Court’s winding-up ruling on Hong Kong’s Yung Kee goose restaurant sends signal to offshore companies

Legal experts say court order for restaurant’s parent company based in British Virgin Islands could lead to resolution of more disputes in city

Hong Kong’s top court recently gave the go-ahead for the parent company of the famous Yung Kee roast goose restaurant in Central to be wound up, despite it being incorporated in the British Virgin Islands.

The landmark ruling clarified local courts’ jurisdiction over foreign companies. Members of the legal fraternity are expecting more similar cases as the city develops into a dispute resolution hub, but questions are also being raised as to how the order will take effect.

“This Court of Final Appeal judgment is instrumental to Hong Kong’s development as a dispute resolution centre,” William Wong Ming-fung SC told the Post. “This is very good for Hong Kong.”

Wong, who specialises in company and insolvency law, said many firms initially incorporated offshore to evade local taxes and conceal identities and assets in tax havens like the BVI.

Such benefits outweigh the trouble of having to fly company staff, witnesses and documents on 30-hour hauls to handle legal matters in the jurisdiction of incorporation.

But the Yung Kee ruling will now permit shareholders to seek remedies in winding up their foreign companies in Hong Kong – at a lower cost – even when the firms had no asset within the city.

“These companies can now benefit from the best of both worlds,” said Wong, adding that many local judges are experienced in company law.

The November 11 judgment concluded a five-year legal battle between the two sons of Yung Kee’s late founder Kam Shui-fai, with the court granting the late elder brother Kinsen Kam Kwan-sing an order to wind up Yung Kee Holdings.

The court’s discretion to wind up the BVI company was provided by the Companies Ordinance, which said any unregistered company may be wound up “if the court is of opinion that it is fair and equitable” to do so.

The foreign firm must also share sufficient connection with Hong Kong, and petitioners are required to convince the court that they will benefit from the order, and that the court can exercise jurisdiction over at least one person in distributing the company’s assets.

Two lower courts had previously dismissed the application to wind up Yung Kee. Court of First Instance trial judge Mr Justice Jonathan Harris ruled in 2012 that there was insufficient connection between the company and Hong Kong to justify an order, since it merely owns shares in another BVI company, which in turn holds shares in subsidiaries such as the restaurant.

But the top court said the nature of connection will vary from case to case, and ruled there is no doctrinal reason to exclude a connection through a wholly owned subsidiary.

Examples of connections in Yung Kee’s case include the firm deriving all of its income from businesses carried on exclusively in Hong Kong and having all of its assets within the city through its wholly owned subsidiary.

Dr Maisie Ooi, a company law professor at the University of Hong Kong, said the judgment is “clearly very important” as it sheds light on a cross-border issue not judicially considered before in Hong Kong and elsewhere.

“It is an important decision in a world where corporations and their transactions are increasingly crossing jurisdictional borders,” she said. “The Court of Final Appeal has by this decision clearly signalled that Hong Kong courts are prepared to wind up foreign companies in appropriate cases.”

Ooi said shareholders and their lawyers may look quite keenly to Hong Kong courts to process their petitions. But she wondered how the order can take effect without the cooperation of BVI courts and authorities, when both the company and its sole asset are outside of Hong Kong.

“There is the difficulty that the Hong Kong order may not be recognised in the jurisdiction of incorporation and this may reduce its worth,” she said.

Meanwhile, a spokesman from the Official Receiver’s Office said it would first liaise with the company for details of its assets before liaising with relevant authorities in BVI, if appropriate, and seek legal advice when necessary.