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No stay of execution from Winding Up Orders

The Grand Court of the Cayman Islands recently made winding up orders in respect of both China Hospitals Inc and China Healthcare Inc (the Companies).

The orders were made despite arguments from the Companies that the underlying debt, which amounted to approximately a quarter of a billion dollars and was based on a final arbitration award in Hong Kong, was disputed and, alternatively, that the Petitions should be adjourned pending an appeal of the Final Award.

The basis for the disputed debt was the allegation by the Companies’ principals that they had been unable to present their case during the arbitration and the award was in conflict with the public policy of Hong Kong.

The Petitioners argued strongly for the urgent appointment of provisional liquidators given the risk of asset dissipation arising from the determinations set out in the Final Award.

Justice Kawaley had “little difficulty” in finding that the mere fact that the final award was being sought to be set aside was insufficient to justify a conclusion that the debt was disputed. In examining whether the Court possessed the discretion to determine the dispute at the core of the winding-up proceedings (i.e. the validity of the debt), the Judge cited the general rule that the court “…is not normally concerned to decide the dispute, only to determine whether a dispute on substantial grounds exists..” The burden lay on the Companies to establish the substance of the dispute they raised and they failed to do so in this matter. The Court described the Companies’ disputed debt evidence as “incoherent and insubstantial”.

The robustness of final arbitration awards in countries which are party to the New York Convention (such as Hong Kong) was also confirmed with the Judge commenting:

“I accepted the Petitioner’s central thesis that the strong legal policy in favour of upholding arbitral awards should dissuade the Court from accepting at face value the Companies’ overly optimistic assertions about the prospects of the Final Award being set aside”.

The judgment demonstrates that a winding up petition grounded on an unsatisfied final arbitral award will not be defeated unless robust evidence is produced to demonstrate a dispute on substantial grounds.

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