Cross-border insolvency between Mainland China and Hong Kong can create unique and complex challenges. Recent case law highlights the special features on the area and provides a better understanding on the court’s consistent approach in Hong Kong when dealing with an application to recognize and assist administrators appointed by the Mainland courts.
In the case of Re China Electronics Leasing Company Ltd (in Liquidation in the Mainland of the People’s Republic of China) (28/11/2024, HCMP 1676/2024) [2024] HKCFI 3457, an ex parte application was made by the administrators appointed by the Beijing No.3 Intermediate People’s Court (北京市第三中级人民法院) (“Beijing Court”) over a company incorporated in Mainland China. The application was made under the inherent jurisdiction of the court as the company involved was not a company wound up in Hong Kong, i.e. the provisions under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) had no application.
The principles governing an application for recognition of foreign insolvency proceedings and assistance to foreign office-holders as summarized in Re Guangdong Overseas Construction Corporation (In Liq) [2023] 3 HKLRD 262 at §17 were cited in Re China Electronics Leasing Company Ltd:
- The power at common law to recognise and assist foreign office-holders does not depend on winding up proceedings having been commenced against the company in the assisting court, as the court is asked to recognise the office-holder appointed in the place of incorporation as the lawful agent in accordance with the principles of private international law.
- The applicant has to satisfy the court that:
(a) the foreign insolvency proceedings are collective insolvency proceedings which include proceedings opened in a civil law jurisdiction;
(b) the foreign insolvency proceedings are conducted in the jurisdiction in which the company’s centre of main interest is located; and
(c) the assistance is necessary for the administration of a foreign winding up or the performance of the office-holder’s functions, and the order is consistent with
the substantive law and public policy of the assisting court so it is not available for purposes which are properly the subject of other schemes. - As to the extent and terms of assistance to be provided to the office-holder, the authorities show that the court has granted assistance to a foreign office-holder (a) to take control of the assets of the company; (b) to stay the local proceedings against the assets of the company; and (c) to obtain and gather information and documents relating to the company from third parties.
In fact, by virtue of a consensus reached between the Supreme People’s Court and the Government of Hong Kong on 14 May 2021, there has been a cooperation mechanism for mutual recognition of and assistance to insolvency proceedings between the courts of Hong Kong and the Mainland courts (collectively referred to as the “Cooperation Mechanism”) under three key documents:
- Record of Meeting of the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region on Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region (《最高人民法院與香港特別行政區政府關於相互承認及協助內地與香港特別行政區法院破產（清算）程序的會議記錄》) signed on 14 May 2021 (“Record of Meeting”);
- The Supreme People’s Court’s Opinion on Taking Forward a Pilot Measure in relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region (《最高人民法院關於推動香港特別行政區破產（清算）程序承認與協助試點措施的意見》) (“SPC’s Opinion”), which sets out the legal procedures for administrators appointed by the Hong Kong court to seek recognition and assistance from Mainland courts in three pilot areas only (Shanghai, Xiamen and Shenzhen) for Hong Kong insolvency proceedings; and
- Procedures for a Mainland Administrator’s Application to the Hong Kong SAR Court for Recognition and Assistance – Practical Guide (《內地管理人向香港特別行政區法院申請承認與協助的程序 – 實用指南》) (“Practical Guide”) issued by the Department of Justice (Hong Kong), which outlines the steps for Mainland administrators to apply to the Hong Kong court for recognition of Mainland insolvency proceeding.
However, as confirmed in a number of recent cases (such as Re Guangdong Overseas and Re 銀河天成集團有限管理人 (01/08/2024, HCMP 658/2024) [2024] HKCFI 2016), the said documents under the Cooperation Mechanism only provide a framework for assistance, to the extent that they do not confer additional jurisdiction to the court in Hong Kong.
This was confirmed in Re China Electronics Leasing Company Ltd. In that case, the request for assistance was made by the Beijing Court, which was not a court in the pilot areas under the Cooperation Mechanism. It was re-confirmed by the Hong Kong court that “non-reciprocity” would not be a factor that would militate against the exercise of the power to recognise and assist insolvency proceedings in another jurisdiction. Reciprocity is not a requirement for recognition and assistance under common law, and the issue as to whether it is appropriate for a court outside the pilot areas to apply for recognition and assistance is a matter for the Mainland courts (Re HNA Group Co., Ltd [2021] HKCFI 2897, §9; Re Guangdong Overseas, §§19-20). The power of the court to recognize and assist office-holders appointed by a court of another jurisdiction in Hong Kong derives from common law, and the approach of the court is to ask whether the criteria for recognition and assistance are satisfied by the applicant (Re Guangdong Overseas, §21).
In Re China Electronics Leasing Company Ltd, although there was a considerable and inordinate delay (of more than 3 years since the Letter of Request was first granted) on the part of the administrators in making the application for recognition and assistance and the stance of the relevant bank in Hong Kong holding credit balances for the Mainland company in liquidation was unknown, the court eventually held that it was in the interest of the creditors to make an order sought in Hong Kong. Nonetheless, parties and practitioners are reminded that, in future, the court in Hong Kong expects the office-holders appointed by the court of another jurisdiction to act promptly shortly after the letter of request has been issued, and to apply for recognition and assistance only when necessary (for example, once the bank has indicated its stance etc.).
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