Legal update on insolvency case law developments - … · Legal update on insolvency case law...

Legal update on insolvency case law developments

Talk for Restructuring and Insolvency Faculty, HKICPA

by Ludwig Ng, partner, ONC Lawyers

25th April 2017

2

Recent Case Updates

1. Cross-border Insolvency

2. Scheme of Arrangement

3. Void dispositions and Validation Order

4. Enforcing Examination Order by Contempt Proceedings

3

CROSS-BORDER INSOLVENCY

4

Cross-border Insolvency

Re Joint Official Liquidators of Centaur Litigation SPC (in liquidation)

HCMP 3389/2015, 3391/2015 and 3393/2015

Date of Decision: 10 March 2016

Brief Facts:

• The three Companies were incorporated in the Cayman Islands and

have been put into liquidation there.

• The Liquidators, pursuant to a request issued by the Grand Court of

the Cayman Islands, applied for recognition and assistance.

• One of the terms sought any person wishing to commence

proceedings in Hong Kong against the Companies must obtain first

the court’s leave.

5

Re Joint Official Liquidators of Centaur

Litigation SPC (in liquidation) HCMP 3389/2015

Points Decided:

• Section 186 of the CWUMPO: When a winding-up order has been

made, or a provisional liquidator has been appointed, no action or

proceeding shall be proceeded with or commenced against the

company except by leave of the court, and subject to such terms as

the court may impose.

• Section 97 of the Companies Law of the Cayman Islands,

substantially the same as section 186 of the CWUMPO

• Making an order which extends to Hong Kong a control which exists

in the Cayman Islands will assist in the orderly and cost effective

liquidation of the Companies. It is also consistent with our own

regime.

• Prudent creditor thinking of commencing proceedings should

investigate the current position of the Companies

• Granted the order

6

Re Joint Official Liquidators of Centaur

Litigation SPC (in liquidation) HCMP 3389/2015

Significance:

• This case follows the leading decision of The Joint Official

Liquidators of Company A Co v B HCMP 902/2014 Date of

Decision: 21 July 2014 (the first reported case on recognition of

foreign liquidators pursuant to letter of request) and move on to

elaborate the standard orders to be granted.

• The Court has set out the terms of the orders that will normally be

granted in an application by foreign liquidators for recognition and

assistance in Hong Kong (appendix of the judgment).

• This will eliminate the need to apply for ancillary winding-up orders

in Hong Kong in some cases.

7

Appendix

1. The appointment of X and Y as Joint Official Liquidators (the “Liquidators”) of [the Company] (In

Liquidation) (the “Company”) be recognised by this Court.

2. The Liquidators have and may exercise such powers as are available to them as a matter of

Cayman Islands law and would be available to them under the laws of Hong Kong as if they had

been appointed liquidators of the Company under the laws of Hong Kong and in particular, but

without prejudice to the generality of the foregoing, for the following purposes:

2.1 to locate, protect, secure and take into their possession and control all assets and property

within the jurisdiction of this Court to which the Company is or appears to be entitled;

2.2 to locate, protect, secure and take into their possession and control the books, papers and

records of the Company including the accounting and statutory records within the jurisdiction

of this Court and to continue their investigations into the assets and affairs of the Company

and the circumstances which gave rise to its insolvency;

2.3 to retain and employ barristers, solicitors or attorneys and/or such other agents or

professional persons as the Liquidators consider appropriate for the purpose of advising or

assisting in the execution of their powers and duties; and

2.4 so far as may be necessary to supplement and to effect the powers set out at paragraphs 2.1

and 2.2 above, to bring legal proceedings and make all such applications to this Court,

whether in their own names or in the name of the Company, on behalf of or for the benefit of

the Company including any applications for ancillary relief such as freezing orders, search

and seizure orders in any legal proceedings commenced, and/or for orders for disclosure, the

production of documents and/or examination of third parties which it is anticipated may be

made by the Liquidators to facilitate their ongoing investigations into the assets and affairs of

the Company and the circumstances which gave rise to its insolvency.

3. Anything that is authorized or required to be done by the Liquidators is to be done by all or anyone

or more of the persons appointed.

4. For so long as the Company remains in Liquidation in the Cayman Islands, no action or proceeding

shall be proceeded with or commenced against the Company or its assets or affairs, or their property

within the jurisdiction of this Court, except with leave of this Court and subject to such terms as this

Court may impose.

5. The Liquidators do have liberty to apply.

6. The costs of the application be paid out of the assets of the Company as an expense of the

liquidation.

8


Re Gulf Pacific Shipping Ltd (in creditors’ voluntary liquidation) and

others [2016] SGHC 287

Date of Decision: 30 Dec 2016

Brief Facts:

• Gulf Pacific Shipping Limited (“the Company”) was incorporated in

Hong Kong.

• In 2016, the Company was put into creditors’ voluntary winding up.

Liquidators were appointed.

• The Company had a bank account with ABN AMRO Bank NV

Singapore Branch.

• The Liquidators sought copies of bank statements from ABN

Singapore.

• The Liquidators applied for recognition and powers to obtain

information and documents relating to the bank account in

Singapore.

9

Re Gulf Pacific Shipping Ltd [2016] SGHC 287

Issue:

• Whether recognition should be denied as the Company was

liquidated through a voluntary winding up?

Points Decided:

• Singularis Holdings Ltd v PricewaterhouseCoopers [2015] AC 1675:

common law powers of assistance to foreign liquidation did not

extend to voluntary winding up. Voluntary winding up was

characterized as an essentially private arrangement, and not of the

same nature as insolvency involving officers of a foreign court.

(Lord Sumption, Lord Clarke, Lord Neuberger disagreed) .

• The foundational doctrine in recognition of foreign insolvency

proceedings promotion and facilitation of the orderly distribution

of assets, as well as the orderly resolution and dissolution of the

affairs of entities being wound up

• No distinction should be drawn between voluntary and compulsory

process

• Recognition granted

10

Re Gulf Pacific Shipping Ltd [2016] SGHC 287

Significance:

• The common law power of assistance to foreign liquidation also

extends to voluntary winding-up

• The Singapore court was bold enough to depart from the dicta of

the Privy Council in favour of the trend towards a liberal attitude of

the unversalist approach in cross-border insolvencies

11


The Joint Provisional Liquidators of BJB Career Education Co Ltd (In

Provisional Liquidation) v Xu Zhendong HCMP 1139/2016

Date of Decision: 18 Nov 2016

Brief Facts:

• BJB Career Education Company Limited (“the Company”) was

incorporated in Cayman Islands. It provided vocational training

• It was put into liquidation by order of the Grand Court of the

Cayman Islands.

• Pursuant to a letter of request issued by the Grand Court, the

Provisional Liquidators of the Company sought orders for Mr Xu

Zhendong, the former chairman and director of the Company, to

produce documents, answer interrogatories and attend court for

oral examination.

12

The Joint Provisional Liquidators of BJB Career

Education Co Ltd (In Provisional Liquidation) v

Xu Zhendong HCMP 1139/2016

Issue:

• Whether an order can be made for the oral examination of an

officer of a foreign company?

Points Decided:

• The common law power of assistance extends to ordering an oral

examination if such a power –

(a) exists in the jurisdiction of liquidation and that is the jurisdiction of the

place of incorporation; and

(b) the power exists in the assisting jurisdiction.

• Cayman Islands court has powers to order the production of

documents by a director of a company and an oral examination of a

director: section 103 of the Companies Law in the Cayman Islands

• Similar powers in section 221 of the Companies (Winding Up and

Miscellaneous Provisions) Ordinance (Cap 32)

• The examination and order for production of documents is

necessary

13

The Joint Provisional Liquidators of BJB Career

Education Co Ltd (In Provisional Liquidation) v

Xu Zhendong HCMP 1139/2016

Significance:

• The standard order in JOL of Centaur Litigation SPC HCMP

3389/2015 has not covered oral examination of former director.

• This is the first Hong Kong decision where the Hong Kong court has

granted powers to foreign liquidators permitting them to orally

examine a company director in Hong Kong pursuant to a letter of

request made by a foreign court

• Note: the requirement of similar regulatory regimes is not always

met. In The Joint Administrators of African Minerals Ltd (in

administration) v. Madison Pacific Trust Ltd [2015] HKCFI 645;

[2015] 4 HKC 215; HCMP 865/2015 (16 April 2015), the court

refused recognition of the status of an administrator appointed

under the English administration regime on the ground that there

was no such procedure in HK.

14

Cross-border insolvency

Re Opti-Medix Ltd (in liquidation) and another matter [2016] SGHC 108

Decision Date : 3 June 2016

Brief Facts:

• Medical Trend Limited and Opti-Medix Limited (collectively, “the

Companies”) were incorporated in the BVI.

• Their main business was in Japan.

• The proceeds of the business were however transferred to their

bank accounts in Singapore.

• In late 2015, bankruptcy orders were granted by the Tokyo District

Court.

• The Bankruptcy Trustee sought the recognition in Singapore of the

foreign insolvency proceedings in respect of the Companies.

15

Re Opti-Medix Ltd (in liquidation) and another

matter [2016] SGHC 108

Issue:

• Whether liquidation in a jurisdiction other than that of the place of

incorporation should be recognized?

Points Decided:

• The place of incorporation may be an accident of many factors, and

may be far removed from the actual place of business

For companies incorporated in an offshore island, they usually don't

have real connection with the place: Re HIH Casualty and General

Insurance Ltd [2008] 1 WLR 852

• As a matter of practicality locating the primary place of

insolvency proceedings at the center of main interest (“COMI”) of

the company

• Japan was the only COMI for the Companies, and had moved in

favor of liquidation.

• Granted the recognition (bearing in mind the orderly dissolution of

the Companies)

16

Re Opti-Medix Ltd (in liquidation) and another


Significance:

• First decision in Singapore on the recognition of foreign liquidators

from jurisdictions other than the place of incorporation of the

companies concerned

• Also recognizes that nowadays, companies may have little

connection with the place of incorporation

17


Joint and Several Liquidators of Pacific Andes Enterprises (BVI) Ltd

HCMP 3563/2016

Date of Reasons for Decision: 27 January 2017

Brief Facts:

• Four companies incorporated in BVI were wound up by the Eastern

Caribbean Supreme Court.

• Pursuant to a letter of request issued by the Eastern Caribbean

Supreme Court, the Liquidators applied to the Hong Kong Court for

recognition of the Liquidators appointment. One of the terms sought

reads as follows:

“The Liquidators have and may exercise such powers… for the

following purposes: (a) to obtain from third parties such documents

and information as concern the Company, including its promotion,

formation, business dealings, accounts, assets, liabilities or affairs

in order to facilitate the Liquidators investigations into the assets

and affairs of the Company and the circumstances which gave rise

to its insolvency…”

18

Joint and Several Liquidators of Pacific Andes

Enterprises (BVI) Ltd HCMP 3563/2016

Points Decided:

• The Liquidators are not entitled to obtain documents from third

parties without a court order under section 221(3) Companies

(Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)

• The order granted reads as follows:-

“To request and receive from third parties documents and information

concerning the Company and its promotion, formation, business

dealings, accounts, assets, liabilities or affairs including the cause of its

insolvency”.

Significance:

• Foreign liquidators’ rights to obtain documents from third parties in

Hong Kong is not automatic

• Request must be made to the court

19


Re Rennie Produce (Aust) Pty Ltd [2016] HKEC 2012

Date of Decision: 26 August 2016

Brief Facts:

• Rennie Produce (Aust) Pty Ltd (“the Company”) was in liquidation

in Australia.

• The Liquidators of the Company applied pursuant to a letter of

request issued by the Federal Court of Australia for recognition,

assistance as well as for production of documents by two banks in

Hong Kong.

20

Re Rennie Produce (Aust) Pty Ltd [2016] HKEC

2012

Points Decided:

• The Hong Kong Companies Court may, pursuant to a letter of

request from a common law jurisdiction with a similar substantive

insolvency law, make an order of a type which is available to a

liquidator or provisional liquidator under the insolvency regime in

Hong Kong.

• Standard From of Order appended

Significance:

• Practitioners may refer to the Standard Form of Order for

Production of Documents by banks holding accounts of the

company

21

Standard Form of Order

1. The Respondent produce copies of the following documents to the Applicants’ Solicitors

by Monday, 19 September 2016:

a. Documents identifying the account holders, contact details, contact persons,

addresses and signatories, of the account listed in Schedule 1, including copies of

the signatures of each of the signatories to that account.

b. Documents identifying any accounts held by X in the name of or to the benefit of

the persons or entities in Schedule 2, including documents identifying the account

numbers, account names, account holders, contact details, contact persons,

addresses and signatories of each such account including copies of the signatures

of each of the signatories to those accounts.

c. Statements or other documents recording or evidencing the movement of funds

into and out of the account listed in Schedule 1 and any other accounts held in the

name of or to the benefit of any of the persons listed in Schedule 2, for the period

from 1 to 31 March 2013.

2. The Respondent keep the documents sought in paragraph 1 in safe custody until copies

of the documents are produced to the Applicants’ Solicitors.

3. There be liberty to apply by letter to the Clerk of the Honourable Mr Justice Harris.

4. The Applicants pay the reasonable photocopying costs of the Respondent for the

production of the documents sought in paragraph 1, at a rate of no more than HK$7 per

page.

22


In the matter of Z-Obee Holdings Limited and in the matter of the

Companies Act 1981 [2017] SC (Bda) 16 Com

Date of Decision: 21 February 2017

Brief Facts:

• Z-Obee Holdings Limited (“the Company”) is a company

incorporated in Bermuda and listed on the Hong Kong Stock

Exchange.

• Since 27 June 2014, the Company has been in provisional

liquidation, but recently, the Hong Kong joint provisional liquidators

(“the JPLs”) have found a potential investor to rescue the Company

and hence the JPLs sought to have the Company restructured

rather than wound up.

• The Company applied to Bermudian Court to appoint the JPLs as

Bermuda JPLs for the explicit purpose of restructuring the

Company and the HK provisional liquidation is to be discontinued.

23

In the matter of Z-Obee Holdings Limited and in

the matter of the Companies Act 1981 [2017] SC

(Bda) 16 Com

Points Decided:

• It is the Bermudian Court’s established practice to use provisional

liquidation in a wide range of circumstances as a mechanism to

implement financial or operational restructurings to effect corporate

rescue.

• The Bermudian Courts have a broad discretion to order

adjournment to enable alternatives to a winding-up to be explored

• The Court granted the Company’s application to appoint JPLs for

restructuring purposes.

24

In the matter of Z-Obee Holdings Limited and in

the matter of the Companies Act 1981 [2017] SC

(Bda) 16 Com

Significance:

• It is well established in Hong Kong that the appointment of

provisional liquidators to restructure a company is not allowed: Re

Legend International Resorts Ltd [2006] 2 HKLRD 192 difficulty

to provisional liquidators

• However, companies doing business in Hong Kong, but

incorporated in Bermuda, can avoid being caught by Legend by

appointing provisional liquidators in Bermuda for restructuring

purposes.

• The Bermuda court expressly declined to follow Re Legend even

though the wordings of the statutory provisions are the same.

• “I respectfully declined to follow the contrary approach taken by the

Hong Kong Court of Appeal in Re Legend International Resorts Ltd

[2006] HKLRD 192, which I did not find persuasive for present

purposes.”

25

SCHEME OF ARRANGEMENT

26

Scheme of Arrangement

Re Winsway Enterprises Holdings Limited HCMP 453/2016

Date of Decision: 17 May 2016

Brief Facts:

• Winsway Enterprises Limited (“the Company”) is incorporated in

BVI and is registered as a non-Hong Kong company.

• The Company convened a creditors’ class meeting to consider and

vote on a proposed scheme of arrangement.

• Pursuant to an Restructuring Support Agreement entered into

between consenting creditors and the company, they were to be

paid 2% of outstanding debt as consent fee.

• The required statutory majority has been achieved. The Company

applied to seek the Court’s sanction of the scheme.

27

Re Winsway Enterprises Holdings Limited

HCMP 453/2016

Issue:

• Whether the payment of a fee to the creditor for agreeing in

advance to be bound by a proposed scheme creates a separate

class?

Points Decided:

• The “lock-up fee” was offered to all Scheme Creditors and it

appears to have been a bona fide attempt to introduce certainty in

the progress of restructuring.

• Thus it is unlikely to have material influence on how a Scheme

Creditor voted: Re DX Holdings Ltd [2010] EWHC 1513

• No need for Scheme Creditors to be divided into two classes for

voting purposes

28

Re Winsway Enterprises Holdings Limited

HCMP 453/2016

Significance:

• Winsway is important as this is the first decision in Hong Kong

where the court considered whether the provision of a small

consent fee to creditors who agree in advance to vote in favor of a

scheme could fracture scheme classes for voting purposes

• Ultimately, the court will ask itself:

Whether the right to be paid an additional sum is likely to influence

materially a scheme creditor in deciding how to vote?

Whether or not it may is likely to depend on whether or not the sum

is substantial and has been offered in a manner which creditors are

likely to consider fair regardless of whether or not they took

advantage of the opportunity to agree in advance to vote in favor of

the restructuring.

• Within a month, in another case Re Kaisa Group Holdings Limited

HCMP 708/2016 (Date: 10 June 2016), a consent fee of 1% was

also held to be a legitimate method to procure the success of the

scheme and did not necessitate the constitution of a separate class.

29


Re Dee Valley Group plc [2017] EWHC 184 (Ch)


Brief Facts:

• Dee Valley Group plc (“the Company”) applied to the English High

Court for sanction of a Scheme between the Company and its

members.

• Shortly before the class meeting directed by the court to vote on the

Scheme, a minority employee shareholder of the Company

transferred one share each to 434 individual shareholders ("the

Individual Shareholders”) by way of gift.

• The Chairman at the class meeting disallowed the votes of the

Individual Shareholders.

• Had the Chairman allowed these votes, the Scheme would have

failed, as it would not have been approved by a simple majority

present and voting in the class meeting.

30


Issue:

• Whether the Chairman was right to disallow the votes of the

Individual Shareholders?

Points Decided:

• Members voting at a class meeting must exercise their power to

vote for the purpose of benefiting the class as a whole.

• The Individual Shareholders joined the class with the perceived

notion of voting down the Scheme. They gave no consideration to

the interests of the class of members which they had joined.

• The Chairman was justified in disallowing the votes of the Individual

Shareholders

31


Significance:

• In Re PCCW Limited [2009] 3 HKC 292, the share-splitting was

used to support the scheme.

• But the reverse position, i.e. using share-splitting to vote down a

scheme, has never been considered by the court.

• This has proved wrong. This decision demonstrates that the court

will not allow manipulative practice, such as share splitting, which

would undermine “the underlying spirit of the dual requirements

prescribed by the legislature as pre-condition for scheme approval”.

32

Re PCCW vs. Re Dee Valley Group plc

• The Court considered that the Hong Kong case, Re PCCW Limited

[2009] 3 HKC 292, was not direct on the point, since in PCCW, the

share-splitting was used to support the scheme and would not,

even potentially, have caused a situation in which there would have

been no sanction hearing.

• Nevertheless, the court agreed the judgments in PCCW that voting

manipulation achieved by share-splitting was improper and the fact

that it had occurred could and should be taken into account.

Further, the court agreed that share splitting undermines "the

underlying spirit of the dual requirements prescribed by the

legislature as pre-condition for scheme approval”, and is thus

objectionable.

• Headcount test is no longer important in HK in members scheme

after 2014. However the case made clear that the principle against

manipulation would very likely also apply in creditors schemes.

33


Re Conchubar Aromatics Ltd and another matter [2016] SGHC 279

Date of Decision: 20 December 2016

Brief Facts：

• Conchubar Aromatics Ltd convened a meeting of creditors for the

purpose of considering and approving a proposed Scheme of

Arrangement.

• The statutory requirements have been met and the Applicants

sought court’s approval of the Proposed Scheme.

• The Application was opposed by one creditor on the basis that three

of the creditors were related to the Applicant and thus their votes

should be disregarded completely.

• One creditor Conchubar Chemicals shared the same shareholder

and director as the Applicant. (But they argued that both were

investment funds with different ultimate beneficiaries.)

• The other two creditors got their debts by way of assignment from

Conchubar Chemicals.

34

Re Conchubar Aromatics Ltd and another


Points Decided:

• Citing the HK CFA case of UDL Argos [2001] 3 HKLRD 634, and TT

International Ltd and another appeal [2012] 2 SLR 213, court held

that where voting is motivated by personal interest rather than

based on consideration of the class’s benefits, such vote should be

discounted.

• In TT International, where the connection is being a wholly-owned

subsidiary, the discount could be 100%.

• Other than that, the court would adopt a broad brush approach,

taking into account:

The relationships in question

Previous conduct of the parties

• A discount of not more than 25% was applied to the vote of

Conchubar Chemicals. The other two creditors were not shown to

be related and no discount was applied.

35

Re Conchubar Aromatics Ltd and another


Significance:

• Members voting at a class must exercise their power to vote for the

purpose of benefiting the class as a whole, and not merely to

support those specific interests of individual members if they are

different from the interests of the class

• Related parties have special interest

• Special interests are to be interpreted broadly.

• The court may adopt a broad brush approach and apply a discount

to the value of the debts of related parties.

36

VOID DISPOSITIONS

VALIDATION ORDER

37

Void Disposition and Validation Order

Express Electrical v Beavis [2016] EWCA Civ 765

Date of Decision: 19 July 2016

Brief Facts:

• Express Electrical Distributors Ltd (“Express”) was a supplier to the

Company.

• Since November 2012, Company started to pay late. On 29 May

2013, in response to a number of attempts by Express to press for

payment, Company made a payment of £30,000 to Express in

respect of goods already supplied.

• However, another creditor had issued a winding-up petition against

Company on 22 May 2013. A winding-up order was subsequently

made.

• The Liquidators demanded the repayment of £30,000. Express

sought a validation order.

38

Express Electrical v Beavis [2016] EWCA Civ

765

Points Decided:

• It must be shown that special circumstances exist which makes a

particular transaction one in the interests of the creditors as a whole

before validation order will be made to override the usual

application of the pari passu principle.

Special circumstances: the creditor concerned has since the

presentation of the petition helped to keep the company afloat, or

has otherwise swollen the company’s assets, salvage cases and

etc.

39


765

Application:

• The goods to which the £30,000 payment related had all been

supplied by Express on credit prior to the making of that payment

and were already available for use in Company’s business

regardless of whether that payment was made or not.

• Following the payment, Express only supplied goods worth £13,000

and by supply in the ordinary way, rather than on any specially

advantageous terms.

• There is no evidence to suggest that those supplies were made in

order to secure completion by Company of particularly profitable

contracts so as to achieve a better overall result for the general

body of creditors.

Conclusion: it was not in the interests of the general body of creditors

that Express should receive the £30,000 for the goods supplied, in

breach of the pari passu principle.

40


765

Significance:

• The Court of Appeal rejected the oft-cited presumption that the

court will grant a validation order in cases apparently involving good

faith payments made in ignorance of an outstanding winding-up

petition.

• This ignores the importance of the pari passu principle.

• Must show special circumstances: the disposition in question will be

or has been for the benefit of the general body of unsecured

creditors, such that it is appropriate to override the usual pari passu

principle.

41


Re AGI Logistics (Hong Kong) Ltd [2016] 5 HKLRD 737

Date of Decision: 2 November 2016

Brief Facts:

• On 8 December 2009, the Inland Revenue Department (“the IRD”)

informed AGI Logistics (Hong Kong) Limited (“the Company”) that

a tax refund letter would be sent.

• On the same day, the winding-up petition notice of the Company

came to the attention of the IRD.

• The Company requested that the refund be made payable to

Careship International Transportation Limited (“Careship”). IRD

complied.

• On 10 Feb 2010, the Company was wound up.

• The liquidators contended that the tax refund due to the Company

paid by IRD to Careship was void under section 182 of the

CWUMPO.

42


Points Decided:

• There is no basis for reading section 182 to contain a qualification

such that a disposition is only void if it has an impact on creditors,

as this invites disputes

• Dispositions which constitutes an intermediary function are also

caught by section 182

• Any disposition that risks reducing the amount available for

creditors is caught by section 182

• It’s not necessary to first exhaust remedies against the ultimate

recipient of the assets.

43


Significance:

• There have been directly conflicting decisions in HK and UK on this

issue: Hollicourt (Contracts) Ltd v Bank of Ireland [2001] Ch 555

(UK) and Bank of East Asia Ltd v Rogerio Sou Fung Lam [1988] 1

HKLR 181 (HK)

• Court of Appeal analyzed the cases in details and decided to depart

from English decisions.

• After a winding-up petition is presented, all dispositions, regardless

of its ultimate impact on creditors and whether it serves only an

“intermediary function”, will be caught by section 182.

• It’s also made clear that there’s no requirement to first exhaust

remedies against the ultimate recipient of the assets.

44


Akers and others (Respondents) v Samba Financial Group (Appellant)

[2017] UKSC 6


Brief Facts:

• Saad Investments Co Ltd (“SICL”) is a company incorporated in

Cayman Islands. It went into liquidation in the Cayman Islands.

• Mr Al-Sanea, a Saudi Arabian citizen, was the legal owner of shares

in five Saudi Arabian banks, valued at around US$318 million. SICL

alleged that Mr Al-Sanea held the Saudi Arabian shares (“Disputed

Shares”) on trust for SICL.

• Six weeks into the liquidation, Mr Al-Sanea transferred all the

Disputed Shares to Samba Financial Group (“Samba”)

• Liquidators alleged disposition of the company’s property made

after the commencement of the winding up, thus is void

127 of the Insolvency Act 1986, equivalent to section 182 of

CWUMPO

45

Akers and others (Respondents) v Samba

Financial Group (Appellant) [2017] UKSC 6

Issues:

• Does SICL have an equitable interest in the Disputed Shares?

The law of Saudi Arabia, where the Disputed Shares are sited, does not

recognized the institution of trust

• Does the transfer constitutes “disposition”?

Points Decided:

1st issue -

• A common law trust may be created, come into existence and be

enforced in respect of the Disputed Shares, even though Saudi

Arabian law does not recognize trusts in any form: Lightning v

Lightning Electrical Contractors Ltd (1998) 23 (1) Tru LI 35

• Finding otherwise would lead to bizarre results, as the

consequences of the same arrangement might then be different in

relation to properties acquired in different jurisdictions.

46



2nd issue –

• Where an asset is held on trust, the legal title remains capable of

transfer to a third party. The disposition may be in breach of trust.

• The beneficiary’s rights vis-à-vis the trustee are not disposed of.

Such rights are the beneficiary’s, not the trustee’s. However, the

beneficiary’s rights over the assets in question may be extinguished

vis-à-vis third party if the disposition of the legal title has the effect

of overriding the protected trust rights, e.g. bona fide purchaser

without notice.

• Mr Al-Sanea transferred his legal ownership of the Disputed Shares

to Samba. Samba was a bona fide purchaser for value without

notice. SICL’s equitable interest in the Disputed Shares was

effectively extinguished.

Conclusion: There was no disposition of any rights of SICL in relation

to the Disputed Shares by virtue of the transfer to Samba

47



Significance:

• As far as UK (and HK) law is concerned, a trust could be created

over property situated in jurisdictions that do not recognise trust.

• Transfer of legal title in breach of trust does not constitute

“disposition”.

• Liquidators cannot use section 182 of CWUMPO to recover assets

transferred.

• However, where the third party has notice of the breach of trust, it

could be held liable to return the trust assets on the basis of

knowing receipt.

48

ENFORCING EXAMINATION ORDER BY

CONTEMPT PROCEEDINGS

49

Enforcing Examination Order by Contempt

proceedings

Bruno Arboit as Sole Liquidator of Highfit Development Co Ltd v Koo

Siu Ying and Another HCMP 2749/2012

Date of Decision: 8 March 2016

Brief Facts:

• The defendants are directors of Highfit Development Co Ltd (“the

Company”) which went into liquidation in late 2008.

• It was suspected to have transferred out a very important assets to

a company controlled by the defendants before winding-up.

• The liquidator obtained a court order under section 221 of the

CWUMPO requiring the defendants to “produce all books,

correspondence and documents in their custody or power relating

to the business and affairs of the Company including the documents

set out in Schedule 2 attached to the Summons”.

• Defendants did not comply.

• Liquidator applied for an order of committal against the defendants

for contempt of court in breach of the court order.

50

• Defendants raised a number of defences to the contempt

proceedings such as: Ignorance (everything was controlled by Mr.

Lim, their husband and father), lack of specificity of the order for

production (all documents being too broad), non-possession and

non-existence of documents.

• The court rejected all defences but one – non-existence.

• Liquidator was not able to prove existence of all the requested

documents.

51

Bruno Arboit as Sole Liquidator of Highfit

Development Co Ltd v Koo Siu Ying and Another

HCMP 2749/2012

Points Decided:

General principles –

• A court order must be complied with strictly in accordance with its

terms.

• But the burden is on the liquidator to prove a defendant’s contempt

beyond reasonable doubt

• A defendant cannot be regarded to be in contempt just because he

did not have the means to comply with the court order, or it was

impossible to comply: Kao, Lee & Yip v Koo Hoi Yan (2009) 12

HKCFAR 830; Concorde Construction v Colgan Co Ltd & Anor (No

2) [1984] HKC 252

52

Bruno Arboit as Sole Liquidator of Highfit

Development Co Ltd v Koo Siu Ying and Another

HCMP 2749/2012

Significance:

• Defendants produced none of the documents by the deadline.

Plaintiff only succeeded to prove BRD existence of a portion of the

requested documents.

• Costs were ordered on party and party basis instead of the

conventional indemnity basis.

• It points to the need to prepare the s.211 questions and requests

carefully and the importance in establishing the existence of specific

documents before launching contempt proceedings

53

Enforcing Examination Order by Contempt

proceedings

Ip Pui Lam Arthur and Another v Alan Chung Wah Tang and Another

CACV 214/2016


Brief Facts:

• The Defendants were ordered by the Court to produce various

documents to the trustees in bankruptcy. They failed to comply with

the order.

• At first instance, the Court found that the Defendants “willfully and

intentionally” disobeyed the court order by failing to provide the

documents sought.

• Defendants convicted of contempt of court

• Defendants appealed to the Court of Appeal

54

Ip Pui Lam Arthur and Another v Alan Chung

Wah Tang and Another CACV 214/2016

Points Decided:

• Burden of proof rests on the Plaintiffs, to show, beyond reasonable

doubt, that the documents are in existence and that they are within

the custody or power of the Defendants to produce them and the

Defendants intended not to produce them

• There is no burden on Defendant to show a defence

• The Plaintiffs are only able to prove, beyond reasonable doubt, the

existence of one category of the documents (allegedly on the

defendant’s own admission) and that the Defendants have power

over that category of documents.

• There being no evidence of any dishonesty or personal benefits, an

order of committal is too harsh.

55

Ip Pui Lam Arthur and Another v Alan Chung

Wah Tang and Another CACV 214/2016

Significance:

• A court order to produce documents must be strictly complied. So

long as D has the means to produce the documents, even with

difficulty, D would be in contempt for not doing so.

• But the defendants have no evidential burden to show a defence.

56

57

Thank you!

http://www.google.com/url?q=http://www.free-extras.com/search/1/smiles.htm&sa=U&ei=xZQBU4GEOYOGiQfbpIGwDg&ved=0CFAQ9QEwEQ&usg=AFQjCNHwseaUGLOXPl9K61QpFuy7CHOwxA

58

19th Floor, Three Exchange Square

8 Connaught Place, Central, Hong Kong

Tel: (852) 2810 1212

Fax: (852) 2804 6311

Email: [email protected]

Website: www.onc.hk

Important: The law and procedure on this subject are very specialised and complicated. This seminar is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

mailto:[email protected]

http://www.onc.hk/

Legal update on insolvency case law developments - … · Legal update on insolvency case law...

Documents

Transcript of Legal update on insolvency case law developments - … · Legal update on insolvency case law...