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Recognition and Assistance for PRC Insolvency in Hong Kong

September 2020 Nigel K. Meeson QC

Synopsis

A recent case in Hong Kong, has demonstrated both the ability and willingness of common law courts to recognise insolvency appointments made by the courts of the People’s Republic of China (‘PRC’), and to grant appropriate assistance at common law. It is to be hoped that this proven track record will pave the way for easier recognition of common law court appointed liquidators in PRC, where, unlike in common law countries, such recognition is subject to the principle of reciprocity.

Introduction

In Re CEFC Shanghai International Group Limited (in Liquidation in the Mainland of the People’s Republic of China) (‘CEFC Shanghai’) Harris J, sitting in the High Court of Hong Kong, granted recognition and assistance to a Chinese company’s Mainland administrators appointed by the Chinese court in order to protect the company’s assets in Hong Kong.

Recognition

CEFC Shanghai was a PRC company in insolvent liquidation in PRC under the Enterprise Bankruptcy Law, with substantial assets in Hong Kong, namely a HK$7.2 billion claim against its Hong Kong subsidiary which was in liquidation in Hong Kong (The ‘HK Receivable’). Administrators (the PRC equivalent of liquidators) had been appointed by the Shanghai No.3 Intermediate Court. They applied to the Hong Kong Court for recognition and assistance in order to protect the Hong Kong receivable from enforcement by a creditor who had obtained a garnishee order nisi, and who was seeking to take the receivable by having the garnishee order made absolute. The application was supported by a Letter of Request from the Shanghai Court.

This was the first time an application for recognition and assistance had been received from PRC, but not the first time an application had been received from a Civil Law system. Accordingly, the outcome of the application was never in any doubt. In accordance with well-established principles, the Court asked itself two questions:

(a) Are the PRC insolvency proceedings ‘collective insolvency proceedings’?
(b) Are the PRC insolvency proceedings opened in the company’s country of incorporation?

The answer to the second question was self-evidently affirmative.

The answer to the first question was also straightforward in that, under the Enterprise Bankruptcy Law of the PRC, the liquidation proceedings include all of the debtor’s assets and these are to be distributed on a pari passu basis.

 

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This article first appeared in Volume 17, Issue 5 of International Corporate Rescue and is reprinted with the permission of Chase Cambria Publishing - www.chasecambria.com

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