Recognition of HONG KONG INSOLVENCY PROCEEDINGS IN MAINLAND CHINA
Legal Era|December 2020
A TEST CASE IN THE MAKING?
Naomi Moore, Daniel L. Cohen, Jeremy Haywood, Jessica Lambach, Jingli Jiang

RE ANDO PAVES THE WAY FOR A LONG-AWAITED TEST CASE, WHICH HAS EMERGED AT A TIME WHEN A PROPOSED FRAMEWORK FOR COOPERATION BETWEEN COURTS IN HONG KONG AND MAINLAND CHINA IN CROSS-BORDER CORPORATE INSOLVENCY MATTERS IS IN DEVELOPMENT.

In Re Ando Credit Limited [2020] HKCFI 2775 (“Re Ando”), the Hong Kong Companies Court recently appointed provisional liquidators over a Hong Kong company, Ando Credit Limited, in novel circumstances with potentially significant consequences. According to the Court’s written reasons dated November 11, 2020 (published in light of the unprecedented nature of the decision), the provisional liquidators were appointed at a hearing on October 23, 2020, for the express purpose of enabling them to seek recognition in Mainland China to facilitate the recovery of very substantial receivables owed to the company by Mainland China-based debtors.

Earlier this year, prior to Re Ando, the Hong Kong Companies Court recognized Mainland China-appointed insolvency officeholders for the first time.1 With the growing number and significance of corporate bankruptcies in Mainland China, one important but unanswered question for international investors and the restructuring community is whether courts in Mainland China are willing and able to reciprocate by recognizing and granting assistance when needed to insolvency officeholders appointed in Hong Kong. Re Ando paves the way for a long-awaited test case, which has emerged at a time when a proposed framework for cooperation between courts in Hong Kong and Mainland China in cross-border corporate insolvency matters is in development.

THE CURRENT CROSS-BORDER RECOGNITION FRAMEWORK

At the outset, we note that neither Hong Kong nor Mainland China has adopted the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”), an international framework for determining cross-border insolvency matters that has so far been adopted by 51 jurisdictions around the globe,2 although the Hong Kong government has commissioned a consultancy study on the feasibility of adopting the Model Law.

HONG KONG

In fact, Hong Kong has no statutory framework at all for dealing with cross-border insolvency matters. Instead, in recent years, the Hong Kong courts have adopted and developed the following core common law principles:

1. The court can recognize collective insolvency proceedings (being a process of collective enforcement of debts for the benefit of the general body of creditors) commenced in a company’s place of incorporation outside Hong Kong.

2. The court can also grant assistance in Hong Kong to overseas insolvency officeholders in a recognized foreign insolvency proceeding.

3. The court’s power to grant assistance is only available to the extent necessary for the performance of an overseas insolvency officeholder’s functions and cannot enable the officeholder to do something that he or she could not do under the laws of the jurisdiction in which he or she was appointed. An overarching requirement is that an order granting assistance must be consistent with the substantive law and public policy of Hong Kong.

Under these common law principles, insolvency officeholders appointed in Australia, Bermuda, the British Virgin Islands, the Cayman Islands and Japan have been recognized and granted assistance in Hong Kong. Significant strides towards enhanced cooperation between Hong Kong and Mainland China in corporate insolvency matters were taken earlier this year when, for the first time in the CEFC case, Mainland China was added to this list.

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