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Legal update on insolvency case law developments
Talk for Restructuring and Insolvency Faculty, HKICPA
by Ludwig Ng, partner, ONC Lawyers
25th April 2017
2
Recent Case Updates
1. Cross-border Insolvency
2. Scheme of Arrangement
3. Void dispositions and Validation Order
4. Enforcing Examination Order by Contempt Proceedings
3
Cross-border Insolvency
Re Joint Official Liquidators of Centaur Litigation SPC (in liquidation)
HCMP 3389/2015, 3391/2015 and 3393/2015
Date of Decision: 10 March 2016
Brief Facts:
• The three Companies were incorporated in the Cayman Islands and
have been put into liquidation there.
• The Liquidators, pursuant to a request issued by the Grand Court of
the Cayman Islands, applied for recognition and assistance.
• One of the terms sought any person wishing to commence
proceedings in Hong Kong against the Companies must obtain first
the court’s leave.
5
Re Joint Official Liquidators of Centaur
Litigation SPC (in liquidation) HCMP 3389/2015
Points Decided:
• Section 186 of the CWUMPO: When a winding-up order has been
made, or a provisional liquidator has been appointed, no action or
proceeding shall be proceeded with or commenced against the
company except by leave of the court, and subject to such terms as
the court may impose.
• Section 97 of the Companies Law of the Cayman Islands,
substantially the same as section 186 of the CWUMPO
• Making an order which extends to Hong Kong a control which exists
in the Cayman Islands will assist in the orderly and cost effective
liquidation of the Companies. It is also consistent with our own
regime.
• Prudent creditor thinking of commencing proceedings should
investigate the current position of the Companies
• Granted the order
6
Re Joint Official Liquidators of Centaur
Litigation SPC (in liquidation) HCMP 3389/2015
Significance:
• This case follows the leading decision of The Joint Official
Liquidators of Company A Co v B HCMP 902/2014 Date of
Decision: 21 July 2014 (the first reported case on recognition of
foreign liquidators pursuant to letter of request) and move on to
elaborate the standard orders to be granted.
• The Court has set out the terms of the orders that will normally be
granted in an application by foreign liquidators for recognition and
assistance in Hong Kong (appendix of the judgment).
• This will eliminate the need to apply for ancillary winding-up orders
in Hong Kong in some cases.
7
Appendix
1. The appointment of X and Y as Joint Official Liquidators (the “Liquidators”) of [the Company] (In
Liquidation) (the “Company”) be recognised by this Court.
2. The Liquidators have and may exercise such powers as are available to them as a matter of
Cayman Islands law and would be available to them under the laws of Hong Kong as if they had
been appointed liquidators of the Company under the laws of Hong Kong and in particular, but
without prejudice to the generality of the foregoing, for the following purposes:
2.1 to locate, protect, secure and take into their possession and control all assets and property
within the jurisdiction of this Court to which the Company is or appears to be entitled;
2.2 to locate, protect, secure and take into their possession and control the books, papers and
records of the Company including the accounting and statutory records within the jurisdiction
of this Court and to continue their investigations into the assets and affairs of the Company
and the circumstances which gave rise to its insolvency;
2.3 to retain and employ barristers, solicitors or attorneys and/or such other agents or
professional persons as the Liquidators consider appropriate for the purpose of advising or
assisting in the execution of their powers and duties; and
2.4 so far as may be necessary to supplement and to effect the powers set out at paragraphs 2.1
and 2.2 above, to bring legal proceedings and make all such applications to this Court,
whether in their own names or in the name of the Company, on behalf of or for the benefit of
the Company including any applications for ancillary relief such as freezing orders, search
and seizure orders in any legal proceedings commenced, and/or for orders for disclosure, the
production of documents and/or examination of third parties which it is anticipated may be
made by the Liquidators to facilitate their ongoing investigations into the assets and affairs of
the Company and the circumstances which gave rise to its insolvency.
3. Anything that is authorized or required to be done by the Liquidators is to be done by all or anyone
or more of the persons appointed.
4. For so long as the Company remains in Liquidation in the Cayman Islands, no action or proceeding
shall be proceeded with or commenced against the Company or its assets or affairs, or their property
within the jurisdiction of this Court, except with leave of this Court and subject to such terms as this
Court may impose.
5. The Liquidators do have liberty to apply.
6. The costs of the application be paid out of the assets of the Company as an expense of the
liquidation.
8
Cross-border Insolvency
Re Gulf Pacific Shipping Ltd (in creditors’ voluntary liquidation) and
others [2016] SGHC 287
Date of Decision: 30 Dec 2016
Brief Facts:
• Gulf Pacific Shipping Limited (“the Company”) was incorporated in
Hong Kong.
• In 2016, the Company was put into creditors’ voluntary winding up.
Liquidators were appointed.
• The Company had a bank account with ABN AMRO Bank NV
Singapore Branch.
• The Liquidators sought copies of bank statements from ABN
Singapore.
• The Liquidators applied for recognition and powers to obtain
information and documents relating to the bank account in
Singapore.
9
Re Gulf Pacific Shipping Ltd [2016] SGHC 287
Issue:
• Whether recognition should be denied as the Company was
liquidated through a voluntary winding up?
Points Decided:
• Singularis Holdings Ltd v PricewaterhouseCoopers [2015] AC 1675:
common law powers of assistance to foreign liquidation did not
extend to voluntary winding up. Voluntary winding up was
characterized as an essentially private arrangement, and not of the
same nature as insolvency involving officers of a foreign court.
(Lord Sumption, Lord Clarke, Lord Neuberger disagreed) .
• The foundational doctrine in recognition of foreign insolvency
proceedings promotion and facilitation of the orderly distribution
of assets, as well as the orderly resolution and dissolution of the
affairs of entities being wound up
• No distinction should be drawn between voluntary and compulsory
process
• Recognition granted
10
Re Gulf Pacific Shipping Ltd [2016] SGHC 287
Significance:
• The common law power of assistance to foreign liquidation also
extends to voluntary winding-up
• The Singapore court was bold enough to depart from the dicta of
the Privy Council in favour of the trend towards a liberal attitude of
the unversalist approach in cross-border insolvencies
11
Cross-border Insolvency
The Joint Provisional Liquidators of BJB Career Education Co Ltd (In
Provisional Liquidation) v Xu Zhendong HCMP 1139/2016
Date of Decision: 18 Nov 2016
Brief Facts:
• BJB Career Education Company Limited (“the Company”) was
incorporated in Cayman Islands. It provided vocational training
• It was put into liquidation by order of the Grand Court of the
Cayman Islands.
• Pursuant to a letter of request issued by the Grand Court, the
Provisional Liquidators of the Company sought orders for Mr Xu
Zhendong, the former chairman and director of the Company, to
produce documents, answer interrogatories and attend court for
oral examination.
12
The Joint Provisional Liquidators of BJB Career
Education Co Ltd (In Provisional Liquidation) v
Xu Zhendong HCMP 1139/2016
Issue:
• Whether an order can be made for the oral examination of an
officer of a foreign company?
Points Decided:
• The common law power of assistance extends to ordering an oral
examination if such a power –
(a) exists in the jurisdiction of liquidation and that is the jurisdiction of the
place of incorporation; and
(b) the power exists in the assisting jurisdiction.
• Cayman Islands court has powers to order the production of
documents by a director of a company and an oral examination of a
director: section 103 of the Companies Law in the Cayman Islands
• Similar powers in section 221 of the Companies (Winding Up and
Miscellaneous Provisions) Ordinance (Cap 32)
• The examination and order for production of documents is
necessary
13
The Joint Provisional Liquidators of BJB Career
Education Co Ltd (In Provisional Liquidation) v
Xu Zhendong HCMP 1139/2016
Significance:
• The standard order in JOL of Centaur Litigation SPC HCMP
3389/2015 has not covered oral examination of former director.
• This is the first Hong Kong decision where the Hong Kong court has
granted powers to foreign liquidators permitting them to orally
examine a company director in Hong Kong pursuant to a letter of
request made by a foreign court
• Note: the requirement of similar regulatory regimes is not always
met. In The Joint Administrators of African Minerals Ltd (in
administration) v. Madison Pacific Trust Ltd [2015] HKCFI 645;
[2015] 4 HKC 215; HCMP 865/2015 (16 April 2015), the court
refused recognition of the status of an administrator appointed
under the English administration regime on the ground that there
was no such procedure in HK.
14
Cross-border insolvency
Re Opti-Medix Ltd (in liquidation) and another matter [2016] SGHC 108
Decision Date : 3 June 2016
Brief Facts:
• Medical Trend Limited and Opti-Medix Limited (collectively, “the
Companies”) were incorporated in the BVI.
• Their main business was in Japan.
• The proceeds of the business were however transferred to their
bank accounts in Singapore.
• In late 2015, bankruptcy orders were granted by the Tokyo District
Court.
• The Bankruptcy Trustee sought the recognition in Singapore of the
foreign insolvency proceedings in respect of the Companies.
15
Re Opti-Medix Ltd (in liquidation) and another
matter [2016] SGHC 108
Issue:
• Whether liquidation in a jurisdiction other than that of the place of
incorporation should be recognized?
Points Decided:
• The place of incorporation may be an accident of many factors, and
may be far removed from the actual place of business
For companies incorporated in an offshore island, they usually don't
have real connection with the place: Re HIH Casualty and General
Insurance Ltd [2008] 1 WLR 852
• As a matter of practicality locating the primary place of
insolvency proceedings at the center of main interest (“COMI”) of
the company
• Japan was the only COMI for the Companies, and had moved in
favor of liquidation.
• Granted the recognition (bearing in mind the orderly dissolution of
the Companies)
16
Re Opti-Medix Ltd (in liquidation) and another
matter [2016] SGHC 108
Significance:
• First decision in Singapore on the recognition of foreign liquidators
from jurisdictions other than the place of incorporation of the
companies concerned
• Also recognizes that nowadays, companies may have little
connection with the place of incorporation
17
Cross-border Insolvency
Joint and Several Liquidators of Pacific Andes Enterprises (BVI) Ltd
HCMP 3563/2016
Date of Reasons for Decision: 27 January 2017
Brief Facts:
• Four companies incorporated in BVI were wound up by the Eastern
Caribbean Supreme Court.
• Pursuant to a letter of request issued by the Eastern Caribbean
Supreme Court, the Liquidators applied to the Hong Kong Court for
recognition of the Liquidators appointment. One of the terms sought
reads as follows:
“The Liquidators have and may exercise such powers… for the
following purposes: (a) to obtain from third parties such documents
and information as concern the Company, including its promotion,
formation, business dealings, accounts, assets, liabilities or affairs
in order to facilitate the Liquidators investigations into the assets
and affairs of the Company and the circumstances which gave rise
to its insolvency…”
18
Joint and Several Liquidators of Pacific Andes
Enterprises (BVI) Ltd HCMP 3563/2016
Points Decided:
• The Liquidators are not entitled to obtain documents from third
parties without a court order under section 221(3) Companies
(Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)
• The order granted reads as follows:-
“To request and receive from third parties documents and information
concerning the Company and its promotion, formation, business
dealings, accounts, assets, liabilities or affairs including the cause of its
insolvency”.
Significance:
• Foreign liquidators’ rights to obtain documents from third parties in
Hong Kong is not automatic
• Request must be made to the court
19
Cross-border Insolvency
Re Rennie Produce (Aust) Pty Ltd [2016] HKEC 2012
Date of Decision: 26 August 2016
Brief Facts:
• Rennie Produce (Aust) Pty Ltd (“the Company”) was in liquidation
in Australia.
• The Liquidators of the Company applied pursuant to a letter of
request issued by the Federal Court of Australia for recognition,
assistance as well as for production of documents by two banks in
Hong Kong.
20
Re Rennie Produce (Aust) Pty Ltd [2016] HKEC
2012
Points Decided:
• The Hong Kong Companies Court may, pursuant to a letter of
request from a common law jurisdiction with a similar substantive
insolvency law, make an order of a type which is available to a
liquidator or provisional liquidator under the insolvency regime in
Hong Kong.
• Standard From of Order appended
Significance:
• Practitioners may refer to the Standard Form of Order for
Production of Documents by banks holding accounts of the
company
21
Standard Form of Order
1. The Respondent produce copies of the following documents to the Applicants’ Solicitors
by Monday, 19 September 2016:
a. Documents identifying the account holders, contact details, contact persons,
addresses and signatories, of the account listed in Schedule 1, including copies of
the signatures of each of the signatories to that account.
b. Documents identifying any accounts held by X in the name of or to the benefit of
the persons or entities in Schedule 2, including documents identifying the account
numbers, account names, account holders, contact details, contact persons,
addresses and signatories of each such account including copies of the signatures
of each of the signatories to those accounts.
c. Statements or other documents recording or evidencing the movement of funds
into and out of the account listed in Schedule 1 and any other accounts held in the
name of or to the benefit of any of the persons listed in Schedule 2, for the period
from 1 to 31 March 2013.
2. The Respondent keep the documents sought in paragraph 1 in safe custody until copies
of the documents are produced to the Applicants’ Solicitors.
3. There be liberty to apply by letter to the Clerk of the Honourable Mr Justice Harris.
4. The Applicants pay the reasonable photocopying costs of the Respondent for the
production of the documents sought in paragraph 1, at a rate of no more than HK$7 per
page.
22
Cross-border Insolvency
In the matter of Z-Obee Holdings Limited and in the matter of the
Companies Act 1981 [2017] SC (Bda) 16 Com
Date of Decision: 21 February 2017
Brief Facts:
• Z-Obee Holdings Limited (“the Company”) is a company
incorporated in Bermuda and listed on the Hong Kong Stock
Exchange.
• Since 27 June 2014, the Company has been in provisional
liquidation, but recently, the Hong Kong joint provisional liquidators
(“the JPLs”) have found a potential investor to rescue the Company
and hence the JPLs sought to have the Company restructured
rather than wound up.
• The Company applied to Bermudian Court to appoint the JPLs as
Bermuda JPLs for the explicit purpose of restructuring the
Company and the HK provisional liquidation is to be discontinued.
23
In the matter of Z-Obee Holdings Limited and in
the matter of the Companies Act 1981 [2017] SC
(Bda) 16 Com
Points Decided:
• It is the Bermudian Court’s established practice to use provisional
liquidation in a wide range of circumstances as a mechanism to
implement financial or operational restructurings to effect corporate
rescue.
• The Bermudian Courts have a broad discretion to order
adjournment to enable alternatives to a winding-up to be explored
• The Court granted the Company’s application to appoint JPLs for
restructuring purposes.
24
In the matter of Z-Obee Holdings Limited and in
the matter of the Companies Act 1981 [2017] SC
(Bda) 16 Com
Significance:
• It is well established in Hong Kong that the appointment of
provisional liquidators to restructure a company is not allowed: Re
Legend International Resorts Ltd [2006] 2 HKLRD 192 difficulty
to provisional liquidators
• However, companies doing business in Hong Kong, but
incorporated in Bermuda, can avoid being caught by Legend by
appointing provisional liquidators in Bermuda for restructuring
purposes.
• The Bermuda court expressly declined to follow Re Legend even
though the wordings of the statutory provisions are the same.
• “I respectfully declined to follow the contrary approach taken by the
Hong Kong Court of Appeal in Re Legend International Resorts Ltd
[2006] HKLRD 192, which I did not find persuasive for present
purposes.”
25
Scheme of Arrangement
Re Winsway Enterprises Holdings Limited HCMP 453/2016
Date of Decision: 17 May 2016
Brief Facts:
• Winsway Enterprises Limited (“the Company”) is incorporated in
BVI and is registered as a non-Hong Kong company.
• The Company convened a creditors’ class meeting to consider and
vote on a proposed scheme of arrangement.
• Pursuant to an Restructuring Support Agreement entered into
between consenting creditors and the company, they were to be
paid 2% of outstanding debt as consent fee.
• The required statutory majority has been achieved. The Company
applied to seek the Court’s sanction of the scheme.
27
Re Winsway Enterprises Holdings Limited
HCMP 453/2016
Issue:
• Whether the payment of a fee to the creditor for agreeing in
advance to be bound by a proposed scheme creates a separate
class?
Points Decided:
• The “lock-up fee” was offered to all Scheme Creditors and it
appears to have been a bona fide attempt to introduce certainty in
the progress of restructuring.
• Thus it is unlikely to have material influence on how a Scheme
Creditor voted: Re DX Holdings Ltd [2010] EWHC 1513
• No need for Scheme Creditors to be divided into two classes for
voting purposes
28
Re Winsway Enterprises Holdings Limited
HCMP 453/2016
Significance:
• Winsway is important as this is the first decision in Hong Kong
where the court considered whether the provision of a small
consent fee to creditors who agree in advance to vote in favor of a
scheme could fracture scheme classes for voting purposes
• Ultimately, the court will ask itself:
Whether the right to be paid an additional sum is likely to influence
materially a scheme creditor in deciding how to vote?
Whether or not it may is likely to depend on whether or not the sum
is substantial and has been offered in a manner which creditors are
likely to consider fair regardless of whether or not they took
advantage of the opportunity to agree in advance to vote in favor of
the restructuring.
• Within a month, in another case Re Kaisa Group Holdings Limited
HCMP 708/2016 (Date: 10 June 2016), a consent fee of 1% was
also held to be a legitimate method to procure the success of the
scheme and did not necessitate the constitution of a separate class.
29
Scheme of Arrangement
Re Dee Valley Group plc [2017] EWHC 184 (Ch)
Date of Decision: 8 February 2017
Brief Facts:
• Dee Valley Group plc (“the Company”) applied to the English High
Court for sanction of a Scheme between the Company and its
members.
• Shortly before the class meeting directed by the court to vote on the
Scheme, a minority employee shareholder of the Company
transferred one share each to 434 individual shareholders ("the
Individual Shareholders”) by way of gift.
• The Chairman at the class meeting disallowed the votes of the
Individual Shareholders.
• Had the Chairman allowed these votes, the Scheme would have
failed, as it would not have been approved by a simple majority
present and voting in the class meeting.
30
Re Dee Valley Group plc [2017] EWHC 184 (Ch)
Issue:
• Whether the Chairman was right to disallow the votes of the
Individual Shareholders?
Points Decided:
• Members voting at a class meeting must exercise their power to
vote for the purpose of benefiting the class as a whole.
• The Individual Shareholders joined the class with the perceived
notion of voting down the Scheme. They gave no consideration to
the interests of the class of members which they had joined.
• The Chairman was justified in disallowing the votes of the Individual
Shareholders
31
Re Dee Valley Group plc [2017] EWHC 184 (Ch)
Significance:
• In Re PCCW Limited [2009] 3 HKC 292, the share-splitting was
used to support the scheme.
• But the reverse position, i.e. using share-splitting to vote down a
scheme, has never been considered by the court.
• This has proved wrong. This decision demonstrates that the court
will not allow manipulative practice, such as share splitting, which
would undermine “the underlying spirit of the dual requirements
prescribed by the legislature as pre-condition for scheme approval”.
32
Re PCCW vs. Re Dee Valley Group plc
• The Court considered that the Hong Kong case, Re PCCW Limited
[2009] 3 HKC 292, was not direct on the point, since in PCCW, the
share-splitting was used to support the scheme and would not,
even potentially, have caused a situation in which there would have
been no sanction hearing.
• Nevertheless, the court agreed the judgments in PCCW that voting
manipulation achieved by share-splitting was improper and the fact
that it had occurred could and should be taken into account.
Further, the court agreed that share splitting undermines "the
underlying spirit of the dual requirements prescribed by the
legislature as pre-condition for scheme approval”, and is thus
objectionable.
• Headcount test is no longer important in HK in members scheme
after 2014. However the case made clear that the principle against
manipulation would very likely also apply in creditors schemes.
33
Scheme of Arrangement
Re Conchubar Aromatics Ltd and another matter [2016] SGHC 279
Date of Decision: 20 December 2016
Brief Facts:
• Conchubar Aromatics Ltd convened a meeting of creditors for the
purpose of considering and approving a proposed Scheme of
Arrangement.
• The statutory requirements have been met and the Applicants
sought court’s approval of the Proposed Scheme.
• The Application was opposed by one creditor on the basis that three
of the creditors were related to the Applicant and thus their votes
should be disregarded completely.
• One creditor Conchubar Chemicals shared the same shareholder
and director as the Applicant. (But they argued that both were
investment funds with different ultimate beneficiaries.)
• The other two creditors got their debts by way of assignment from
Conchubar Chemicals.
34
Re Conchubar Aromatics Ltd and another
matter [2016] SGHC 279
Points Decided:
• Citing the HK CFA case of UDL Argos [2001] 3 HKLRD 634, and TT
International Ltd and another appeal [2012] 2 SLR 213, court held
that where voting is motivated by personal interest rather than
based on consideration of the class’s benefits, such vote should be
discounted.
• In TT International, where the connection is being a wholly-owned
subsidiary, the discount could be 100%.
• Other than that, the court would adopt a broad brush approach,
taking into account:
The relationships in question
Previous conduct of the parties
• A discount of not more than 25% was applied to the vote of
Conchubar Chemicals. The other two creditors were not shown to
be related and no discount was applied.
35
Re Conchubar Aromatics Ltd and another
matter [2016] SGHC 279
Significance:
• Members voting at a class must exercise their power to vote for the
purpose of benefiting the class as a whole, and not merely to
support those specific interests of individual members if they are
different from the interests of the class
• Related parties have special interest
• Special interests are to be interpreted broadly.
• The court may adopt a broad brush approach and apply a discount
to the value of the debts of related parties.
36
Void Disposition and Validation Order
Express Electrical v Beavis [2016] EWCA Civ 765
Date of Decision: 19 July 2016
Brief Facts:
• Express Electrical Distributors Ltd (“Express”) was a supplier to the
Company.
• Since November 2012, Company started to pay late. On 29 May
2013, in response to a number of attempts by Express to press for
payment, Company made a payment of £30,000 to Express in
respect of goods already supplied.
• However, another creditor had issued a winding-up petition against
Company on 22 May 2013. A winding-up order was subsequently
made.
• The Liquidators demanded the repayment of £30,000. Express
sought a validation order.
38
Express Electrical v Beavis [2016] EWCA Civ
765
Points Decided:
• It must be shown that special circumstances exist which makes a
particular transaction one in the interests of the creditors as a whole
before validation order will be made to override the usual
application of the pari passu principle.
Special circumstances: the creditor concerned has since the
presentation of the petition helped to keep the company afloat, or
has otherwise swollen the company’s assets, salvage cases and
etc.
39
Express Electrical v Beavis [2016] EWCA Civ
765
Application:
• The goods to which the £30,000 payment related had all been
supplied by Express on credit prior to the making of that payment
and were already available for use in Company’s business
regardless of whether that payment was made or not.
• Following the payment, Express only supplied goods worth £13,000
and by supply in the ordinary way, rather than on any specially
advantageous terms.
• There is no evidence to suggest that those supplies were made in
order to secure completion by Company of particularly profitable
contracts so as to achieve a better overall result for the general
body of creditors.
Conclusion: it was not in the interests of the general body of creditors
that Express should receive the £30,000 for the goods supplied, in
breach of the pari passu principle.
40
Express Electrical v Beavis [2016] EWCA Civ
765
Significance:
• The Court of Appeal rejected the oft-cited presumption that the
court will grant a validation order in cases apparently involving good
faith payments made in ignorance of an outstanding winding-up
petition.
• This ignores the importance of the pari passu principle.
• Must show special circumstances: the disposition in question will be
or has been for the benefit of the general body of unsecured
creditors, such that it is appropriate to override the usual pari passu
principle.
41
Void Disposition and Validation Order
Re AGI Logistics (Hong Kong) Ltd [2016] 5 HKLRD 737
Date of Decision: 2 November 2016
Brief Facts:
• On 8 December 2009, the Inland Revenue Department (“the IRD”)
informed AGI Logistics (Hong Kong) Limited (“the Company”) that
a tax refund letter would be sent.
• On the same day, the winding-up petition notice of the Company
came to the attention of the IRD.
• The Company requested that the refund be made payable to
Careship International Transportation Limited (“Careship”). IRD
complied.
• On 10 Feb 2010, the Company was wound up.
• The liquidators contended that the tax refund due to the Company
paid by IRD to Careship was void under section 182 of the
CWUMPO.
42
Re AGI Logistics (Hong Kong) Ltd [2016] 5 HKLRD 737
Points Decided:
• There is no basis for reading section 182 to contain a qualification
such that a disposition is only void if it has an impact on creditors,
as this invites disputes
• Dispositions which constitutes an intermediary function are also
caught by section 182
• Any disposition that risks reducing the amount available for
creditors is caught by section 182
• It’s not necessary to first exhaust remedies against the ultimate
recipient of the assets.
43
Re AGI Logistics (Hong Kong) Ltd [2016] 5 HKLRD 737
Significance:
• There have been directly conflicting decisions in HK and UK on this
issue: Hollicourt (Contracts) Ltd v Bank of Ireland [2001] Ch 555
(UK) and Bank of East Asia Ltd v Rogerio Sou Fung Lam [1988] 1
HKLR 181 (HK)
• Court of Appeal analyzed the cases in details and decided to depart
from English decisions.
• After a winding-up petition is presented, all dispositions, regardless
of its ultimate impact on creditors and whether it serves only an
“intermediary function”, will be caught by section 182.
• It’s also made clear that there’s no requirement to first exhaust
remedies against the ultimate recipient of the assets.
44
Void Disposition and Validation Order
Akers and others (Respondents) v Samba Financial Group (Appellant)
[2017] UKSC 6
Date of Decision: 01 February 2017
Brief Facts:
• Saad Investments Co Ltd (“SICL”) is a company incorporated in
Cayman Islands. It went into liquidation in the Cayman Islands.
• Mr Al-Sanea, a Saudi Arabian citizen, was the legal owner of shares
in five Saudi Arabian banks, valued at around US$318 million. SICL
alleged that Mr Al-Sanea held the Saudi Arabian shares (“Disputed
Shares”) on trust for SICL.
• Six weeks into the liquidation, Mr Al-Sanea transferred all the
Disputed Shares to Samba Financial Group (“Samba”)
• Liquidators alleged disposition of the company’s property made
after the commencement of the winding up, thus is void
127 of the Insolvency Act 1986, equivalent to section 182 of
CWUMPO
45
Akers and others (Respondents) v Samba
Financial Group (Appellant) [2017] UKSC 6
Issues:
• Does SICL have an equitable interest in the Disputed Shares?
The law of Saudi Arabia, where the Disputed Shares are sited, does not
recognized the institution of trust
• Does the transfer constitutes “disposition”?
Points Decided:
1st issue -
• A common law trust may be created, come into existence and be
enforced in respect of the Disputed Shares, even though Saudi
Arabian law does not recognize trusts in any form: Lightning v
Lightning Electrical Contractors Ltd (1998) 23 (1) Tru LI 35
• Finding otherwise would lead to bizarre results, as the
consequences of the same arrangement might then be different in
relation to properties acquired in different jurisdictions.
46
Akers and others (Respondents) v Samba
Financial Group (Appellant) [2017] UKSC 6
2nd issue –
• Where an asset is held on trust, the legal title remains capable of
transfer to a third party. The disposition may be in breach of trust.
• The beneficiary’s rights vis-à-vis the trustee are not disposed of.
Such rights are the beneficiary’s, not the trustee’s. However, the
beneficiary’s rights over the assets in question may be extinguished
vis-à-vis third party if the disposition of the legal title has the effect
of overriding the protected trust rights, e.g. bona fide purchaser
without notice.
• Mr Al-Sanea transferred his legal ownership of the Disputed Shares
to Samba. Samba was a bona fide purchaser for value without
notice. SICL’s equitable interest in the Disputed Shares was
effectively extinguished.
Conclusion: There was no disposition of any rights of SICL in relation
to the Disputed Shares by virtue of the transfer to Samba
47
Akers and others (Respondents) v Samba
Financial Group (Appellant) [2017] UKSC 6
Significance:
• As far as UK (and HK) law is concerned, a trust could be created
over property situated in jurisdictions that do not recognise trust.
• Transfer of legal title in breach of trust does not constitute
“disposition”.
• Liquidators cannot use section 182 of CWUMPO to recover assets
transferred.
• However, where the third party has notice of the breach of trust, it
could be held liable to return the trust assets on the basis of
knowing receipt.
48
Enforcing Examination Order by Contempt
proceedings
Bruno Arboit as Sole Liquidator of Highfit Development Co Ltd v Koo
Siu Ying and Another HCMP 2749/2012
Date of Decision: 8 March 2016
Brief Facts:
• The defendants are directors of Highfit Development Co Ltd (“the
Company”) which went into liquidation in late 2008.
• It was suspected to have transferred out a very important assets to
a company controlled by the defendants before winding-up.
• The liquidator obtained a court order under section 221 of the
CWUMPO requiring the defendants to “produce all books,
correspondence and documents in their custody or power relating
to the business and affairs of the Company including the documents
set out in Schedule 2 attached to the Summons”.
• Defendants did not comply.
• Liquidator applied for an order of committal against the defendants
for contempt of court in breach of the court order.
50
• Defendants raised a number of defences to the contempt
proceedings such as: Ignorance (everything was controlled by Mr.
Lim, their husband and father), lack of specificity of the order for
production (all documents being too broad), non-possession and
non-existence of documents.
• The court rejected all defences but one – non-existence.
• Liquidator was not able to prove existence of all the requested
documents.
51
Bruno Arboit as Sole Liquidator of Highfit
Development Co Ltd v Koo Siu Ying and Another
HCMP 2749/2012
Points Decided:
General principles –
• A court order must be complied with strictly in accordance with its
terms.
• But the burden is on the liquidator to prove a defendant’s contempt
beyond reasonable doubt
• A defendant cannot be regarded to be in contempt just because he
did not have the means to comply with the court order, or it was
impossible to comply: Kao, Lee & Yip v Koo Hoi Yan (2009) 12
HKCFAR 830; Concorde Construction v Colgan Co Ltd & Anor (No
2) [1984] HKC 252
52
Bruno Arboit as Sole Liquidator of Highfit
Development Co Ltd v Koo Siu Ying and Another
HCMP 2749/2012
Significance:
• Defendants produced none of the documents by the deadline.
Plaintiff only succeeded to prove BRD existence of a portion of the
requested documents.
• Costs were ordered on party and party basis instead of the
conventional indemnity basis.
• It points to the need to prepare the s.211 questions and requests
carefully and the importance in establishing the existence of specific
documents before launching contempt proceedings
53
Enforcing Examination Order by Contempt
proceedings
Ip Pui Lam Arthur and Another v Alan Chung Wah Tang and Another
CACV 214/2016
Date of Decision: 16 February 2017
Brief Facts:
• The Defendants were ordered by the Court to produce various
documents to the trustees in bankruptcy. They failed to comply with
the order.
• At first instance, the Court found that the Defendants “willfully and
intentionally” disobeyed the court order by failing to provide the
documents sought.
• Defendants convicted of contempt of court
• Defendants appealed to the Court of Appeal
54
Ip Pui Lam Arthur and Another v Alan Chung
Wah Tang and Another CACV 214/2016
Points Decided:
• Burden of proof rests on the Plaintiffs, to show, beyond reasonable
doubt, that the documents are in existence and that they are within
the custody or power of the Defendants to produce them and the
Defendants intended not to produce them
• There is no burden on Defendant to show a defence
• The Plaintiffs are only able to prove, beyond reasonable doubt, the
existence of one category of the documents (allegedly on the
defendant’s own admission) and that the Defendants have power
over that category of documents.
• There being no evidence of any dishonesty or personal benefits, an
order of committal is too harsh.
55
Ip Pui Lam Arthur and Another v Alan Chung
Wah Tang and Another CACV 214/2016
Significance:
• A court order to produce documents must be strictly complied. So
long as D has the means to produce the documents, even with
difficulty, D would be in contempt for not doing so.
• But the defendants have no evidential burden to show a defence.
56
57
Thank you!
58
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Email: ludwig.ng@onc.hk
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Important: The law and procedure on this subject are very specialised and complicated. This seminar is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
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