Dealing with parallel insolvency proceedings in different jurisdictions?

Dealing with parallel insolvency proceedings in different jurisdictions?

Dealing with parallel insolvency proceedings in different jurisdictions? 150 150 Hugo

When creditors try to recover debt from a distressed company in different jurisdictions, they will incur significant costs. In particular, in Hong Kong, the creditors could apply to the High Court for sanctioning a scheme of arrangement, in the hope of settling the debt. While the High Court would decide on whether it is appropriate to sanction the scheme, it would also consider if it is appropriate for the creditors to pursue parallel proceedings in multiple jurisdictions.

In Da Yu Financial Holdings Limited [2019] HKCFI 2531, the Court sanctioned a scheme of arrangement to be entered into between the company in liquidation and its general unsecured creditors. Apart from going through the legal principles which govern the Court’s discretion to sanction a scheme, Deputy High Court Judge Mr. William Wong SC expressed his view on cross-border coordination. He was of the view that the idea that parallel schemes are needed in such circumstances appears to be an outmoded way of conducting cross-border restructuring, and that requiring foreign office holders to commence parallel proceedings is the very “antithesis” of cross-border insolvency cooperation. The Court drew the creditors’ attention to the possibility of avoiding parallel insolvency proceedings, where they could obtain the desired remedies through equivalent proceedings in the domestic forum.

Concerning parallel insolvency proceedings, there has been recent development. In an even more recent case Re Grand Peace Group Holdings Ltd [2021] HKCFI 1563, Honorable Harris J held that there is very little justification in most cases for a scheme being introduced in the place of incorporation (which is not Hong Kong). The Court also stated that in the future it needs to be satisfied by any company or provisional liquidators who propose that parallel schemes are introduced that it is in the genuine best interests of unsecured creditors. Without such justification, the Court might refuse the application for sanctioning the proposed scheme.

If you have any concerns in relation to applying for a scheme of arrangement in different jurisdictions, please contact us today for a discussion.

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