In a ground-breaking decision, the Hong Kong Court in Re CW Advanced Technologies Limited  HKCFI 1705 explains:
(a) the interface between the Hong Kong provisional liquidation regime and Singapore’s new insolvency regime; and
(b) how both regimes could work in tandem to help restructure a Singapore-based pan-Asian business group.
The matter concerns the CW Group which is a precision engineering solutions provider. The CW Group is headquartered and has its principal place of business in Singapore. The material corporate and debt structures are as follows:
The holding company, CW Group Holdings Limited (“CWG”), is incorporated in the Cayman Islands and listed on the Hong Kong Stock Exchange.
There are operating subsidiaries in various jurisdictions, including CW Advanced Technologies Limited (“Company”) which is a Hong Kong incorporated company.
The CW Group’s financial indebtedness consists primarily in bank and bond debts, governed by Singapore and Hong Kong law.
All of the Company’s bank debt is governed by Hong Kong law.
The CW Group’s management’s intention was apparently that the restructuring would be managed primarily through the Singapore Moratorium and Singapore schemes of arrangement, with recognition and assistance given by other jurisdictions in which the CW Group members were located.
Thus in late June 2018, the Company also applied for provisional liquidation in Hong Kong with a view to implementing the CW Group’s restructuring efforts in Singapore.
However, because the Bank of China (Hong Kong) Limited (“BOC”) (the CW Group’s largest creditor) was apparently not consulted prior to the application for the Singapore Moratorium, BOC opposed the Company’s plan in Hong Kong.
In the meantime, CWG applied for provisional liquidation in the Cayman Islands. Afterwards, the Company withdrew its provisional liquidation application in Hong Kong. BOC then applied for the Company’s provisional liquidation in Hong Kong.
The Hong Kong Court’s Decision
The Court (Harris J) granted BOC’s provisional liquidation application because the Company was clearly insolvent and BOC had produced evidence showing the need for asset preservation and independent investigation into the Company’s affairs. Although the provisional liquidators were not given restructuring powers to begin with, they could apply for an extension of their powers when the circumstances would justify it.
Despite the significant cross-border background leading to BOC’s provisional liquidation application, the parties took the position that they would not need to address the Court’s cross-border concerns, such as the impact and relevance of the Singapore Moratorium. As a result, the Court did not have to determine the cross-border issues.
Nevertheless, the Court provided a helpful list of issues for future applicants to consider when faced with similar cross-border situations, including:
(a) whether the Singapore Moratorium would be eligible for recognition in Hong Kong; and
(b) if the Singapore Moratorium was eligible for recognition, whether the Court could grant assistance by way of appointing provisional liquidators in Hong Kong.
The Court also set out some of the key questions that need to be addressed regarding the recognition of the Singapore Moratorium, such as whether it could constitute a collective insolvency proceeding.
Although the matters had not progressed in the way originally envisaged by the CW Group’s management, the Court noted that the CW Group’s restructuring could be achieved through schemes of arrangement in Hong Kong, coupled with recognition and assistance in Singapore under the new Singapore insolvency regime.
Finally, Harris J repeated his call for an urgent statutory cross-border insolvency reform in Hong Kong.
In many respects, this is a landmark decision on the development of cross-border insolvency law in Asia. It is also the first ever decision reflecting on the possibility of assisting the new Singapore insolvency regime and its interaction with the Hong Kong provisional liquidation regime.
From the practitioners’ viewpoint, the decision provides a useful roadmap to the conduct of cross-border restructuring in Asia. In particular:
(a) It reaffirms the Hong Kong Court’s pragmatic approach to cross-border restructuring.
(b) It provides a checklist of the issues to consider concerning the recognition of Singapore insolvency proceedings under the new Singapore insolvency regime.
(c) It explains how the Hong Kong provisional liquidation regime and the new Singapore regime may complement each other to achieve a group restructuring.
by William Wong SC and Look Chan Ho
Des Voeux Chambers: http://dvc.hk/en/