Re Z-Obee Holdings Ltd

• Jurisdiction: Bermuda
• Judgment Date: 21 February 2017
• Neutral Citation: [2017] SC Bda 16 Com
• Date: 21 February 2017
• Docket Number: (COMMERCIAL COURT) COMPANIES (WINDING-UP) 2016: No. 183
• Court: Supreme Court (Bermuda)

[2017] SC (Bda) 16 Com

IN THE SUPREME COURT OF BERMUDA

(COMMERCIAL COURT) COMPANIES (WINDING-UP) 2016: No. 183

In the Matter of Z-Obee Holdings Limited

And in the Matter of the Companies Act 1981

Ms Lilla Zuill, Zuill & Co., for the Petitioner

Winding-up-company petition-appointment joint provisional liquidators to monitor implementation of insolvent restructuring by board of directors-whether jurisdiction exists to utilize provisional liquidation proceedings in aid of a restructuring which is designed to result in the petition being ultimately dismissed-Companies Act 1981, sections 164 and 170

REASONS

(in Chambers)

Background

1 The Petitioner is a Bermuda company which was listed on the Hong Kong Stock Exchange (“HKSX”). The Company has been in provisional liquidation since June 27, 2014 in the High Court of the Hong Kong Special Administrative Region (“the Hong Kong Court”). Although there are wrinkles to be straightened out concerning its HKSX listing status, the Hong Kong joint provisional liquidators (“JPLs”) have found a potential ‘white knight’ investor and seek to have the Company restructured rather than wound up.

2 On February 7, 2017, the Company presented its own insolvency-based winding-up petition which has yet to be heard. By an Ex Parte Summons issued on February 9, 2017, the Company applied to appoint the Hong Kong JPLs as Bermuda JPLs for the explicit purpose of restructuring the Company. It was explained to the Court in the supporting evidence that an important reason for the application was the inability of the Hong Kong Court to use provisional liquidation proceedings for restructuring purposes. It was submitted that the Bermuda Court had an established practice of appointing JPLs to manage a restructuring. If the application was granted, it was anticipated that the present Hong Kong winding-up proceedings would be discontinued and that the Bermuda JPLs would apply to this Court in the primary liquidation proceedings for the issue of a Letter of Request to the Hong Kong Court for assistance in the form of promoting a parallel scheme of arrangement in Hong Kong, serving as the ancillary liquidation forum, to the scheme the JPLs would seek to implement in Bermuda.

3 The evidence disclosed that substantial creditor support existed for the proposed restructuring. It was also deposed that at a hearing on February 13, 2017 in Hong Kong, Jonathan Harris J of the High Court adjourned the Hong Kong Petition to enable the Hong Kong JPLs to make the present application.

4 On February 17, 2017 I granted the relief sought by the Company on its Ex Parte Summons and appointed Messrs Man Chun So, Donald Edward Osborn and Yat Kit Jong as JPLs. I now give brief reasons for this decision.

Statutory provisions

5 Section 170 of the Companies Act 1981 provides as follows:

“ Power of Court to appoint liquidators

170(1) For the purpose of conducting proceedings in winding up a company and performing such duties in reference thereto as the Court may impose, the Court may appoint a liquidator or liquidators.

(2) The Court may on the presentation of a winding-up petition or at any time thereafter and before the first appointment of a liquidator appoint a provisional liquidator who may be the Official Receiver or any other fit person.

(3) When the Court appoints a provisional liquidator, the Court may limit his powers by the order appointing him.” [Emphasis added]

6 This provision has for almost 20 years been construed as empowering this Court to appoint a provisional liquidator with powers limited to implementing a restructuring rather than displacing the management altogether pending a winding-up of the respondent company. Section 170 (3) is read in this way by taking into account the wider statutory context. One other key provision is pertinent. Section 164 of the Act provides:

“ (1) On hearing a winding-up petition the Court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order that it thinks fit, but the Court shall not refuse to make a winding-up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets or that the company has no assets.”

Case law

7 Ms Zuill placed various authorities before the Court. The following passages from my recent judgment in Re Up Energy Development Group Limited [2016] SC (Bda) 83 Com (20 September 2016) perhaps best explains the legal basis for appointing JPLs for restructuring purposes:

“ 11. The established practice of this Court in appointing JPLs to supervise a de facto debtor-in-possession restructuring has typically arisen in the context of winding-up petitions presented by the company. The insolvent company's pre-emptive action in seeking the benefit of the stay of proceedings triggered by the appointment of a provisional liquidator combined with the independent oversight of the proposed restructuring by court officers focussed on protecting creditor interests has never, to my knowledge, ever been opposed by creditor interests. The petitioning company has invariably commenced the provisional liquidation proceedings with the blessing of the main creditors concerned. A decade ago inDiscover Reinsurance Company v PEG Reinsurance Company Ltd [2006] Bda LR 88, I described the practice in this area of Bermuda insolvency law as follows:

‘18. There are circumstances in which, in England and Bermuda, provisional liquidators may be appointed when a winding-up order is not necessarily expected to be made, in early course at least. Since the last decade of the last...