Insolvency and Arbitration/EJCs – Where does this leave Hong Kong?
The interplay between insolvency proceedings and arbitration/exclusive jurisdiction clauses (EJC) has been a well-trodden subject in recent years. A decision of the Grand Court of the Cayman Islands in April 2025, however, further threatens to leave Hong Kong as the odd man out in the insolvency versus arbitration/EJC debate.
In In re NaaS Technology Inc. [2025] CIGC (FSD) 28, the Grand Court of the Cayman Islands for the first time considered and applied the judgment of the Judicial Committee of the Privy Council (JCPC) in Sian Participation Corp (in liquidation) v Halimeda International Ltd [2024] UKPC 16 and in so doing dismissed the application of NaaS Technology, one of the largest electric vehicle charging service providers in the PRC, to restrain the presentation of a winding up petition against it.
In re NaaS Technology potentially further isolates Hong Kong from the common law jurisdictions that are most relevant in day-to-day restructuring and insolvency law practice in the Special Administrative Region.
The position in England and the British Virgin Islands
To recap, in Sian Participation (on appeal from the BVI), the JCPC held that when a company is subject to a winding-up petition, if the debt is disputed and is subject to a generally worded arbitration agreement or EJC, then the court’s discretion to grant a winding-up order shall be based on “whether the debt is disputed on genuine and substantial grounds”. In other words, the court can proceed to make a winding-up order and shall not blindly require the petitioner to obtain an arbitral award or court decision first confirming the relevant debt. In the words of Lord Briggs and Lord Hamblen in Sian Participation at [92] “To require the creditor to go through an arbitration where there is no genuine or substantial dispute as the prelude to seeking a liquidation just adds delay, trouble and expense for no good purpose …”
The juridical basis of this conclusion was that a creditor’s winding-up petition or similar liquidation application did not seek to, and did not, resolve or determine anything about the claim of the petitioner to be owed money by the company (or its validity or amount). Therefore, the presentation of such a petition or application did not offend either the arbitration agreement or the provisions or policy embodied in arbitration legislation that claims covered by an arbitration agreement should be resolved in arbitration and not in court: see [88] – [99].
Sian Participation was an unusual decision in that for the first time the JCPC exercised a power given to it by the UK Supreme Court in Willers v Joyce (No 2) [2016] UKSC 44 to direct that the decision is binding not only on the courts of the BVI, but also on the English courts as well. Thus, the test under Sian Participation now also represents the law in England and not just the BVI. In deciding Sian Participation, the JCPC overturned the decision of the English Court of Appeal in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2014] EWCA Civ 1575 and held that it was wrongly decided. In Salford Estates, the court held that it should stay or dismiss a creditors’ winding-up petition based on the presence of a generally worded arbitration clause (or an EJC) pertaining to the disputed debt in question. In Hong Kong, Salford Estates was followed in Re Southwest Pacific Bauxite (HK) Ltd [2018] HKCFI 426 (Lasmos) and was referred to locally as the ‘Lasmos approach’.
The position in Hong Kong
The Lasmos approach was endorsed by the Hong Kong Court of Final Appeal in Re Guy Kwok Hung Lam and Ex Parte Tor Asia Credit Master Fund L.P. [2023] HKCFA 9.
Guy Lam involved a disputed debt arising under a loan agreement governed by an EJC in favour of the New York courts, and the CFA held at [105] that in such circumstances the (bankruptcy) petition should be dismissed in favour of court proceedings in accordance with the EJC in the absence of “countervailing factors such as the risk of insolvency affecting third parties and a dispute that borders on the frivolous or abuse of process”. In other words, “the petitioner and the debtor ought to be held to their contract.” The juridical basis for this approach was that the determination of the threshold question of whether the petitioning debt was bona fide disputed on substantial grounds “leaves room for the exercise of a discretion by the court to decline to exercise the jurisdiction to determine that question. A circumstance enlivening that discretion is the fact that the parties agreed to have all their disputes under the agreement giving rise to the debt be determined exclusively in another forum” [100].[1]
The approach in Guy Lam has been applied by the Hong Kong Court of Appeal in Re Simplicity & Vogue Retailing (HK) Co Ltd [2024] HKCA 299 and Re Shandong Chenming Paper Holdings Ltd [2024] HKCA 352 to winding-up petitions where the debts in question were governed by arbitration agreements. Unsurprisingly, in Re Mega Gold Holdings Ltd [2024] HKCFI 2286, Recorder Richard Khaw SC recently concluded that, as a matter of stare decisis and given the analysis provided in the relevant authorities, Guy Lam and Re Simplicity should be followed.
The position in the Cayman Islands (and Bermuda too)
On 9 Apil 2025, in In re NaaS Technology Inc. [2025] CIGC (FSD) 28, the Grand Court of the Cayman Islands applied Sian Participation and dismissed NaaS Technology’s application to restrain the presentation of a winding up petition against it. On the evidence before the court, the Hon. Doyle J was not persuaded that there was a ‘genuine and substantial dispute’ regarding the debt giving rise to the proposed petition, despite an arbitration having been commenced by NaaS Technology.
In following Sian Participation, the Hon. Doyle J also relied on the judgment of the Hon. Ramsay-Hale CJ in BPGIC Holdings Ltd (FSD unreported judgment 20 November 2023), who had earlier declined to follow Salford Estates. In BPGIC, the CJ stated that “The legislative policy in the Cayman Islands, unlike the UK following Salford Estates, is not that the Court should stay or dismiss a petition once the debt is disputed, but that it should inquire into the question of whether the debt is bona fide disputed on substantial grounds.”
In addition to the BVI and Cayman Islands, Bermuda will also surely follow Sian Participation because JCPC decisions on general common law issues unaffected by local statutes are binding on the Bermudian courts, even if the appeal to the JCPC originated from another jurisdiction such as the BVI or the Cayman Islands.
Where does this leave Hong Kong?
Hong Kong is quickly heading towards becoming the odd man out in the debate regarding whether insolvency or bankruptcy proceedings should be stayed or dismissed when the debt giving rise to the petition is disputed and subject to arbitration or an EJC.
Will the CFA overturn Guy Lam? This seems somewhat unlikely in circumstances where Guy Lam was decided only one year before Sian Participation. What seems more likely to occur – at least in the foreseeable future – is that Guy Lam might be interpreted and applied in a such a way that in practice it more closely accords with the approach in Sian Participation. For example, we might see the Hong Kong courts: (i) coming to the realisation that a petition, by its very nature, does not seek to, and does not, resolve or determine anything about the petitioning debt as such; and/or (ii) lowering the threshold for what constitutes a frivolous or abusive dispute, such that the disputed debt should not be sent to arbitration or litigation and thus allowing the petition to proceed. Such an approach by the Hong Kong courts would make the old adage ‘every single case is only ever won on the facts, even the ones that supposedly aren’t’ even more relevant.
A strict application of Guy Lam would risk leaving Hong Kong as the odd man out in the common law world. Further, a strict application of Guy Lam could put the Companies Court’s recent approach of liberally winding-up offshore companies in Hong Kong (as seen initially in Re Lamtex Holdings Limited [2021] HKCFI 622 and Re Up Energy Development Group Limited [2022] HKCFI 1329) in jeopardy and make insolvency proceedings in the BVI, Cayman Islands and Bermuda more attractive for petitioners (i.e. easier places to obtain winding-up orders). In fact, the CFA itself recognised in Guy Lam that the bluntness of its approach could be softened where “countervailing factors [exist] such as the risk of insolvency affecting third parties” [105] and/or “a creditor community [being] at risk” [102]. Such softening would, in effect, bring Guy Lam more in line with Sian Participation.
PS Singapore…
For the sake of completeness, it should be noted that, for the moment, Singapore is also still applying a Salford Estates / Lasmos type approach as laid down by the Singapore Court of Appeal in AnAn Group (Singapore) v VTB Bank [2020] 1 SLR 1158. The Singapore court will ordinarily dismiss the petition, or in exceptional circumstances, grant a stay of the proceedings against the debtor if (i) there is a valid arbitration agreement between the parties; and (ii) the dispute falls within the scope of the arbitration agreement, provided that the dispute is not raised in abuse of process.
To date the issue of whether to follow Sian Participation has been side-stepped in Singapore, with Judge Aedit Abdullah concluding in Re Sapura Fabrication Sdn Bhd [2024] SGHC 241: “To sum up, it is evident from the overview above that the conflict between the international arbitration and insolvency regimes is not an easy one to resolve, as there exist potential arguments on both sides that the one should trump the other. However, as it is not necessary to resolve the matter in the present case, I leave further arguments and a conclusive decision to be made on a future occasion”.
The appeal in Re Sapura was dismissed by the Singapore Court of Appeal ([2025] SGCA 13) and the issue of whether not to follow Sian Participation was further side-stepped. The Court of Appeal, however, did expressly refer to the decision in Sian Participation at [6] and stated at [99] that in the circumstances of the case before it “we also do not think it necessary at this juncture to revisit our decision in AnAn” (emphasis added).
Nonetheless, given Singapore’s strong desire to do the needful to make itself an attractive destination for restructuring and insolvency cases and the nation state’s ‘top down’ policy approach, one can expect Sian Participation to become the law of the city-state as soon as practicable notwithstanding Singapore’s pro-arbitration stance. When that happens, Hong Kong will be all alone…
PS2 – And what became of Mr Guy Lam?
Whilst Mr Guy Lam was able to stave off bankruptcy in 2024 following the CFA’s decision in Guy Lam, his luck finally ran out on 24 March 2025, when the Companies Judge, the Hon. Linda Chan J, adjudged him bankrupt in Re Guy Kwok Hung Lam [2025] HKCFI 1220 based on a substantial unpaid costs order.
The costs order was made by the Companies Court on 21 July 2021 in HCMP 1647/2020, which had been commenced by the out of court appointed receivers (from FTI) of Mr Guy Lam’s company (CP Assets Ltd) to compel Mr Guy Lam to deliver up and provide access to the books, records and assets of the company. At the outset of the hearing on 21 July 2021, upon the learned Judge’s invitation, Mr Guy Lam consented to the receiver’s delivery up application and costs were ordered against him.
In adjudging Mr Guy Lam bankrupt almost four years after the costs order was made, the Companies Judge held in Re Guy Kwok Hung Lam [2025] HKCFI 1220 at [46] that “As Lam is unable to pay the Debt [costs order] and has failed to discharge the burden of showing that there is a bona fide dispute on substantial grounds in respect of the Debt, Ps are entitled to seek an immediate order against him.”
Coincidentally, James Wood represented the receivers at the hearing on 21 July 2021 that gave rise to the substantial unpaid costs order which ultimately sealed Mr Guy Lam’s fate.
[1] See Thomas WK Wong, To stay or not to stay: the English approach to (not) staying petitions presented despite exclusive jurisdiction clause (“EJC”), originally published in Issue 14 of ThoughtLeaders4 FIRE Magazine; available also at https://www.twentyessex.com/to-stay-or-not-to-stay-the-english-approach-to-not-staying-petitions-presented-despite-exclusive-jurisdiction-clause-ejc/.
Authors: James Wood, Thomas Wong.
James Wood
James is a seasoned advocate with more than 25 years of experience. He is particularly recognised for his expertise in restructuring and insolvency cases and commercial fraud and financial disputes, including disputes involving asset tracing and recovery. His cases are usually substantial in value and cross-border in nature, involving legal proceedings in forums around the world. He has been ranked in Legal500 and Chambers & Partners and is qualified to practice in Hong Kong, England and the BVI. Before joining the Bar, James was a financial services and disputes lawyer with Freshfields, Goldman Sachs, O’Melveny & Myers, and most recently a Solicitor Advocate and Partner at Lipman Karas (Karas So in association with Mischon de Reya).
View James’s profile.
Thomas WK Wong
Thomas is a Barrister called to the Hong Kong and English Bars, and one of a handful who maintains an active and vibrant practice in both jurisdictions. He has a broad Commercial, Company / Insolvency (including Offshore) litigation, and arbitration practice. He is member of Denis Chang’s Chambers in Hong Kong and Twenty Essex in London.
Thomas’s cases often involve parties from the PRC and Hong Kong. Indeed, he has more than a decade’s experience serving clients in Hong Kong, the Greater China Region and internationally. He also has considerable experience in Company / Insolvency matters including in Offshore jurisdictions, and Hong Kong Chancery matters. In particular, he has been acting as a led junior in the Cayman Islands and the BVI, and will be fighting a 2-month Company trial before the Cayman Grand Court in June and July. His work has been recognised by his ranking as a Leading Junior (Tier 2) in Hong Kong Bar – Commercial Disputes for five consecutive years to date, as well as a Rising Star in The English Bar Offshore – Commercial Disputes, both by Legal 500.
Thomas is a FCIArb and FHKIArb, and is on the HKIAC’s List of Arbitrators as well as the SIAC’s Reserve Panel of Arbitrators. He is sitting as arbitrator in multiple arbitrations, and has also sat as Deputy District Judge.
View Thomas WK Wong‘s profile for more details.
This article was first published on 9 May 2025.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.