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Insolvency cases in Hong Kong are likely to be recognized on the Chinese mainland and vice versa, after authorities from both places signed a mutual recognition document in Shenzhen (Guangdong province) on May 14.
The agreement, signed between the Supreme People’s Court in China and the Hong Kong Special Administrative Region (SAR) government, is the ninth document on judicial assistance in civil and commercial matters between the SAR and the Chinese mainland, and is likely to further boost investor confidence and facilitate cross-boundary business and trade.
Under this new arrangement, liquidators from Hong Kong may apply to mainland courts for recognition of insolvency proceedings in Hong Kong. Likewise, bankruptcy administrators from the mainland may apply to the High Court in Hong Kong for recognition of bankruptcy proceedings in the mainland. They can also request courts from the other side to help in insolvency proceedings.
The arrangement will apply to insolvency proceedings in which the debtor company’s centre of main interests (COMI) is in Hong Kong. While COMI generally means the place of incorporation, the Mainland courts are entitled to take into account other factors including the locations of the principal office, business and assets of the subject company. It opens the door to recognition of Hong Kong insolvency proceedings relating to companies incorporated offshore. This is highly practical and welcome – most HKEx-listed companies are not incorporated in Hong Kong, but may have their COMIs in Hong Kong. Insolvency proceedings relating to these companies form a significant portion of insolvency proceedings in Hong Kong.
The new co-operative framework covers bankruptcy compromise and reorganisation in the Mainland as well as debt restructuring in Hong Kong, encouraging the use of restructuring of debts to revive businesses with a view to reaching consensus among creditors from both places and abroad. This may open up more opportunities for the debtor company to look for a successful rescue. In the long run, the framework will give additional assurance to investors and further improve the business environment in the Mainland and Hong Kong.
The arrangement will initially be carried out in three pilot cities – Shanghai, Shenzhen and Xiamen (Fujian province) – given their close business ties with Hong Kong. Conducting cross-boundary judicial assistance in pilot areas marks a significant and innovative step in judicial cooperation between Hong Kong SAR and the Chinese mainland.
This framework will gradually extend beyond these pilot areas, reinforcing Hong Kong’s position as a major financial center and its status as the gateway to Mainland China.
If you have any questions regarding insolvency proceedings in Greater China, or would like to know how this might affect your business, please contact our team by email at contact@orbis-alliance.com.