In the first of its kind, the US Bankruptcy Court granted Chapter 15 recognition of insolvency proceedings commenced at the People’s Court of Chaoyang District in the PRC (the Beijing Court) pursuant to the Enterprise Bankruptcy Law (the EBL).
After defaulting on its 7.25% notes due 2020 (the Notes), Reward Science and Technology Industry Group (Reward), a Beijing-based chemical company, commenced proceedings in the Beijing Court for bankruptcy protection and to restructure its debts pursuant to the EBL on 6 December 2018 (the PRC Proceedings). The Beijing Court granted the application and appointed Mr. Yin Zhenguou, a restructuring partner of Beijing Weiheng Law Firm, as the administrator (Mr. Yin).
In the meantime, certain bondholders (the Bondholders) commenced separate proceedings in July 2019 in the New York State Supreme Court against Reward for approximately US$160 million arising from the Notes and other short-term bonds.
On 9 September 2019, Mr. Yin (as the foreign representative) applied for Chapter 15 recognition in the US Bankruptcy Court seeking recognition of the PRC Proceedings as the foreign main proceedings. The recognition, if granted, will have the effect of staying US proceedings against Reward’s assets in the US. The Bondholders objected, arguing (among other things) that they may be given “discriminatory treatment” in the PRC Proceedings.
On 8 October 2019, Judge Wiles of the US Bankruptcy Court overruled the objections and the Court recognised that the PRC is Reward’s center of main interest and the PRC Proceedings as the foreign main proceedings. The Court also ordered that:
- the commencement or continuation of proceedings against Reward’s US assets be stayed;
- Yin has the full authority to administer Reward’s assets and affairs in the US; and
- the Bondholders must give 10 days’ notice before they commence proceedings against Reward outside of the US or the PRC.
Harneys acted as offshore counsel to certain holders of the Notes issued by a subsidiary of Reward. For further information, please contact Chai Ridgers, Andrew Thorp and Jayson Wood.