In The Joint Provisional Liquidators of Seahawk China Dynamic Fund [2022] HKCFI 1994, Harris J granted recognition of and assistance to the provisional liquidators of Seahawk China Dynamic Fund, a solvent entity, and at the same time took the opportunity to inform the banks and other organisations that provisional liquidators are able to exercise the more conventional powers of a company’s agent in Hong Kong which are expressly provided for in the order of their appointment.

This case involves a Cayman-incorporated company (“Company“) which is solvent and in provisional liquidation in the Cayman Islands. The joint provisional liquidators (“JPLs”) were appointed by the Cayman Court.

The JPLs have been trying to take possession of the Company’s assets in Hong Kong, which, expectedly, required the JPLs to obtain a local recognition order.

There were 2 issues before the Court:-

1. whether the court should provide recognition of and assistance to the liquidators of a solvent company; and
2. in light of Harris J’s decision in Global Brands Group Holding Limited (in liquidation) [2022] HKCFI 1789 (which provided that the Hong Kong courts should only recognise a collective insolvency process taking place in a company’s centre of main interests (“COMI”), subject to exceptions – see our earlier article), whether the JPLs’ application should still be granted given that the Company’s COMI is not in the Cayman Islands.

In response to the first issue, the Court held that common law principles of recognition and assistance had no application to liquidators of a solvent company. Instead, the principles of conflict of laws which are independent of those of cross-border insolvency should be engaged, and as a matter of private international law, if a foreign court of a company’s place of incorporation has made an order appointing a liquidator (as in this case), the liquidator will be able to act as the agent of the company with the powers which the liquidator has as a consequence of his appointment.

In response to the second issue, the Court held that while the COMI considerations discussed in the Global Brands case still stand, they would not be relevant if the liquidator of a solvent company was merely seeking an order confirming that he had particular powers by virtue of his appointment in the company’s place of incorporation, as in this case. Harris J also explained that if the foreign liquidation was a solvent liquidation, it would not fall within the principle of modified universalism in the first place, and would be more akin to a ‘private arrangement’ as opposed to a collective insolvency proceeding.

In a message to the banks and “sophisticated organisations”, Harris J reminded them of what he said in his earlier cases, A Co v B [2014] 4 HKLRD 374 and Capital Asia LP v DBS Bank (Hong Kong) Ltd [2016] HKEC 2377, that it should not be necessary for foreign liquidators, whether it be of a solvent or insolvent company, to obtain a local court order in order to access the company books and records.  (For solvent companies, the liquidators’ ability to do so could stem from the powers given to them in the company’s place of incorporation where the order of appointment was made.)  If banks insist that the foreign liquidators obtain a local court order to exercise in Hong Kong no more than the conventional powers of a company’s agent, then they face the risk of an adverse costs order, if made a party to the application.

It is not entirely clear though from Harris J’s judgment in the latest Seahawk case whether it is still necessary for foreign liquidators to obtain a local court order to deal with the company’s assets in Hong Kong.  It would appear that it remains necessary to do so, at least for an insolvent liquidation.

On 28 June 2022, the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission (SFC) issued a joint announcement regarding the inclusion by Mainland and Hong Kong exchanges of eligible exchange-traded funds (ETFs) in mutual stock market access between the Mainland and Hong Kong (ETF Connect).

From 4 July 2022 onwards, in addition to stocks, Mainland and Hong Kong investors may trade eligible ETFs listed on each other’s exchanges through local securities firms or brokers via the existing Stock Connect infrastructure.  Under the ETF Connect, there are currently 83 Mainland-listed ETFs which can be traded by international investors via the northbound Stock Connect routes, while four Hong Kong-listed ETFs have been added by the Shanghai and Shenzhen stock exchanges to the southbound Stock Connect which can be traded by mainland investors.

The ETF Connect is said to be an important milestone because the Stock Connect is expanded beyond stock trading for the first time.  It is hoped that the scheme will strengthen Hong Kong’s position as a top ETF hub and underscore Hong Kong’s unique role in connecting global capital with the Mainland.

For further information, please visit the SFC’s website at this link.

In  Global Brands Group Holding Limited (in liquidation) [2022] HKCFI 1789, Harris J granted recognition of and assistance to the provisional liquidators, and at the same time took the opportunity to notify future applicants of the latest requirements for similar recognition and assistance given to them by the Hong Kong Courts.

The Global Brands case is another  liquidation case where a provisional liquidator was appointed by the Bermudian Court, the same place where Global Brands was incorporated and wound up.

The provisional liquidator had been trying to take possession of the Company’s assets in Hong Kong from custodians, which, expectedly, required the provisional liquidator to obtain a local recognition order before they will release the funds to him.

The Court noted the criteria for granting recognition and assistance to foreign liquidators has been: (a) that the foreign insolvency proceedings are collective insolvency proceedings; and (b) that the foreign insolvency proceedings are open in the company’s country of incorporation. Having revisited the jurisprudence of modified universalism, the Court introduced a new criteria to be adopted in the future in determining whether or not foreign insolvency proceedings should be recognised and assistance granted:–

1. that the foreign proceedings should constitute a collective insolvency process; and
2. that the proceedings should be conducted in a jurisdiction in which the Company’s centre of main interests (COMI) is located. Examples of the factors to help determine a company’s COMI are the location of the directors and board meetings, the company’s principal officers, operations, assets, bank accounts, books and records, and the location in which the restructuring activities took place.

The Court also noted that if the liquidators are not appointed in the COMI of the company but its country of incorporation, then recognition and assistance should be declined unless the assistance sought  is limited in nature (i.e. “managerial assistance”), or the recognition and assistance sought  is a matter of practicality. The Court held that the Global Brands case fell under the first exception, given that the provisional liquidator was appointed in the Company’s place of incorporation, and that the provisional liquidator only requires an order which demonstrates that it is the lawful agent of the Company who is entitled to direct the funds to be transferred to another bank account – i.e. only managerial assistance is sought.

Although the Global Brands case confirms that common law recognition of and assistance to foreign liquidators is still possible, such recognition and assistance are now limited in scope.  In particular, it would be a challenge for “soft-touch” provisional liquidators to be recognised by the Hong Kong Court.

An investment manager of private funds was recently reprimanded and fined HKD3.2 million by the Securities and Futures Commission (SFC) for its failures to perform sufficient due diligence and monitoring on the funds’ underlying investments, to undertake effective risk management measures, and to keep proper audit trail of due diligence and monitoring (including the relevant records of meetings).

In this case, the investment manager is a licensed corporation and was appointed by a segregated portfolio company under the Cayman Islands Companies Act (the SPC) to manage two segregated portfolios (the Funds). In the disciplinary action, the SFC took into account the duties of the investment manager as stated in the private placement memorandum of the Funds and the investment management agreement between the SPC and the investment manager, which include monitoring the performance of the Funds’ investments and performing analysis of the progress of all investments and assets of the Funds. The SFC concluded that the investment manager was in breach of the Fund Manager Code of Conduct and the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission in relation to risk management policies and procedures.

The case reflects the SFC’s willingness and determination to take actions against asset managers for failure to comply with regulatory requirements in order to address the SFC’s regulatory concerns relating to private funds. Further, it is advisable for investment managers to regularly review and assess the effectiveness of their due diligence internal policies and procedures with a view to improving adequacy and strengthening the monitoring processes.

For further information about this case, please visit the SFC’s website here.

Background

On the 18th of January 2022, C v The Chinese University of Hong Kong [2022] HKDC 77 called on the District Court to consider the University’s decision to terminate the studies of a student suffering from depression and generalised anxiety disorder within the meaning of section 2 of the Disability Discrimination Ordinance, Cap 487 (“DDO“).

The student (‘C’), upon failing to meet graduation requirements, submitted a late application for an extension of the maximum study period (“MSP“) to complete the assignments she had previously failed to do. In support of her application, C  included medical  reports signed by her psychiatrist as supporting evidence that she had not been able to complete the assignments due to difficulties with her diagnosed mental health condition. However, the University rejected C’s application for an extension and discontinued her studies. C then commenced  proceedings at the District Court.  C claimed that the University’s decision to reject her application and terminate her enrolment had relied on her psychiatric condition to her disadvantage and was directly discriminatory.  Alternatively, C claimed that the inflexible application of the MSP was indirectly discriminatory against those with disabilities who required extended periods of leave.  C also complained of instances of harassment and victimisation as part of a broader pattern of discrimination arising from the absence of any policy framework to address the needs of students with disabilities at the University.

Ruling

The Court mainly focused on whether or not the University’s decision to reject the application was solely based on C’s mental illnesses. Not only did C plead that the University used her mental illness as a reason to reject her but also that the University used condescending, stereotyping and patronising language that supported this perception.

The Court was unable to find direct discrimination in the University’s decision, and found that the reference to C’s medical history was included in the Termination Letter to highlight that the pressure for C to complete the outstanding assignments in such a short period of time would not be in her best interests. As C expected the University to consider her medical condition, the University certainly “could and should have regard to the same”. It does not follow that any decision that the University subsequently made must be on the ground of her disability and hence directly discriminatory (§142).

The Court also rejected C’s claim of indirect discrimination. His Honour Judge Kent Yee held that on the balance of probabilities, there was no basis to find that a considerably smaller portion of students with a disability, including C’s disability can comply with the 4-year MSP applicable to her. The Court was satisfied that the 4-year MSP has a perfectly legitimate objective and the means to achieve the objective are reasonable. Further, the extensions expressly provided in the University’s regulations safeguard the rights of those students who, for whatever reasons, fail to complete the Master of Arts Programme within the 4-year MSP. The 4-year MSP is adequately justified and there is no proportionality issue (§173).

Notably, the Court held that so long as a claimant can prove the material facts for both direct discrimination required under section 6(a) of DDO and the material facts for indirect discrimination required under section 6(b) of DDO, he should succeed in both claims, and there is nothing conceptually wrong or objectionable for a claimant to make both claims in an action (§83).

The Court also dismissed C’s victimisation claim as being unfounded having found that her direct and indirect discrimination claims were unsustainable.

Takeaways

Although the present case centers on a claim brought by a student against an university, the judgment highlighted some important points for employers.  When dealing with an employee with a disability , employers would naturally take into account the employee’s disability in their decision making process, which the employee would expect them to do. Nevertheless, employers should carefully note that there is a fine line between taking the disability into account when making a decision and making a decision because of the disability (which could be discriminatory), unless it falls under the exception under section 12(2)(c)(i) and (ii) of DDO. The exception is if the employer finds that the employee, because of the disability, would be unable to carry out the inherent requirements of the particular employment, or if the accommodation required would create unjustifiable hardship for the employer. In the Disability Discrimination Ordinance Code of Practice on Employment published by the Equal Opportunities Commission, “inherent requirements” refer to the core requirements that are essential or intrinsic to a specific occupation (§5.8), and “reasonable accommodation” means the services or facilities that are needed for an employee with a disability to perform the inherent requirements (§5.18).   Therefore, employers should ensure that the reasons for taking any action or step that may be unfavourable to the employee are legitimate.  Employers should also properly document the reasons for such decision .

For details, the full judgment can be found here.