Bulletins | November 3, 2023

Zhang Zhenxin (Deceased); Eternity Sky Investments Ltd v The Estate of Zhang Zhenxin (Deceased) and Anor

The judgment of Chief ICC Judge Briggs in Re Zhang Zhenxin (Deceased); Eternity Sky Investments Ltd v The Estate of Zhang Zhenxin (Deceased) and Anor [2023] EWHC 2744 (Ch) is of interest because, as the judge himself remarked, there is little authority on the appointments of interim receivers in cases of individual insolvency; and for that matter there is little on the administration of the estates of deceased insolvents, that being the condition of the debtor in this case.

Eternity Sky Investments Ltd, a BVI incorporated company, although ultimately part of  the investment arm of a large group of companies incorporated in the People’s Republic of China, presented a petition pursuant to the Administration of Insolvent Estates of Deceased Persons Order 1986 seeking an order for administration of the estate of Zhang Zhenxin. Eternity Sky claimed to be a creditor for in excess of £52 million based on personal guarantees given in 2016 of the liabilities of Chong Sing Holdings FinTech Group Ltd in connection with a bonds issue. Chong Sing was wound up by the court in the Cayman Islands in 2020. Mr Zhang, it was said, had resided in London for the greater part of six months before his death; his beneficiary, Mrs Zhang, was domiciled in London, having become a British citizen and renounced her Chinese nationality. She argued that the petition debt was unenforceable under the laws of the PRC because demand under the guarantee had only been made after Mr Zhang’s death, but a court decision in China appears to have disposed of that argument before the matter came before Chief Judge Briggs, and the Commercial Court had affirmed enforcement in 2023.

Eternity Sky applied for the appointment of an interim receiver on the basis that Mr Zhang’s estate was not being properly administered: in particular, two major assets had been disposed of without regard to the interests of creditors.

There was no firm evidence about the assets and liabilities of the deceased. The petitioner’s evidence was that the deceased’s estate was likely to be insolvent, having a total value of £70 million odd but liabilities of £273 million odd. Mrs Zhang put in no evidence to challenge those estimates.

Judge Briggs’s starting point was, inevitably, s 286 Insolvency Act 1986 which gives the court a discretionary power to appoint an interim receiver “if it is shown to be necessary for the protection of the debtor’s property, at any time after the presentation of a bankruptcy petition and before making a bankruptcy order.”

The petitioner argued that the principles in American Cyanamid Co v Ethicon Ltd applied, as they did where an interim injunction was sought. It also relied on HMRC v Rochdale Drinks Distributions Ltd. In that case Rimer LJ held that:

  • the power to appoint an interim receiver of a company was “a most serious step” (especially where the company was trading) but was “a broad and general one;”
  • the court was not engaged in making a final decision (Re Union Accident Insurance);
  • a useful working approach was to ask whether the petitioner appeared “likely to obtain a winding-up order on the hearing of [the] petition;”
  • the overriding principle was that the court should take whichever course seemed likely to cause the least irremediable prejudice to one party or the other: that included taking into account the prejudice which the petitioner might suffer if the remedy were not granted or the defendant might suffer if it were; the likelihood of such prejudice actually occurring; the extent to which it might be compensated by an award of damages or enforcement of a cross-undertaking in damages; the likelihood of either party being able to satisfy such an award; and the likelihood that the remedy might turn out to have been wrongly granted or withheld, “that is to say, the court’s opinion of the relative strength of the parties’ cases: see National Commercial Bank Jamaica Ltd v Olint Corp Ltd .”

Chief ICC Judge Briggs went on to consider how those principles applied to the facts of the case before him.

He concluded, first, that, in spite of “[a]n obvious concern for the court…where it is not presented with all the factual circumstances,” a situation with which the courts were not infrequently faced, so that they had to “make a value judgment on the available evidence,” a number of factors favoured granting relief: (i) the lack of visibility as to the extent and value of the estate; (ii) the failure to provide information and undertakings (in any form) when requested to do so by the petitioner; (iii) the post death transactions relied on by the petitioner; and (iv) an expressed intention to continue to deal with the assets of the estate without reference to all stakeholders.

Secondly, he concluded that the defence to the guarantee claim, and other maters raised on behalf of the estate,  failed to meet the threshold of being serious and genuine.

Thirdly, he held, on the basis of the petitioner’s unchallenged evidence, that the estate was balance sheet insolvent.

He rejected an argument that granting relief would cause disruption to the assets in the estate and give rise to prejudice.

He went on to say:

“As well as protecting the assets of the deceased[’s] estate, the appointment of interim receivers may provide protection of sorts for those involved in the corporate governance of corporate bodies in which the deceased holds an interest, if a dealing is done with the oversight and agreement of receivers.

In these circumstances the prejudice of a failure to protect by appointment it is greater than the potential prejudice to the estate of not appointing an interim receiver.”

In all the circumstances the exercise of the court’s discretion pointed to making the order sought.

There was also some argument about the potential costs of the interim receiver: Mrs Zhang argued that an order should be made for expert evidence. The judgment records that Mrs Zhang succeeded on that point, but an estimate provided in the form of written submissions made after the hearing indicated that the costs were likely to be between £80,000 – £140,000 + VAT. Judge Briggs thought they were not “so disproportionate as to act as a brake on the appointment” sufficient to outweigh the need for protection of the estate. In any event, as he noted, “[the] remuneration of interim receivers is governed by the 2016 Insolvency Rules r 10:53: it must be fixed by the court. Although this will not allay fears of high costs, the deceased’s estate is able to take some comfort from the scrutiny applied by the court.”

An order for the appointment was accordingly made and provision made for submissions as to the scope of the interim receiver’s powers.