For years, the boundary between Mainland China and Hong Kong was seen as a legal shield for financially troubled mainland companies. Directors would often place assets in Hong Kong subsidiaries, relying on the belief that Mainland insolvency proceedings could not reach across the border. In practice, this meant that assets held in Hong Kong were often considered beyond the reach of Mainland liquidators and creditors. Such belief has now been significantly undermined. In a landmark ruling recently published by the Hong Kong High Court in Re USUM Investment Group Limited [2026] HKCFI 1320, the Hong Kong Court made clear that the border is no longer an impenetrable legal barrier in insolvency matters. This decision signals a new era of cross-border legal cooperation.
The Billion-Dollar Standoff
Founded in Chongqing, USUM Investment Group (the “Company”) later encountered severe financial distress and was placed into court-supervised restructuring in Mainland China, essentially a legal attempt to fix the business instead of winding it up.
However, difficulties arose when the Mainland administrators of the Company attempted to take control of the Company’s wholly owned Hong Kong subsidiary to implement the court-approved restructuring plan. The Company’s former controlling shareholder fought back. Through his solicitors, this former controlling shareholder lodged objections with the Hong Kong Companies Registry in an attempt to prevent the Mainland administrators of the Company from effecting changes to the board of directors of the Hong Kong subsidiary. He also commenced a statutory derivative action, further challenging the administrators’ ability to exercise control over the Hong Kong entity.
Consequently, the Mainland administrators applied to the Hong Kong Court for formal recognition of the Mainland restructuring proceedings and their appointment as administrators, alongside specific with orders granting them the necessary powers to secure and take control the Company’s Hong Kong assets. This application squarely raised the issue of how far the Hong Kong Court is prepared to assist Mainland restructuring proceedings.
Hong Kong Court’s Ruling
I. Extending Recognition to Restructuring Proceedings
The Hong Kong Court was invited to answer the important question of whether it has the power to recognise a Mainland restructuring plan, or is its help limited only to final liquidations.
The Court answered the question in the affirmative. It held that Hong Kong Court may recognise and assist foreign restructuring proceedings, provided that the proceedings are “collective” in nature.
Before Re USUM, it remained unclear whether Hong Kong’s common law jurisdiction to recognise and assist foreign insolvency proceedings extended beyond liquidations to encompass corporate restructuring and rescue processes. The court in Re USUM rejected any liquidation-only limitation, holding that there is “no principled reason” to distinguish between representatives appointed for restructuring and those appointed for liquidation. Equally, there is “no in-principle limitation” confining recognition and assistance to liquidation proceedings.
Instead, the critical inquiry is the nature of the foreign proceedings. Where the foreign proceeding is a collective insolvency proceeding conducted for the benefit of creditors as a whole, it is capable of recognition at common law regardless of whether its objective is liquidation or corporate rescue.
II. The “Golden Thread” of Modified Universalism
At the heart of this judgment is the principle of modified universalism. Put simply, the idea is that when a company becomes insolvent, its assets and affairs should, as far as practicable, be administered in a coordinated manner across different jurisdictions, rather than through fragmented proceedings in each jurisdiction. After all, the goal is to achieve an orderly and efficient outcome that benefits creditors as a whole.
In Re USUM, the Court reaffirmed that this principle remains the foundational core of cross-border insolvency. In practical terms, this means that Hong Kong Court is prepared to assist the Mainland administrators in bringing the Company’s assets under their control, including its shareholding in its Hong Kong subsidiary, so that the restructuring could proceed for the benefit of the general body of creditors.
III. Why COMI Matters
For offshore practitioners, perhaps the most significant takeaway from Re USUM is that a company’s operational reality may carry more weight than its corporate architecture. In other words, the Court will look beyond where a company is incorporated, and its business is actually managed and conducted. This is the concept of center of main interests (“COMI“). Put simply, COMI refers to the jurisdiction where a company’s management, business and affairs are actually conducted.
Although the Company formed part of a structure involving offshore entities and Hong Kong subsidiaries, its COMI was unquestionably in Mainland China. The Court therefore regarded the Mainland restructuring proceedings as the natural and primary insolvency process. The Court endorsed the broader principle that recognition may extend to office-holders appointed in a company’s COMI, observing that such an approach accords with commercial reality and modern cross-border insolvency practice.
The practical consequence is that, a company cannot expect to avoid the consequences of insolvency proceedings merely by placing assets or subsidiaries in another jurisdiction. Where the foreign proceeding is a collective insolvency proceeding and the usual recognition requirements are met, Hong Kong courts will generally be prepared to recognise and assist the foreign office-holders regardless of whether the proceeding falls within the formal Mainland-Hong Kong Cooperation Mechanism.
Recognition vs. Assistance: A Conceptual Delineation
Another key contribution of the Re USUM judgment is its clear delineation between “recognition” and “assistance.” The Court clarified that the two concepts serve different functions:
| Recognition | Assistance | |
| Nature | A matter of ordinary private international law principles confirming the appointment and powers of the foreign office-holder | The “grant of specific power” by the Hong Kong court to help the foreign office-holders perform their functions |
| Need for Court Order | Not a precondition to the office-holder acting in Hong Kong | Requires a court order granting the relevant relief |
| Purpose | Confirmatory; facilitates dealings with third parties in Hong Kong | Facilitates the furtherance of the office-holder’s functions |
| Examples | Declarations of the administrators’ status as agents of the company and their ability to deal with the assets of the company | Disclosure orders; stays of proceedings; and asset protection measures |
This distinction promotes efficiency in cross-border insolvency practice. Recognition simply means that the Hong Kong Court acknowledges that a foreign insolvency office-holder, such as administrator or liquidator, has been validly appointed under the law governing the insolvency proceeding. It does not give that person new powers or create their authority. Assistance, on the other hand, is different. It is only needed when the office-holder requires the Hong Kong Court to take active steps in support of the foreign insolvency process.
Why This Matters to You
The decision in Re USUM reinforces Hong Kong’s commitment to the principle of modified universalism, which encourages courts to cooperate with foreign insolvency proceedings to facilitate the orderly administration of an insolvent company’s affairs and the collective treatment of creditors.
For Mainland administrators and restructuring professionals, the judgment provides certainty. It confirms that court-appointed administrators in Mainland restructuring proceedings may seek recognition in Hong Kong even where the restructuring falls outside the formal Mainland-Hong Kong Cooperation Mechanism, provided that the proceeding is collective in nature and has the requisite connection to the company’s place of incorporation or COMI. More broadly, the decision reflects the Hong Kong Courts’ growing willingness to support cross-border restructuring efforts and to look beyond corporate form to commercial reality.
In short, Re USUM confirms that Hong Kong is prepared to cooperate with Mainland restructuring practitioners as well as liquidations. For companies whose business, management and operation are centered in the Mainland, offshore incorporation alone is unlikely to shield Hong Kong assets from a recognised cross-border insolvency process. The perceived legal barrier between the Mainland and Hong Kong is no longer a reliable shield against cross-border insolvency proceedings.
For more details, feel free to reach out to:
Managing Partner: Mr. Ian Lo
Partner : Mr. Anderson Siu
