Court Grants Groundbreaking Orders Compelling Ex-management of Company in Liquidation to Resign and to Appoint Liquidator as Director of Subsidiaries

Recent Judgments

18 September 2023

In Re China Properties Group Limited (in Liquidation) [2023] HKCFI 2346, the Court had occasion to address two important aspects of Hong Kong’s present day liquidation regime: (1) how the Hong Kong court exercises its jurisdiction to wind up overseas-incorporated companies; and (2) how Hong Kong court-appointed liquidators can effectively carry out the winding-up.

The Court's decision on these matters is important to companies, creditors, lawyers, insolvency practitioners, and many others. This is especially since the vast majority of companies listed on the Stock Exchange of Hong Kong are overseas-incorporated. Moreover, most have put in place a structure where the listed company holds its real assets and operations through further layers of offshore-incorporated subsidiaries.

The Court of Final Appeal and the Companies Court have on several occasions anticipated that, if there is any issue with the offshore jurisdiction recognizing the Hong Kong liquidators, the Hong Kong court could exercise its in personam jurisdiction to order persons who are directors of the offshore entities to effect such acts as to assist the liquidators taking control of those entities.

In Re China Properties Group Limited, Recorder William Wong SC, for the first time in a published judgment, made such an order.

Anthony Chan J had earlier ordered the winding-up of the company and appointed liquidators, subsequent to which the liquidators complained of huge resistance to their taking control of the company and its subsidiaries, including sustained attempts to block access to the company’s books and records. The former major shareholder and controller challenged the liquidators’ resolutions to appoint one of themselves to replace him as the sole director of various subsidiaries incorporated in the BVI. He commenced proceedings in BVI against the liquidators. The liquidators sought an order from the Hong Kong court to compel him to sign resolutions to ratify the liquidators’ resolutions, resigning and appointing one of the liquidators as the sole director.

In granting the orders sought by the liquidators in these circumstances, the learned Recorder noted at the outset, “It is of paramount importance to Hong Kong to befit its status as an international financial centre and insolvency hub that its liquidators be given all statutory armory to facilitate an orderly, speedy, and cost effective liquidation for the best interest of all stakeholders.” The Recorder further reasoned, “it is a basic principle that upon the pronouncement of a winding-up order against a company, its directors’ powers would be taken over by the liquidators save and except a reserve power to conduct an appeal” and “directors of a company in liquidation are meant to render assistance to liquidators”, therefore there is “nothing spectacular or oppressive” for the Court to exercise its in personam jurisdiction to compel directors to sign resolutions to resign and/or to appoint others to take control of the company’s subsidiaires.

The Recorder notably also indicated that such orders could have been obtained by the petitioner and/or the liquidators as what could be standard terms of a winding-up order or regulatory order.

In response to the ex-controller’s argument that such an order interferes with the BVI Court’s jurisdiction, the Recorder pointed out that what the order compels “has nothing to do with recognition by courts of the place of incorporation” and that, in any case, “in the spirit of comity and judicial cooperation in cross-border insolvency matters, one would expect that courts of competent jurisdiction would, within the four corners of their laws, give assistance”.

Echoing what Harris J and Linda Chan J have said in other recent cases, the Recorder also lauded the COMI (centre of main interest) approach to recognizing courts’ insolvency jurisdiction. As he put it, “in view of the stage we have reached, this question [of recognition] needs to be reconsidered in favour of the view that the common law in this area contains sufficient flexibility to develop so as to be consistent with commercial practice.”

This case will be of interest to many investors and professionals. Further, it may be the beginning of further cases wrestling with the difficulties of coordination between different courts who may or may not share the same view on jurisdictional issues.

Laurence Li SC, instructed by YTL LLP, acted for and led a team of junior counsel representing the Liquidators at the oral hearing, working in tandem with Abraham Chan SC, who acted on behalf of the Liquidators in the written submissions.

For the full judgment, please view here.

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