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An update on cross-border insolvency cooperation in Hong Kong: recognising and assisting foreign insolvency practitioners
17Feb2021A crucial aspect of cross-border insolvency cooperation is the recognition of foreign proceedings and providing assistance to foreign office holders. A helpful explanation of the purpose of recognition was provided by Lord Hoffman in Cambridge Gas:“[t]he purpose of recognition is to enable the foreign office holder or the creditors to avoid having to start parallel insolvency proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum”.
Hong Kong is not a party to the UNCITRAL Model Law on Cross-Border Insolvency and notwithstanding numerous judges repeatedly stating that Hong Kong’s restructuring regime must improve, Hong Kong has yet to enact legislation that provides a statutory framework on this issue.
In recent years the CFI has considered a number of applications for recognition and assistance from various jurisdictions. We therefore take this opportunity to summarise five important decisions in 2020 that provide useful insights into the latest position of cross-border insolvency cooperation in Hong Kong.
Despite Hong Kong not having a “soft-touch” liquidation regime, the CFI granted an application for recognition of provisional liquidators appointed by the Order of the Supreme Court of Bermuda Court on a soft-touch basis.
His Lordship held that it is not a bar for recognition of foreign “soft-touch” provisional liquidators simply because Hong Kong does not adopt the same regime. Foreign officeholders will not act in the same capacity as domestic officeholders even after being recognised by Hong Kong courts. Further, the recognition regime is based on principle of universalism and it is not a pre-condition for recognition that the foreign insolvency law is exactly identical with domestic insolvency law. The soft-touch provisional liquidation regime and the provisional liquidation regime in Hong Kong are both species of collective insolvency proceedings, and they only differ on the scope of the provisional liquidator’s powers but not different in nature.
This matter also concerned an application for recognition of provisional liquidators appointed on a “soft-touch” basis for restructuring purposes.
His Lordship granted the recognition order and continued the past practice of recognising foreign soft-touch provisional liquidators (as was done in the Moody Technologies case). His Lordship stated that the proposition laid out in Representation of Lydian International Limited [2020] JRC 049, directly confirms the soundness of recognising foreign soft-touch provisional liquidation in Hong Kong even though such use of provision liquidation in Hong Kong is restricted as a consequence of the Legend decision.
Joint and Several Liquidators of CEFC Shanghai International Group Ltd [2020] HKCFI 167
The CFI (for the first time) recognised bankruptcy administrators (“Administrators”) of a company in liquidation in Mainland China. In summary, the company maintained substantial assets in Hong Kong, including a claim against its Hong Kong subsidiary (“Subsidiary”) and the Administrators applied for recognition and assistance from the Hong Kong court to prevent a creditor of the Subsidiary obtaining a garnishee order absolute.
His Lordship summarised the criteria that must be satisfied for recognition and assistance to be granted as follows:
- the foreign insolvency proceedings are collective insolvency proceedings; and
- the foreign insolvency proceedings are opened in the company’s country of incorporation.
The liquidation in Mainland China is a collective insolvency proceeding and the Administrators’ application, which was to maintain the principle of collectivity and pari passu distribution, is consistent with the Hong Kong court’s existing practice.
Accordingly, His Lordship granted the application and noted that the extent to which greater assistance should be provided to Mainland administrators 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 court is satisfied that the Mainland, like Hong Kong, promotes a unitary approach to transnational insolvencies.
A second decision regarding the recognition of Mainland administrators soon followed and the CFI was asked to grant various powers believed to be necessary to assist the Mainland administrators in Hong Kong.
An order of recognition was granted on the basis that the winding-up in Mainland China is a collective insolvency proceeding in the company’s place of incorporation, and the administrators were appointed by the Shenzhen Court to wind-up the company.
Re Ando Credit Ltd [2020] HKCFI 2775
Another key aspect of cross-border insolvency cooperation is the recognition of Hong Kong insolvency proceedings in other jurisdictions.
This case concerned an application for the appointment of provisional liquidators over a Hong Kong-incorporated company with the express purpose of seeking recognition in the Mainland with a view to being able to recover substantial receivables in Mainland.
His Lordship referred to an article written by three judges in the Shenzhen Bankruptcy Court, which suggested that it is possible to recognise Hong Kong liquidators appointed over Hong Kong incorporated companies in the Mainland. The article also shed light on the current position in the Mainland by concluding that the Hong Kong Courts’ approach in recognising and assisting insolvency proceedings in the Mainland have “provided a basis for the Mainland courts to hear applications for recognition and assistance from Hong Kong liquidators in the future on the principle of reciprocity. The exploration and accumulation of mutual recognition and assistance by the courts of the two places will inevitably promote future promulgation of cross-border judicial cooperation arrangements for insolvency matters across the border.”
His Lordship approved the appointment of provisional liquidators with an express provision permitting the provisional liquidators to apply for recognition in Mainland China.
Sunny Hathiramani
If you would like to discuss any of the matters raised in this article, please contact:
Ian De Witt
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Robin Darton
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Sunny Hathiramani
Partner | E-mail
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
