Hong Kong court assists Cayman Islands in liquidation of a solvent investment fund | Conyers

On June 24, 2022, His Excellency Judge Harris (of the High Court of Hong Kong SAR) granted assistance to the Cayman Islands Joint Temporary Liquidators (“JPLs”) of the Seahawk China Dynamic Fund, a solvent company incorporated in the Cayman Islands (the “Company”). ). Harris J. ruled that JPLs have the ability to act as agents for the company in Hong Kong. The reasons were delivered on July 4, 2022.

Hong Kong’s governance is expressly based on conflict of laws principles of common law, as opposed to principles of cross-border insolvency. In granting JPL assistance, Harris J. reiterated the following uncontroversial proposal from the Re Grand Peace Group:

“[A]With regard to Hong Kong law, matters relating to the constitution and management of the affairs of a foreign company are generally determined by the laws of its place of incorporation.”

Importantly, Harris J asserts that the question of whether a foreign liquidator is entitled to represent a particular corporation (ie in a manner similar to its board of directors) and act as its agent in another jurisdiction is a matter subject to the law of the place of incorporation. The judge also clarified that the decision on the issue of the center of main interests (“COMI“) of the relevant company is irrelevant if the liquidator of a solvent company seeks an order confirming that he/she has certain powers under an appointment at the place of incorporation of the company.

Link to Hong Kong rule is over here.

The Grand Court of the Cayman Islands on February 10, 2022 appointed JPL models (Eleanor Fisher, Anita Su and Tsui Chi Choi of EY) in order to protect and preserve the value of the company’s assets pending adjudication of the disputed liquidation proceedings in the Cayman Islands (“”Cayman Procedures“). The Cayman proceedings relate to a petition by the company’s major shareholder (which is a concessional, open-ended fund) that the company will wind up on the allegedly fair and equitable basis to do so. There are also relevant substantive proceedings in Hong Kong that relate largely to the same underlying disputed matters. (“Hong Kong procedures“).

On February 21, 2022, the Cayman Islands High Court issued a letter of application to the Hong Kong High Court, requesting recognition of the designation of jet propulsion providers in Hong Kong to the fullest extent permitted by Hong Kong law.

The Hong Kong Court granted the JPL’s application and ordered that the JPLs have the same powers to act on behalf of and on behalf of the Company in Hong Kong as conferred by the Cayman Court, except that the JPL shall not have the power to bring legal claims or file applications on behalf of the Company (including any applications for additional relief such as freeze orders or search orders).

The Hong Kong Order gives JPLs the power to secure and hold all company assets within the jurisdiction of a Hong Kong court and to take all necessary steps to prevent any disposal of company assets within Hong Kong. JPLs have also been given the power to participate in Hong Kong proceedings in the company’s name.

In his judgment dated July 4, 2022, Harris J. sent a clear message to “Banks and other advanced organizations“In Hong Kong it should be clear to them that foreign office holders, such as JPLs, are able to exercise the traditional powers of a company agent in Hong Kong, such as control of its books and records, particularly if such powers are expressly set forth in the arrangement of appointment.

It was noted that banks generally act in accordance with the decision of the Cayman Islands Corporation’s board of directors without the approval of the Hong Kong court and feel comfortable operating bank accounts for corporations incorporated in offshore jurisdictions. Accordingly, J. Harris asserted that banks themselves should not then require foreign liquidators to appear in court for orders asserting that liquidators have the same powers and may be subject to opposite cost orders if they insist on a court order.

The ruling provides welcome guidance for office holders and stakeholders in fraught border-crossing scenarios involving foreign companies seeking recognition or assistance in Hong Kong. The main issue in each case will be whether or not the application uses insolvency principles.

judgment in Seahawk Refers to and reaffirms established principles regarding the importance of place of incorporation. As Lord Sumption explained in Singularis: “[E]Without final liquidation, the court may, in accordance with the ordinary principles of private international law, recognize as a matter of courtesy the accrual of the assets of the company to an agent or office holder designated or recognized under the law of its incorporation.” It is clear from the judgment that the manner in which the application is framed and the rationale for appointing the office holder will have a significant impact on the outcome of a request for recognition or assistance from a like-minded jurisdiction abroad.

Conyers authors work for JPLs in Cayman Procedures. Look Chan Ho (Des Voeux Chambers) appeared to the JPL to seek recognition of Hong Kong, with instructions from White & Case Hong Kong.

Conyers have been directed by the company or liquidators in the majority of recent ground-breaking cases relating to cross-border recognition and courtesy between Hong Kong and the Cayman Islands, including for example in GTI Holdings, Silver Base, Seahawk China Dynamic Fund, China Wood And the Sun Chung. Accordingly, Kanyers has unparalleled experience navigating and advising on complex cross-border restructuring, insolvency and asset preservation assignments involving Cayman Islands corporations.

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