China Fishery Group Limited [2019] HKCFI 174

The High Court of Hong Kong refused to allow a Chapter 11 Trustee to disclose a Decision from Hong Kong winding up proceedings in the US bankruptcy court. The US proceedings were commenced to prevent a creditor from taking action following a breach of undertakings given to the Hong Kong court in circumstances where the company had no jurisdictional connection with the US. 

China Fishery Group (“the Company”) was incorporated in the Cayman Islands, and is part of China Fisheries Group (“the Group”), a fishery business in Peru. The Group experienced financial difficulties. HSBC, who were owed over $100 million, believed there was financial misconduct by the Group’s management. In 2015, HSBC issued a winding up petition against the Company in Hong Kong, following which provisional liquidators were appointed.

At a subsequent hearing of the Hong Kong court, the appointment of the provisional liquidators was set aside. HSBC appealed that decision; however, following discussions they agreed an undertaking with the Group. Under the terms of the undertaking, the companies would repay HSBC following the sale of Peruvian subsidiaries, appoint a restructuring officer and complete the sale by July 2016. In the event of default, the company would consent to HSBC re-appointing the provisional liquidators. The undertaking was governed by Hong Kong law and contained an exclusive Hong Kong jurisdiction clause. Undertakings were also given to the court, and an order was made giving additional force to the undertaking.

Shortly before the deadline, the companies filed an application under Chapter 11 of the United States Bankruptcy Code in the Southern District of New York. The companies had no operations in or connection with the US, and their only connection was their counsel in the US. The US Bankruptcy Code provides for an automatic stay prohibiting commencement or continuation of proceedings against the debtors worldwide upon filing. This prevented HSBC from taking action for breach of the order and undertaking in Hong Kong.

Whilst the US application was made to appoint trustees over sixteen companies, the Trustee was only appointed over a wholly owned subsidiary of the Company incorporated in Singapore. The US Judge declined to appoint trustees over the other companies, which included dormant non-operating companies and holding companies.

The Trustee applied to the Hong Kong court for leave to use the decision discharging the provisional liquidators and the reasons for that decision within the US proceedings.  The Trustee argued that the decision was required to determine whether any claims could be made against HSBC.

It was noted that the Trustee’s appointment was only possible by a conscious decision by the Group owners to sign the undertaking and give undertakings to the court which they had no intention of honouring. The HK Judge stated that the Chapter 11 filings were “unconscionable” and “an abuse”.

Had the Chapter 11 proceedings not been initiated in the US, it is highly likely that a winding up order would have been made on HSBC’s application in Hong Kong.

It was noted by the HK Judge that whilst the Hong Kong courts have an open justice principle, in practice some proceedings require restrictions on who should attend hearings and have access to decisions, and in this case the decision had been marked ‘not open to the public’.

In determining whether a foreign office holder should be recognised and assisted, the court should consider whether the office holder has been appointed in collective insolvency proceedings in a jurisdiction which the company has a relevant connection with, in which case the foreign proceedings would likely be recognised. The HK Judge held that there was no relevant connection between the Singapore subsidiary and the US.

The HK Judge noted that the courts of common law jurisdictions do not recognise and assist all foreign proceedings, and that this varies from jurisdiction to jurisdiction. The position in Hong Kong remains undecided and the HK Judge considered that this was not an appropriate case to determine it.

It was decided that there was no basis for recognising the Trustee’s office or providing assistance to him. The HK Judge stated that it was “objectionable and an affront this Court to commence proceedings in another jurisdiction with a view to hindering enforcement of the [undertaking]”. Therefore even if the Trustee had been able to show a jurisdiction connection with the US, the HK Judge stated that he would have declined to provide assistance on the grounds it would be contrary to public policy.

In commenting on public policy considerations, the HK Judge considered Re Zetta Jet Pte Ltd, the other case discussed in this bulletin, where recognition of Chapter 11 proceedings was rejected on grounds of public policy.

The HK Judge commented that the application invited him to overlook the companies’ conduct and to ignore the Chapter 11 proceedings. He states that the Trustee’s appointment was a consequence of a “conscious fraud on the part of the [companies’ owner] on HSBC and this Court”.

It was suggested on behalf of the Trustee that HSBC could make an application in New York if it was aggrieved by the impact of the Chapter 11 proceedings. The HK Judge disagreed as HSBC’s complaint is that it has been unable to enforce its rights in Hong Kong on an undertaking governed by Hong Kong law and containing undertakings given to the Hong Kong court.

The HK Judge therefore declined the application and the Trustee was ordered to pay HSBC’s costs of the proceedings.

For more information on the above please contact Olivia Reader from the Restructuring & Insolvency Team.