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Non-Recognition of Bermuda Solvent Liquidation: Re Sturgeon Central Asia Balanced Fund Ltd

31 Jan 2020

In Re Sturgeon Central Asia Balanced Fund Ltd [2020] EWHC 123 (Ch), the English court essentially confirmed and bolstered what the Hong Kong court held two years ago – that a foreign solvent liquidation is not entitled to cross-border insolvency assistance.

The Hong Kong position before Sturgeon

In Re Joint Liquidators of Supreme Tycoon Ltd [2018] HKCFI 277; [2018] 1 HKLRD 1120, Harris J suggested that a foreign solvent liquidation would not be entitled to recognition at common law and declined to follow the Singapore court’s decision in Re Gulf Pacific Shipping [2016] SGHC 287 in respect of the latter’s approval of the US Bankruptcy Court’s decision in In re Betcorp Limited, 400 BR 266 (Bankr D Nev 2009). In Betcorp, the US Bankruptcy Court recognised an Australian members’ voluntary liquidation under Chapter 15 of the US Bankruptcy Code.

In Supreme Tycoon, Harris J reasoned as follows:

“[I]f the foreign liquidation is a solvent liquidation (for instance, a members’ voluntary liquidation), it would not fall within the principle of modified universalism. A foreign solvent liquidation is not a collective insolvency proceeding, and is more akin to the “private arrangement” the Privy Council was referring to [in Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36; [2015] AC 1675]. In this connection, with respect, I agree with Lord Neuberger’s dissenting observations in Singularis. Accordingly, unlike the Singapore court [in Gulf Pacific Shipping], I would not rely on the US Bankruptcy Court’s decision in In re Betcorp Limited which concerns an Australian members’ voluntary liquidation being recognised under Chapter 15 of the US Bankruptcy Code. At any rate, it appears that Betcorp is a controversial decision even from the perspective of the UNCITRAL Model Law on Cross-Border Insolvency: see Look Chan Ho, Cross-Border Insolvency: A Commentary on the UNCITRAL Model Law, pp 185–189; UNCITRAL Guide to Enactment and Interpretation of the UNCITRAL Model Law on Cross‑Border Insolvency (2013) at [73].” (Supreme Tycoon at [17] (footnotes omitted)).

The English position after Sturgeon

The material facts are in brief these. Sturgeon Central Asia Balanced Fund Ltd (“Company”) is a fund incorporated in Bermuda. The majority of the Company’s assets were managed in England. In March 2018, the Bermuda court wound up the Company on a shareholder’s petition on just and equitable grounds. The petition argued that there had been a serious breakdown in the basis on which the Company was set up and investors were being denied their rights. The evidence before the court suggested that the Company was solvent throughout.

In May 2019, the provisional liquidators of the Company appointed by the Bermuda court (“Liquidators”) obtained recognition in England under the Cross-Border Insolvency Regulations 2006 (“CBIR”) which implemented the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”) in Great Britain. The Liquidators obtained the recognition order through an ex parte without notice application.

Subsequently a former director of the Company applied to terminate the recognition order. The court treated the application as a review application analogous to the return date of an ex parte application for an injunction.

The court granted the application and terminated the recognition order because the court concluded that a solvent liquidation falls outside the Model Law, and thus CBIR. The key parts of the court’s reasoning are as follows (at [117], [119] and [121]):

“It would be contrary to the stated purpose and object of the Model Law to interpret ‘foreign proceeding’ to include solvent debtors and more particularly include actions that are subject to a law relating to insolvency but have the purpose of producing a return to members not creditors…

The foreign procedure must relate to the resolution of insolvency or financial distress…

[A] wrong turn was made in Betcorp as it was not an insolvent liquidation but a solvent liquidation. It was necessary to go one step further and ask whether the company was insolvent or in severe financial distress.”

In coming to this conclusion, the court also took account of academic criticisms of Betcorp in Look Chan Ho (ed), Cross-Border Insolvency: A commentary on the UNCITRAL Model Law (4th ed, 2017); Look Chan Ho, Cross-Border Insolvency: Principles and Practice (2016); and Richard Sheldon (ed), Cross-Border Insolvency (4th ed, 2015).


From the Hong Kong law perspective, this English decision probably cements the common law view that a foreign solvent liquidation will not be entitled to recognition and assistance.

It remains to be seen whether the Singapore common law will move in the same direction.

Look-Chan Ho authored this Case Report