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The Grand Court of the Cayman Islands granted common law recognition and assistance to the foreign Liquidators of a Cayman Islands company post Rubin v Eurofinance and Singularis Holdings Limited v PwC.
In Re China Agrotech Holdings Limited Ltd (FSD 157 of 2017 (NSJ)), the Grand Court of the Cayman Islands ("Cayman Court") granted Liquidators appointed by the High Court of Hong Kong leave to present and consent to a scheme of arrangement on behalf of China Agrotech Limited (the "Company") based on a common law discretion.
The Company, an investment holding company dealing with businesses relating to fertilizers and agricultural chemicals, was incorporated in the Cayman Islands as an exempted company. The Company conducted the majority of its business in Hong Kong and had a number of key connections to the jurisdiction:
- its shares were listed on the main board of the Hong Kong Stock Exchange;
- it had been registered under Part XI of the former Hong Kong Companies Ordinance (Cap. 32) since November 1999;
- it was administered from Hong Kong; and
- the majority of the Company's shareholders were located in Hong Kong (75% of proofs of debts received by the Liquidators were from Hong Kong or China).
As such, the Company's COMI was considered to be in Hong Kong. The Company subsequently entered financial difficulties and in August 2015 the Hong Kong Court made a winding up order against the Company. Stephen Liu Yiu Keung and David Yen Chin Wai were appointed as Liquidators.
The Liquidators determined a reorganisation of the Company was the best way to maximise recoveries for the creditors. The Company's shares had been suspended from trading on the Hong Kong Stock Exchange since September 2014. To be able to resume trading, the Company had to submit a viable resumption proposal. The resumption proposal included a sale of the company's equity interest in Yu Ming Investment Management Limited for HK $400,000,000. After the sale the re-listing of the shares would allow the Company to attract new business and access capital to make payments to the creditors under a proposed scheme of arrangement. The Liquidators concluded that an inter-conditional Scheme of Arrangement needed to be approved by the Cayman Court in parallel to the scheme proposed in Hong Kong. The Liquidators successfully applied to the High Court of Hong Kong to issue a letter of request to the Cayman Court in August 2017. The Liquidators sought an order which would treat the Liquidators as if they had been appointed by the Cayman Court and enable them to promote the scheme of arrangement under Cayman law.
The key issues that were considered by the Hon Justice Segal were that of jurisdiction and power to grant the orders sought by the Liquidators. He acknowledged that the nature and scope of the Cayman Court to recognise and assist foreign court-appointed Liquidators had been the subject of much debate in recent years. He was asked to review a number of key authorities on the matter, including Cambridge Gas v Navigator (2007 1 AC 508), Rubin v Eurofinance ( 1 AC 236), and Singularis Holdings Ltd v PwC ( UKPC 36).
The Hon Justice Segal noted that as the Liquidators had been appointed other than in the Company's place of incorporation, they could not be empowered to present and consent to the Scheme of Arrangement under Cayman private international law. However, the Cayman Court did have non-statutory powers to recognise and assist foreign insolvency proceedings and Liquidators. These powers could be exercised by the Cayman Court by granting an order that authorises foreign Liquidators to present and consent to a Scheme of Arrangement pursuant to s 86(1) of the Companies Law (2016 revision).
It was noted that these powers were discretionary and should be applied on the basis of common law principles as detailed in Singularis and Rubin. The circumstances of the case established that it was unlikely that an application would be made for a winding up order in the Cayman Islands. It was clear that the Company had substantial connections with Hong Kong and as such the appointment of liquidators in that jurisdiction was appropriate.
The Hon Justice Segal acknowledged that considerable weight should be taken into account as to the Company's COMI particularly when deciding whether a foreign Liquidation should be given assistance and be treated as competent. The Cayman Court also held that there were no local reputation, regulatory or policy reasons that would benefit the creditors for a further winding up order to be made or for the appointment of a Provisional Liquidator in the Cayman Islands. As a result, the Hon Justice Segal determined that the Hong Kong Liquidation was likely to be the only proceeding against the Company and so it was appropriate to grant recognition and assistance to the Liquidators.
This decision provides greater scope for foreign cross-border restructuring and insolvency procedures in common law jurisdictions. The judgment also shows that despite the limitations placed on the exercise of such a discretion by Singularis and Rubin the Cayman Court was still able to come to a pragmatic and commercial solution.