As the public may be aware, there are ways to put a company into liquidation, one of which is what is called “soft-touch” liquidation. The definition of the soft-touch liquidation was set out in a British Virgin Islands judgment — Re Constellation Overseas Ltd BVIHC (Com) 2018/0206, 0207, 0208, 0210 & 0212. It was held that the essence of a soft-touch provisional liquidation is that a company remains under the day- to-day control of the directors but is protected against actions by individual creditors. The purpose is to give the group the opportunity to restructure its debts, and otherwise achieve a better outcome for creditors than would be achieved by outright liquidation.
In relation to soft-touch provisional liquidation, a recent Hong Kong case has shed light on how Hong Kong courts approach the issues. In Re China Bozza Development Holdings Ltd [2021] HKLRD 977, a director of China Bozza Development Holdings Ltd (“China Bozza”) filed a petition in the Cayman Islands for the winding up of the company and applied for appointing soft-touch provisional liquidators in the Cayman Islands to facilitate the debt restructuring of China Bozza. After the Cayman Islands court approved the winding-up application and appointed joint provisional liquidators over China Bozza, the soft-touch provisional liquidators of the company applied to the Hong Kong Court for recognition of and assistance to the insolvency proceedings.
In the China Bozza case, while Harris J granted an order for recognition of the insolvency proceedings in the Cayman Islands, he rejected the application for an order for assisting the provisional liquidators at that stage. The reasons for the rejection were that it appeared that China Bozza or its advisors had not given any consideration to whether or not it might be in the interests of creditors for China Bozaa to be wound up. The Court also set out the relevant considerations for granting an order for assisting the soft-touch provisional liquidators. For instance, the applicant should address the following issues:-
- The details of the restructuring plan that the company wishes to implement out of provisional liquidation;
- Whether creditors’ input has been sought in the process of formulating the restructuring plan;
- The details of the company’s business;
- The justifications for the directors’ views that the company business would be rehabilitated through the restructuring plan; and
- The details of legal and other advice on the company’s financial position and on the restructuring plan.
If you have any concerns in relation to application for assistance to a soft-touch liquidator in different jurisdictions, please contact us today for a discussion.