On 14th May 2021, the Secretary for Justice of Hong Kong and the Vice-President of the Supreme People's Court (“SPC”) of the Mainland signed a record of meeting concerning mutual recognition of and assistance to insolvency proceedings between the courts of the Mainland and Hong Kong. For the full text of the record of meeting, please see the link below:-
https://www.doj.gov.hk/en/mainland_and_macao/pdf/RRECCJ_RoM_en.pdf
The SPC has initially designated Shanghai, Xiamen and Shenzhen as pilot cities for the Intermediate People’s Courts and the Hong Kong Courts to cooperate on mutual recognition of and assistance to bankruptcy (insolvency) proceedings.
A set of opinion and a practical guide will be issued respectively by the SPC and the Hong Kong Government in respect of their relevant work on this matter.
What type of recognition and assistance?
A liquidator or provisional liquidator in Hong Kong may apply to the appropriate Intermediate People's Court for recognition of:-
- compulsory winding-up proceedings;
- creditors' voluntary winding-up proceedings;
- corporate debt restructuring proceedings;
- his office as a liquidator or provisional liquidator; and
- grant of assistance for discharge of his duties.
Similarly, an administrator in Mainland bankruptcy proceedings may apply to the High Court of Hong Kong for recognition of:-
- bankruptcy liquidation;
- reorganisation and compromise proceedings under the Enterprise Bankruptcy Law (“EBL”) of the PRC;
- his office as an administrator; and
- grant of assistance for discharge of his duties as an administrator.
For details of how to make the application, please see the practice guide in the link below:-
https://www.doj.gov.hk/en/mainland_and_macao/pdf/RRECCJ_practical_guide_en.pdf
Limitations on recognition and assistance
According to the SPC's Opinion (“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 (which includes compulsory winding-up proceedings, creditors’ voluntary winding-up proceedings and corporate debt restructuring proceedings commenced in accordance with the Companies (Winding-Up and Miscellaneous Provisions) Ordinance (Cap. 32) and the Companies Ordinance (Cap. 622)), a people's court shall refuse to recognise or assist the Hong Kong Insolvency Proceedings in the following circumstances:-
- the centre of main interests of the debtor is not situated in Hong Kong or it has been situated in the Hong Kong for less than six months continuously;
Centre of main interests" referred to in the Opinion generally means the place of incorporation of the debtor. At the same time, the relevant people's court shall take into account other factors of the debtor including but not limited to the following:-
- the place of principal office
- the principal place of business
- the place of principal assets
- Article 2 of the EBL not satisfied;
- Mainland creditors are unfairly treated;
- there is fraud;
- there is any other circumstance where the people’s court considers that recognition or assistance shall not be rendered in particular if it considers that such recognition or assistance violates the basic principles of the law of the Mainland or offend public order or good morals.
Previously, differences in the insolvency regimes between Hong Kong and the Mainland have proved to be a major obstacle to the mutual recognition of and assistance to insolvency proceedings and liquidation. This a welcomed latest development as it facilitates and encourages debt restructuring and the rescue of financially troubled businesses as well as providing better protection of the assets of the debtor company which will in turn protect the interest of the creditors. Further guidance on this framework is eagerly anticipated.
