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Sep 2018 - Provisional Liquidators’ role and powers clarified - China Solar Energy Holdings Limited HCCW 108/2015, [2018] HKCFI 555

The Court of Appeal held in Re Legend International Resorts [2006] 2 HKLRD 192 that the ‘primary purpose of appointing provisional liquidators must always be the purposes of the winding-up’, not for the purposes of avoiding the winding-up, and that ‘restructuring a company is an alternative to a winding up’.


These statements cast doubt on whether and the extent to which provisional liquidators are allowed to carry out restructuring, which would have the effect of preserving and extending the life of a company and thus preventing winding-up.


In China Solar, the Court of First Instance has made clarifications on this issue. The trading of the company’s shares listed on the Hong Kong Stock Exchange had been suspended. The provisional liquidators (“PLs”) were appointed on the basis, inter alia, that the company’s assets were in jeopardy, and the PLs were also granted restructuring powers. Since the appointment, the PLs have put in extensive efforts and resources to restructure the company with a view to apply for resumption of trading of the company’s shares.


The Petitioner sought to discharge the PLs, arguing that when the provisional liquidation had come to a point where the sole or primary function of the PLs was to carry out restructuring, it could not be permitted to continue. The Petitioner also argued that restructuring by definition means avoiding winding-up, which is contrary to Re Legend.


In his detailed judgment, the Honourable Mr. Justice Harris surveyed the case law on the powers of provisional liquidators and dismissed the Petitioner’s application for dismissal. The following are the Judge’s key findings:


1. Where the matters associated with a winding-up are absent, in particular where the company’s assets are not in jeopardy, it would not be appropriate to order a provisional liquidation, despite the company’s general need for a restructuring.

2. When the Court of Appeal said in Re Legend that provisional liquidation “must be for the purposes of the winding-up”, it was referring to matters associated with a winding-up, which could include asset preservation. It could not have meant to say that the intended result of provisional liquidation must be a winding-up. In fact, the intended result could be the avoidance of winding-up. Otherwise, it would be contrary to the Court of Appeal’s own endorsement of the practice that when provisional liquidators were appointed on asset preservation grounds, they could be granted restructuring powers.

3. There was nothing in the statutory regime of provisional liquidation that the provisional liquidators’ appointment is to be restricted in the manner suggested by the Petitioner in order to increase the likelihood of a winding-up, which is likely to be destructive of the creditors’ collective interests. In fact, terminating the provisional liquidators’ appointment would seem inconsistent with the purpose of protection of company assets and value.

4. The law has never been that provisional liquidation is meant to lead to a winding-up. Provisional liquidation is meant to ensure that the operation of a winding-up would not be frustrated, if there is a winding-up.


Following China Solar, therefore, it would seem that provisional liquidators can be appointed for matters associated with a winding-up, including asset preservation, but not solely for restructuring when the matters associated with a winding-up are absent. Following the appointment, provisional liquidators can carry out restructuring, even when that becomes their sole remaining function.


Written by: Paul Lui, Partner; Henry Ma, Partner and Irene Lai, Trainee Solicitor

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AWARDS

AWARDS

We are delighted to announce that Haldanes has been recognized by peers and industry as "Criminal Law Firm of the Year" for the 13th year in succession.  Our reputation as the premier criminal law firm in Hong Kong has been built over four decades with a strong pedigree of local and international legal practitioners.  The commitment, credibility and client focus of our teams has been recognized once again and we would like to thank our staff, clients and industry partners for their loyalty and support. We look forward to many more years of faithful service and dedication.

Haldanes has cemented its reputation as the leading firm for criminal defence in Hong Kong. John Kang of Asian Legal Business looks into the local firm’s rise to the top and finds out how it stays it there. Earlier this month at The Macallan ALB Hong Kong Law Awards 2017, Haldanes beat the likes of Deacons – Hong Kong’s largest domestic firm – and international disputes firm Kobre & Kim to win the Criminal Law Firm of the Year award. But its victory was no shock: Haldanes has won the award for 18 straight years. The local firm’s dominance in this category is even less surprising for barristers like Peter Duncan SC and Gary Plowman SC, who work closely with Haldanes. “The firm has a universal and well-deserved reputation for its fearless protection of its clients’ interests whilst always remaining true to the rules of the judicial process and the public interest in the integrity of the profession,” says Duncan. Plowman adds, “I have worked with Haldanes many times over the years, and I have no difficulty at all understanding why they are the consistent winners of this prestigious award. They are a class act.” Haldanes has the biggest criminal law practice in the city: it has eight qualified lawyers who do nothing but criminal defence work. This focus is different from the majority of firms whose criminal defence work is just a small part – if at all – of their practice. Given these factors, it certainly isn’t difficult to understand why Haldanes is the undisputed leader in this area…… To read the full article please visit: http://www.legalbusinessonline.com/news/alb-insights-how-haldanes-became-go-firm-criminal-defence-hong-kong/75135