Cooperation Agreement for Cross-Border Corporate Insolvency and Debt Restructuring Proceedings between Mainland China and Hong Kong
A new cooperation agreement for mutual recognition and assistance in cross-border business insolvency and debt restructuring proceedings has been established between mainland China and Hong Kong (the Cooperation Agreement).
The cooperation agreement is provided for in a Report of the Meeting on Mutual Recognition and Assistance in Bankruptcy (Insolvency) Proceedings Between Courts of Mainland and Hong Kong Special Administrative Region (the ROM) signed by the Mainland Supreme People’s Court (SCC) and the Hong Kong Department of Justice on May 14, 2021.
Context of the cooperation agreement
The cooperation agreement allows Hong Kong liquidators to apply to Intermediate People’s Courts in mainland pilot areas designated by the SPC for recognition of Hong Kong insolvency proceedings. Mainland corporate insolvency administrators can also apply to the Hong Kong High Court for recognition of mainland corporate insolvency proceedings.
To give effect to the cooperation agreement, SPC and the Hong Kong government respectively issued a ‘Opinion on the implementation of a pilot measure for recognition and assistance in insolvency proceedings in Hong Kong SAR ” (the Notice) and a ” Practical Guide “ defining the procedures for requesting recognition and assistance from a continental administrator in the courts of Hong Kong (the Practical Guide).
In this update, we present a summary of the main features of the cooperation agreement. In future updates, we will examine the Cooperation Agreement in more detail and provide comments on some practical issues, including the scope of its application; the meaning and effect of a continental court recognizing insolvency proceedings commenced in Hong Kong and / or administrators appointed by the courts of Hong Kong, based on the laws of Hong Kong, and vice versa; and how these may affect the rights of creditors and interested parties in the two jurisdictions.
Recognition of Hong Kong insolvency proceedings on the mainland
The notice sets out the details of the arrangement applicable to requests for recognition and assistance made by the Hong Kong administrators to the competent People’s Courts on the mainland. Several hardware characteristics are summarized below: –
- Shanghai, Xiamen and Shenzhen are the pilot areas, of which the People’s Court is appointed by the SPC to advance pilot measures on recognition and assistance to “Insolvency proceedings in Hong Kong“.
- “Insolvency proceedings in Hong Kong“means collective insolvency proceedings opened in accordance with the Ordinance on companies (liquidation and various provisions) (chap. 32) and the Companies Ordinance (Cap. 622) of Hong Kong, which include compulsory liquidation, voluntary liquidation of creditors and the scheme of arrangement promoted by a liquidator or provisional liquidator and sanctioned by a court in Hong Kong.
- Liquidators and Provisional Liquidators in Hong Kong Insolvency Proceedings (“Hong Kong Directors“referred to in the notice) may apply to the Intermediate People’s Court of the relevant pilot zone (i) recognition of the Hong Kong insolvency proceedings, (ii) recognition of its function as liquidator or provisional liquidator, and ( (iii) to provide assistance in the exercise of his functions as liquidator or provisional liquidator.
- For the cooperation agreement to apply, the center of main interests of the debtor concerned must have been in Hong Kong continuously for at least six months. COMI generally designates the place of incorporation of the debtor. But the relevant People’s Court of the pilot area may take into account other factors, including the location of the main office, the main place of business, the location of the main assets, etc. of the debtor. In addition, the debtor’s main assets on the mainland must be in a pilot area, or it must have an establishment or representative office in a pilot area.
- Upon request, provisional conservatory measures may be imposed by the competent People’s Court in accordance with the relevant provisions of continental law, pending the decision of a request for recognition and assistance filed by a Hong Kong administrator.
- The people’s courts retain a broad power to refuse the granting of recognition or assistance on various grounds. Among others, include the situation where “he considers that such recognition or assistance violates the fundamental principles of metropolitan law or offends public order or good morals“.
- The debtor’s assets on the mainland must first satisfy the claims privileged under the laws of the mainland. The remainder of the property is to be distributed in accordance with Hong Kong insolvency proceedings, provided that creditors in the same category are treated equally.
Recognition of the insolvency proceedings of mainland companies in Hong Kong
The current Hong Kong common law regarding the recognition of foreign insolvency proceedings will continue to apply. But the ROM and the how-to guide will provide a framework for mainland bankruptcy administrators to seek recognition and assistance from the Hong Kong High Court.
Upon request, the High Court may grant (i) recognition of liquidation, reorganization and compromise proceedings under the Corporate Bankruptcy Law of the People’s Republic of China, (ii) recognition of an office continental bankruptcy administrator as administrator, and (iii) assistance in exercising the functions of bankruptcy administrator as administrator.
The cooperation agreement marks a major breakthrough for cross-border business insolvency and debt restructuring issues of the Mainland and Hong Kong, as it is the first cooperation agreement for mutual recognition and assistance in corporate insolvency and debt restructuring proceedings concluded either by the Mainland or Hong Kong with any other jurisdiction.