Following the signing of the “Record of Meeting on Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and the Hong Kong Special Administrative Region” on 14 May 2021 (the “Record of Meeting”), the field of mutual recognition of and assistance to insolvency proceedings in Hong Kong and the Mainland has officially reached a new milestone. The Record of Meeting has mainly laid down the following :-

(a) Intermediate People’s Courts in Shanghai, Xiamen and Shenzhen designated by the Supreme People’s Court may initiate cooperation with the courts of the HKSAR on mutual recognition of and assistance to bankruptcy proceedings; and

(b) A liquidator or a provisional liquidator in insolvency proceedings in the HKSAR appointed in Hong Kong may apply to the Mainland courts for recognition of insolvency proceedings in Hong Kong and of their office as liquidators, and seek assistance for discharge of their duties as liquidators. Likewise, bankruptcy administrators from the Mainland may apply to the High Court of HKSAR for recognition of bankruptcy proceedings in the Mainland, their office as administrators, and seek assistance for discharge of their duties as administrators.

The signing of the Record of Meeting has further confirmed the status of HKSAR as an international legal hub. Under the mechanism laid down by the Record of Meeting, it is the Hong Kong insolvency proceedings and the liquidators appointed in Hong Kong being recognized by the Mainland courts. There is no strict requirement that the company concerned must be a company registered in Hong Kong. This not only accommodates the practical reality that many listed companies in Hong Kong are offshore companies, but also meets the international standard.

Meanwhile, the signing of the Record of Meeting has strengthened the preservation of assets of the debtors and also the protection of creditors’ rights in both HKSAR and the Mainland. The Record of Meeting provides a clearer mechanism to allow the courts of HKSAR and the Mainland to implement orderly and efficient insolvency administration and debt restructuring schemes, which will provide further confidence to the creditors and also investors. In particular, where a Mainland company’s major assets locate in Hong Kong, the Mainland administrators can preserve the company’s assets and proceed with liquidation more effectively through the mechanism under the Record of Meeting. This also reduces the risk of being unable to execute the liquidation of the company in Hong Kong from the perspective of the Mainland creditors.

In fact in early 2020, our firm managed to contribute to some groundbreaking development in assisting the Mainland administrators to seek the Hong Kong court’s recognition of the Mainland insolvency proceedings and assistance. The two landmark cases in this area were both handled by our firm, namely Re CEFC Shanghai International Group Ltd [2020] 1 HKLRD 67 (the “CEFC Shanghai Case”) and Re The Liquidator of Shenzhen Everich Supply Chain Co, Ltd [2020] HKCFI 965, which were the first two precedents in this area of law. The Honourable Mr. Justice Harris reiterated the principles that the Hong Kong Court would consider before granting recognition and assistance to liquidators/administrators appointed in other jurisdictions, and such recognition and assistance were eventually so granted to our clients who were bankruptcy administrators appointed by the Mainland courts.

His Lordship particularly mentioned in the CEFC Shanghai Case that “The extent to which greater assistance should be provided to Mainland [insolvencies] in the future will have to be decided on a case by case basis and the development of recognition is likely to be influenced by the extent to which the [Hong Kong] court is satisfied that the Mainland, like Hong Kong, promotes a unitary approach to transnational insolvencies.” As the pioneer in this area, our firm believes that following the signing of the Record of Meeting and the implementation of the details, the work to assist the Mainland administrators to seek recognition of and assistance to insolvency proceedings from Hong Kong court in the future can be carried out more effectively and expeditiously.

The aforesaid cases are all handled by our partner Mr. Roy Leung with the assistance of our litigation associates. Our firm is experienced in handling a wide variety of insolvency matters, and will offer assistance to other stakeholders to insolvency proceedings under the framework of the Record of Meeting in the future.

The written decisions of the aforesaid cases can be found at the following websites :-