading
Request your trial