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Cayman Court recognises HK JPLs to petition in Cayman – but was there locus?

In a recent decision of the Grand Court of the Cayman Islands in Changgang Dunxin Enterprise Company Limited, the Honourable Justice Mangatal recognized JPL’s appointed by the Hong Kong Court over a Cayman Islands company. 

At the time, it was thought that HK law did not allow for HK appointed JPLs to be appointed “solely for the purpose of enabling a corporate rescue to take place”. Thus the HK JPLs sought to effect a Z-Obee style “slingshot” by seeking an additional Cayman Islands JPL appointment in order to take advantage of the Cayman Islands’ restructuring powers, for use in HK. This is a now well established route, first pioneered by Harneys, to effect parallel restructurings in HK using Cayman Islands or Bermuda law. So far so good.

However, since the judgment in Changgang, the rule in Re Legend International Resorts Ltd, appears to have been ameliorated by a First Instance decision in China Solar Energy Holdings Limited such that JPLs can now be appointed in HK for restructuring so long as there are also good grounds to petition to wind up the company. This was not information available at the time of the hearing in the Cayman Islands. Although, it is still thought that the place of incorporation will be the most appropriate forum to wind up a company (HK Court of Final Appeal in Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501).

In Changgang, it was held that “it is appropriate to grant the HK JPLs recognition to act in the name of and on behalf of the company for the purpose of making an application to the Court for the winding up of the company” (para 30) and to be appointed Cayman Islands JPLs. Section 94 of the Cayman Islands Companies Law prescribes that locus standi is enjoyed by the company, creditors, contributories and certain regulators. 

Even if the HK JPLs could step into the shoes of the company as a matter of Cayman Islands law they would need to pass the China Shanshui test, namely that absent a special resolution passed by shareholders or an authorisation to do so in the company’s articles of association, a Cayman Islands company may not petition for its own winding up. In Changgang, it was held that there was “no need to ascertain whether a special resolution had been passed by the Company’s shareholders, or need to examine the Company’s articles (para 22)” since a creditor, not the company, had petitioned the winding-up in Hong Kong. But that was HK. No creditor formally moved the Cayman Islands recognition application, but they did express “support” (para 15). No creditor had applied in the Cayman Islands (para 19) and therefore the petition was company-driven. It is to be noted that Changgang’s mem & arts requires that there be a special resolution, i.e. a resolution passed by ¾ of the members, before the company seeks a Court winding up.

Similar facts arose in the case of In Re Pioneer Iron and Steel Group, where BVI appointed liquidators were held not to have locus standi in Hong Kong under s179(1) of the Companies Ordinance to petition to wind up, and a creditor was ultimately substituted as the petitioner. This case appears not to have been raised in Changgang, which was an ex parte hearing.

In an earlier Cayman Islands case of “reverse recognition”, namely the Court of the place of incorporation recognizing a foreign Court’s exorbitant appointment, the issue of locus standi did not arise since the HK JPLs did not seek a local Cayman Islands winding up of the company. Rather they merely sought a lighter recognition of their power to procure the company to act in the shoes of the board of directors for the purpose of promoting parallel schemes of arrangement.

The decision in Changgang is pragmatic and pro-restructuring, but it remains to be seen whether the means by which it was achieved is sustainable in future cases. It may be that a creditor petition, with the support of any foreign JPLs, will be a more durable jurisprudential route.


Bermuda law advice is provided through Zuill & Co., an independent Bermudian law firm in exclusive association with Harneys.

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