CW Advanced Technologies Limited – Recognition Issues Considered

In the recent case Re CW Advanced Technologies Limited,1 the Hong Kong court took the opportunity, albeit only obiter dicta, to raise and briefly comment on certain unresolved questions surrounding three issues of interest to insolvency practitioners:

first, whether a scheme moratorium ordered by a Singapore court under Singapore law can qualify for common law recognition in Hong Kong; and if yes, second, whether the Hong Kong court may grant assistance by appointing provisional liquidators; and third, whether a scheme of arrangement in general can be characterised as a 'collective insolvency proceeding' under Hong Kong law. Case Background

The scheme company in question sought an order in Singapore for a six-month moratorium to follow an existing automatic 30-day moratorium. It then applied for a winding-up order in Hong Kong to invoke the local statutory protection from proceedings under the Companies (Winding-Up and Miscellaneous Provisions) Ordinance. The petition was subsequently withdrawn and a creditor applied for, and the Hong Kong court granted, the appointment of provisional liquidators. The circumstances and outcome of the case are themselves relatively mundane, but the court raised a number of open questions for future debate, which we consider below.

Current Hong Kong Law

Hong Kong has not enacted the UNCITRAL Model Law on cross-border insolvency and its insolvency legislation does not contain any provisions dealing with cross-border insolvency, nor are there any treaties which may materially facilitate cross-border recognition. The Hong Kong court's power to recognise and grant assistance to foreign insolvency proceedings and foreign insolvency office-holders is founded singularly on common law principles. Therefore, the scope of, and the Hong Kong court's ability to grant, such recognition and assistance is limited by principles set out in case law.

These limitations include, broadly:

Incorporation/Assisting Jurisdiction Availability. In order for a power, remedy or relief to be exercisable by or available to a Hong Kong court, it must exist in both (a) the jurisdiction of liquidation2 and (b) the assisting jurisdiction.3 Collective Process. A Hong Kong court may grant assistance in winding up proceedings provided that the foreign liquidation is collective in nature, specifically if it is 'a process of collective enforcement of debts for the benefit of the general body of creditors':4 This means, for example, that judicial assistance will not be given to a solvent liquidation. Though the Hong Kong court raised the question of eligibility for recognition of a Singapore scheme moratorium, it went no further than noting potential analogies in other common law jurisdictions that might be drawn upon to support arguments either way. The judge explicitly asked practitioners to consider the merits of such recognition, leaving the issue open for discussion. Necessary for the performance of the insolvency practitioner's functions. A Hong Kong court may assess a power as being vested in the foreign insolvency office-holder only when it is necessary for the performance of the office-holder's functions.5 The above principles offer guidance when considering the comments of the court in Re CW Advanced Technologies Limited.

The Moratorium

Though the Hong Kong court raised the question of eligibility for recognition of a Singapore scheme moratorium, it went no further than noting potential analogies in other common law jurisdictions that might be drawn upon to support arguments either way. The judge explicitly asked practitioners to consider the merits of such recognition, leaving the issue open for discussion.

Recognition under the current regime is problematic because it potentially falls foul of the above-mentioned incorporation/assisting jurisdiction availability principle, and thus of the applicable common law in Hong Kong.

Looking at the case at hand, section 211B of the Singapore Companies Act sets out a clear...