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Yung Kee - Winding Up of Foreign Companies in Hong Kong


Jan 26, 2016
The holding company of Hong Kong's famous roast goose restaurant, Yung Kee, has been the subject of substantial litigation in recent years between two of the sons of the now-deceased founder of the restaurant.


Background

Whilst Yung Kee Restaurant has its origin in Hong Kong, its ultimate holding company – Yung Kee Holdings Limited (the “Company”) – was incorporated in the British Virgin Islands (“BVI”). The shareholders of the Company were family members (or companies under their control). The Company’s only asset was its 100% shareholding in Long Yau Limited, also a BVI company, through which the Company controlled 9 other companies which owned the assets in Hong Kong (including the Yung Kee Restaurant).

Disputes emerged among the shareholders of the Company and the petitioner sought to, among other things, wind up the Company.


Decisions of the CFI and CA

The petition was dismissed in both the Court of First Instance (the “CFI”) and the Court of Appeal (“CA”). However, their decisions were reversed by the CFA. What the CFA disagreed with the CFI and CA, among other things, was about a requirement to invoke the winding up order: namely, whether the Company had a “sufficient connection with Hong Kong”.

CFI and CA held that there was insufficient connection because of the fundamental legal principle that a company is independent and separate from its shareholders. As such, the shareholdings in the Hong Kong subsidiaries belonged to Long Yau Limited, also a BVI company, and not the Company.


Decision of the CFA

However, the CFA did not agree that the “connection” would involve the legal principle of separation of corporate entities. Although the Company and its shareholders were separate legal persons, the court held that there could still be connection between the Company and Hong Kong through its shareholders or subsidiaries. Given the fact that, in reality, this was a dispute between the shareholders of the Company (rather than a creditor’s petition), the CFA held that their presence in Hong Kong was highly relevant.

The CFA also decided there were other connecting factors with Hong Kong: the Company’s underlying assets and business carried on by its sub-subsidiaries were all in Hong Kong; the income of the Company was derived from the business in Hong Kong; and the Company’s administrative decisions were made in Hong Kong.


Conclusion

Based on the above, the CFA made a winding up order against the Company.

This judgment is of significance as many holding structures of Hong Kong businesses are incorporated offshore (and often through intermediate offshore companies) and the earlier court decisions in this case had suggested that the courts generally might be reluctant to get involved in disputes relating to such companies where they felt that the connection with the territory was not sufficient.

The CFA decision now points to a more liberal approach in accepting jurisdiction in such disputes where underlying facts are sufficiently connected with Hong Kong.
 
 
For more information on Commercial and M&A matters, please contact:-

Chris Gordon | cgordon@robertsonshk.com | +852 2861 8413
Chris Lambert | clambert@robertsonshk.com | +852 2861 8417
Jennifer Wong | jwong@robertsonshk.com | +852 2861 8318
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