Cayman Islands

While it had been clear for most of the recent economic downturn that the 24% of Hong Kong Stock Exchange-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 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 spell 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.

Jeremy Lightfoot

Partner, Carey Olsen Hong Kong
+852 3628 9016

Henry Tucker

Counsel, Carey Olsen Hong Kong
+852 3628 9008

Related Articles

Dentons, CMS, Eng advise on $1.25 bln Europe student housing deal

Dentons has advised Singaporean real estate company Mapletree Investments on its one-billion-pound agreement ($1.25 billion) to acquire 8,192 student housing beds across 19 cities in the UK and Germany from Cuscaden Peak Investments, which was represented ed by CMS, Eng and Co, and Carey Olsen.

Offshore firm Carey Olsen adds another Hong Kong disputes partner

by Mari Iwata |

Offshore law firm Carey Olsen has hired its second disputes partner in Hong Kong in about two weeks in the form of Matthew Watson, who joins from Bermudan law firm Cox Hallett Wilkinson.

Appleby welcomes back offshore funds specialist from Carey Olsen

by Mari Iwata |

Offshore law firm Appleby has welcomed back offshore funds lawyer Eason Huang from rival Carey Olsen. Huang joins as a partner in Shanghai and a registered foreign lawyer in Hong Kong.