Recognition of foreign “light touch” provisional liquidations affirmed once again by the Hong Kong Court
The recent judgment of Mr Justice Harris in In Re China Oil Gangran Energy Group Holdings Limited (In Provisional Liquidation) recognising the appointment of “light touch” provisional liquidators in the Cayman Islands, is the latest in the growing body of Hong Kong jurisprudence confirming the willingness of the Hong Kong Court to recognise the appointment of foreign provisional liquidators for restructuring purposes, despite the fact that Hong Kong has no legislation that provides for such a restructuring.
On 28 November 2019, the provisional liquidators of China Oil Gangran Energy Group Holdings Limited, a Cayman Islands company listed on the Growth Enterprise Market of the Hong Kong Stock Exchange, obtained a letter of request from the Grand Court of the Cayman Islands seeking assistance and recognition of their appointment in Hong Kong, in order to progress a restructuring. In granting the recognition sought by the Cayman Islands provisional liquidators, the Hong Kong Court noted the principles set out in the cases of Re Z-Obee Holdings Ltd, Re Joint Provisional Liquidators of Hsin Chong Group Holdings Ltd and Re Joint Provisional Liquidators of Moody Technology Holdings Ltd, which discuss the justification of such assistance given the limitations that prevent similar powers being granted to provisional liquidators appointed in Hong Kong, as a result of the decision in Re Legend.
This is consistent with the approach adopted in other jurisdictions, such as in Re Olinda Star Ltd where the US Bankruptcy Court recognised a British Virgin Islands light touch provisional liquidation and Representation of Lydian International Limited, where the Royal Court of Jersey recognised a Canadian proceeding which was analogous to the case in point. In Lydian, the Court held that the common law recognition regime extends to foreign insolvency proceedings, and provides a mechanism to address issues even where there is no equivalent mechanism in the jurisdiction of the recognising court. Mr Justice Harris saw this as direct confirmation of the soundness of recognising foreign light-touch provisional liquidation in Hong Kong even though such use of provisional liquidation in Hong Kong is restricted as a consequence of the decision in Legend.
Recognition was granted in circumstances where there was a pre-existing winding-up petition in Hong Kong but no objection was raised by the petitioning creditor to the application.
This case once again brings to the forefront the lack of legislation in Hong Kong (other than in respect of schemes of arrangement) for corporate debt restructuring, in stark contrast to restructuring tools available in other jurisdictions. Whilst noting that the Hong Kong Court has nevertheless made great strides, Mr Justice Harris emphasised the desirability of legislative reform to expressly give restructuring powers to provisional liquidators; a desire that many restructuring professionals in Hong Kong have voiced and a call that will undoubtedly continue to be echoed.