Without Further Ando, Time for Recognition and Reciprocity in Cross-Border Insolvency: Re Ando Credit Limited [2020] HKCFI 2775

18 November 2020

In Re Ando Credit Limited [2020] HKCFI 2775, the Honourable Mr Justice Harris appointed provisional liquidators over a Hong Kong-incorporated company, in an application that broke ground as the first of its kind, made with the express purpose of seeking recognition in the Mainland.  Specifically, the appointment was primarily sought with a view to enabling Hong Kong Court-appointed officers to recover the very substantial receivables believed to be owed to the Company by its debtors in the Mainland.

In recent decisions, the Hong Kong Companies Court (presided over by Harris J) has considered the latest position under the Bankruptcy Law of the Mainland.  Specifically, the learned Judge has explored the jurisdictional basis for the Mainland courts to formally recognise foreign insolvency proceedings.

In Re CEFC Shanghai International Group Ltd [2020] 1 HKLRD 676, the learned Judge referred to the relevant law, including Article 5 of the Enterprise Bankruptcy Law (“EBL”).  After analysing a number of recent Mainland decisions, it was held at para. 32 that these decisions provided little guidance as to the way in which the Mainland courts would respond to an application for recognition under Article 5 of the EBL.  However, the learned Judge accepted that it was (at least) clear that Article 5 of the EBL envisaged that there would be recognition of foreign liquidators as one would expect to be the case given the transnational business conducted by many Mainland businesses.

Similarly, in Re Shenzhen Everich Supply Chain Co Ltd [2020] HKCFI 965, pursuant to a letter of request issued by the Bankruptcy Court of the Shenzhen Intermediate People’s Court of Guangdong Province (广东省深圳市中级人民法院) (“Shenzhen Court”), Harris J made an order to recognise the liquidation process as ordered by the Shenzhen Court.   

For a helpful discussion on the CEFC and Shenzhen Everich decisions, readers are directed to the recent articles by our colleagues entitled ‘Hong Kong’s Inaugural Recognition of Mainland Liquidators in Re CEFC Shanghai International Group” (14 January 2020) and ‘Hong Kong’s 2nd Recognition of Mainland Liquidator: Re Shenzhen Everich Supply Chain Co Ltd’ (4 June 2020).

In Ando, after citing CEFC, the learned Judge referred to an article originally published in ‘The People’s Judicature’ (人民司法), entitled ‘Exploring the Practice of Cross-border Insolvency between Mainland China and Hong Kong’ (内地与香港跨境破产的实践探索)[1].  The insightful article is co-authored by three esteemed judges of the Shenzhen Court (one of whom, Judge Tang Shan, was the presiding judge in CEFC). 

The article focuses on the recent Hong Kong authorities which recognise and assist Mainland insolvency proceedings.  In the meantime, however, the article (including in particular the following concluding remarks) also provided useful insight into the latest position in the Mainland:-

Since the implementation of the Enterprise Bankruptcy Law in China, there has yet to be any case on recognition of insolvency procedures in accordance with Article 5 of the Enterprise Bankruptcy Law. Hence, the Hong Kong Court's application of the legal and factual requirements for deciding an application for recognition of extraterritorial procedures and the approach of granting “general powers + special powers” on the basis of the circumstances of the case as illustrated in the Nianfu Case are worthy of reference when the Mainland courts hear cross-border insolvency cases in the future.

The Hong Kong Courts in the Nianfu Case, and previously in the Guangxin Case and Huaxin Case have shown an open attitude towards recognition and assistance to Mainland insolvency proceedings. This provides 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.

(original text:

「我国企业破产法实施以来,内地法院尚未有依据该法第五条承认破产程序的实践案例。而香港高等法院在年富公司案中,对于承认域外程序的法律要件和事实要件的适用,以及根据申请事项进行“一般授权 + 特别授权”的方式,值得内地法院在未来审理跨境破产案件时予以充分借鉴。

香港法院在年富案及此前的广信案、华信案中都表现出了对内地破产程序给予承认和协助的开放态度,这为内地法院未来审理香港清盘人提出的承认和协助申请提供了适用互惠原则的事实依据。个案中两地法院互相承认和协助的探索积累,必然会促进两地跨境破产司法合作安排的尽快出炉。」)

Postscript

Overall, it is anticipated that more cross-border insolvency cases will come before the Hong Kong Court. This could take the form of either Mainland office-holders seeking recognition and assistance from the Hong Kong Court (as in CEFC and Shenzhen Everich) or, alternatively, for Hong Kong office-holders to seek (with the Hong Kong Court’s assistance) similar treatment from the Mainland court (as in Ando).

In Ando, Harris J specifically requested that there be an express provision in the appointment order permitting the provisional liquidators to make an application for recognition by the Shenzhen Court subject to the learned Judge’s approval of the various stages of the application. Accordingly, it remains to be seen how this area of the law will develop, both domestically and in the Mainland. 

[1] https://wemp.app/posts/c4ee81da-dfc9-45e3-b440-fcf9d88d47c1

Michael Lok and Jasmine Cheung, who acted for the Petitioner in Ando, co-authored this article.

 

 

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