Geoffrey L Berman (In His Capacity As Trustee Of The Lender Trust) V SPF CDO I, Ltd And Others

Litigation funding for foreign insolvency practitioners — an update

As was noted in a previous article on this website last year, the May 2010 decision of Harris J in Re Cyberworks Audio Video Technology Ltd [2010] 2 HKLRD 1137 ("Cyberworks") caused some excitement among the insolvency community in Hong Kong, as it was the first Hong Kong case to set a clear precedent for the assignment of a cause of action by a Hong Kong company in liquidation. This precedent was seen as a positive sign for the development of a litigation funding industry in Hong Kong.

Now the more recent decision of the Honourable Mister Justice Harris in Geoffrey L Berman (in his capacity as trustee of the Lender Trust) v SPF CDO I, Ltd and others ("Berman") has considered the assignment of a cause of action against a Hong Kong company by a trustee appointed by the United States Bankruptcy Court for the District of Delaware (the "US Bankruptcy Court").

The facts in Berman concerned a US company (the "Company") which was subject to a Liquidating Plan under Chapter 11 of the United States Bankruptcy Code (the "Plan"). The Plan included the creation of the Lender Trust which held certain assets of the Company on trust for the senior secured creditors of the Company. The trustee of the Trust was Geoffrey L Berman and among the assets held by the Trust were debts owed to the Company (the "Indebtedness") by two Hong Kong entities (the "Debtors").

Mr Berman as trustee of the Trust proposed to enter into a deed of assignment (the "Proposed Deed") with Remedy Asia Limited ("Remedy"), under which Remedy would investigate the bona fides of the Indebtedness, conduct a review of the Company's books and records concerning the Indebtedness and then commence proceedings against the Debtors. Having obtained approval from the US Bankruptcy court for the terms of the Proposed Deed, Mr Berman then sought the leave of the High Court of the Hong Kong SAR to enter into the Proposed Deed with Remedy.

Much of Harris J's judgment was therefore concerned with whether Mr Berman, as a non-Hong Kong trustee, was entitled to seek the leave of the High Court in this matter. Having established that Mr Berman was indeed entitled to seek leave, Harris J turned to consider whether leave to enter into the Proposed Deed could be granted having regard to the continued prohibition of champerty in Hong Kong.

The previous decision of Harris J in Cyberworks was of no immediate precedential value here, as...