(a) In relation to each type of insolvency procedure available in the legal system of this economy, what connection must there be between the debtor organization and the law of the forum?

(1) Compulsory winding up - Hong Kong, China companies are wound up by the court pursuant to Section 177. Unregistered companies are wound up pursuant to the provisions in Part X of the Companies Ordinance. Section 326 defines 'unregistered company' to include any partnership, limited partnership, association and company, with the exception of the following:

(a) companies registered under the Companies Ordinance (or its predecessors);

(b) Hong Kong partnerships, associations, and companies with fewer than eight members,

(c) and partnerships registered under the Limited Partnership Ordinance (cap 37).

The case of Securities and Futures Commission v MKI Corp Ltd [1995] 2 HKC 79 ('MKI') held that the court's power to wind up an unregistered company under Section 327 extends to oversea companies registered under Part XI of the Companies Ordinance. This holding was incorporated into Section 326(2) in the 1997 amendments to the Companies Ordinance.

Unregistered companies may be wound up in Hong Kong, China pursuant to either Section 327 or 327A. Section 327(3) sets forth the following circumstances in which an unregistered company may be wound up:

(a) of the company is dissolved, or has ceased to carry on business, or is carrying on business, or is carrying on business only for the purposes of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the court is of opinion that it is just and equitable that the company should be wound up.

Section 327A provides as follows:

Where a company incorporated outside Hong Kong, China which has been carrying on business in Hong Kong, China ceases to carry on business in Hong Kong, China, it may be wound up as an unregistered company under this Part [X of the Companies Ordinance], notwithstanding that it has been dissolved or otherwise ceased to exist as a company under or by virtue of the place of its incorporation.

Foreign companies that may be wound up under Section 327A may also be wound up under Section 327. In practice, Section 327 is the more frequently used provision.

With the exception of the reference in Section 327A to ceasing to carry on business, the Companies Ordinance is silent as to the jurisdictional connection that must exist between the foreign debtor and Hong Kong, China for a winding up of the foreign company to be commenced in Hong Kong, China. Therefore, the following factors will be discussed on the basis of - or as an extrapolation from - from the case law.

(for example which of the following requirements, if any, must be satisfied in order for an insolvency procedure to be initiated in relation to a corporate debtor in your economy:

- principal residence of debtor;

Although not required, this factor would be a sufficient jurisdictional basis on which to base a winding up.

- domicile of the debtor;

This factor is, in essence, required for Hong Kong, China companies, which must be formed and registered under Hong Kong, China companies law to be eligible for winding up under Part V of the Companies Ordinance. However, as noted above, this factor is not mandatory for all companies, because foreign companies may be wound up under Part XI of the Companies Ordinance.

- nationality of the debtor;

- Inapplicable to corporate debtors.

- personal whereabouts at the material time;

Inapplicable to corporate debtors.

- location of principal place of business;

This would be a proper jurisdictional basis on which to base a winding up petition, although it would not be mandatory.

- location of a place of business, branch or agency;

Although not required, this too would be a proper basis on which to base a winding up petition.

- location of assets of debtor;

This is the most common ground upon which to base jurisdiction in cases involving foreign companies. Since the English case of Banque des Marchands de Moscou v Kindersley [1951] Ch 112 was decided, it has been a settled point that a foreign company with assets in Hong Kong, China may be wound up in Hong Kong, China. The presence of assets was upheld as an appropriate jurisdictional connection in the Hong Kong, China case of Re Irish Shipping Ltd [1985] HKLR 423 ('Irish Shipping'). There is even obiter in the case that jurisdiction will stand as long as there are assets in Hong Kong, China by the time the petition is heard. For a critique of this view, see Charles D. Booth, The Transnational Aspects of Hong Kong Insolvency Law, 2 Southwestern Journal of Law & Trade in the Americas 1, 40 (1995).

- place where transaction or event took place which gave rise to liability; - place where payment, discharge or performance of liability is due to take place.)

This might be a proper basis on which to base a winding up petition under a 'sufficient connection' test. See discussion of Re A Company (No. 00359 of 1987) [1988] Ch 210 ('Okeanos Maritime Corp') below.

Are any other requirements imposed in relation to a connection between the debtor and the forum before an insolvency procedure may be initiated? If so, briefly describe these requirements.

In interpreting the jurisdictional criteria for winding up foreign companies, the Hong Kong, China courts have followed the English approach. Mention should be made of at least a couple of English cases, notably Re Compania Merabello San Nicholas SA [1973] Ch 75 ('Re Compania Merabello') and Okeanos Maritime Corp that hold that a foreign company may be wound up where the jurisdictional connections between the foreign company and Hong Kong, China fall outside the above list of factors. The court in Compania Merabello expanded the presence-of-assets test in holding that for the purposes of establishing jurisdiction in a case involving a foreign company:

(1) There is no need to establish that the foreign company ever had a place of business here.

(2) There is no need to establish that the company ever carried on business here.

(3) A proper connection with the jurisdiction must be established by sufficient evidence to show (a) that the company has some asset or assets within the jurisdiction, and (b) that there are one or more persons concerned in the proper distribution of the assets over whom the jurisdiction is exercisable.

(4) It suffices if the assets of the company within the jurisdiction are of any nature: they need not be "commercial" assets or assets which indicate that the company formerly carried on business here.

(5) The assets need not be assets which will be distributable to creditors by the liquidator in the winding up: it suffices if by the making of the winding up order they will be of benefit to a creditor or creditors in some other way.

(6) If it is shown that there is no reasonable possibility of benefit accruing to creditors from the making of the winding up order, the jurisdiction is excluded.

The court in Okeanos Maritime Corp held that 'provided a sufficient connection with the jurisdiction is shown, and there is a reasonable possibility of benefit for the creditors from the winding-up, the court has jurisdiction to wind up the foreign company' (at pp 225-26). This decision calls into question the application of an independent assets-based test. In Okeanos Maritime Corp, the court found that a sufficient connection existed because, inter alia, the debt owed by the foreign company to the petitioner was incurred in England under an English loan agreement and the foreign company had carried on business in England through its agents. Id, at 226. The Hong Kong, China courts have noted the applicability of this test. See MKI and Re China Tianjin International Economic and Technical Cooperative Corp [1994] 2 HKLR 327 ('CTIETCC'). In CTIETCC, the court discussed the presence of assets in the context of the sufficient connection test.

It must also be noted that the Hong Kong, China court retains the discretion whether or not to order relief. Thus, the satisfaction of jurisdictional criteria does not guarantee that the court will make a winding up order.

(2) Voluntary Winding Up - Section 327(2) provides that an unregistered company may not be wound up voluntarily under the Companies Ordinance.

(3) Section 166 Scheme - A foreign company may use the Section 166 Scheme. See Section 166(5). For a scheme being agreed to in a winding up, see the Scheme in BCC(HK), discussed in Section I5(b) above.

(4) Proposed Provisional Supervision Procedure - The Law Reform Commission has recommended that provisional supervision apply to oversea companies - but interestingly not to foreign companies generally. As noted above, an oversea company has a place of business in Hong Kong, China. The Report on Corporate Rescue and Insolvent Trading states that an oversea company may choose either to register under Part XI of the Companies Ordinance or form a Hong Kong, China subsidiary under Part I of the Companies Ordinance; provisional supervision would apply regardless of their choice (para 2.0 at 22-23). However, in a case where the oversea company had most of its assets and share holdings in another country, the provisional supervision would act in an ancillary capacity.

Are any other requirements imposed in relation to a connection between the debtor and the forum before an insolvency procedure may be initiated? If so, briefly describe these requirements.

Although not relevant in regard to whether or not a liquidation procedure may be initiated, it must be reiterated that even if the jurisdictional criteria are satisfied, it is a matter of discretion for the court to decide whether or not to order the winding up of a foreign company. As noted by the court in Okeanos Maritime Corp the court should consider whether it is more appropriate for the company to be wound up elsewhere.

In addition, if a liquidation or provisional supervision occurs in Hong Kong, China, it will have to be determined whether the proceeding should be on equal footing with any related proceeding abroad, or whether the Hong Kong, China proceeding should be offering ancillary assistance to a primary proceeding elsewhere. For a liquidation in which the Hong Kong, China court provided ancillary assistance, see Irish Shipping, supra.

(b) Are any particular rules or conditions imposed in the legal system of this economy regarding the opening or commencement of an insolvency procedure in cases where the connection between the debtor and the forum is limited to only one of the factors mentioned in (a) above?

There are no particular rules. However, the point to be kept in mind is that the more tenuous the connection between the foreign company and Hong Kong, China, the less likely the Hong Kong, China court will be to exercise its discretion to order the winding up of the foreign company. As noted above, the historical basis upon presence-of-assets appears to be giving way to a 'sufficient connection' test.