2023/05/02 Mutual Recognition of and Assistance to Hong Kong Bankruptcy (Insolvency) Proceedings in Mainland China
The established mechanism to allow enterprises going in and out in order is essential to a healthy and prosperous economic market. In light of the growing economic integration and development between Hong Kong and Mainland China, more and more enterprises thrive in the cross-border businesses and they may have assets and loans across the border. In such circumstances, the mechanism for judicial assistance between the Mainland and Hong Kong in bankruptcy proceedings are becoming more and more crucial.
As a result, the Supreme People’s Court and the Hong Kong Government has signed “Record of Meeting of the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region on Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region” on 14th May 2021, and the Supreme People’s Court announced “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” afterwards (“The Opinion”). The Opinion has a significant impact to the judicial assistance in bankruptcy proceedings between the Mainland and Hong Kong.
Pilot Courts in Mainland China
The Supreme People’s Court designates the people’s courts in Shanghai Municipality, Xiamen Municipality and Shenzhen Municipality to take forward pilot measures on recognition of and assistance to “Hong Kong Insolvency Proceedings”. In other courts in the Mainland China, such proceedings are generally governed by the principles of reciprocity under the Enterprise Bankruptcy Law of the People’s Republic of China.
Hong Kong Insolvency Proceedings
“Hong Kong Insolvency Proceedings” include the compulsory winding up, creditors’ voluntary winding up and scheme of arrangement under the Companies Ordinance of Hong Kong, but does not include the voluntary bankruptcy of a natural person.
Scope of the Opinion
Meanwhile, the Opinion only applies when Hong Kong is the centre of main interests of the debtor in the said Hong Kong Insolvency Proceedings. In general, the Mainland Courts shall assess the place of incorporation, the principal office, place of business and principal assets of the debtor. The centre of main interests of the debtor shall have been in Hong Kong continuously for not less than 6 months.
Similarly, if the debtor’s principal assets in the Mainland are in a pilot area, or it has a place of business or a representative office in a pilot area, the Hong Kong Administrator may apply for recognition of and assistance to the Hong Kong Insolvency Proceedings in accordance with the Opinion. If more than one court has jurisdiction, the first case going to the people’s court shall prevail.
The Opinion also laid out the necessary materials for application, legal consequences and obligations of the relevant parties.
Accordingly, the Opinion and the relevant arrangement shall be a milestone to judicial assistance in bankruptcy and insolvency proceedings. We hope that in the future the administrator can carry out its role in a more efficient manner, the creditors may recover the loans more effectively, and the insolvent companies can exit from the market in an orderly manner.
This Article has been published in our firm’s 12th issue of Newsletter