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Since the signing of a record of meeting concerning mutual recognition of and assistance to insolvency proceedings between the courts of Mainland China and Hong Kong in May 2021, there have been a number applications for letters of request to be issued by the Hong Kong Court to the Bankruptcy Court of the Shenzhen Intermediate People’s Court.  The recent case of Re Hong Kong Fresh Water International Group Limited (In Liquidation) [2022] HKCFI 924 featured another application for recognition and assistance by Hong Kong liquidators in Mainland China, but this was the first application for a letter of request to be issued to the Shanghai No. 3 Intermediate People’s Court (Shanghai Court).

The Cooperation Mechanism provides a procedure for mutual recognition of insolvency processes and office holders by the High Court of Hong Kong and the Intermediate People’s Courts in three pilot cities: Shenzhen, Shanghai and Xiamen.

The two important documents under the Cooperation Mechanism are (i) the Record of Meeting of the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region and Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Court of the Mainland and the Hong Kong Special Administrative Region” (Record of Meeting), and (ii) the Supreme People’s Court’s “Opinion on taking forward a pilot measure in relation to Recognition and Assistance to Bankruptcy (Insolvency) Proceedings in the Hong Kong Special Administrative Region” (SPC Opinion). Our article, Hong Kong’s first application for recognition of and assistance to liquidators in Mainland China, set out details of the application requirements and procedures.

Background

Hong Kong Fresh Water International Group Limited (Company) was incorporated in Hong Kong. It is part of a group headed by Ozner Water International Holding Limited (Parent), which is incorporated in Cayman and listed in Hong Kong. The Company’s main assets in the Mainland are its shareholding in subsidiaries incorporated in Shanghai. Both the Parent and the Company are in liquidation in Hong Kong.   

The same parties were appointed as liquidators of the Parent on 16 April 2021, and as liquidators of the Company on 27 July 2021 by the Hong Kong Court. There was a pressing need for the liquidators to control the Shanghai subsidiaries, as investigations showed that the management of the Shanghai subsidiaries had apparently diverted the Shanghai subsidiaries’ business and continued to use the association with the Parent as a listed entity, whilst ignoring the liquidators’ requests for information. The liquidators had to obtain recognition and assistance in the Mainland in order to deal with the Company’s substantial assets in the Mainland, especially the Shanghai subsidiaries.  

Application for a letter of request

The Honourable Justice Harris referred to his decision in Re Samson Paper Co Ltd (in Creditors’ Voluntary Liquidation) [2021] HKCFI 2151), which set out the principles governing the grant of a letter of request and the procedure for recognition specified in the SPC Opinion, and held that the granting of a letter of request in the present case was consistent with the principles in the Record of Meeting and the SPC Opinion. In particular, although the Company was not incorporated in Hong Kong, Hong Kong is the centre of main interests of the Company, where the Parent was listed. Further, the Court held that the centre of main interests of the Company had been in Hong Kong for more than 6 months prior to the application being made.

Comments

This is yet another case in which a letter of request has been issued to a Mainland court for Hong Kong liquidators to obtain recognition and assistance in the Mainland. We anticipate that, as parties grow used to the procedure, there will be more applications for letters of request to the Shanghai Court, and eventually the system will be opened up to courts beyond the three pilot cities.

WRITTEN BY

Deacons
For further information, please contact:

Richard Hudson – Partner, Deacons
richard.hudson@deacons.com

Richard specialises in litigation and dispute resolution and has extensive experience of a broad range of litigation matters, including contentious insolvency, regulatory and investigatory matters, contentious probate, employment, professional indemnity and disciplinary matters, shareholders’ and partnership disputes and major commercial cross-border litigation.

Richard regularly advises office holders and creditors in relation to all aspects of contentious personal and corporate insolvency matters and companies and individuals in relation to criminal and regulatory investigations and proceedings, disciplinary action and internal investigations involving fraudulent employee conduct. Richard has experience of investigations and proceedings brought by the ICAC, the SFC (most notably investigations in relation to the alleged mis-selling of minibonds), the FEHD, the HKICPA and the Law Society of Hong Kong (most notably, acting as the intervention agent for solicitors’ firms closed by the Law Society).

Richard also regularly advises clients in relation to the enforcement of foreign gambling debts in Hong Kong and generally in relation to the operation of Hong Kong laws relating to gambling.

Highlights

  • Acting for the trustees in bankruptcy of the estates of two former high net worth individuals, including bringing successful applications for the examination of individuals who have knowledge of their affairs and to object to their discharge from bankruptcy at the end of the 4 year bankruptcy period.
  • Acting for a North American retail conglomerate in successfully obtaining Norwich Pharmacal discovery orders and related anonymity and gagging orders against a bank in respect of a fraudulent scheme being run by its employees pursuant to which they received kickbacks from manufacturers of products sold by the client.
  • Advising Limited Partners of a Cayman fund in relation to misfeasance by the General Partner and fund manager. This highly complex matter involves questions of Hong Kong and Cayman law in the area of trusts, funds, insolvency and directors’ duties.
  • Obtaining an injunction in Hong Kong in support of foreign divorce proceedings to freeze funds which the client’s husband was attempting to hide from her and the foreign court, and to obtain an extended gagging order to enable the client to obtain injunctions in different jurisdictions simultaneously.
  • Acting for the Hong Kong liquidator of a property holding company incorporated in the British Virgin Islands in relation to litigation concerning the beneficial ownership of the proceeds of sale of properties formerly owned by that company, which are subject to proprietary and secured claims.

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