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Hong Kong Court adopting new criteria for recognition and assistance to foreign insolvency
29 August 2022

In the recent High Court case of Provisional Liquidator of Global Brands Group Holding Ltd v. Computershare Hong Kong Trustees Ltd [2022] HKCFI 1789, the Court accepted that the recognition and assistance to a foreign insolvency process may be conducted in the jurisdiction of the company’s centre of main interest (“COMI”).

Prior to this, under the common law, the Hong Kong courts would only grant orders recognising and assisting a foreign insolvency process commenced in the company’s place of incorporation. This case is the clearest departure from the common law rule to date.

Case background

Global Brands Group Holdings Limited (“Global Brands”) was an investment holding company incorporated in Bermuda. Together with its subsidiaries, Global Brands ran a wide range of businesses including business design, development, marketing and sale of branded clothing, footwear, accessories and related lifestyle products in North America and Europe. Global Brands was also engaged in brand management, consultancy and distribution services worldwide.

Due to the COVID-19 pandemic and some other geopolitical and industrial factors, Global Brands encountered financial difficulties. Despite efforts to restructure its businesses, the board of Global Brands eventually decided to wind-up the company in the creditors’ best interests and Global Brands applied successfully for a winding-up order on 5 November 2021 from the Bermudan Court.

Global Brands was listed on the Main Board of The Stock Exchange of Hong Kong. It assets in Hong Kong mainly include : (1) about HK$8 million cash balances held by Computershare Hong Kong Trustee Limited (“Computershare”); and (2) about US$4,800 held by HSBC.

Therefore, on 25 May 2022, the Provisional Liquidator of Global Brands issued an originating summons in which Computershare and HSBC were named as the Respondents. The Provisional Liquidator sought an order for recognition and assistance in order to take control of its assets, mainly the cash balances at Computershare and HSBC.

Decision of the Court

In coming to his decision, Mr Justice Harris took the view that the correct approach to assess whether or not a foreign liquidation should be recognised is :-

1. Firstly, to determine if at the time the application for recognition is made, whether the foreign liquidation is taking place in the jurisdiction of the company’s COMI.

2. If the answer to the first criteria is “No”, the application should be declined unless it falls within one of the following two categories :-

(a) The application is for recognising the authority of a liquidator appointed in the company’s place of incorporation. In other words, this is to acknowledge the liquidator being the lawful agent to represent the company and/or an order. Mr Justice Harris also called it as a “managerial assistance”; or

(b) In situations where merely recognition is insufficient to assist a liquidator appointed in the company’s place of incorporation to effectively perform his duties, the Court may grant an order for recognition and assistance but this would be limited and carefully prescribed.

What are recognition and assistance?

Mr Justice Harris clarified in his decision that recognition and assistance are two concepts. Recognition refers to the acknowledgement and confirmation of the status of a foreign insolvency process and officer. As for assistance, it is the granting of powers to act in local jurisdiction to the foreign insolvency officer.

Determining COMI

In deciding the Global Brands case, Mr Justice Harris had considered different approaches in determining a company’s COMI in different jurisdictions. Some common factors include the place of incorporation, the place of principal office, the place of business and clients, the place where employee/officers reside, etc.

Conclusion

Some practitioners have hailed this decision as a milestone in the development of the law as to when the Hong Kong Court can recognise and assist provisional liquidators in a foreign insolvency process. It is practical, especially in a jurisdiction like Hong Kong, where the companies listed on the Hong Kong Stock Exchange tend to have complex organizational structures. This decision is also in line with the trend in other jurisdictions, such as Singapore, as well. However, there remains to be seen how this case may influence future cases, as judges may not be all on board yet. For example, Madam Justice Chan appears to have a different view in Re Up Energy Development Group Limited [2022] HKCFI 1329 on whether the common law position should still be applied.

If you have any questions on the above eNews or require assistance on insolvency law, experienced lawyers in our Litigation and Dispute Resolution team will be happy to assist you.

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