First Letter Of Request From Hong Kong To Mainland China For Recognition And Assistance In Cross-Border Insolvency.

Cooperation mechanism
 

The new cooperation mechanism between Mainland China and Hong Kong in corporate insolvency and debt restructuring matters came into effect on 14 May 2021 (‘cooperation mechanism’) through:
 

1. The ‘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 the Hong Kong Special Administrative Region'; and 
    

2. ‘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’, which designates Shanghai, Xiamen and Shenzhen as the three pilot areas for implementing the mechanism in Mainland China.
    

This is the ninth arrangement signed between Mainland China and Hong Kong on legal assistance in civil and commercial matters. 
 

For details, please see our previous updates on the cooperation mechanism (see ‘update and trends’) and the development of judicial cooperation between the two jurisdictions. 
 

Case highlights
 

Samson Paper Company Limited (‘company’) is a Hong Kong incorporated company, which is part of a corporate group headed by the Hong Kong listed company Samson Paper Holdings Limited (stock code: 731). The company was placed into creditors’ voluntary liquidation by its shareholders on the grounds of insolvency.
 

The liquidators of the company applied to the Hong Kong Court for the grant of a letter of request to be issued to the Shenzhen Intermediate People’s Court seeking recognition of the liquidators’ appointment and powers, in order for the liquidators to collect and deal with the company’s assets in Shenzhen.
 

The Hong Kong High Court held that it was appropriate to issue a letter of request for the following reasons: 
 

• The company’s main interests were in Hong Kong; 

• The company had substantial assets in Mainland China, which were principally located in Shenzhen; 

• The liquidators had a duty to collect the company’s assets;

• The liquidators have an express statutory power to commence legal proceedings (in Hong Kong and elsewhere) to recover assets; and

• The assistance sought from the Shenzhen Court relates to conventional asset collection action.
   

In addition to a letter of request, the Hong Kong High Court stated that a judgment determining that a letter of request should be issued is also required before a Mainland court may consider any application from a Hong Kong appointed liquidator for recognition in Mainland China. 
 

Takeaways
 

This is a significant first step towards implementing the new cooperation mechanism between Mainland China and Hong Kong and paves the way for the formal recognition of a Hong Kong appointed liquidator by a Mainland Court for the first time. 
 

In the decision, the Hong Kong High Court also reiterated its willingness to reciprocate in a similar manner, as demonstrated in its two previous decisions – Re CEFC Shanghai International Group Ltd [2020] HKCFI 167 and Re Shenzhen Everich Supply Chain Co Ltd [2020] HKCFI 965 – where the Hong Kong Court granted recognition and assistance to Mainland bankruptcy administrators under the common law regime, prior to the cooperation mechanism coming into force.  
 

Hong Kong is currently the only jurisdiction to have established a cooperation mechanism for mutual recognition of and assistance to insolvency proceedings with Mainland China. The successful implementation of the cooperation mechanism provide Hong Kong’s insolvency practice a ‘shot in the arm’. As we have stated in our previous article, New era of judicial co-operation between Hong Kong and mainland China in cross-border insolvency within the Greater Bay Area, the recognition of Hong Kong insolvency office holders in Mainland China would undoubtedly reinforce Hong Kong's position as a major financial and debt restructuring centre. Judicial cooperation between the Hong Kong Courts and the Mainland Courts is essential for Hong Kong to maintain its status as one of the world’s leading financial centres and a true ‘gateway’ to Mainland China for many years to come.