On 14 May 2021, the vice-president of the Supreme People’s Court (“SPC”) and HKSAR’s then-Secretary for Justice signed the record of a meeting concerning mutual recognition of and assistance to insolvency proceedings between the courts of the Mainland and HKSAR. In response, the SPC issued an opinion, namely 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 (“Opinion”), and the HKSAR government issued a practice guide (“Practical Guide”) regarding their relevant work on the matter.
1. Opinion – Recognition of HKSAR Insolvency Proceedings in Mainland
As part of the pilot measures on recognition of and assistance to HKSAR insolvency proceedings, the SPC designated Shanghai, Xiamen and Shenzhen as pilot cities. The chosen cities have close trade connections with HKSAR and have been popular investment choices for HKSAR investors.
The Opinion applies to “Hong Kong Insolvency Proceedings”, meaning any insolvency proceedings commenced in accordance with the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and the Companies Ordinance (Cap. 622). This means that a “Hong Kong Administrator”, including liquidators and provisional liquidators, may apply to the relevant PRC court for (1) recognition of compulsory winding up and creditors’ voluntary winding up; (2) recognition of the appointment of the liquidator or provisional liquidator; and (3) grant of assistance for discharge of his duties as a liquidator or provisional liquidator.
The Opinion applies where HKSAR is the centre of main interests of the debtor. “Centre of main interests” generally means the place of incorporation of the debtor, but the People’s Court shall also consider other factors including the place of principal office, the principal place of business, the place of principal assets of the debtor.
When Hong Kong Administrators apply for recognition and assistance, the debtor’s centre of main interests must have been in the HKSAR continuously for at least six months prior.
In accordance with the Opinion, a Hong Kong Administrator may apply for recognition and assistance in HKSAR Insolvency Proceedings if the debtor’s principal assets are in a Mainland pilot area, or the debtor has a place of business or representative office in a pilot area. In its application, the Hong Kong Administrator shall submit the following materials (if any document to be submitted is not in Chinese, a Chinese translation shall be submitted):-
- A letter of request for recognition and assistance issued by the High Court of the HKSAR;
- Relevant documents on the commencement of the HKSAR Insolvency Proceedings and the appointment of the Hong Kong Administrator;
- Materials showing that the debtor’s centre of main interests is in the HKSAR (if such materials was issued outside the Mainland, it shall be certified in accordance with Mainland law);
- A copy of the judgment regarding the application for recognition and assistance is made
- A copy of the identity document of the Hong Kong Administrator (if it was issued outside the Mainland, it shall be certified in accordance with Mainland law);
- Evidence showing that the debtor’s principal assets in the Mainland are in a pilot area, or that it has a place of business or a representative office in a pilot area.
Upon the people’s court recognition of the HKSAR Insolvency Proceedings, the following implications shall be noted:-
- Any debtor’s payment of debts to individual creditors shall be invalid;
- Any civil action or arbitration involving the debtor that has commenced but not concluded shall be suspended – however, they may continue after the Hong Kong Administrator takes over the debtor’s property;
- The measures for preserving the debtor’s property shall be lifted and execution procedures shall be suspended;
- In order to discharge its duties, the Hong Kong Administrator will have to first seek separate approval by the people’s court – however, its duties shall not be performed beyond the scope provided by the Enterprise Bankruptcy Law of the People’s Republic of China and the HKSAR law;
- Upon an application by the Hong Kong Administrator or creditors, the people’s court can designate a Mainland administrator, who shall act pursuant to the Enterprise Bankruptcy Law of the PRC.
2. Practical Guide – Recognition of Mainland Insolvency Proceedings in HKSAR
The Practical Guide provides a comprehensive step-by-step guide for an application by a Mainland bankruptcy administrator to the Court of First Instance of HKSAR for recognition and assistance.
In essence, the Mainland Administrator shall first obtain a “letter of request” from the appropriate Mainland court addressed to the HKSAR Court setting out the order sought from the HK Court. Upon issuance of that letter, the Mainland administrator may then make an application to the HKSAR Court on an ex parte basis.
The CFI may deal with an application for a standard-form order on paper. The CFI may direct a court hearing to be held as appropriate.
If you have any questions in relation to mutual recognition of insolvency proceedings between HKSAR and Mainland China, please contact us today.