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Hong Kong – The Need To Get Winding Up Petitions Right.

29 October, 2013

 

Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution

 

The Court of First Instance in Hong Kong recently provided a timely reminder that the jurisdiction to wind up a foreign company is an exorbitant one and therefore winding up petitions and applications for leave to serve them out of the Hong Kong jurisdiction must be properly thought through and drafted before the Court will consider giving leave to serve out, and they may be liable to be struck out entirely if not.

 

The case of Armada (Singapore) Pte Ltd (under judicial management) v Grand China Logistics Holdings (Group) Co. Ltd [2013] HKEC 1517 concerned an appeal to a Judge in the Court of First Instance to set aside leave given by a Master to serve a winding up petition out of the jurisdiction.   On 14 May 2013, Armada (Singapore) Pte Ltd (under judicial management) (“Armada“), a Singaporean registered company, issued a petition in the Hong Kong Court of First Instance to wind up Grand China Logistics Holdings (Group) Co. Ltd (“Grand China“), a PRC registered company, which was claimed by Armada to be an unregistered company in Hong Kong within the meaning of section 326 of the Companies Ordinance (Cap 32).  The petition sought to wind up Grand China on the grounds of insolvency, based on an unsatisfied statutory demand for payment of US$5,106,083.75 plus interest arising from an arbitration award.  The petition made no reference to there being any connection between the company and Hong Kong.

 

Armada sought and was granted leave by a Master to serve the petition out of the Hong Kong jurisdiction upon Grand China in Shanghai pursuant to Order 11 Rule 1(1)(n) of the Rules of the High Court, namely that it was a claim brought to enforce a judgment or an arbitral award.   Grand China appealed the Master’s decision.   On appeal before Mr. Justice Harris, Grand China accepted that this ground was not applicable since a petition is not a means of enforcing a judgment or an arbitral award.  Rather, it is an application by a creditor to commence the winding up process whereby the creditor is effectively exercising a class right.

 

Mr. Justice Harris set aside leave and, in doing so, assumed that the Master’s attention had not been brought to his previous judgments in Re Gottinghen Trading Limited [2012] 3 HKLRD 453, which dealt with applications for leave to serve petitions out of the jurisdiction, or to Re Yung Kee Holdings Limited [2012] 6 HKC 246 or Pioneer Iron and Steel Group Company Limited HCCW 322 of 2010 6 March 2013 in which he explained comprehensively that the jurisdiction to wind up a foreign company is an exorbitant one and is only exercised where clearly demonstrated  that there is sufficient connection between the company and Hong Kong.  Further, as there was no averment at all in the petition to demonstrate a connection between the company and Hong Kong, it followed that the petition is demurrable and liable to be struck out (in applying Re Fildes Bros Ltd [1970] 1 All ER 923).  

 

Mr. Justice Harris was also of the view that amending the petition and a fresh application for leave to serve out would not remedy these problems as they were so fundamental and inexcusable that on the current state of the authorities it was not appropriate to proceed on that basis.  Accordingly, the petition was struck out. 

 

The decision confirms, as His Lordship commented, that these sort of applications should be properly thought through and properly formulated, and that the Master should be provided with all relevant authorities,  otherwise the application is liable to be criticised and the petition liable to be struck out.  It is also a reminder that the Court takes a cautious position when dealing with winding up of foreign companies, particularly when involving cross border insolvency (see also Re ECM Real Estate A G HCCW 277/2011 [2013] HKEC 847, where the Court stressed its position that the winding up of unregistered companies shall be under the control and scrutiny of the court) and that there must be a sufficient connection with Hong Kong to invoke jurisdiction.

 

herbert smith Freehills

 

For further information, please contact:

 

Gareth Thomas, Partner, Herbert Smith Freehills
[email protected]

 

Damien Whitehead, Herbert Smith Freehills
[email protected]

 
Herbert Smith Freehills Dispute Resolution Practice Profile in Hong Kong

 

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