First letter of request from Mainland China to Hong Kong for recognition and assistance in cross-border insolvency

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On 16 September 2021, the Hong Kong Court made an unprecedented ruling by recognising, for the first time, proceedings for the reorganisation of the HNA Group Co Limited (‘Company‘)  commenced in Mainland China under the Mainland Enterprise Bankruptcy Law (‘Mainland Reorganisation Proceedings’) (Re HNA Group Co Limited [2021] HKCFI 2897).

This will be a very welcome development among the Hong Kong insolvency community and evidences the first indication of potential cross-border restructuring cooperation between Hong Kong and the Mainland. It potentially also opens the door for recognition of Hong Kong restructuring proceedings such as schemes of arrangement in the Mainland under 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 (‘Pilot Measure’).

Case highlights

The Company is a Chinese conglomerate headquartered in Haikou, Hainan, China. The Company was established in 1998 and developed an extensive group of businesses extending to aviation, real estate, financial services, tourism, logistics and more.

As widely publicised, the Company developed serious financial problems over the last few years and, on 29 January 2021, the Company declared bankruptcy.

On 10 February 2021, the Hainan Province Higher People’s Court (‘Hainan Court’) commenced the Mainland Reorganisation Proceedings against the Company, and appointed administrators (‘Administrators’) to oversee the Company’s restructuring and with a broad range of duties.

The Administrators needed to be recognised by the Hong Kong Court in order to progress the Company’s restructuring including by giving powers of assistance to representatives of the Administrators in Hong Kong. Accordingly, the Hainan Court issued a letter of request to the Hong Kong Court to enable the Administrators’ application for recognition and assistance in Hong Kong. The powers of assistance sought by the Administrators were fairly conventional and were set out in the form of order appended to the judgment.

Mr Justice Harris stated that he had to consider the following to decide whether it was a proper case to make a recognition and assistance order:

a) Whether the Mainland Reorganisation Proceedings constituted a collective insolvency process; and
b) Whether the foreign insolvency proceedings had been opened in the Company’s country of incorporation.

As to (a) above, His Lordship held: “It is clear in the present case that the Mainland reorganisation concerns all of the Company’s creditors and its character is clearly properly characterised as a collective insolvency procedure. It therefore seems to me that it should be and is capable of being recognised in Hong Kong.”

As to (b) above, His Lordship held this was uncontroversial as the Company was incorporated in the Mainland.

His Lordship also held that even though the Hainan Court was not part of the Pilot Measure (with Shenzhen, Shanghai and Xiamen being the designated ‘pilot’ areas given their close trade ties to Hong Kong) and might not recognise Hong Kong insolvency proceedings, this would not prevent the Hong Kong Court granting recognition because Hong Kong’s common law recognition regime does not require reciprocity.

Takeaways

This most recent decision from Mr Justice Harris is a further welcome and important development in cross-border insolvency co-operation between Hong Kong and the Mainland on the back of previous significant developments between Hong Kong and the Mainland over the last two years.

  • December 2019 – Mr Justice Harris recognised and assisted Mainland liquidators for the first time (Re CEFC Shanghai International Group Ltd [2020] HKCFI 167; [2020] HKCLC 1).
  • May 2020 – Mr Justice Harris recognised and assisted Mainland liquidators for the second time (Re Shenzhen Everich Supply Chain Co Ltd [2020] HKCFI 965; [2020] HKCLC 891).
  • May 2021 – the Pilot Measure became effective.
  • July 2021 – Mr Justice Harris used the Pilot Measure to request the Mainland court to recognise and assist Hong Kong liquidators (Re Samson Paper Co Ltd [2021] HKCFI 2151; [2021] HKCLC 1053). We reported on this decision back in September 2021.
  • October 2021 – Mr Justice Harris recognises the Mainland Reorganisation Proceedings.

These pioneering decisions from Mr Justice Harris showcase the willingness of the Hong Kong Court to demonstrate reciprocity in approach which, unlike in Hong Kong, appears to be a relevant factor for recognition of Hong Kong insolvency office holders by the Mainland Court. These decisions will hopefully lay the foundations for reciprocal recognition of Hong Kong insolvency proceedings in the Mainland (including schemes of arrangements) which will ultimately reinforce Hong Kong’s position as Asia’s leading financial and debt restructuring centre. Judicial co-operation between the Hong Kong courts and the Mainland courts would reinforce Hong Kong’s status as a leading global financial centre and a true ‘gateway’ to Mainland China for many years to come.

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