ONC Corporate Disputes and Insolvency Quarterly

Dear Clients and Friends,

This special newsletter aims to regularly update practitioners on important and noteworthy cases in the areas of corporate disputes and insolvency in Hong Kong, the UK and other common law countries. In this issue, we have highlighted:

·         5 Corporate Insolvency Cases

·         3 Cross-border Insolvency Cases

·         2 Restructuring Cases

·         3 Corporate Disputes Cases

·         6 Bankruptcy Cases

Our selection of cases and our analysis of them may not be exhaustive. Your comments and suggestions are always most welcome. Please feel free to contact me at ludwig.ng@onc.hk

Best regards,

Ludwig Ng

Partner, Solicitor Advocate

ONC Lawyers

HEADLINES OF THIS ISSUE

Corporate Insolvency Cases

1.        A contributory (as opposed to a creditor) petitioning for the winding-up of a company should normally show a “tangible interest” in the assets of the company or a ‘need for investigation’, which entitles him to ask for the winding up of the company

Haw Par Pharmaceutical Holdings Pte. Ltd v Hua Han Health Industry Holdings Ltd [2019] 4 HKLRD 286

2.        Relevant factors that Court will take into account in giving retrospective sanction

Re Moulin Global Eyecare Trading Ltd (in liquidation) [2019] 4 HKLRD 643

3.        The requisite intention to gift must be proved to establish transaction at undervalue on the basis of gift

Ho Man Kit v Sure Lead Ltd [2019] HKCFI 2914

4.         Petitioner ordered to pay costs on a common fund basis for failing to explain why a winding-up order was sought in the petition

Wong Wai Tung v Lam Chun Fung and Another [2019] HKCFI 3034

5.         Once privileged, always privileged – legal advice attaching to the documents subsisted notwithstanding the dissolution of the company

Addlesee v Dentons Europe LLP [2019] EWCA Civ 1600

Cross-border Insolvency Cases

6.          Indonesian bankruptcy proceedings recognized in Singapore

Heince Tombak Simanjuntak and others v Paulus Tannos and others [2019] SGHC 216

7.         Limits of assistance – it is not open to the assisting court to appoint a different person as the foreign representative

Re Rooftop Group International Pte Ltd and another (Triumphant Gold Limited and another, non-parties) [2019] SGHC 280

8.         Hong Kong Court recognized and assisted Mainland liquidators for the first time

Re CEFC Shanghai International Group Limited [2020] HKCFI 167

Restructuring Cases

9.          English High Court held that a scheme of arrangement only affect the rights of the creditors of a scheme company in their capacity as creditors, not other rights they have, such as proprietary rights in property

Re Instant Cash Loans Limited [2019] EWHC 2795 (Ch)

10.      In considering whether a scheme of arrangement is propounded for a permissible purpose for the general benefit of the scheme creditors, the Court will take into account the rate of return to scheme creditors and the amount of the restructuring and liquidation expenses

Re Da Yu Financial Holdings Limited (formerly known as China Agrotech Holdings Ltd) (in liquidation) [2019] HKCFI 2531

Corporate Disputes Cases

11.      Assessing the value of his shares is a proper purpose for a shareholder to seek inspection of the company’s documents and accounts, particularly where a long-standing substantial shareholder is seeking to protect his economic interest as a shareholder

Selvaraj (Moorthy) v GMT Industrial Ltd [2019] 4 HKLRD 572

12.      Court of Appeal: those who alleged fraud should carry the burden of proof and the proper remedy for a forged transfer is to seek a rectification of the share register and the company is a necessary party to the claim

Ngan Pui Chi and Another v Bao Quan [2019] 4 HKLRD 135

13.      Singapore Court of Appeal: discount for lack of control would typically apply where the buyout of a minority shareholding was made pursuant to a consent order in the absence of any finding on the issue of minority oppression

Liew Kit Fah and others v Koh Keng Chew and others [2019] SGCA 78

Bankruptcy Cases

14.      An application for a non-commencement order under the Bankruptcy Ordinance (Cap 6) should be made inter-partes

Re Cai Sui Xin [2019] HKCFI 2547

15.      Bankruptcy petition dismissed as the creditor failed to do all that was reasonable for the purpose of bringing the statutory demand to the debtor’s attention and to cause personal service of the demand to be effected

Re Luo Xing Juan Angela [2019] HKCFI 2674

16.      To prove a debtor has carried on business in Hong Kong, it is not enough to show that a person is running his company’s business even though he is the sole beneficiary shareholder and in complete control. There must be some evidence of activities on the part of the debtor over and above those attributable to the company to show that the debtor has carried on business of his own

Re Chen Mei Huan also known as Liu Chen Mei Huan also known as Liu Mei Huan Chen [2019] HKCFI 3028

17.      Singapore High Court: an annulment of bankruptcy order is not conditional upon all debts being proven

Standard Chartered Bank, Singapore Branch v Chua Seng Kiat (Lim Peng Liang David Llewellyn, intervener) [2019] SGHC 240

18.      Court of Appeal warned against debtor’s opportunistic attempts to invoke the Lasmos approach in the future to stay winding-up/bankruptcy petition by invoking arbitration agreement

Sit Kwong Lam v Petrolimex Singapore Pte. Ltd [2019] HKCA 1220

19.      Trustees in Bankruptcy found not in breach of their duties to act with reasonable care and skill, as they had limited funding available to them at the timed

Lau Chun Ming v Deloitte Touche Tohmatsu (A Firm) [2019] HKCFI 2722

Chile environmental court rules against SQM mining corporation

On Thursday Chile’s Environmental Court ruled in favor of indigenous complaints that had been brought against SQM. SQM is the world’s second-largest miner of lithium. They had planned for expansion but the expansion plans caused questions about Chile’s northern desert’s ability to handle the level of production.

The court put emphasis on how frail the environment in the northern dessert was right now as well as the lack of scientific study that SQM has done to prove that their mining would not affect the area’s water supply. They cite the ruling as a precaution that could change if they found evidence that the environment could be saved.

This is a big win for the indigenous people of the region whose water supply is threatened by the evergrowing expansion of lithium mining.

UK lawmakers vote in favor of EU withdrawal agreement

UK lawmakers voted in favor of the second reading of the EU Withdrawal Agreement on Friday, leading the nation one step closer to leave the EU by January 31.

Parliament voted 358 to 234, a majority of 124, in favor of the Brexit bill. While lawmakers have agreed to the bill in principle, it will now be debated further by both chambers of Parliament in January.

Since its last reading in October, changes to the bill have been seen as controversial. If passed, the new bill would outlaw any extension to the UK’s transition period, which ends on December 31, 2020. Labour Brexit spokesman Keir Starmer warned parliament that refusing any extension beyond 2020 is “reckless and ridiculous” as it puts the UK at risk of “a bare bones deal or no deal at all.”

Since passed, lawmakers will now have another three days to discuss it further, beginning on January 7. The final vote will take place on January 9, and, if approved, the bill will be passed to the UK’s upper house to make a final decision on whether the bill becomes law.

New Zealand Parliament passes zero carbon bill

Lawmakers in New Zealand approved a bill on Thursday that aims to reduce the country’s non-biogenetic greenhouse emissions to zero by 2050. The Zero Carbon Bill provides a framework for limiting average global temperature increase to 1.5° Celsius above pre-industrial levels, as set forth in the Paris Agreement.

The bill establishes a Climate Change Commission, which will advise the government and monitor and review the government’s progress towards meeting the goal. The 2050 targets set forth are: gross emissions of biogenic methane to be reduced to at least between 24 percent and 47 percent below 2017 levels and net emissions of all other greenhouse gases to be reduced to zero. The separate targets for biogenic methane, the greenhouse gases released by livestock such as cattle and sheep, will make it easier for New Zealand to hit their zero emissions goal. Greenhouse gases from agriculture make up 48 percent of the countries total emissions.

The Minister for Climate Change, James Shaw praised the bill:

Climate change is the defining long-term issue of our generation that successive Governments have failed to address. Today we take a significant step forward in our plan to reduce New Zealand’s emissions. … We’ve led the world before in nuclear disarmament and in votes, now we are leading again…This Bill belongs to New Zealand, and together we have ensured law that ensures we shift towards a low emissions country that keeps us all safe.

New Zealand joins more than sixty other countries that have committed to zero carbon emissions by 2050. However, the countries with the largest greenhouse emissions—China, India, and the US—are not on that list. On Monday US Secretary of State Mike Pompeo announced on twitter:

Today we begin the formal process of withdrawing from the Paris Agreement. The U.S. is proud of our record as a world leader in reducing all emissions, fostering resilience, growing our economy, and ensuring energy for our citizens. Ours is a realistic and pragmatic model.

A number of US states have passed their own zero emissions goals including California, Washington and New Mexico.

How Will Plans to End Free Movement Affect EU Workforce?

The Home Office has recently issued a factsheet indicating that freedom of movement as it currently stands will end on 31 October 2019 and that arrangements for people coming to the UK for longer periods for work or study will change. What does this mean in practice and how should employers prepare?

A draft Immigration Bill drafted published by Theresa May’s government had already envisaged an end to free movement following a no-deal exit. However, to avoid a “cliff-edge” until a new immigration system could be put in place, the Home Office planned to introduce transitional arrangements for EU, EEA and Swiss citizens and their family members arriving in the UK between exit date and 31 December 2020. Those coming to the UK for short visits for any reason would be able to enter as they can now and stay for up to three months for each entry. Those wishing to stay in the UK for longer would need to apply to the Home Office for EU temporary leave to remain within three months of arrival (giving 36 months’ permission to live, work and study) after which they would need to apply under the UK’s future immigration system (expected to be introduced from January 2021).

The Home Office announcement and further reports now indicate the shelving of these transitional arrangements to be replaced by a new immigration system immediately applicable to new arrivals following a no-deal exit. There is very unlikely to be the time and resource to put in place such a system or the legislation which will underpin it. The Home Office is already stretched and the UK’s current Points Based System took nearly four years to design and implement. We may, therefore, still end up with some form of transitional registration system but the Government’s current direction of travel suggests this is likely to be more onerous than the EU temporary leave envisaged under Theresa May. Employers who had good reason to believe that they would be able to continue to recruit from the EU with relative ease until the end of 2020 (even in a no-deal scenario), should prepare for the possibility of new hires arriving the EU from 31 October 2019 needing some form of immigration permission prior to starting work. Exactly what this will entail, including the qualifying criteria, cost and application process, remains to be seen and we will providing updates as matters develop.

In any event, the Government has made clear that an immediate end to free movement following a no-deal exit will not affect the ability of EU, EEA and Swiss citizens and their families already resident in the UK by 31 October 2019 to continue living and working here, as long as they apply for status under the EU Settlement Scheme before 31 December 2020. Nonetheless, as a precaution, employers should support their affected employees to obtain (or apply for) pre-settled or settled status under the Scheme before 31 October 2019 (or at least prior to their next trip outside the UK) to reduce difficulties on re-entry by having to prove their prior UK residence by some other means. Current average processing times under the Scheme are reasonably quick – between one and four days. Those travelling outside the UK after 31 October and before they have been granted status would be well-advised to take with them some proof that they are already resident in the UK (ideally in line with the documentary evidence recommended by the Home Office when applying under the Scheme such as recent UK payslips, an employer letter or utility bill).

Record numbers of UK lawyers register in Ireland

UK law firms have ramped up preparation for Brexit by registering a record number of solicitors in Ireland but confusion remains about how many of them will be able to practise in Ireland and the wider EU after Britain leaves.

The Law Society of Ireland said its solicitors roll had received 1,560 applications in the year to date — more than 31 times the average annual rate in the years before the 2016 EU referendum.

Some 3,706 lawyers from England, Wales, Scotland and Northern Ireland have been registered since the beginning of 2016 as City firms scrabble to insulate themselves from Brexit’s effects.

Those include UK lawyers potentially losing rights of audience in European courts and seeing their ability to advise on European legal matters curtailed.

In August the Law Society of England and Wales warned that the legal sector in the UK could face a £3.5bn hit as a result of a no-deal Brexit.

“Typically, major international commercial law firms are the source of these transfers, in some cases hundreds from one firm,” said Ken Murphy, director-general of the Law Society of Ireland. “It is an extraordinary development.”

Elite UK firms Allen & Overy and Linklaters have among the largest numbers of lawyers signed up to the Irish roll, according to the Irish Law Society, with 287 and 250 respectively. Latham & Watkins has registered 155.

However, only 981 UK lawyers hold a “practising certificate” which allows them to work in Ireland, according to the Law Society. Firms said they were waiting for the outcome of Brexit to determine whether to pay the annual cost of £2,650 per person required to take the final test.

One top-tier UK law firm said only a “handful” of the hundreds of lawyers registered in Ireland had practising certificates, because of the cost and “the lack of clarity as to whether this will actually function as a workaround in a no-deal Brexit scenario.”

In March the Law Commission in Ireland announced new hurdles for lawyers hoping to rely on Irish practising certificates after Brexit, including requiring firms to have a base in Ireland and indemnity insurance issued within the country.

Catherine Hudson, head of risk at Fieldfisher, said: “This was a surprise. A lot of people applied to be on the register in Ireland because they thought it would be a good plan B. But then the Irish Law Society published a note putting constraints on their practising certificates, suggesting they were concerned not to be used as a flag of convenience for people with no real professional connection to the republic.”

A number of firms including DLA Piper, Covington & Burling and Simmons & Simmons have opened offices in Dublin, and avoided those issues. Others, such as Fieldfisher, have merged with Irish firms to gain a permanent foothold.

DLA Piper launched a Dublin office in May and has so far recruited 11 partners, many poached from top-tier Irish firms.

Lawyers said the shift would create a more active transfer market and potential pay inflation in the traditionally conservative Irish legal market.

However Barry Devereux, managing partner of Irish firm McCann FitzGerald, said: “The large Irish law firms have always competed fiercely with each other, both for talent and for clients, so I don’t expect the entrance of US or UK law firms to have an enormous impact.”

Christina Blacklaws

KPMG hires ex-Law Society president

Former president of the Law Society Christina Blacklaws has been appointed as legal services ambassador at Big Four accountancy KPMG as it steps up its legal services offering.

Blacklaws, Law Society president from July 2018 to July 2019, will take up a part-time ‘strategic advisory role’ at the firm, helping to develop its legal practice.

Joining a team of 120, she will work on client solutions, talent engagement initiatives and legal innovation strategies, KPMG said. She will also focus on supporting women in law and leadership.

Nick Roome, UK head of legal services, said: ‘Our team is a fast-growing specialism within KPMG, with clients more frequently requiring integrated advisory solutions. We currently have a broad range of expertise across the legal spectrum but having Christina on board will give us another dimension. Her knowledge, expertise and ear-to-the-ground approach when it comes to the issues impacting our sector will help give us an additional edge in the market.’

Blacklaws added: ‘We’re operating in an increasingly challenging business environment, but, equally, it is an exciting time of growing enlightenment: we all know our sector needs to evolve to best support our clients and our colleagues alike.’

Empowering women in the legal profession was one of Blacklaws’ chief priorities as Law Society president. She also focused on social mobility and innovative and sustainable legal practice. The family specialist previously practised at TV Edwards and Co-Operative Legal Services.

‘Stubborn, wrongheaded’ approach to family law will fail

The federal government’s approach to family law will see it advocate again for a “bad law” to be passed by parliament, which it failed to pass in the last term, argues the Law Council president.

Speaking on Monday night at the Newcastle Law Society’s Annual Members’ Dinner, LCA president Arthur Moses SC said that we are “on the eve” of the government reintroducing the “fundamentally flawed merger bill”, which will see the abolition of the specialist Family Court.

“The government’s stubborn and wrongheaded approach to family law will see it advocate again for a bad law to be passed by parliament – a law which it failed to pass in the last parliament. This approach is not only irrational but is extremely disrespectful to the views of the significant stakeholders in the family violence services sector,” Mr Moses said.

“These dedicated professionals who understand this area better than any member of the government have made it clear that this policy will hurt children and families. As lawyers and members of our community, we all have a stake in this, regardless of where and what we practice.”

He reiterated that “specialisation matters” when it comes to addressing the inherent issues with the family law system.

“There is a dire need to resource and reform the family law system. We do not accept, though, that the way the government has sought to go about this would deliver meaningful reform,” he said.

“Last year, the Attorney-General announced in May a proposal to merge the specialist Family Court into the generalist Federal Circuit Court. There was no consultation with the community or the profession over the proposal – only with three heads of jurisdiction.

“The Law Council vehemently opposed the merger last year, and we will continue to oppose it because we do not support bad policy that will hurt children and families. With or without further amendment, we remain concerned that the merger will result in the loss of a standalone, dedicated Family Court as we know it, to the detriment of those in need of specialist family law assistance.

“Further, we do not accept the purported efficiencies it has been claimed the merger will produce. Rather, we are concerned it will further increase cost, time and stress for families.”

The merger fails, Mr Moses continued to alleviate the “fundamental problems plaguing the system”, including the risk of victims of family violence falling through the cracks.

“Abolishing a standalone specialist family court, whether directly or by abeyance, is no fix. Refusing to inject desperately needed funds and resources into a crippled system unless the parliament votes for the government’s plan is certainly no fix,” he argued.

“We are not alone in holding these concerns – they are shared by stakeholders and family violence support providers including Women’s Legal Services Australia, Rape and Domestic Violence NSW and Community Legal Centres.

Instead, the profession needs to retain a specialist, standlone family court, there must be “alternative holistic structural reform of the system”, and the government must adequately consult with stakeholders and carefully consider their recommendations.

“To suggest any one of these propositions is ‘radical’ is a fake argument. There should be nothing radical about the concept that critical social justice infrastructure should not be irrevocably altered without informed consultation and discussion with those who use the court, work in the court, or whose lives are irreversibly shaped by its decisions,” Mr Moses said.

Disparity warning as solicitors react to prosecution fee increase

Criminal defence practitioners may have to take direct action if the government fails to fix a pay disparity that will be made worse by revised fees announced for prosecution advocates, a practitioner group chief has warned.

On Friday the CPS unveiled a package of revised fees for prosecution advocates which it believes addresses concerns over unused material and trials involving multiple defendants. However, the news received a cool reception from the defence community.

Bill Waddington, chair of the Criminal Law Solicitors Association, said he was pleased to see money dripping into the severely underfunded criminal justice system.

‘However, this payment is for prosecution work and does nothing to assist the publicly funded defence system which has been cut to the bone over years with slice after slice being imposed by respective governments. It is now time for politicians to take the crisis in the criminal justice system seriously before it is completely destroyed,’ he said.

He said: ‘This exacerbates a pre-existing problem. For instance CPS costs are recovered according to a notional rate of £69 per hour whereas defenders do so against a benchmark rate of only £45 per hour, less than a CPS paralegal. If a local authority prosecutes the case they can recover as much as £110 per hour.’

Troman, a solicitor and higher courts advocate at London firm Powell Spencer & Partners, said there is ‘ample evidence’ of a recruitment and retention crisis in criminal defence work. ‘Many solicitors train in private defence practices but, once they have gained experience, look to secure a position at the CPS or else leave the profession. This trend will increase.’

LCCSA members ‘are growing impatient with the inertia surrounding the criminal legal aid review and will note that this fee increase only came out following direct action‘, Troman said. ‘If that is the only language the Ministry of Justice understands then the message to this side of the profession is clear’.

The ministry is reviewing criminal legal aid fee schemes. Work has been accelerated on five areas, including unused material – however, the review will not be finished until late 2020.

Murray Energy files for bankruptcy as U.S. coal decline continues

Murray Energy Corp, one of the largest privately-held U.S. coal miners, whose founder is an outspoken supporter of President Donald Trump, became the latest in a string of coal companies to file for bankruptcy on Tuesday as generators shift to cleaner-burning natural gas and renewable energy.

As part of a restructuring, founder Robert Murray, a Trump ally and climate change denier, will step down as chief executive and a lender group will take on more than 60% of about $1.7 billion in claims.

“Although a bankruptcy filing is not an easy decision, it became necessary to access liquidity and best position Murray Energy and its affiliates for the future of our employees and customers and our long-term success,” Robert Murray said in a statement.

The bankruptcy comes even after the Trump administration weakened or eliminated dozens of environmental regulations that Murray and other executives had called burdensome for the coal industry.

Early in the Trump presidency, Murray presented the administration with a wish list of environmental regulations he wanted slashed as coal companies have struggled due to growing use of renewables and cheap natural gas.

Eight other coal companies have filed for bankruptcy over the last two years as natural gas has taken over as the primary fuel for U.S. power plants, while coal’s share of generation has collapsed.

The United Mine Workers of America said its members are preparing to fight for their wages and benefits should Murray seek relief from its obligations during reorganization.

“We have seen this sad act too many times before,” said UMWA President Cecil Roberts. “But that does not mean we will sit idly by and let the company and the court dictate what happens to our members and our retirees.”

West Virginia’s Democratic Senator Joe Manchin said an additional 14,000 miners were at risk of losing their healthcare benefits and 82,000 pensions are under threat, which “underscores the urgent need” for Congress to pass legislation to protect miners’ benefits.

Coal’s share of U.S. power generation is expected to fall to 22% in 2020, compared with roughly 25% this year. As recently as 2003, coal accounted for half of the country’s electricity generation, according to the U.S. Energy Information Administration (EIA).