21 December 2020

A unified approach to restructuring Cayman incorporated Hong Kong listed companies

While it had been clear for most of the recent economic downturn that the 24% of Hong Kong Stock Exchange (HKSE) listed companies incorporated in Bermuda may have recourse to the court in their place of incorporation to secure an adjournment or stay of an actual or anticipated winding up petition in Hong Kong, it is now equally clear that Cayman incorporated companies (which represent another 50% of the HKSE) will have similar access to restructuring assistance.

Recent decisions have confirmed that the Cayman Islands Grand Court will appoint 'soft touch' provisional liquidators for restructuring purposes allowing existing management of HKSE listed companies to pursue a restructuring without the threat of winding up or execution at the hands of an unsecured creditor in Hong Kong or elsewhere.

In the recent case of In the Matter of Sun Cheong Creative Development Holdings Limited FSD 169 of 2020 (Unreported, 20 October 2020) the Grand Court of the Cayman Islands considered an application by the HKSE Listed parent of the Sun Cheong Group (Company) for an order appointing 'soft touch' provisional liquidators in circumstances where the Company was already facing winding up proceedings in Hong Kong.

In a reasoned decision, the Grand Court held that it had discretion to appoint soft touch provisional liquidators notwithstanding the extant winding up proceedings in Hong Kong. In exercising this discretion the Grand Court held that while there is no prescriptive list of factors, the Court may have regard in particular to (i) the express wishes of creditors (ii) whether a refinancing or restructuring is likely to be more beneficial than a winding up order (iii) whether there is a real prospect of such refinancing or restructuring and (iv) the considered views of the board as to the best way forward.

As to issues of comity, the Cayman Islands Grand Court accepted that any insolvency proceedings, including any restructuring or scheme of arrangement, should be supervised by the Grand Court of the Cayman Islands as the court of the place of incorporation of the Company.

This approach closely follows the approach of the Bermuda Court in very similar circumstances earlier this year in In the Matter of North Mining Shares Company Limited  [2020] SC (Bda) 7 Com (27 January 2020).

The Hong Kong Court meanwhile has confirmed in the decisions of In the Matter of Agritrade Resources Limited (In Provisional Liquidation in Bermuda) [2020] HKCFI 1967, Rare Earth Magnesium Technology Group Holdings Limited (In Provisional Liquidation in Bermuda) [2020] HKCFI 2260 and Re the Joint and Several Provisional Liquidators of FDG Electric Vehicles Limited (Provisional Liquidators Appointed) [2020] HKCFI 2931 that it will grant a standard form of order for recognition and assistance of offshore appointed soft touch provisional liquidators on a written application to the Court that includes a case management direction providing for the soft touch JPLs to apply for a stay of proceedings on foot in Hong Kong, including winding up proceedings.

It is reasonable to expect that this informal procedure to obtain a standard order on written application will extend to the recognition of Cayman Islands Grand Court appointed soft touch provisional liquidators, to whom the Hong Kong Court held it had the power to grant recognition and assistance following a full hearing in Re Joint and Several Provisional Liquidators of China Oil Gangran Energy Group Holdings Ltd [2020] HKCFI 825.

The effect of the Grand Court's decision in Sun Cheong, when taken with the established practice of the Hong Kong Court to spelled out in Agritrade, Rare Earth, China Oil and FDG, is to provide any offshore incorporated HKEX listed company a clear path to securing effective protection from its creditors by way of appointment of a soft touch PL in its place of incorporation.

 

An original version of this article was published by Asian Legal Business, December 2020.

© Carey Olsen 2020.

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