New developments in Cross-border Insolvency between Hong Kong and the PRC

There have been new and much welcomed developments in the area of cross-border insolvency between Hong Kong and the PRC. Traditionally, a foreign liquidator (such as a Hong Kong court appointed liquidator) often faces difficulties for him to be recognised in the PRC and to carry out his work in the Mainland, even though the company to which he was appointed a liquidator is the parent company of the PRC operating subsidiaries, or where the assets in the Mainland clearly belonged to the liquidated company. A breakthrough came in May 2021 when the Vice-President of the Supreme People’s Court of the PRC and the Hong Kong Secretary of Justice signed a Record of Meeting, setting out a consensus on the mutual recognition and assistance to insolvency proceedings between the PRC and Hong Kong.  Initially, this new arrangement will apply to the Intermediate People’s Court in three pilot areas, namely Shanghai, Xiamen and Shenzhen, with a view to expanding the areas progressively.

Under the arrangement, certain requirements must be satisfied in order for Hong Kong insolvency proceedings to recognised in the PRC. One notable requirement is that the liquidated company must have a centre of main interests (COMI) in Hong Kong for at least 6 months at the time of the recognition application. COMI is generally considered to be the place of incorporation, but may also include considerations as the place of business, principal office and assets.

There have been some recent judgments in Hong Kong which have provided guidance on the operation of mutual arrangement between Hong Kong and the PRC Courts recognising each other’s liquidators.

In the judgments of Re Joint and Several Liquidators of Ozoner Water International Holding Ltd (in liquidation) [2022] HKCU 940, Re Edward Simon Middleton and Others [2022] HKCU 352 and Re Samson Paper Company Limited [2021] HKCFI 2151, the Hong Kong Court in each case granted an application by the liquidators to issue a letter of request to the Shenzhen Intermediate People’s Court to recognise the liquidators and grant them assistance, pursuant to the mutual arrangement. In Harris J’s judgments, he set out the principles for such an application of a letter of request to be issued to the PRC Court.

For instance, in addition to the requirement that the company’s COMI must be in Hong Kong, the Court would also consider whether the company’s assets which the liquidators wish to have control over are in the PRC in order to ensure that the PRC Court is the most appropriate forum to decide the liquidators’ powers over such assets.

Following the decisions in Hong Kong to issue a letter of request for recognition and assistance to the PRC Court, there has only been one case (Samson Paper Company Limited) so far where the Shenzhen Intermediate People’s Court allowed the Hong Kong liquidators to be recognised in the PRC and be provided with assistance. This may not come as a surprise because it is clear that Samson Paper Company Limited’s COMI is in Hong Kong where it was incorporated.  It remains to be seen whether the PRC Court will similarly grant recognition and assistance to the Hong Kong liquidators of Ozoner Water International Holding Ltd, which was incorporated in the Cayman Islands.

28 March 2022
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