In a highly significant development, on 14 May 2021 Yang Wangming, vice-president of the Supreme People’s Court and Hong Kong Secretary for Justice, Teresa Cheng signed a “record of meeting” implementing an arrangement between the courts of the mainland and the Hong Kong SAR concerning mutual recognition of corporate insolvencies.
This arrangement follows hot on the heels of the recent decisions of Mr Justice Harris in CEFC Shanghai and Shenzhen Everich in which the Hong Kong Court granted recognition to administrators appointed by the courts of Shanghai and Shenzhen respectively. These decisions themselves followed a long line of common law recognitions by the Hong Kong Courts of liquidators and provisional liquidators appointed in other jurisdictions, including Bermuda, BVI and the Cayman Islands. This deep experience of the Hong Kong courts in cross border recognitions should be of great assistance in the effective implementation of the new arrangement within the context of “one country, two systems” leading to recognition by the courts of the mainland of liquidators appointed by the Hong Kong Court.
In order for the mainland courts to grant recognition under the arrangement, the underlying proceedings must be “Hong Kong Insolvency Proceedings” being collective insolvency proceedings brought in Hong Kong. In addition to compulsory and voluntary winding up proceedings, the arrangement also covers schemes of arrangement promoted by a liquidator or provisional liquidator and sanctioned by the Hong Kong court. Of particular potential note, the arrangement expressly contemplates mutual recognition of debt restructuring and business reorganisation.
Also noteworthy is that Article 4 of the SPC Opinion provides that the arrangement relates to proceedings in which the centre of main interests (COMI) has, for a period of 6 months, been Hong Kong. In this regard, while the Opinion states that COMI generally means the place of incorporation, the courts are entitled to take into account other factors including the locations of the principal office, business and assets, thus opening the door to recognition of Hong Kong insolvency proceedings relating to companies incorporated in other jurisdictions.
At present the arrangement relates to assistance from the courts three mainland cities Shanghai, Shenzhen and Xiamen, which have been designated as pilot cities due to their close business links to Hong Kong.