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Assistance from Hong Kong Courts Available to Foreign Liquidators

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It is not uncommon that foreign administrators/liquidators see the needs to seek enforcement or exercise their power in Hong Kong. The legal position in this regard is by and large aligned with the rest of the common law world in that Hong Kong Courts would recognize and assist foreign liquidators upon conditions being satisfied. The liquidator will then be able to exercise powers as if it were a local liquidator subject to certain limits. Importantly, this includes power to initiate actions.

Can Foreign Administrators/Liquidators put forward Corporate Rescue Plans in Hong Kong?

Many jurisdictions have formal corporate rescue regimes aiming at helping companies survive financial distress by letting those companies reorganize debts and trade out of difficulties, such as the Chapter 11 procedures in the United States and administration in the United Kingdom. Hong Kong lacks such formal corporate rescue framework. The closest alternative available is a “scheme of arrangement”, which is neither an insolvency nor a bankruptcy process, and can be used by both solvent and insolvent companies. 

Most recently in January this year, the Legislative Council Panel on Financial Affairs tabled a proposal to revive a corporate rescue scheme similar to the US Chapter 11 scheme which was previously examined after SARS. Key features include having the company file documents with the Companies Registry, appoint a provisional supervisor, and that there will be a moratorium on legal actions against the company. Only time will tell what other features the scheme will embody, such as whether the moratorium will enable cross-border actions to protect a Hong Kong company’s overseas assets. In the meantime, the primary restructuring tool in Hong Kong remains the scheme of arrangement.   

How does a Scheme of Arrangement Work?

A company in fiscal difficulty might compile a proposal for its creditors, proposing terms for a compromise of the company’s debts so that creditors may accept a lesser amount in full settlement of the debt. It should be noted that even where a company is undergoing a winding-up procedure, the liquidator has power to initiate a scheme of arrangement.

Once the proposal has been finalized, the application is made to the Court for its approval to convene meeting of each class of affected creditors. In each of the meetings, the scheme must be approved by both a majority of at least 50% in number, and a majority in number presenting at least 75% in value of the voting creditors. Then, upon the Court’s approval, an order sanctioning the scheme will be made. Such order will bind all creditors of the company, even if they did not vote. 

Comparison with the UK CVA

Laws of Hong Kong relating to insolvency are derived from that of the UK. The latter has evolved with progressive development whereas the HK’s insolvency regime is lagging behind. In the UK, in addition to the scheme of arrangement which largely resemble that in Hong Kong, financially-stricken companies might also opt for company voluntary arrangement (“CVA”). 

A CVA allows a company to agree a composition or an arrangement with its creditors in satisfaction of some, or all, of its debts. To be effective, a CVA requires the approval of the requisite majorities of the company’s creditors and shareholders. In the case of creditors, a majority of three-quarters or more (in value) of those responding must vote in favour of the proposals to approve the CVA. As for shareholders, it requires more than half in value of the company’s shareholders present in person or by proxy and voting at a meeting on the resolution to approve the CVA.

Once the CVA is approved by both creditors and shareholders, it binds all the company’s unsecured creditors who were entitled to vote at the meeting (even if they did not vote). However, a CVA cannot bind secured or preferential creditors without their consent. In addition, it must not unfairly prejudice the interests of any creditor.

The below table sets out key differences between schemes of arrangement (whether in Hong Kong or the UK) and the UK CVA:-

 Scheme of arrangementCVA
Court involvementExtensive court involvementCourt involvement only if the CVA is challenged
Shareholders & creditors involvementOnly creditors vote on the scheme of arrangementShareholders’ majority also required
Effect over secured and preferential creditorsSecured and preferential creditors can be bound by a schemeSecured and preferential creditors not bound by CVA without consent
MoratoriumLacks the ability to impose a moratorium on creditor actionsStatutory moratorium only available for small companies (turnover ≤ £10.2m; balance sheet assets ≤ £5.1m; and ≤ 50 employees)
Effect on contractsMight not trigger insolvency-related cross-defaults; outside the scope of statutory insolvency regimeWould trigger insolvency-related cross-defaults in company contracts

What kind of company can invoke a scheme in Hong Kong?

Apart from companies incorporated under the Companies Ordinance in Hong Kong, the Courts of Hong Kong may also approve schemes of arrangement having a “sufficient connection” with Hong Kong, as evidenced by factors such as listing on the Hong Kong Stock Exchange, having creditors/management located in Hong Kong etc. In other words, foreign-incorporated companies, such as those in offshore jurisdictions, can also apply for approval of the scheme (as long as they can establish a sufficient connection with Hong Kong). It is therefore common for a foreign company with debts and liabilities in Hong Kong to seek the Court’s sanction for a scheme of arrangement in Hong Kong.

If you as a receiver or liquidator of a foreign-incorporated company would like to seek approval for a scheme of arrangement in Hong Kong, our firm’s team of experienced lawyers will be able to assist in matters including but not limited to devising a restructuring strategy, advising on each step of the restructure, negotiations with creditors if necessary, as well as preparation of proposed terms of the scheme. We will also be able to offer bespoke advice on the suitability of implementing a scheme and whether other alternatives are available to the company, so as to tailor to the specific needs of each company.  

Is Statutory Moratorium Available in HK? 

There is no statutory moratorium on creditor actions prior to a scheme of arrangement becoming effective, which practically means that any creditor can take legal action against the company. The company, during the process of restructuring, is therefore still susceptible to enforcement action by creditors or winding up petition and might still be exposed to risk of its restructuring efforts being thwarted.

In view of the lack of moratorium in schemes in the insolvency context, often case companies negotiating a scheme might at the same time initiate a provisional liquidation/liquidation to effectively create the necessary moratorium. By virtue of section 186, Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32)(“CWUMPO”), when a winding-up order has been made, or a provisional liquidator has been appointed, no proceeding shall be proceeded with or commenced against the liquidating company (except with leave of Court). This in effect creates a moratorium on creditor actions against a company which has entered liquidation/appointed a provisional liquidator. 

What if a Foreign Statutory Moratorium is sought to be enforced on Hong Kong assets/liabilities?

There are limits to the Hong Kong Court’s ability to provide assistance to foreign office holders. For instance, in Joint Administrators of African Minerals Ltd v Madison Pacific Trust Ltd where a UK administrator sought assistance from the Hong Kong Court in recognising a UK moratorium, the Hong Kong Court refused to provide assistance because the Court’s power to assist foreign liquidation was limited to the type of order available to a liquidator in Hong Kong. At present, Hong Kong does not have any equivalent mechanism to administration, and in particular there is no statutory provision which provides for a moratorium on the enforcement of a secured debt. Providing assistance to the administrator to enforce a moratorium would be an impermissible extension of common law principles.

As to what might happen if a foreign liquidator seeks a court order imposing moratorium over a Hong Kong company as part of a group restructure, the issue was considered in Re CW Advanced Technologies Limited, which involved a Hong Kong company, being part of a Singapore-headquartered corporate group held by a Cayman holding company. The group applied to the Singapore court for a 6-month moratorium (“SG Moratorium”) while it underwent restructuring. The group and the company’s largest creditor, Bank of China, took out an application to appoint provisional liquidators over the Hong Kong company. Harris J held that provisional liquidators be appointed, but did not give them power to pursue debt restructuring (e.g. by using the SG Moratorium). 

For the Hong Kong Court to recognize and assist foreign office holders in liquidation, certain conditions must be met (for details, please see our article “Legal Update: Hong Kong Court Recognizes Application by Shanghai Liquidators”). It was unclear whether the SG Moratorium was a collective insolvency proceeding for common law recognition purposes. Even if it was, there was no Hong Kong authority on whether the court may recognize a foreign insolvency proceeding where the foreign jurisdiction was not the country of incorporation. And even if the SG Moratorium was eligible for recognition, there was no Hong Kong authority on whether the court may assist by appointing provisional liquidators. In the end, the Court left open the issue whether it should recognise foreign moratoriums in the future. 

Whether the Hong Kong Court will recognize foreign moratoriums largely depends on the facts of each case. Factors to be considered include the place of incorporation of that company in liquidation, the processes taking place in Hong Kong, and eligibility of foreign creditors for Hong Kong Court’s assistance. If the company in question does not have tangible existence in its place of incorporation (i.e. it is a mere brass-plate), and that no winding-up proceedings are taking place in Hong Kong where it has no material assets/creditors, it might just be that foreign liquidation is the most appropriate way to wind-up the company. In such circumstance, recognition will likely not be granted to a foreign moratorium. 

What Enforcement Actions may be taken in Hong Kong?

Given that Hong Kong does not have debtor protection insolvency regimes like the US Chapter 11 regime or UK administration, rights of secured creditors in Hong Kong are generally unaffected by liquidation or schemes because neither a liquidation (until winding up order has been made or provisional liquidator appointed) nor a scheme (until implemented) provides for a stay or moratorium on security enforcement. Commencement of insolvency procedures does not affect a secured creditor’s rights as they are entitled to be paid out of the proceeds of their security (unless transaction is subject to claw back by liquidator e.g. in unfair preference, undervalue transactions, extortionate credit transactions, dispositions in compulsory liquidation etc.) 

Generally, once a security is enforceable (e.g. upon default), the lender can enforce its security immediately. Depending on the nature of the security, enforcement could be by way of appointment of a receiver, foreclosure or taking possession. As for enforcement of judgments, the enforcement methods depend on the nature of the judgment. Where a judgment or order is for payment of money (not payment into court however), the judgment may be enforced by a Writ of fieri facias, garnishee proceedings, charging order or appointment of receiver (also in the case of judgment or order is for payment of money into court). Judgments for possession of land are enforced by a Writ of possession.  

a.    Receivership – whereby a receiver would be appointed to take physical possession of and sell a collateral.

b.    Foreclosure – empowering mortgagee to take possession of mortgaged property and become the absolute owner of the foreclosed property, extinguishing the equitable rights of redemption by the debtor i.e. the mortgagor. 

c.    Possession and distraint order – commonly used by landlord to regain possession of premises where the debtor fails to pay rent.

d.    Garnishee order – Court order which would direct a third party such as bank to pay any amount owed to the debtor to the creditor directly.

e.    Writ of Fieri Facias – Writ which allows goods to be seized and sold by public auction. and the proceeds of sale handed to the judgment creditor.

If you have any question regarding the topic discussed above, please contact our partner Anna Chan at anna.chan@oln-law.com for further assistance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Litigation funding and financial provision payments for children of unmarried parents

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This is the second in a series of articles where we examine recent trends in Family Law issues which have a broad impact on the community. The initial article discussed recent developments in divorce law and procedure in England and Wales regarding “no fault” divorce. This article relates to litigation funding and maintenance payments for children of unmarried parents.  

The Family Law Department of OLN headed by Partner and Head of Department Stephen Peaker has been closely involved for several years in a long-running series of court hearings regarding various cutting edge issues in an evolving area of law: (1) the rights of a child to certain financial provision irrespective of its parents’ marital status, (2) the breadth of discretion of the court to award such payments, and (3) the availability of litigation funding to finance a party’s legal costs in securing such payments.   

Background

The hearings all relate to the same case, a dispute between two unmarried parents. The parties to the dispute were in a four year relationship and had a daughter. They never married, but cohabited for a period of time. A year after their daughter was born, the relationship broke down and the mother moved out with their daughter. The father made regular payments to the mother for rent and her and their daughter’s expenses. The mother subsequently applied for custody and related financial provision and included in the application an order that either the father buy or transfer to her a property outright for their child to live in, or he pay a lump sum to purchase a property to accommodate her and their child which would be held in trust for her child until she reached 18 or completed full time education, and then revert to the father. 

Rights of children of unmarried couples

The application was brought under the Guardianship of Minors Ordinance Cap 13 (“GMO”) as opposed to the Matrimonial Property and Proceedings Ordinance Cap 192 (“MPPO”) as the MPPO currently is limited to children born to married parents.     

The mother argued that either the property should be purchased outright pursuant to s10(2)(a) GMO as there was an “immediate and non-recurring need”, failing which it should be purchased on trust with a reversionary interest pursuant to s10(2)(e) GMO (on the basis that the language “property to which such parent or either of such parents is so entitled” means money to purchase property, i.e. a property which could be purchased in the future). The father’s argument was that accommodation was not an immediate and non-recurring need but an ongoing, everyday need and consequently the mother’s application was based on an incorrect interpretation of the GMO. HHJ Bruno Chan (in IDC v SSA [2013] HKFLR @ 61) agreed with the father and consequently held that the court had no power to make an award, dismissing this limb of the mother’s claim for financial provision.

The mother appealed at the Court of Appeal (“CA”) (IDC v SSA CACV [2014] HKFLR @ 267) arguing that the lower court had erred in not accepting that s10(2) was broad enough to allow the court to grant an order, and that the relevant legislation discriminated between children of cohabitants in favour of a married couple because such an order would have been available under the MPPO. The CA, in reviewing the relevant legislation, determined that the language in the relevant provisions of the GMO was not intended to, and did not in fact, discriminate between the two classes of children. It also found that the lower court erred in its reading of s10(2)(e) GMO and that it could in fact have made such an order as the language was indeed broad enough to encapsulate money to purchase a property. It is now clear that the court has power under the GMO to order a financial provision including a lump sum to purchase a property upon trust, with a reversionary interest to the parent providing the funds.    

However, on the particular facts of the case the CA held that the original decision not to make the order was correct notwithstanding the judge did not consider making such an order at the time of the trial in 2013 as he proceeded on the basis that he had no jurisdiction to do so. This was an important point to note as the CA has not only confirmed the current statutory interpretation but it also affirmed that the lower court has discretion on the facts of the case to order a lump sum in the future.  

The mother then applied to the Court of Final Appeal (“CFA”) (IDC v SSA  [2015] HKFLR @158 ) for leave to appeal on grounds that there were issues of great general or public importance at stake. She argued that the CA erred in not using the principle of the fairness approach when considering the quantum of financial provision in cases involving a child of unmarried parents as opposed to married parents. Ma CJ dismissed the application. He found that there were no issues of great general or public importance at stake and that at best this was a complaint that the CA had incorrectly exercised its discretion. He added that the court had looked at the correct cases and referred to the principles set out in the cases. In this case, the answer was dependent on the underlying facts of the case at the date of the trial in 2013.

In a related and subsequent hearing to this case, HHJ Bruno Chan J (in IDC v SSA (Relocation of a Child) [2015] HKFLR @ 404) in granting the mother’s application to relocate to London, commented on  the issues raised in the  related financial provision litigation between the mother and father, saying the issues were “in my view [issues which] desperately require to be addressed by legislation and serious soul-searching by society”. Highlighting that a dependent cohabitant of a deceased person had the right under statute to make a claim for financial provision from the estate, he found it illogical that current law would offer a dependent legal remedies on the death of a cohabitant but no such remedy whilst the cohabitant was still alive. He added that “it is time that some workable scheme or system should be put in place through legislation to help individual cohabitants and their children for financial provision and adjustment of property right between cohabiting couples on separation…”. 

Litigation Funding

In April 2018, the father applied to vary downwards and/or discharge the earlier 2013 maintenance order. Around the same time the mother applied to vary the same 2013 order, seeking a variation which would provide inter alia a lump sum payment and property transfer order in the name of the child and/or the mother. These applications are currently progressing through the Family Court system. 

However, in a more recent reported judgment (In the matter of Z [2019] HKFC255) between the same parties on an interlocutory matter, the court was asked to determine whether the mother could apply for litigation funding to cover her legal costs in continuing litigation with the father. HHJ C.K. Chan first considered whether disputed legal costs should be dealt with under s10(2) GMO (final orders) or s13(3) GMO (interim orders). He confirmed that where costs are not agreed by the parties they cannot be dealt with under s10(2) which presumes a cost or expense is final and therefore agreed, so must therefore come under s13(3). 

He subsequently confirmed the principle that “…in considering whether such a litigation funding order should be made, the principles as set out in Currey v Currey [2006] EWCA Civ 1338 are applicable, despite the fact that these are not matrimonial proceedings”.        

In brief, the Currey principles are: (1) that the applicant spouse has no assets, or none that can be reasonably deployed; (2) that she can provide no security for borrowing, or none which can reasonably be offered; (3) that she cannot reasonably obtain legal services by offering a charge on the outcome of the litigation; (4) that she cannot secure publicly funded legal help “at a level of expertise apt to the proceedings”. 

On the facts of the dispute, the court decided that the mother did satisfy the Currey test, and would need further funding to have “some equality of arms before the court”. HHJ C.K. Chan then set out his rationale calculating the quantum of the award.  

This is an important confirmation of the current law and is consistent with the other recent judgments in this area involving litigation funding for financial provision cases involving an unmarried party.

OLN is proud to have been able to play a role in the development of an important area of the law regarding financial provision for a child of unmarried parents. In the 2015 case cited above, HHJ Bruno Chan’s concluding words were “…it is time that some workable scheme or system should be put in place through legislation to help individual cohabitants and their children for financial provision and adjustment of property right between cohabiting couples on separation….”. Commenting on his team’s work on these long-running cases, Stephen Peaker remarked “it is very satisfying to see such positive decisions from the courts on these types of issues and I hope that we will see progress in the legislation in due course. My team and I have been working hard to fight for many clients who currently face significant disadvantages as the law currently stands, and we would welcome further positive developments in this area of law”.  

June 2020

Stephen Peaker, Partner and Head of Family Law
Michael Openshaw, Consultant
Family Law Department
Oldham, Li & Nie

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.

As the UK moves closer to allowing no fault divorce where does Hong Kong stand?

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This is the first in a series of articles where we examine recent trends in Family Law issues which have a broad impact on the community. This article discusses developments in divorce procedure and the impact of upcoming changes in the UK for Hong Kong 

One of the most frequent questions we are asked is whether Hong Kong allows “no fault” divorces as is the case in many other countries with sizeable expat communities in Hong Kong such as UK, USA, Australia, China and Canada. Recent developments in England and Wales indicate that the era of no fault based divorces may soon come in to force.

The leading case in this area and which precipitated the upcoming legislative changes in England and Wales is Owens v Owens [2018] AC 899. Mrs Owens filed a petition for divorce in 2015 on the grounds that the marriage had broken down irretrievably. The petition was based on Mr Owen’s unreasonable behaviour, being such that Mrs Owens could not reasonably be expected to live with him (which is the statutory test under English law). At this stage, the couple had been married over 25 years and had adult children, but had not separated. Under English law, an unhappy spouse may only petition for divorce against a non-consenting spouse citing separation as the fact for the irretrievable breakdown of the marriage if the separation is for a period of two years with consent or, absent consent, five years or more. The petition included 27 separate allegations of unreasonable behaviour on the husband’s part. Notwithstanding this, he defended the petition, arguing his behaviour was not so unreasonable that Mrs Owens could not be reasonably expected to live with him. At the trial, the Judge found in favour of the husband. The wife appealed and in 2017 the Court of Appeal upheld the Judge’s decision, finding that the Judge had applied the law correctly, and on the facts reached a defendable conclusion. The wife appealed to the Supreme Court in 2018, which dismissed her appeal but invited the UK Parliament to consider changing the law, recognizing that under current law “it is not a ground for divorce that you find yourself in a wretchedly unhappy marriage…”.

Post Owens v Owens, the following key changes are now very likely to be implemented following the introduction of the Divorce, Dissolution and Separation Bill:

  • There will no longer be any requirement to evidence conduct; a spouse need only state that the marriage has broken down irretrievably 
  • Parties will be able to make a joint application for divorce where the decision is mutual
  • It will no longer be possible for a spouse to contest the basis of the divorce

It will take some time for the courts in Hong Kong to decide whether to review the changes locally, but it is likely that a review will happen. In 1996, the existing statue (the Matrimonial Causes Ordinance) was amended to allow (i) “no fault” divorces based on one (with consent) or two (without consent) years’ separation and (ii) mutually consenting parties to make a joint application, more closely aligning the law with modern society’s values than the position in England and Wales.   

Today, as in England and Wales, the Hong Kong divorce framework requires one of five “facts” to satisfy the court that a marriage has irretrievably broken down. Three facts relate to conduct: adultery, unreasonable behaviour, and desertion for a period of at least one year prior to filing of the petition. The remaining two facts are: one year’s separation (with consent), and two years’ separation (without consent).  

Consequently, if there is no agreement to divorce, a party can bring an unhappy marriage to an end without the consent of the other only after a two year separation. If a party cannot wait for two years, then he or she would typically cite the respondent’s unreasonable behaviour as the “fact” for the irretrievable breakdown of the marriage (as was the case with the unhappy Mrs Owens). This can cause further conflict as the spouse must “particularise” (i.e. list out) the other party’s unreasonable behaviour. Family lawyers in Hong Kong have adopted for the  majority of petitions relying on unreasonable behaviour a “mild particulars” involving standard generic particulars. Typically the petitioner will state that he or she cannot reasonably be expected to live with the respondent, alleging certain reasons setting out their differences in an objective way without focusing on specific details.

It is submitted that there would be a significant advantage in Hong Kong Family Law jurisprudence if (i) an unhappy spouse could simply commence divorce proceedings without proving conduct,  and (ii) the respondent was no longer able to contest the basis for the divorce save where it may cause financial hardship by loss of pension or loss of beneficial rights under a trust for the respondent or where no proper financial arrangements have been made for the children. The parties would then start the divorce process in a kinder, less adversarial and more objective fashion which would likely lead to more settlement minded outcomes. The alternative is to maintain the status quo, and in certain situations it is not possible to just rely on separation from a non-consenting spouse as a two year delay may not always be realistic where an unhappy spouse does not have the luxury of finding a separate home (eg in cases involving low income families, or where there is domestic abuse). 

June 2020
Stephen Peaker, Partner and Head of Family Law
Michael Openshaw, Consultant
Family Law Department
Oldham, Li & Nie

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.

香港–2020年6月商標條例及實施的最新情況

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作者：楊素滿

《2020年商標（修訂）條例》（”2020年修訂條例”）自2020年6月19日起施行。它規定了實施《馬德里議定書》下的國際商標註冊制度，加強商標註冊機制，執行權以及對現行《商標條例》的技術修正。

關於國際商標註冊制度，有一個完整新的第XA部分，詳細說明了根據《馬德里議定書》在香港進行的國際註冊。 但是，香港的國際註冊制度計畫最遲將在2022年至2023年實施。

關於對現行《商標條例》的技術修正，請參閱以下內容以供參考。

1. 申請前

修訂後的商標表格T1已列入初步意見的性質及範圍，說明在《商標條例》第11條(就商標可否註冊要求給予初步意見), 商標是否可能以絕對理由拒絕註冊, 或第12（1）至（3）條中（查詢紀錄），商標是否可能以相對理由拒絕註冊。

2. 申請時

(i)    申請人必須指明其”申請人類型”、”公司註冊的國家/地區/地方”和/或”註冊州份”（僅適用于在美國成立為法團的申請人）
(ii)    但是，註冊處處長不會核實申請人提供的關於申請人類型或註冊地點的資訊。
(iii)    註冊處處長在全額繳付申請費前，不會為商標申請提交申請分配申請日期。未能在註冊處通知日期後兩個月內繳付申請費，須視為從未提出申請。
(iv)    如果申請人希望修訂商標申請，將申請人自己的注冊商標加到該商標上，申請人必須規定應增加代表的注冊商標的商品和/或服務，以便註冊處處長可審查已註冊的商品和/或服務是否與所申請的商標的商品和/或服務相同或更廣。
(v)    此外，在經修訂的申請中亦須加上已登記商標的某些註冊詳情。
(vi)    如果將商標申請轉讓給新所有者，新申請人必須指定其”所有者類型”、”公司註冊的國家/地區/地方”和/或”註冊州份”（僅適用于在美國成立為法團的所有者）

3. 註冊後

(i)    對於商標註冊的轉讓，上述2（i）和2（vi）也適用。 
(ii)    關於更正商標登記冊中因商標註冊處處長錯誤或遺漏而出現錯誤或不作為的修正案，僅尋求編纂現有慣例，因此不得作實質性更改。

4. 商標註冊處工作手冊（”工作手冊”）

(i)    《工作手冊》中關於”絕對拒絕理由”的一章已更新，自2020年6月12日起, 根據《國歌條例》（A405），在《商標條例》中增加一個新的絕對理由，禁止將國歌用於申請商標。
(ii)    此外，《工作手冊》的許多章節也作出某些技術修正。

5.    修訂商標表格

根據2020年修訂條例，商標註冊處亦修訂了各種商標表格。修訂後的表格於2020年6月19日生效。在2020年6月19日至2020年12月19日的6個月過渡期內，目前的版本仍然可以接受。此後，必須使用修訂後的表格。

請查看以下連結瞭解詳細資訊:
https://www.ipd.gov.hk/tc/trade-marks/current-topics/trade-marks-amendment-ordinance-2020/index.html

任何疑問，請聯繫楊素滿律師 (evelyne.yeung@oln-law.com)。 免責聲明：本文僅供參考。高李嚴律師事務所對任何人因本文所所載的任何內容而行所造成的任何損失和/或損害不承擔任何責任。

Legal Update: Hong Kong Court Recognizes Application by Shanghai Liquidators

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By Xiaosu Zhu (Watson & Band) and Anna Chan (OLN) 

In a landmark decision by the Hong Kong Court of First Instance in Re Joint and Several Liquidators of CEFC Shanghai International Group Ltd (the “CEFC Case”), the Hong Kong Courts extended recognition and assistance to liquidators in Mainland China, which is a huge step towards Hong Kong-PRC coordination in cross-border liquidations. 

Previously, there has also been precedents whereby Hong Kong Court urged for multi-jurisdictional cooperation in cross-border liquidation cases. In Re Da Yu Financial Holdings Limited, the Court sanctioned a scheme of arrangement proposed by a Cayman-incorporated company listed in Hong Kong and commented that the full blown parallel schemes, instead of a simple recognition of foreign scheme, are an outmoded way of conducting cross-border restructuring. The CEFC Case now marks the first time that Hong Kong Courts has recognized and provided assistance to liquidators from the Mainland China, a non-common law jurisdiction. 

Background 

CEFC Shanghai International Group Limited (“CEFC”) is a PRC-incorporated company undergoing insolvent liquidation in the Mainland China. CEFC’s assets included a claim against its Hong Kong subsidiary, Shanghai Huaxin Group (Hong Kong) Limited, amounting to around HK$7.2 billion (the “Receivable”). Given the Subsidiary was in liquidation in Hong Kong, CEFC had submitted a proof of debt in respect of the Receivable. 

Subsequently, CEFC’s liquidators (known as “administrators” in PRC) discovered that, before the liquidation, a creditor of CEFC had obtained default judgment against CEFC in Hong Kong for a sum of around EUR 29 million, and a Garnishee Order nisi in respect of the Receivable. 

If CEFC was only asserting itself as the creditor of the Hong Kong subsidiary, it would only rank pari passu with the judgment creditor, therefore running the risk that it would be too late to enforce upon the Receivable if the judgment creditor obtained Garnishee Order absolute.   

To mitigate such risk, the PRC liquidators sought recognition of the PRC insolvency proceedings, and assistance for a stay of the Garnishee proceedings. The Hong Kong Court granted such recognition and assistance, and allowed the stay of the creditor’s Garnishee proceedings.  

Criteria for application to the Hong Kong Court 

Mr. Justice Harris summarized the now well-established principles and procedures governing applications to the Courts of Hong Kong for recognition and assistance. Provided that:- 

  1. the foreign insolvency proceedings are collective insolvency proceedings; and
  2. the foreign insolvency proceedings are opened in the company’s country of incorporation,

the Court may recognize insolvency proceedings in a civil law jurisdiction. Upon recognition, the Court will then grant assistance to the foreign liquidators by applying Hong Kong insolvency law. The above 2 criteria were ruled to be satisfied in the present case. 

However, in the judgment the Court said that it will not grant the foreign liquidators all powers as are available to a liquidator appointed pursuant to the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong)(“CWUMPO”). Powers of assistance granted to foreign liquidators are limited to:- 

  1. enabling the foreign liquidators to do something which they could do under the law by which  they are appointed;
  2. only when it is necessary for the performance for the foreign liquidators’ function; and
  3. where it is consistent with the substantive law and public policy of the assisting court.

Mr. Justice Harris opined that the case satisfied all of the above requirements, and observed that there were considerable similarities in the insolvency laws of Hong Kong and the PRC, such as the powers and duties of liquidators and pari passu distribution of debtor’s assets. 

His Lordship also held that, if a creditor commences Garnishee proceedings in Hong Kong after liquidation has commenced, the Garnishee proceedings should be terminated. Even if an order nisi has been obtained before the foreign insolvency proceedings, the Court has discretion to make the order absolute. In coming to the conclusion, the English case Galbraith v Grimshaw was held to be incompatible with modern insolvency laws (and indeed the case has been subject to much judicial and academic criticism) and therefore no longer applicable. 

Significance 

This case is the first ever in time that Mainland Chinese liquidators have applied for and been granted recognition from the Hong Kong Court. Although the Court cautioned that assistance granted to PRC liquidators should be on a case by case basis, this case certainly lends support to future PRC liquidators in seeking Hong Kong Court’s recognition and assistance (provided that they pass the thresholds). Immediately following this case, on 4th June 2020 in Re Shenzhen Everich Supply Chain Co Ltd, Mr. Justice Harris made another ruling recognizing the Shenzhen bankruptcy proceedings and the appointment of the liquidator by Shenzhen intermediate Court, empowering the liquidator to exercise its powers in Hong Kong. 

In light of the growing trend for PRC-incorporated companies to hold assets in Hong Kong, it is expected that where such companies enter liquidation, liquidators will seek Hong Kong Court’s recognition relying on this landmark judgment. If the mainland Chinese authorities are agreeable to promoting a unitary approach to trans-national insolvencies like Hong Kong, it is likely that this case will become highly persuasive in favour of Hong Kong Courts granting recognition and assistance to mainland liquidators.  

This result can also be contrasted with past cases where the Hong Kong Courts refused assistance to trustees of a foreign-incorporated company governed by foreign jurisdictions, such as in the case of China Fishery Group Ltd where it was held that the companies involved did not have a connection with the US. In that case, the companies involved were found to have been acting in bad faith by filing the Chapter 11 proceedings in the US and appointing the trustee thereunder, in an attempt to defeat the creditor’s enforcement action under the Hong Kong jurisdiction. As such, the Courts declined to allow the companies to reap from their egregious conduct. 

It appears to suggest that, provided that companies have acted in good faith in the proceedings, Hong Kong Courts are prepared to offer recognition and assistance to liquidators. This would be in the interest of expediting cross-border insolvency and restructuring in future. 

The position by the PRC Courts remains to be tested. According to the PRC Enterprise Bankruptcy Law, if a legally effective foreign ruling on a bankruptcy case involves the property of a debtor within the territory of Mainland China, and an application for the recognition and execution thereof is filed with the Mainland Court, the Mainland Court shall, according to international treaties or the principle of reciprocity, review the ruling, and decide whether to recognize or execute such ruling having regard to factors such as whether such recognition or execution would violate the fundamental principles of the law of Mainland China, impair state sovereignty, security and social public interests, or impair the legitimate rights and interests of the debtors within Mainland China. However, in practice, so far there is no precedent in which Mainland Courts recognize the effectiveness of foreign bankruptcy proceedings. 

Now that Hong Kong Courts have made this breakthrough, it is expected to lead to positive influence on Mainland Courts. Whether Mainland and Hong Kong will further recognize and cooperate in cross-border insolvency and restructuring in the future will largely depend on whether Mainland Courts, like the Hong Kong Courts, will adopt a unified approach. In fact, mutual recognition by the Mainland and Hong Kong Courts is believed to be a two-way street and the Supreme People’s Court in China has begun to explore and establish institutional arrangements for judicial assistance in insolvency cases with relevant parties in Hong Kong. This case definitely provides reference and practical experience in this area and will have a great impact on foreign application for recognition in the Mainland in the future. 

Other points to note in cross-border insolvency

  1. Application of pari passu principle

It is commonly the case that in cross-border insolvency, a company in one jurisdiction holds assets situated in a foreign jurisdiction. It has been held in Re Guangdong International Trust & Investment Corporation Hong Kong (Holdings) Ltd that it is possible to apply the principle of pari passu distribution to distribute the insolvent estate’s assets both in Hong Kong and abroad.In that instance, the liquidators of the company were tasked with distributing the company’s cash in a PRC bank account, and its Hong Kong assets, to the creditors. Given the mainland regulations on currency transfer, the cash in the PRC bank account could only be transferred to other PRC bank accounts. The Court allowed the proposed mechanism of distribution of the PRC account balance to creditors who had a PRC account, and distribution of Hong Kong assets to those who did not receive the PRC account balance, both on a pari passu basis. Despite this mechanism not involving a pooling of all assets of the company before pari passu distribution, it was held that the principle was concerned with achieving a substantive result but not the procedural mechanisms. This is a welcoming flexibility that would no doubt assist future liquidators in proposing methods of distribution of assets, where there might be procedural difficulty in adhering to the traditional understanding of pari passu principle.

  1. Bankruptcy proceedings vs. garnishee proceedings

Notably, if the parent company undergoing liquidation were a Hong Kong company instead of a Shanghai entity, it would still result in the way as in the CEFC Case (that the Garnishee proceedings could not continue against the company’s receivables). This is by virtue of section 186, CWUMPO, which provides that when a winding-up order has been made, or a provisional liquidator has been appointed, no proceeding shall be proceeded with or commenced against the liquidating company (except by leave of the Court). It is a well-settled principle that the Court has inherent jurisdiction to stay proceedings (e.g. Garnishee proceedings) or stay execution against a company in liquidation, with good policy reasons behind. It would be “unfair or more likely an abuse” if, in liquidation where pari passu distribution of a judgment debtor’s asset is in place or imminent, the judgment creditor gains an unfair advantage over other creditors by enforcing the judgment. In the CEFC Case, the stay of Garnishee proceedings was precisely because the Court wished to achieve the same result as it would in local winding-ups under section 186 CWUMPO, so that it may oversee creditor action to promote an orderly liquidation. 

Comparison of the insolvency regimes in Hong Kong and Shanghai/PRC 

Extrapolating on the Court’s ending remark on unitary approach by the two jurisdictions, this part sets out differences in winding-up proceedings in Hong Kong and Shanghai in order to explore the possibility of future similar treatment of Hong Kong liquidators by the PRC authorities.   

 Hong KongShanghai/ PRC
Primary legislationCWUMPO; andCompanies Ordinance (Cap. 622).Enterprise Bankruptcy Law; andthe relevant Judicial Interpretations on Enterprise Bankruptcy Law by the Supreme People’s Court
Corporate rescue/ restructuring regimeNo rescue regimes, but restructuring by scheme of arrangement is possible.There are special chapters under the Enterprise Bankruptcy Law about corporate rescue and restricting, namely Chapter 8 about reorganization and Chapter 9 about reconciliation.
Insolvency testCompany is unable to pay its debts and if:-
A creditor serves on the company at its registered office a Statutory Demand and the company neglects to pay the sum within 3 weeks of service;
Execution or other process issued on a judgment or court order in favor of the creditor is returned unsatisfied; or
After considering the contingent and prospective liabilities of the company, it is proved to the court that the company cannot pay its debts. The usual test relied upon is the cash flow test but the balance sheet test is also applicable, and is applied as the Court considers appropriate. 		An enterprise is unable to pay its debts due and if:
Its assets are not sufficient to pay all its debts (namely, the balance sheet test); or
Such enterprise obviously lacks solvency (to some extent like the cash flow test).
If the assets of a debtor exceed the liabilities on the balance sheet, the Court will hold that it obviously lacks solvency if:
it is unable to pay its debts due to such reasons as the serious insufficiency of funds or the failure to realize property; or
it is unable to pay its debts because the whereabouts of its legal representative is unknown and there is no other person responsible for managing its property; or
it is unable to pay its debts upon enforcement of the Court; orit is unable to pay its debts because it has made a loss for a long time and it is difficult for it to turn losses into profits; or
in any other circumstances which result in the loss of solvency of the debtor.
As for reorganization, the threshold could be even lower; as long as the enterprise has apparently forfeited the ability to pay its debts, it may undergo reorganization according to the provisions of the Law.
Applicants  Winding up proceedings:
Creditors, directors, shareholders
Scheme of arrangement:
Creditors, liquidators, shareholders		Bankruptcy Liquidation (winding ups):
Creditors,  debtor
Reorganization:  
Creditors, debtor, shareholders who hold more than one-tenth of the debtor’s registered capital 
Reconciliation:  
Debtor
Secured creditors’ positionSecured creditors can enforce its security.Secured creditors can enforce its security.
Transactions subject to challengeUnfair preferences:
If the company previously entered into any transaction influenced by the desire to prefer a particular creditor over creditors, the liquidator may apply to the Court to have the transaction set aside. Such transaction must have occurred:In the 6 months before liquidation has commenced; orIn the 2 years before liquidation has commenced if transaction is with an associate of the company, its director or shadow director.
Dispositions in compulsory liquidation:
All dispositions of property, transfer of shares, or alteration of shareholders’ status after commencement of winding up will be void.
Extortionate credit transactions:
A liquidator may apply to the Court for various orders regarding a transaction, which requires grossly exorbitant payments or is otherwise grossly against fair dealing principles, entered into within 3 years before commencement of the winding up. 
Transaction at undervalue:
Transactions at undervalue entered into within 5 years before liquidation has commenced may be voidable. This refers to transactions by the company where the company receives consideration significantly less than that provided by the company, or receives no consideration.
Floating charges:
A floating charge may be invalid if it was created:Within 2 years before the liquidation has commenced, if created in favor of an associate of the company, its director or shadow director; orWithin 1 year before the liquidation has commenced, if created in favor of other persons.		Within 6 months before the Court accepts the application for bankruptcy, if the debtor meets the bankruptcy test but still pays debts to specific creditors, the liquidator is entitled to request the Court to rescind the payoff unless the debtor’s property benefits from such payoff.After the Court accepts the application for bankruptcy, it shall be invalid for the debtor to pay off debts to a particular creditor.The following activities concerning the property of the debtor shall be invalid and the liquidator is entitled to recover the property:Hiding or transferring property for avoidance of debts;Fabricating debts or recognizing unreal debts.Within 1 year before the Court accepts the application for bankruptcy, the liquidator is entitled to request the Court to rescind the following activities concerning the debtor’s property:Transferring property free of charge; orTransferring property at obviously unreasonable low prices; orProviding property security for the debts that originally have no property security; orPaying in advance the debt undue; orWaiving creditsThe liquidator is entitled to recover the unusual income that the directors, supervisors and senior executives of the debtor have obtained by taking advantages of their authority of office and recover the enterprise property that they appropriate in the same manner.

 If you have any question regarding the topic discussed above, please contact our partners for further assistance. 

Anna Chan
Partner of Oldham, Li & Nie

anna.chan@oln-law.com

Xiaosu Zhu
Partner of Watson & Band

xiaosu.zhu@watsonband.com 

Oldham, Li & Nie Solicitors and Watson & Band have entered into formal association in 2020. The new Association will strengthen OLN’s China Legal Service Network and Watson & Band’s international practice, allowing the Association strategic and direct access to lawyers in different jurisdictions. With a deeper understanding of clients’ needs and behaviour, it will complement the ambitious growth of OLN and Watson & Band to provide high-quality legal services on a global scale. 

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong or PRC legal advice or any legal advice for that matter to any person. Neither Oldham, Li & Nie nor Watson & Band shall be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article. Shall you be interested to download this article as a brochure, please click on the following link:  Legal Update: Hong Kong Court Recognizes Application by Shanghai Liquidators

新冠肺炎下借款人面對的貸款協議中的問題

by

作者: 葉琳寳律師

新冠肺炎為各行各業帶來了嚴重的財政困難，而這些行業當中可能有些已簽訂了貸款協議，或正有意參與貸款計劃。本文將探討由貸款協議中的關鍵條款引申的各種問題、新冠肺炎下它們的影響、以及可能的解決方案。

哪些關鍵條款會影響借款人？

  1. 重大不利影響／變化

在金融交易中，協議通常會包含“重大不利影響／變化”條款作為借款人的申述，即借款人從信貸中提取資金的先決條件是借款人或其業務、運營、財產、狀況（財務或其他方面）、前景和/或履行協議能力沒有重大不利變化。重大不利影響／變化的其中一個例子是借款人的財務報表連續存在較大的負數。

根據貸款協議中重大不利影響／變化條款的影響取決於條款的具體措詞，例如，它是否僅針對借款人的還款責任（範圍較窄），或是適用於借款人的整個業務（相對範圍較廣）。如果是後者，因疫情遭受客戶及收入損失的企業則可能被該條款涵蓋。

即使貸款人不常用重大不利影響／變化條款去確立借款人違約，但該等條款的起草通常被多番洽談。一旦發生重大不利影響／變化，它便為貸款人重新商談條款製造了有力的談判條件。但是，如果企業現有已有循環貸款，條款可能會造成嚴重的後果。借款人在提款前必須符合先決條件，否則可能會面臨現金流動問題。這種企業將不得不求助於其他貸款人並準備接受更苛刻的條件，或尋求其他保持現金流動性的方法。

2. 財務契諾

貸款協議的制定是為了確保貸款人儘早意識到借款人面對的財政壓力。因此，財務契諾對借款人施加了責任，例如不得停止營業、在業務變更或資產處置之前需徵求貸款人的同意以及持續保持特定的財務指標（例如現金流量覆蓋率、利息覆蓋率及槓桿比率）。

面對新冠肺炎及其對業務的不利影響，借款人可能會面對契諾造成的挑戰。例如，如果收入下降導致無法保持契諾所要求的財務指標的一定水平，他們便可能違反此類契諾。這可能會引發違約事件（在下面的第3段中討論），導致貸款人提出債務到期以行使抵押品。

但因此而發生違約，企業仍然有出路。在這種情況下，違約借款人應查明是否可以行使任何糾正權作為補救。股權糾正條款通常允許借款人的股東向借款人注入額外的股本。這樣，借款人的財務狀況便會達到契諾所要求的標準。但即使貸款協議沒有指明解決方法，借款人仍未必山窮水盡，或可走出絕境（如下述）。

3. 違約事件

常見的違約事件是不付款，破產和進入破產程序。償還到期款項有困難的企業將有違約的風險。至於破產，應當注意的是，破產的定義或測試因司法管轄區而異。在香港，考慮到公司的或有債務和預期負債（基於現金流量或資產負債表），如果該公司無法償還10,000港元或以上的債務，公司可能會被法院清盤。

相比之下，新加坡的破產測試是一家公司無法履行其應付款的債務，或其總負債超過其資產價值。

當貸款協議中有一項條文規定如果借款人違反與另一債權人的另一筆貸款協議則視為違約事件，就會出現一個相關的問題：“交叉違約”。這代表，如果所有這些協議都有交叉違約條款，在骨牌效應下，借款人的一項違約可能導致多於一項的貸款協議違約。

我們建議借款人遵守協議中的任何通知要求，並在可能會違約/實際上已違約的情況下及時通知貸款人。我們不清楚貸款人是否願意作出任何寬限，但實際上，總有談判空間讓借款人要求貸款人放棄執行違約權利，特別是如果這只是借款人第一次違約。通常，貸款人會收取豁免費作為放棄執行違約權利的代價。

借款人應注意哪些責任？

1. 通報責任

借款人應檢查其貸款協議中是否有向貸款人提供信息的承諾，例如提供借款人的財務報表和審計報告。新冠肺炎下許多工作場所實施了另類工作安排，因此公司應在任何截止日期之前與會計/審計公司安排好，以確保準時準備好並可以交付相關報告供貸款人檢閱。

此外，如可能發生或已經發生違約事件，借款人可能有責任通知貸款人。其他需要通知貸款人的事項包括借款人可能違反任何重大合約（因此影響其業務和財政狀況）、主要管理層成員由於新冠肺炎而無法履行工作職責、以及調整業務以應對新冠肺炎下的市場狀況。如果借款人不遵守這些責任，便可能會導致違反承諾或觸發違約事件。

2. 維持財務指標

如上所述，貸款協議中的先決條件會要求借款人保持財政狀況在一定水平之上。在貸款協議是度身定做的情況下，查看測試借款人財務指標的計算週期的規定可能會有所幫助。舉例來說，較長的計算週期有助於減輕短期壓力，並且在計算中可能會應用到借款人於新冠肺炎前的收入以幫助其保持在所需的財務指標水平上。

結論

毫無疑問，新冠肺炎減緩了債務資本市場的交易量。對於現有的貸款協議，除了借款人採取行動與債權人談判以重組貸款（但要確保這不會觸發現有貸款協議下的技術性違約）之外，如果貸款人，特別是機構銀行業務貸款人，主動對中小型企業提供救濟方案，這樣更有幫助。

事實上，香港金融管理局（“金管局”）在2020年2月6日發給認可機構（包括銀行）的信件中指出，一些機構已計劃向借款人提供臨時救濟措施，並鼓勵其他機構也這樣做。金管局進一步表示， “銀行業的積極反應將有助緩解新冠肺炎造成的財政後果”。

有多少貸款人將採取類似的救濟措施還有待觀察，但是貸款交易雙方一致、集體的努力無疑會緩解在這前所未有的時期本地企業面臨的財政壓力。

如果您對上面探討的議題有任何疑問，請透過tracy.yip@oln-law.com聯絡我們的合夥人葉琳寳律師以獲得進一步的幫助。

免責聲明：本文僅供參考。本文中的任何內容均不得解釋為對任何人的香港法律意見或任何與此有關的法律意見。高李嚴律師事務所對因本條所載材料所造成的任何行為所造成的任何損失和/或損害不承擔任何責任。