Li Yiqing v Lamtex Holdings – A Shift of Emphasis in Relation to the Hong Kong Court’s Recognition of Foreign Insolvency Proceedings
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The recent Court of First Instance decision in Li Yiqing v Lamtex Holdings Limited  HKCFI 622 (11 March 2021) is a landmark decision in cross-border insolvency law in Hong Kong, in which the Court held that when it is considering the recognition of foreign insolvency proceedings, regard should not simply be had to the place of incorporation of the relevant company, but that in a departure from previous practice, the location of the company’s centre of main interest (COMI) is also a factor. This decision is likely to have a significant impact on future recognition applications.
Lamtex Holdings Limited (Company) is incorporated in Bermuda and listed on the Main Board of the Stock Exchange of Hong Kong Limited. Before the Company encountered problems that caused it financial difficulties which rendered it insolvent, the Company carried on a series of businesses in the Mainland and Hong Kong, namely loan financing and securities brokerage, trading and manufacturing electronic businesses (in the Mainland) and hotel operations (in the Mainland).
In August 2020, the Petitioner issued a winding-up petition (Petition) against the Company. Subsequently, the Company presented a petition in Bermuda, seeking a winding-up order and an order appointing provisional liquidators for restructuring purposes. The Company also issued an application for appointment of soft-touch provisional liquidators (JPLs). The Bermudan Court granted the application and issued a letter of request seeking the recognition and assistance of the JPLs by the High Court of Hong Kong. The Hong Kong Court granted the application by the JPLs for their recognition and assistance in progressing a restructuring of the Company’s debt. The issue before the Hong Kong Court was whether to put the Company into immediate liquidation in Hong Kong or to adjourn the Petition to allow the Company and the JPLs the opportunity to restructure the debt.
Traditional approach – Recognition of foreign insolvency proceedings limited to a company’s place of incorporation
Recognition and assistance of foreign insolvency proceedings is a matter of common law in Hong Kong. Hong Kong Courts have previously followed the English law approach, which is that recognition and assistance should be limited to liquidators appointed in a company’s place of incorporation. This approach recognizes that generally matters concerning the constitution and management of the affairs of a foreign company are determined by the laws of the place of its incorporation and the domiciliary law of a company is the appropriate law and system under which to liquidate a company. The place of incorporation should generally be the system of distribution of assets of the company and a winding-up of the company’s assets in Hong Kong is ancillary to it.
Change of approach – Recognition of foreign insolvency proceedings in a company’s COMI
However, not all jurisdictions adopt the approach to recognition of foreign insolvency proceedings described above: for example, the Court noted that in the Singapore High Court decision of Re Opti-Medix Limited  SGHC 108, it was held that:
Problem identified – inconsistency between the Hong Kong position and the commercial practice in Hong Kong and the Mainland
The Court observed from the increasing number of applications in Hong Kong for recognition and assistance of foreign insolvency proceedings that it is common for business people in Hong Kong to use offshore companies despite the owners of such companies and the businesses they operate having no connection with the offshore jurisdiction. It has become a common feature of the corporate structure of Hong Kong and Mainland business groups that their holding companies are incorporated in an offshore jurisdiction with whom they have no connection other than registration – such jurisdictions are often described as “letterbox” jurisdictions. The COMI of such companies is likely to be in Hong Kong or the Mainland. The Court was thus of the view that the old, restricted view of recognition did not serve Hong Kong well. It was unrealistic to expect the Court not to have regard to the fact that the Company and others like it carry on business in the PRC which is also the location of a high proportion of their shareholders, creditors and assets.
How a dispute over which jurisdiction is to be the primary one to conduct an insolvency process is to be resolved
In view of the above, the Court considered that it was desirable and essential that Hong Kong Courts are able to deal with recognition and assistance using methods that are consistent with commercial practice in Hong Kong and the Mainland. The Court further noted that there was nothing in principle preventing recognition of liquidators appointed in a company’s COMI or a jurisdiction with which it has sufficiently strong connection to justify recognition. The Court considered that it was appropriate to extend the common law of Hong Kong to permit recognition of insolvencies in places other than a company’s place of incorporation, and in particular to the jurisdiction in which the company’s COMI or something similar is to be found.
In determining which jurisdiction was to be the primary one to conduct an insolvency process, the Court suggested that the correct approach was as follows:
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