A recent Hong Kong court decision sets out the basis upon which Hong Kong courts will recognize a trustee-in-bankruptcy in foreign bankruptcy proceedings. The decision sets out the path forward where such a trustee seeks information about the bankrupt debtor’s assets in Hong Kong, wishes to locate, protect, secure and take into possession and control assets to which the bankrupt debtor is or appears to be entitled or wishes to bring legal proceedings in Hong Kong as the trustee. In this article, we outline the applicable legal principles for recognition.
Our companion international litigation and cross-border dispute articles provide information on the enforcement of a foreign judgment in Hong Kong, information on the effect of Hong Kong process issued by a Hong Kong against a defendant outside Hong Kong and information on freezing orders, including Mareva injunctions, issued by a Hong Kong court.
If you would like more information about how a bankruptcy order may affect assets located in Hong Kong, please contact one of our commercial dispute resolution lawyers.
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In Robert Scott Woods v. Industrial and Commercial Bank of China, the Hong Kong Court of First Instance recognized the trustee in bankruptcy appointed pursuant to an order of the Federal Court of Australia. The recognition followed a request from the Australian court to the Hong Kong court to assist the trustee to obtain information about transactions undertaken by the bankrupt debtor in an account in a Hong Kong bank.
Basis for Jurisdiction over Foreign Defendants
The Court of First Instance held that the approach of the court in considering an application for recognition and assistance of foreign bankruptcy proceedings over an individual is materially the same as for the recognition of foreign insolvency proceedings for a company. In other words, the court expressly concluded that the doctrine of modified universalism provides a basis under the common law to recognize and to provide assistance to a foreign trustee-in-bankruptcy. There is no need for bankruptcy proceedings to be commenced in Hong Kong as the Hong Kong court is only being asked to recognize the foreign trustee-in-bankruptcy as the lawful agent of the bankrupt debtor.
The principle of modified universalism holds that it is fairer to all creditors if there is a single universal liquidation in which all creditors of a bankrupt debtor, wherever located, are entitled and required to prove. Given that the power of recognition and assistance flows from the doctrine of modified universalism, the foreign trustee-in-bankruptcy must satisfy the court that:
- the foreign insolvency proceedings are collective insolvency proceedings,
- they are conducted in the jurisdiction where the debtor is domiciled in or has submitted to the jurisdiction of the adjudicating court, and
- the assistance is necessary for the administration of the foreign bankruptcy or performance of the foreign trustee-in-bankruptcy functions.
Equally, the foreign trustee-in-bankruptcy must show that whatever order he seeks is consistent with Hong Kong substantive law and public policy.
Validity of Foreign Bankruptcy Proceedings
Before a Hong Kong court will recognize a foreign trustee-in-bankruptcy of a debtor, the court must be satisfied that the debtor was either domiciled in or has submitted to the jurisdiction of the foreign court which appointed the trustee-in-bankruptcy.
In respect of domicile, the Court of First Instance noted that Hong Kong legislation provides that the question of domicile is to be determined in accordance with the law of Hong Kong. Under Hong Kong law, each individual has a single domicile at any given time for any given purpose. An adult retains the domicile he had immediately before he became an adult. An individual only acquires a new domicile in a new territory by being present there and by intending to make that territory his home for an indefinite period. A change of residence, even a period of long residence, does not necessarily result in a change of domicile.
Scope of Recognition
The Court of First Instance was careful to note that it would only recognize the foreign trustee-in-bankruptcy of a debtor in respect of moveable property. The principle of lex situs governs immoveable property, meaning that the law of the place where such property is situated governs.