{"id":2547,"date":"2015-12-02T16:23:49","date_gmt":"2015-12-02T08:23:49","guid":{"rendered":"https:\/\/www.gallhk.com\/cn\/?p=2547"},"modified":"2022-01-21T14:24:43","modified_gmt":"2022-01-21T06:24:43","slug":"dispute-resolution-newsletter-december-2015","status":"publish","type":"post","link":"https:\/\/www.gallhk.com\/cn\/dispute-resolution-newsletter-december-2015\/","title":{"rendered":"Dispute Resolution Newsletter \u2013 December 2015"},"content":{"rendered":"

\"\"<\/a>Gall Newsletter – Dispute Resolution – December 2015 Download<\/a><\/p>\n

 <\/p>\n

\n

Court of Final Appeal – Winding Up Foreign Companies in Hong Kong<\/strong><\/h3>\n

 <\/p>\n

Introduction<\/h3>\n

On 11 November 2015, the Court of Final Appeal (the \u201cCFA<\/strong>\u201d) handed down its decision ending the 8-year family feud between members of the second-generation owners of the much-loved Yung Kee restaurant.<\/p>\n

The CFA ruled that Yung Kee Holdings Limited (the \u201cCompany<\/strong>\u201d), be wound up, but gave the parties 28 days within which to discuss a share buy-out. The decision has attracted the close attention of both Hong Kong\u2019s legal community and fans of the iconic family restaurant as it represents a landmark determination on principles concerning the Hong Kong Courts\u2019 jurisdiction to wind up foreign companies.<\/p>\n

A copy of the full judgment can be found here<\/a>.<\/p>\n

Background<\/h3>\n

Yung Kee is a local family restaurant business set up in the 1940s by the Petitioner\u2019s father, Kam Shui Fai (\u201cKam Senior<\/strong>\u201d). The Company was incorporated in 1994 in the British Virgin Islands.<\/p>\n

Inheriting the family business from Kam Senior, Kam Kwan Sing (the \u201cPetitioner<\/strong>\u201d) and his brother Kam Kwan Lai (the \u201c1st Respondent<\/strong>\u201d) carried the signboard of Yung Kee for a short while before ending up in a heated dispute over management of the business.<\/p>\n

As the minority shareholder, the Petitioner sought:<\/p>\n

1. a buy-out order against the 1st Respondent on the ground that the 1st Respondent had run the company in a manner unfairly prejudicial to the Petitioner; and<\/p>\n

2. an order that the Company be wound up on just and equitable grounds.<\/p>\n

In relation to the buy-out order, neither the CFA nor the lower Courts found that the Company had an established place of business in Hong Kong, being a necessary requirement for a minority buy-out order under section 168A of the predecessor Companies Ordinance (Cap. 32). As the Company owned the Yung Kee restaurant indirectly through its subsidiaries and did not directly own any other businesses in Hong Kong, the decision on this point was unsurprising.<\/p>\n

However, in relation to an order that the Company be wound up, the CFA overturned the decisions of both the Court of First Instance (\u201cCFI<\/strong>\u201d) and the Court of Appeal (\u201cCA<\/strong>\u201d). In doing so, the CFA confirmed the following principles.<\/p>\n

Core Requirements<\/h3>\n

Before exercising its statutory jurisdiction to wind up a foreign company, the following core requirements must be met:<\/p>\n

    \n
  1. there must be a sufficient connection with Hong Kong;<\/li>\n
  2. there must be a reasonable possibility that a winding up order would benefit the applicants; and<\/li>\n
  3. the Court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.<\/li>\n<\/ol>\n

    The decision reaffirmed the earlier decision in Re Beauty China Holdings Ltd<\/em> [2009] 6 HKC 351. However, it was the way in which these core requirements were applied by the CFA that makes the Yung Kee decision interesting. In particular, the CFA\u2019s focus on the first core requirement, i.e. whether the Company had a sufficient connection with Hong Kong.<\/p>\n

    Sufficient Connection With Hong Kong<\/h3>\n

    Creditors vs Shareholders\u2019 Petition<\/span><\/p>\n

    It has long been thought that a shareholders\u2019 petition should be subject to a more stringent \u201cconnection to Hong Kong\u201d test as compared to a creditors\u2019 petition. In overturning both the CA and the CFI in this regard, the CFA did not agree that a more stringent connection was required in the case of a shareholder\u2019s petition, noting that:<\/p>\n

    \u201cShareholders, no less than creditors, are entitled to bring winding up proceedings in Hong Kong in respect of a foreign company\u2026\u201d<\/em><\/p>\n

    In making its decision, the CFA confirmed that the factors<\/em> relevant to establish a \u201cconnection\u201d were however different between a shareholders\u2019 petition and a creditors\u2019 petition. This was due to the difference in the nature of the dispute and the purpose of the winding up. The differences can be summed up in the following table:<\/p>\n\n\n\n\n\n\n
    <\/td>\nCompany Status<\/td>\nParties<\/td>\nNature<\/td>\nPurpose<\/td>\nEssential Factor<\/td>\n<\/tr>\n<\/thead>\n
    Creditors\u2019 Winding-Up Petition<\/td>\nInsolvent (generally presumed)<\/td>\nPetitioner vs. Company<\/td>\nA third party creditor seeking relief against the company<\/td>\nTo obtain payment of debts<\/td>\nSignificant assets<\/span> within Hong Kong which may be made available to the liquidator for the distribution among the creditors<\/td>\n<\/tr>\n
    Shareholders\u2019 Winding-Up Petition<\/td>\nSolvent<\/td>\nPetitioner vs.
    \nOther Shareholders
    \n(although company is a party, it is merely the subject of the dispute)<\/td>\n    		Dispute between the shareholders based on equitable principles<\/td>\nTo realise petitioner\u2019s investment in the company<\/td>\nShareholders<\/span> are within the jurisdiction (i.e. in Hong Kong)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    In the context of a shareholders\u2019 winding-up petition, it is worth emphasising that the CFA considered it a highly relevant factor, if not the most important factor, that the shareholders and directors were all within the jurisdiction.<\/p>\n

    Together with other relevant factors (e.g. the underlying dispute involved a family dispute between parties who were all in Hong Kong, lack of any connection with the jurisdiction in which the Company was incorporated, and the fact that the whole of the Company\u2019s income was derived from business carried on in Hong Kong), the CFA was satisfied that the Company\u2019s connection with Hong Kong was \u201ccompelling\u201d.Separate and Distinct Legal Entities<\/span><\/p>\n

    It is worth noting that in the lower Courts, the 1st<\/sup> Respondent argued successfully that the interposition of subsidiaries between the Company and the ultimate company operating the Hong Kong businesses effectively \u2018blocked\u2019 any connection between the Company and Hong Kong. This argument was premised upon the fundamental concept that each company was separate and distinct from its subsidiaries and shareholders.<\/p>\n

    Although the CFA acknowledged this point, the Court held that it did not prevent a finding of \u201cconnection\u201d because the Petitioner was not seeking to \u201clift the corporate veil\u201d. Rather, the Petitioner was seeking to realise his investment in the Company. If the Company was a holding company, the Petitioner\u2019s purpose would be to realise the underlying assets. Accordingly, there would be no reason why assets of a subsidiary should be excluded from consideration when determining whether the Company had a sufficient connection with Hong Kong. The nature of the dispute and purpose of the proceedings was again, of primary importance.<\/p>\n

    Decision<\/h3>\n

    Based on this determination, the CFA found that the Company had a sufficient connection with Hong Kong, and met the other \u201ccore requirements\u201d for the Company to be wound-up.<\/p>\n

    With a view to giving the parties an opportunity to agree on a possible buy-out, the CFA ordered that the winding-up be stayed for a period of 28 days from the date of the decision. If no buy-out agreement could be concluded, the winding-up order would take effect automatically after expiry of the 28-day period.<\/p>\n

    Conclusion<\/h3>\n

    The Yung Kee corporate structure, which involved multiple layers of holding companies outside Hong Kong, is not uncommon. In the context of family shareholders\u2019 disputes, the CFA decision is likely to be influential as it provides aggrieved Hong Kong shareholders with access to the Hong Kong Courts for a winding-up remedy in order to realise their investment, in circumstances where the company is incorporated outside Hong Kong and is otherwise solvent.<\/p>\n

    \u8054\u7cfb<\/h3>\n

    \u9ad8\u5609\u529b (Nick Gall), \u9ad8\u7ea7\u5408\u4f19\u4eba\u53ca\u8bc9\u8bbc\u90e8\u4e3b\u7ba1
    \n\u7535\u8bdd +852 3405 7666
    \nnickgall@gallhk.com<\/a><\/p>\n

    \u9ec4\u542f\u667a (Chris Wong), \u6267\u884c\u5408\u4f19\u4eba
    \n\u7535\u8bdd +852 3405 7620
    \n    chriswong@gallhk.com<\/a><\/p>\n

    \u5b9d\u742a\u6566 (Brooke Holden), \u5408\u4f19\u4eba
    \n\u7535\u8bdd +852 3405 7671
    \nbrookeholden@gallhk.com<\/p>\n","protected":false},"excerpt":{"rendered":"

    Gall Newsletter – Dispute Resolution – Dece<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[31],"tags":[116,177],"class_list":["post-2547","post","type-post","status-publish","format-standard","hentry","category-articles-cn","tag-116","tag-177"],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/posts\/2547","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/comments?post=2547"}],"version-history":[{"count":0,"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/posts\/2547\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/media?parent=2547"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/categories?post=2547"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.gallhk.com\/cn\/wp-json\/wp\/v2\/tags?post=2547"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}