Federal Court recognises bankruptcy suit in Hong Kong as a 'foreign main proceeding'

The trustees wanted to investigate the estate's affairs in Australia for the benefit of creditors

Federal Court recognises bankruptcy suit in Hong Kong as a 'foreign main proceeding'

The Federal Court has recognised a bankruptcy lawsuit in Hong Kong as a "foreign main proceeding."

In Arab v Pan, in the matter of Pan (No 2) [2023] FCA 1190, the applicants, Osman Mohammed Arab and Wong Kwok Keung, were the joint and several trustees of the bankrupt estate of the respondent, Pan Sutong. They sought relief according to the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law, set out in the Cross-Border Insolvency Act 2008, which has the force of law in Australia.

The applicants sought orders that the bankruptcy proceeding in the High Court of the Hong Kong Special Administrative Region Court of First Instance, in which a bankruptcy order was made against the respondent, be recognised as a "foreign proceeding" and as a "foreign main proceeding."

On July 8, 2022, Hong Kong's Court of First Instance adjudged the respondent, Pan Sutong bankrupt. The court made orders for the application's service on the respondent and on each person whose claim to be a creditor of the respondent was known to the applicants.

The applicants were not aware of any Australian creditors of the respondents. However, they wished to investigate the respondent's affairs in Australia for the benefit of all creditors.

Based on the evidence, the Federal Court of Australia was satisfied that the proceeding in Hong Kong's Court of First Instance was a "collective judicial proceeding in a foreign state" within the definition of "foreign proceeding" in art. 2 of the Model Law.

The court said the proceeding was in Hong Kong, a "foreign state." The federal court also found that the Court of First Instance, sitting in its bankruptcy jurisdiction, is a "foreign court" within the meaning of the Model Law. The Court of First Instance could make a bankruptcy order on petitions. The federal court also noted that the proceeding in which the respondent was sentenced to be bankrupt, which is sought to be recognised in the proceeding in Australia, is a "judicial" proceeding.

The court further found that the proceeding is a "collective" proceeding within the meaning of the Model Law in the sense that it affected all the creditors and assets of the respondent's bankrupt estate. It transformed creditors' rights into rights to participate in the distribution of the bankrupt estate.

The court was also satisfied that for the definition of "foreign proceeding", the bankruptcy proceeding in the Court of First Instance is a "proceeding under a law relating to insolvency" in which "the assets and affairs of the debtor" were "subject to the control or supervision by a foreign court" for "liquidation."

The court also acknowledged that Hong Kong was the centre of the respondent's main interests. The court considered that the respondent's address and "matrimonial home" are in Hong Kong. The evidence also showed that the respondent is a holder of a Hong Kong passport and a Hong Kong permanent identity card.

Ultimately, the court was satisfied that the requirements of the Model Law had been met and that it was appropriate to recognise the foreign proceeding as a "foreign main proceeding."

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