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A long way from home: The Hong Kong Court highlights the difficulties of winding up foreign companies

In the 19 November 2020 Hong Kong decision of Re China Huiyan Juice Group Ltd [2020] HKCFI 2940, Mr Justice Harris highlights the difficulties associated with attempting to wind up a foreign (in this case, Cayman Islands) company in the Hong Kong Court rather than in the jurisdiction of the company’s incorporation.

In Huiyan Juice, a creditor issued a winding up petition against the Cayman Islands incorporated company that was listed on the Hong Kong Stock Exchange and indirectly held (via British Virgin Islands subsidiaries) PRC incorporated operating companies. The company did not dispute the debt or that it was insolvent, but sought an adjournment of the petition so it could pursue a restructure.

The Hong Kong Court, in deciding whether to wind up the company or grant the requested adjournment, considered the legal and commercial complexities of managing the liquidation or restructure having regard to the group’s offshore corporate structure.  

The Hong Kong Court noted that, absent good reason for the foreign company to be wound up in Hong Kong, the most appropriate jurisdiction to wind up a foreign company is the jurisdiction of the company’s incorporation. In addition to there being a sufficient connection with Hong Kong (which would usually be satisfied by a listing on the Hong Kong Stock Exchange), a petitioning creditor must also demonstrate that there is a reasonable possibility that the winding up order in respect of the foreign company would benefit the creditors.

In adjourning the petition, the Hong Kong Court considered that there may not be such a benefit in this case having regard to the absence of assets within the Hong Kong jurisdiction, the lack of evidence as to the potential value of the listing status of the company, and the Cayman Islands authorities that confirm that the Cayman Islands Court is unlikely to recognise a liquidator appointed in Hong Kong to wind up a Cayman Islands company other than for the limited purpose of pursuing a restructure.

The Huiyan Juice decision follows the recent Cayman Islands Grand Court decision in Sun Cheong Creative Development Holdings (which you can read about here). These decisions demonstrate a clear indication from the Courts of both jurisdictions that the place of a company’s incorporation is typically the preferable jurisdiction for the initiation of a winding up.

A long way from home: The Hong Kong Court highlights the difficulties of winding up foreign companies

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