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When Does Hong Kong Court Recognise China Appointed Administrators in Insolvencies?

In the recent cases of Re Guangdong Overseas Construction Corporation [2023] HKCFI 1340, the Hong Kong Court recognises Mainland-appointed administrator via the application of common law principles.

While administrators appointed by the Mainland courts in Pilot Areas (i.e.  Shanghai, Xiamen and Shenzhen) may apply to Hong Kong Courts for recognition and assistance pursuant to the Cooperation Arrangement (the application of which is discussed in our other article), the common law principles will come into play for cases that fall outside the Cooperation Arrangement.

Background

In Re Guangdong Overseas, the Intermediate People’s Court of Guangzhou Municipality (the “Guangzhou Court“) appointed an administrator for the Guangdong-incorporated Guangdong Overseas Construction Corporation (“Guangdong Company“), who applied for Hong Kong Court’s recognition and assistance. The primary issue before the Court was whether the Guangzhou Court might initiate a request for assistance to the Hong Kong Court under the Cooperation Arrangement, when the Guangzhou Court was not a court of the Pilot Areas.

Principles under Common Law and the CFI’s Ruling

The Hong Kong Court clarified that Mainland courts outside the Pilot Areas may still request for Hong Kong Court’s assistance, whereby common law jurisprudence will be adopted to consider such application.  Common law confers jurisdiction on Hong Kong Courts to recognise and assist insolvency officeholders appointed by a foreign court; the Cooperation Arrangement and the Practical Guide merely prescribe the application procedures and methods for those in Pilot Areas.  Having said that, as a matter of practice and to ensure consistency in which the application is made, the Hong Kong Court adds that it would still be desirable for an applicant seeking recognition and assistance of the insolvency proceedings to follow the Practical Guide even though the letter of request is issued by a court outside the Pilot Areas.

Under common law, the Hong Kong Courts have to be satisfied with the following criteria in order to recognise and assist the foreign-office holders:-

  1. The foreign insolvency proceedings are collective insolvency proceedings;
  2. The foreign insolvency proceedings are conducted in the jurisdiction in which the company’s centre of main interests (“COMI”) is located; and
  3. The assistance is necessary for the administration of a foreign winding up or the performance of the office-holder’s functions, and “the order is consistent with the substantive law and public policy of the assisting court so it is not available for purposes which are properly the subject of other schemes[.]” (the quoted part is the Hong Kong Court’s summary of §25 of Singularis Holdings Limited v PricewaterhouseCoopers [2014]) UKPC 36, which essentially means that the assisting court cannot enable liquidators to do something which would not be available for liquidators appointed under the laws of the assisting jurisdiction)

By applying the facts under Re Guangdong Overseas, the Hong Kong Court found that the above criteria have been satisfied:-

  1. Guangdong Company’s insolvency proceeding constituted a collective insolvency proceeding under the Guangzhou Court’s supervision;
  2. The insolvency proceeding was conducted in Mainland, where the company’s COMI was located; and
  3. The assistance sought from the CFI was necessary to fulfill the Mainland administrator’s duty to take control of Guangdong Company’s valuable assets located in Hong Kong.

Key Takeaways

As seen in Re Guangdong Overseas, common law remains the cornerstone of Hong Kong Court’s power to recognise and assist foreign insolvency proceedings.  As the reach of Hong Kong and Mainland insolvency officeholders extends across the border, businessmen may be rest assured that legal practitioners have become better placed to facilitate liquidation with cross-border features.

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