Application of the Cooperation Mechanism for cross-border insolvency proceedings where request for recognition and assistance is initiated by a Mainland court outside the Pilot Areas

In the recent case of Re Guangdong Overseas Construction Corporation [2023] HKCFI 1340, the Court of First Instance (the “CFI“) offered useful guidance on the consensus for mutual recognition of and assistance to insolvency proceedings between the courts of the Mainland and Hong Kong (the “Cooperation Mechanism“).  Since the Cooperation Mechanism came into place in 2021, the Hong Kong court had only recognised and provided assistance to the administrators appointed by the courts in the Mainland in two instances in Re HNA Group Co., Ltd [2021] HKCFI 2897 and Re Peking University Founder Group Company Limited [2021] HKCFI 3817.

In the present case, the administrator appointed by the Guangzhou Intermediate People’s Court of Guangdong Province (the “Guangzhou Court“) over Guangdong Overseas Construction Corporation (the “Company“), a company established in the Mainland, applied for recognition and assistance from the Hong Kong court.  The CFI considered whether the Guangzhou Court, which is a court outside the 3 Pilot Areas designated by the Supreme People’s Court [1], may initiate a request for assistance to the Hong Kong court in light of the terms of the Cooperation Mechanism.

The CFI first reiterated that the jurisdiction to recognise and assist foreign office-holders appointed by a court of another jurisdiction derives from common law.  The Cooperation Mechanism and the “Procedures for a Mainland Administrator’s Application to the Hong Kong SAR Court for Recognition and Assistance – Practical Guide” (the “Practical Guide“) only serve the purpose of prescribing the procedure and the manner in which an application is to be made.  As such, even though the Cooperation Mechanism does not extend to a Mainland court outside the Pilot Areas (such as the Guangzhou Court in the present case), this would not be a factor taken into account by the court since reciprocity is not a requirement for recognition and assistance under common law, and it would be for the Supreme People’s Court to decide whether it is appropriate for courts outside the Pilot Areas to apply for recognition and assistance from the Hong Kong court.  With that said, the CFI noted that, as a matter of practice and to ensure consistency, applicants seeking recognition and assistance should follow the Practical Guide when a letter of request is issued by a court outside the Pilot Areas in the future.

Having considered the above principles, the CFI granted an order to recognise the liquidation of the Company and the appointment of the administrator, and to provide the necessary assistance to the administrator, being satisfied that:

  1. The insolvency proceeding of the Company is a collective insolvency proceeding under the supervision of the Guangzhou Court;
  2. The insolvency proceeding is conducted in the Mainland, which is both the place of incorporation of the Company and its centre of main interest;
  3. The Company has valuable asset in Hong Kong which necessitated assistance for the administrator to carry out his duties; and
  4. The order made is consistent with the substantive law and public policy of the court.

To conclude, the fact that a request for recognition and assistance is initiated by a Mainland court outside the Pilot Areas does not prevent the Hong Kong court from exercising its common law jurisdiction to provide assistance.  After all, the test adopted by the court is to assess whether the criteria for recognition and assistance are satisfied on a case-by-case basis.

[1] Namely, the People’s Courts in Shanghai Municipality, Xiamen Municipality in Fujian Province and Shenzhen Municipality in Guangdong Province.

7 June 2023
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