By a Ruling dated 20 September 2016, but only made public on 27 September 2016, Chief Justice Kawaley has granted a Petitioning Creditor’s application for an order appointing Provisional Liquidators over Up Energy Development Group Limited, an insolvent Bermuda exempt company which is listed on the Hong Kong Stock Exchange, with business interests in the coal industry in China and Canada.
The judgment will be of interest to insolvency practitioners (lawyers and accountants) for a number of reasons.
Firstly, the Chief Justice rejected a self-serving argument that the Company should not be placed into provisional liquidation, “because of the stigma that provisional liquidation carried in Asia“, and the risk that the process “may be misunderstood in Asia“. The judge pointed out that “there have been numerous provisional liquidation proceedings in Bermuda involving Hong Kong listed companies and no dire consequences flowed from appointing JPLs“.
Secondly, the Chief Justice reviewed in some detail the Bermuda Court’s practice of facilitating ‘debtor in possession’ restructurings of otherwise insolvent companies through the appointment of ‘soft touch’ provisional liquidators, the adjournment of the winding up petition, and the promotion of a restructuring Scheme of Arrangement under Court supervision (in the absence of a local statutory equivalent to US Chapter 11 or UK Administration). The Chief Justice identified a number of benefits associated with the practice, when conducted properly.
Thirdly, the Chief Justice suggested that it would be permissible for the Company and the provisional liquidator, with the approval of the Court, to issue formal documents and correspondence referring to the Company as being “in Provisional Liquidation (for Restructuring Purposes)”, to distinguish its status from that of a Company that has been ordered to be wound up and placed into compulsory liquidation (which might yet happen, in this case, if the Company is unable to get its house in order, to the satisfaction of its creditors).