COMI As First Port Of Call? Harris J Lays Out A Modified Common Law Framework For Recognising Foreign Insolvency Proceedings In Hong Kong

• Published date: 02 August 2022
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Insolvency/Bankruptcy
• Law Firm: Herbert Smith Freehills
• Author: Mr Paul Ap'thy, Gareth Thomas, Alexander Aitken, Peter Ng and Tim Chu

Historically, the Hong Kong courts have generally recognised foreign insolvency proceedings commenced in the jurisdiction in which the company is incorporated. This may no longer be the case in Hong Kong following the recent decision of Provisional Liquidator of Global Brands Group Holding Ltd v Computershare Hong Kong Trustees Ltd [2022] HKCFI 1789 (Global Brands).

In the Global Brands decision Justice Harris has suggested that in future a Hong Kong court will now recognise foreign insolvency proceedings in the jurisdiction of the company's "centre of main interests" (COMI). Indeed, it is suggested that it will not be sufficient, nor will it be necessary, that the foreign insolvency process is conducted in a company's place of incorporation.

Much of the discussion in the case appears to have been obiter dictum, as Global Brands Group Holdings Limited (the Company) was incorporated and being wound up in Bermuda, and therefore recognition of the Bermudan proceedings aligned with the traditional common law basis for recognition based on the jurisdiction of incorporation.

However, the decision nevertheless indicates judicial support for a significant shift in Hong Kong's common law recognition regime. The approach to common law recognition suggested by Harris J is substantially similar to that taken by the Singapore Court in Re Opti-Medix Ltd (in liquidation) [2016] SGHC 108 (which we discussed here). It also aligns with the global trend of embracing a COMI-based approach to recognition, including in the UNCITRAL Model Law on Cross-Border Insolvency which has now been incorporated into domestic legislation of many countries around the world.

Background

The Company was an investment holding company incorporated in Bermuda which, along with its subsidiaries (the Group), were engaged in the business of branded apparel, footwear, accessories and related lifestyle products in North America and Europe. The Company was also listed on the Hong Kong Stock Exchange (HKEX). Such use of a holding company incorporated in an offshore jurisdiction by a business group whose operating and asset-owning companies are either in Hong Kong or Mainland China is a factual pattern familiar to insolvency practitioners in Hong Kong and Mainland China.

The Group faced immense financial difficulties following the COVID-19 pandemic. Whilst exploring restructuring options, on 10 September 2021, the Company presented an application to the Bermudan court for the appointment of a "soft-touch" provisional liquidator in Bermuda (the Provisional Liquidator) with limited powers to help restructure the Company (during which time the management of the Company would remain in control). The appointment was made on 16 September 2021.

Attempts to restructure...