Company A, incorporated in Canada, held 75% of three operating companies in the business of mineral mining while Company B held the remaining 25%. Company A as guarantor entered into a borrowing facility with certain companies as borrowers. Company A also charged some shares in two companies in favour of the lender bank.
Company A went into financial difficulties. Subsequently, the lenders rights were transferred to Company C (within the same group of companies as Company B). A notice of acceleration was served on the borrowers. The initial security agent also resigned and was replaced by Madison, a Hong Kong company. As the matter went on, the discussions to resolve the financial difficulties failed and joint administrators were appointed by the High Court in London.
The administrators were concerned that Madison would sell the charged shares at an undervalue which will prejudice the equity of redemption. An application was made in London (the centre of main interests of Company A) and in Hong Kong in an attempt to stall the sale of the charged shares.
Court’s decision
The Court first considered the issue whether liquidators appointed in a jurisdiction (England in this case) other than the place of incorporation (Canada in this case) are recognised under Hong Kong law. The court supports (without deciding) the idea of recognising such liquidators and thus having the jurisdiction to render active assistance to overseas insolvency proceedings due to the commercial necessity of cross border insolvency.
The second issue is, in the lack of the statutory provisions, what types of orders are available to such liquidators under common law and equitable principles. The Court found that there were no statutory provisions which provided for a moratorium of the enforcement of the security. In the instant case, the application was not made on the ground that the proposed enforcement would prejudice the equity of redemption or the liquidated company subsequently had been able to fulfill the payment obligations. Hence, the application had no common law or equitable basis to rest on. On this basis, the court rejected the application.
Implications
The present case reflects the natural spread of modified universalism in cross-border insolvency cases, under which the court will endeavour to provide assistance to each other without awaiting sanctions as agreed by international conventions. Although liquidators not appointed in the place of the incorporation are recognised, the court still treads cautiously when it comes to granting restrictive sanctions to aid foreign insolvency proceedings.