Introduction
In recent years, China has actively engaged in international investment and regional cooperation.According to data from the official website of the Ministry of Commerce,PRC ，from January to April 2025,Chinese domestic investors conducted non-financial outward foreign direct investments in 5,116 enterprises across 145 countries and regions worldwide, with a total investment amount of USD 51.04 billion,marking a 6.8% increase. With the rapid development of China’s cross-border investments, the issue of breaking through the relatively lagging and conservative state of cross-border bankruptcy systems has been prioritized to effectively protect Chinese enterprises investing overseas.
Against the backdrop of global economic cyclical adjustments and industrial optimization and upgrading, cross-border bankruptcy has become a new norm in transnational economic activities. As cross-border bankruptcy cases continue to rise, seeking judicial cooperation in cross-border bankruptcy becomes inevitable. The primary objective of cross-border bankruptcy judicial cooperation is to better safeguard the legitimate rights of all parties involved, avoid overlap and conflicts between cross-border bankruptcy procedures, provide timely and effective judicial remedies, and maximize the value of bankrupt assets. How to effectively promote international economic exchanges while striking a balance between protecting creditors’ interests and fostering judicial cooperation in cross-border bankruptcy proceedings is a practical challenge faced by national bankruptcy legal systems and judicial practices.
I. The Practice and Exploration of China’s Early Cross-Border Bankruptcy System
A. Initial Attempts: Cooperation between Mainland and Hong Kong
In the late 1970s, China initiated its reform and opening-up policy, fostering significant conditions for the cross-border movement of investments and trade, thereby impacting cross-border bankruptcy.
In 1984, the Millie’s Group in Hong Kong declared bankruptcy due to mismanagement. This group had previously collaborated with a real estate company in Shenzhen, and its assets from the earliest residential development project in Shenzhen’s Luohu District needed liquidation by the Hong Kong court. After negotiations with the Shenzhen municipal government, the bankruptcy liquidator in Hong Kong reclaimed the Millie’s Group’s investment in the joint venture through a share transfer. A similar case occurred in 1983 when the Hong Kong holding company of South Ocean Textile Trading Co., Ltd. declared bankruptcy due to poor management. The bankruptcy liquidator, following negotiations with the Shenzhen government, recovered the company’s investment in Shenzhen through a share transfer. In response to such practices, the Standing Committee of Guangdong Provincial People’s Congress enacted the Regulations on Foreign-Related Companies in Guangdong Province Special Economic Zone and the Shenzhen Special Economic Zone Bankruptcy Regulations for Foreign-Related Companies in 1986. These regulations allowed foreign investors, with administrative approval, to realize domestic assets through share transfers. After clearing domestic debts with the proceeds, foreign investors could retrieve their investments in China. While these regulations addressed urgent issues in the field of cross-border bankruptcy at the time, they did not recognize the effectiveness of foreign bankruptcy procedures and the rights of their representatives. Notably, Article 5 of the Shenzhen Special Economic Zone Bankruptcy Regulations for Foreign-Related Companies explicitly denied extraterritorial effectiveness of foreign bankruptcy procedures in China.
On August 27, 2006, China’s legislative body passed the Business Bankruptcy Law of the PRC (hereinafter referred to as the “Bankruptcy Law“), marking the first legislative regulation of cross-border bankruptcy issues.
Article 5, Section 1, of the Bankruptcy Law addressed the issue of the extraterritorial effectiveness of domestic bankruptcy procedures in cross-border bankruptcy. Section 2 addressed the recognition and enforcement of foreign bankruptcy procedures. According to Section 2, a bankruptcy judgment made by a foreign court could be recognized and enforced by Chinese courts after examination. This established a legislative position of modified universalism under the reciprocity principle in China. This legislative milestone is considered a breakthrough in the history of China’s cross-border bankruptcy legislation.
B. Breakthrough Progress in Mainland China and Hong Kong Cross-Border Bankruptcy Cooperation
In response to industry expectations, the Supreme People’s Court of the PRC has actively promoted exploration into the recognition and assistance of cross-border bankruptcies in recent years. Multiple rounds of negotiations have been conducted with Hong Kong regarding cross-border bankruptcy cooperation between the two regions. Given the absence of a widespread cross-border bankruptcy cooperation system and limited judicial experience in Mainland China, leveraging cooperation between Mainland China and Hong Kong serves as a practical and feasible breakthrough point.
In recent years, several cross-border bankruptcy cases from Mainland China have gained recognition in the Hong Kong jurisdiction, allowing for cross-border collaboration. Examples include the bankruptcy cases of China CEFC Energy Co., Ltd and Shenzhen Nianfu Supply Chain Co., Ltd.
On May 14, 2021, after extensive negotiations, the two regions finally reached a phased agreement, signing the Minutes of the Meeting between the Supreme People’s Court and the Government of Hong Kong Special Administrative Region on Mutual Recognition and Assistance in Bankruptcy Proceedings by Courts of the Mainland and Hong Kong Special Administrative Region in Shenzhen. On the same day, the Supreme People’s Court issued the Opinions of Supreme People’s Court on the Pilot Program for Recognition and Assistance in Bankruptcy Proceedings of Hong Kong Special Administrative Region (hereinafter referred to as the “Opinions on Pilot Program“), initiating a landmark cooperative journey in cross-border bankruptcy systems between the two regions. Considering that Article 5 of the Bankruptcy Law only provides a principled framework for cross-border bankruptcy, the Opinions on Pilot Program represent the first detailed regulations in Mainland China regarding cross-border bankruptcy procedures.
Following the promulgation of the Bankruptcy Law and the Opinions on Pilot Program, the first case processed under the collaborative mechanism between Mainland China and Hong Kong was the Samson Paper Co. Ltd bankruptcy case in Hong Kong. The significance of this case lies in its response to internationally acclaimed issues in cross-border bankruptcy recognition and assistance, addressing the legitimacy of foreign bankruptcy procedures, the rule of the debtor’s main interest center, the complex legal relationships intertwining substantive and procedural content in cross-border bankruptcy procedures, and the core rules of recognition and relief in cross-border bankruptcies.
As China actively participates in international investment and regional cooperation, the demand for institutional safeguards has become more urgent in the context of the high-quality development of the domestic and international dual-circulation economy. Against this backdrop, establishing a cross-border bankruptcy cooperation mechanism has become a pressing institutional need. The close economic and trade ties and mature regional judicial cooperation between Mainland China and Hong Kong naturally become a breakthrough in the exploration of cross-border bankruptcy systems. The Samson case, as China’s first cross-border bankruptcy recognition and assistance case, not only responds positively to the investment and trade needs between the two regions but also provides practical support for breaking the ice in the institutional cooperation of cross-border bankruptcies. From a national perspective, it signifies collaborative progress in the integration of the Guangdong-Hong Kong-Macao Greater Bay Area, promoting asset circulation, and reducing institutional costs within the region. From an international standpoint, it reflects China’s efforts to build a more inclusive and open business environment, emphasizing market-oriented, rule-of-law, and internationalized business practices.
II.The Impact of the Hanjin Shipping Bankruptcy Case on China’s Cross-Border Insolvency Legal Framework
On August 31, 2016, Hanjin Shipping Co. applied for bankruptcy reorganization to the Seoul Central District Court in South Korea, and on September 2 of the same year, the Korean court decided to initiate a reorganization procedure for Hanjin Shipping.
At that time, more than 4,000 creditors worldwide filed claims against Hanjin Shipping Co. in the bankruptcy court—the Seoul Central District Court in South Korea, including over 300 Chinese creditors. Hanjin’s bankruptcy administrators also sought bankruptcy protection from courts in several countries, including the United States, Japan, and the United Kingdom, and received varying degrees of relief and protection from these courts. The cooperation among countries in cross-border bankruptcy cases best reflects their policies regarding cross-border bankruptcy jurisdiction. After Hanjin Shipping’s bankruptcy administrators applied for bankruptcy protection from courts in the United States, Singapore, Japan, Canada, and other countries, each country, based on its foreign policy and national interests, took different measures to assist in the Hanjin Shipping bankruptcy cooperation case. These measures included actions like ship arrests, termination of maritime cargo transport contracts, or withdrawal of leased ships by overseas creditors. This not only caused significant losses to the debtor and other creditors but also posed challenges to the bankruptcy liquidation proceedings of the Hanjin Shipping bankruptcy court. To minimize the expansion of losses, safeguard the integrity of the debtor’s assets, ensure the continuity of operations, and facilitate the smooth progress of Hanjin Shipping’s bankruptcy liquidation proceedings, it is crucial for the bankruptcy court to obtain recognition of the bankruptcy protection applications made by the bankruptcy administrators from foreign courts.
Unfortunately, Hanjin Shipping Co. (China) had previously filed for bankruptcy with the Shanghai Pudong Intermediate People’s Court but withdrew the application before the court officially accepted it. The key reason the Hanjin bankruptcy administrators did not apply for bankruptcy protection in China was that China’s cross-border insolvency system had not been fully established. Regarding the extraterritorial effects of bankruptcy proceedings, China’s traditional territorial approach refused to recognize the effectiveness of Hanjin’s South Korean bankruptcy proceedings, which was not conducive to protecting the property of multinational companies within China. This approach clearly does not meet the needs of judicial internationalization and highlights the urgent need for reform in China’s international cooperation in cross-border insolvency.
Since China has not adopted the Model Law, unless South Korea commits to reciprocity with China’s judiciary, the effectiveness of Hanjin Shipping’s bankruptcy protection will be limited in China. When creditors’ claims cannot be realized, Chinese courts can, based on creditors’ applications, arrest, freeze, or auction Hanjin Shipping’s vessels or other assets to protect creditors’ interests. However, before Hanjin Shipping applied for bankruptcy protection from the bankruptcy court, most of its vessels had been stationed in Korean and other territorial waters or international waters to avoid seizure or detention. Chinese creditors faced significant difficulties in seizing Hanjin Shipping’s assets in Chinese courts. Especially, since COSCO Shipping Co., Ltd and Hanjin Shipping are both members of the CKYHE Alliance, COSCO Shipping’s companies such as Florens, COSCO Logistics and others, as creditors of Hanjin Shipping, are particularly adversely affected by this disadvantage.Ultimately, after Hanjin Shipping entered bankruptcy proceedings, many Chinese creditors were unable to recover their claims against Hanjin Shipping.
The practical implications of the Hanjin bankruptcy case illustrate that the complex legal relationships arising from cross-border bankruptcy cases have long transcended the scope of individual jurisdictions and entered the era of global cooperation. Concerning the extraterritorial effects of bankruptcy proceedings, pure territorialism and universalism are not suitable for the complex international economic environment due to being either too conservative or too open. With further development in international trade, the number of cross-border bankruptcy cases will continue to rise. Allowing the initiation of a territorial bankruptcy proceeding in the debtor’s place of business, corresponding to the bankruptcy proceeding initiated in the main interest center, should be the path for China’s cross-border bankruptcy practice to choose in order to protect the interests of more creditors as much as possible.
III. Reflection and Prospects for China’s Cross-Border Insolvency System
The essence of cross-border bankruptcy cooperation lies in transnational collaboration among courts of different countries, striving to balance the uniformity of bankruptcy proceedings with the protection of domestic creditors, thereby achieving mutually beneficial outcomes. This necessitates more flexible and universal standards for cross-border bankruptcy.
A. Universalism vs. Territorialism
Both universalism and territorialism fail to effectively address the obstacles in cross-border bankruptcy proceedings. From the perspective of jurisdiction and the extraterritorial effects of bankruptcy proceedings, both approaches are too extreme. They advocate for the non-interference of parallel bankruptcy proceedings for the same debtor in different countries and the application of only one court’s bankruptcy proceedings globally, which does not meet the needs of the increasingly complex international environment. With the deepening of economic and trade relations between countries and the rapid growth of multinational corporations, the jurisdiction and application of cross-border bankruptcies are bound to face different judicial situations in various countries.
China’s current cross-border bankruptcy system tends to favor territorialism in terms of extraterritorial effects. With the increasing frequency of international economic exchanges and cooperation, adhering entirely to territorialism would sever the inherent connections between domestic and foreign creditors and debtors, fundamentally harming both. China could learn from the EU’s modified territorialism to improve its system. Thoroughly practicing universalism would to some extent ignore national sovereignty. Therefore, China could adopt a limited form of universalism, generally advocating for the extraterritorial effects of its own bankruptcy proceedings while also recognizing and assisting foreign bankruptcy proceedings that meet legal conditions, such as having jurisdiction in foreign courts, treating all creditors fairly, and not violating domestic social interests and public order.
In summary, past practices in cross-border bankruptcy demonstrate that pure universalism could affect China’s judicial sovereignty. Unconditionally recognizing and enforcing foreign bankruptcy court judgments would weaken China’s judicial authority and not benefit the protection of Chinese creditors’ rights in foreign bankruptcy proceedings. On the other hand, pure territorialism conveys a value of refusing cooperation, conflicting with China’s advocacy of diverse cooperation. Territorialism does not necessarily ensure that creditors receive more compensation. Balancing judicial sovereignty with international cooperation is crucial for the development of international cooperation in cross-border bankruptcy.
B. Whether China should adopt the UNCITRAL Model Law
Whether China should adopt the UNCITRAL Model Law on Cross-Border Insolvency should be based on its national conditions, especially the international competitiveness of Chinese enterprises under the existing economic system and China’s position in the international trade landscape, as well as the status of its cross-border bankruptcy laws.
Adopting the Model Law is in line with the trend of global economic integration. It would help domestic enterprises to expand their investments overseas and contribute to the improvement of China’s domestic legislation. Article 5 of the Bankruptcy Law provides general principles for cross-border bankruptcy issues but lacks specific procedures and remedies, making it difficult to implement the most-favored-nation treatment for foreign civil subjects in Chinese civil litigation in specific cross-border bankruptcy cases. The Model Law ensures the effectiveness of the issuing state in safeguarding its own interests, respecting its public policies, and specific systems, when necessary, by providing for the coordination of parallel bankruptcy proceedings. If China adopts the Model Law, it will provide an important basis for Chinese courts to handle cross-border bankruptcy cases and address the shortcomings of the Bankruptcy Law.
However, there may be some potential issues if China adopts the Model Law. Most of the Chinese enterprises engaged in multinational operations are strong state-owned enterprises (SOEs). For example, in the shipping industry, Chinese state-owned shipping enterprises such as China COSCO Shipping Corporation and China Merchants Energy Shipping Co., Ltd. occupy over 80% of China’s shipping market share. The government has strong control over SOEs, with significant regulatory capacity and clear guidance. Combined with China’s specific historical background and state-dominated economic system, when a single SOE encounters financial difficulties and is unable to withstand an economic crisis, the state often provides certain economic assistance through administrative or economic means to ensure the survival and normal operation of the SOE. As a result, it is rare for SOEs, especially large ones, to face bankruptcy, or if they do, they are often restructured through mergers and acquisitions to promote scale and professional management, enhance risk resistance, and international competitiveness. China’s adoption of the Model Law to protect these enterprises in cross-border bankruptcies may lack practical necessity. Additionally, the majority of non-SOE enterprises in China are small and medium-sized enterprises (SMEs) with limited operational capabilities and limited cross-border business operations. The bankruptcy of non-SOE SMEs rarely involves cross-border issues and can be addressed through the Bankruptcy Law without the need for the Model Law.
Overall, adopting the Model Law to improve the cross-border bankruptcy mechanism and resolve legal conflicts and contradictions in cross-border bankruptcies would be more in line with China’s interests.
C. Current Issues and Adjustment Ideas in China’s Bankruptcy Law
Although Article 5 of China’s Bankruptcy Law provides a principled provision on cross-border bankruptcy issues, its simplicity and generality make it challenging to apply and operate in actual cases. Specifically, the scope definition of bankruptcy procedures and judgments, as well as the understanding and application of the reciprocity principle, can be discussed.
Different countries have diverse understandings of the systems for resolving debtors’ inability to repay debts outside of bankruptcy liquidation procedures, and there are significant differences in legislative systems. When discussing cross-border bankruptcy cooperation with a country, two aspects can be considered: first, whether the mechanism is a special system designed for debt adjustment, and second, whether the mechanism has the characteristics of bankruptcy or restructuring under China’s bankruptcy legal system, thereby being incorporated into a special cooperation mechanism or arrangement for recognizing and enforcing foreign bankruptcy proceedings. For example, under English law, in addition to winding-up procedures, there are different mechanisms used by companies that need debt clearance and restructuring, including administration procedures, arrangement plans, voluntary arrangements under contract law, and receivership procedures. The first three types of procedures are conducted under court supervision and involve collective debt processing using a majority decision-making process, making them eligible for recognition in the context of cross-border bankruptcy. Solutions under contract law are out-of-court procedures reached by debtors and creditors based on autonomy and do not require court approval. Receivership procedures are initiated by individual creditors and are aimed at realizing the interests of individual creditors (such as floating charge holders or equity pledgees) rather than the overall interests of creditors, so the latter two procedures should not be recognized as the main subject of cross-border bankruptcy.
The recognition and enforcement of “judgments, rulings, and orders” in bankruptcy cases under Article 5 of the Bankruptcy Law do not entirely coincide with the general understanding of recognizing foreign bankruptcy proceedings. Unlike the recognition and enforcement of ordinary civil and commercial judgments, a bankruptcy proceeding may produce multiple judgments, rulings, or orders, such as the judgment to initiate the bankruptcy proceeding, the judgment to confirm the creditor’s rights, the judgment to appoint a bankruptcy trustee, the judgment to approve a settlement or reorganization plan, the judgment to declare bankruptcy, and judgments related to bankruptcy-related litigation. In international cross-border bankruptcy practice, recognizing another country’s bankruptcy proceedings does not necessarily mean recognizing all judgments or rulings related to the foreign bankruptcy proceedings. In some cases, recognizing and enforcing judgments and rulings made by a foreign court in a bankruptcy case does not necessarily require the recognition of the entire foreign bankruptcy proceeding. To address this issue, the UNCITRAL adopted the Model Law in 2018, providing some references and directions for supplementing and interpreting the legislative content of Article 5 of China’s Bankruptcy Law.
Seventeen years have passed since the implementation of China’s Bankruptcy Law, and internationally, the presumption of reciprocity is generally accepted and recognized. In current judicial practice, many cases involving the recognition of foreign bankruptcy proceedings by Chinese courts have been rejected on the grounds of the absence of reciprocity. Previously, Chinese judicial practice generally considered reciprocity in the recognition and assistance of foreign bankruptcy proceedings to involve legal reciprocity or factual reciprocity. However, in recent years, in the recognition and enforcement of civil and commercial judgments, Chinese courts’ attitudes have gradually shifted towards a presumption of reciprocity, which means that reciprocity is presumed unless there is a precedent of a country rejecting the recognition and enforcement of Chinese civil and commercial judgments on the grounds of the absence of reciprocity, and there is a possibility of the country recognizing and enforcing Chinese judgments in its legislation. China should consider gradually relaxing the reciprocity principle’s restrictions on recognizing cross-border bankruptcy proceedings. At least under the conditions of presumed reciprocity, China can consider moving to the next step of review instead of being stuck at the initial stage and making a decision not to recognize.
Conclusion
Cross-border bankruptcy cooperation is essential for international economic relations and the effective resolution of complex financial matters. The willingness of nations to recognize and assist each other’s bankruptcy proceedings directly impacts global economic stability and investor confidence. China’s adoption of the UNCITRAL Model Law and its implementation of a more flexible and comprehensive approach to cross-border bankruptcy cooperation could significantly benefit both domestic and international stakeholders.
For further information, please contact:
Xueping (Emily) Wei, Partner, Anjie Broad Law
weixueping@anjielaw.com
- Promulgated on 1986.10.20, effective on 1987.01.01, ineffective on 1993.08.01.
- Promulgated on 1986.11.29, effective on 1987.07.01, ineffective on 1993.08.01.
- Article 5: Bankruptcy declared in accordance with foreign bankruptcy laws shall not have any effect on the property of the bankrupt in the special economic zone.
- Article 5, Section 1: Any bankruptcy proceeding that originates under this Law shall be binding on all assets that are held outside the territory of the People’s Republic of China by the debtor.
- Article 5, Section 2: Where a foreign court’s judgment or ruling on a bankruptcy case that has taken effect involves assets in the territories of the People’s Republic of China held by a debtor, and an application or request for judicial recognition and enforcement of the judgment is made to the People’s Court, the People’s Court shall, pursuant to the international treaty that the People’s Republic of China has concluded or is a member of, or pursuant to the principle of reciprocity, examine the application or request; where the People’s Court deems that the application or request will not violate the basic principles of law of the People’s Republic of China, threaten national sovereignty, security and public interest, and will not impair the lawful rights and interests of the creditors within the territory of the People’s Republic of China, the People’s Court shall make a ruling on recognition and enforcement.
- Promulgated b on 2021.05.14, effective on 2021.05.14.
- Fa Fa [2021] No.15, Promulgated on 2021.05.11, effective on 2021.05.11.
- Article 5.
Any bankruptcy proceeding that originates under this Law shall be binding on all assets that are held outside the territory of the People’s Republic of China by the debtor. Where a foreign court’s judgment or ruling on a bankruptcy case that has taken effect involves assets in the territories of the People’s Republic of China held by a debtor, and an application or request for judicial recognition and enforcement of the judgment is made to the People’s Court, the People’s Court shall, pursuant to the international treaty that the People’s Republic of China has concluded or is a member of, or pursuant to the principle of reciprocity, examine the application or request; where the People’s Court deems that the application or request will not violate the basic principles of law of the People’s Republic of China, threaten national sovereignty, security and public interest, and will not impair the lawful rights and interests of the creditors within the territory of the People’s Republic of China, the People’s Court shall make a ruling on recognition and enforcement.
