RE ANDO CREDIT LTD

HCCW 339/2020

[2020] HKCFI 2775

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 339 OF 2020

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R E A S O N S  F O R  D E C I S I O N

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1.  The Petitioner has applied for the appointment of provisional liquidators over the Company. The application is unopposed. It is not necessary for me to go into the nature of the underlying debt or the background to the application. The application was made ex-parte on notice. I have produced this short decision as this is the first application that has been made for the appointment of provisional liquidators over a company incorporated in Hong Kong with the express purpose of seeking recognition in the Mainland with a view to the Hong Kong liquidator being able to recover the very substantial receivables believed to be owed to the Company by its debtors in the Mainland.

2.  As I have explained in Re CEFC Shanghai International Group Ltd [1], there has not yet been a case in which a court in the Mainland has granted formal recognition of a foreign liquidator.  It is anticipated that in the near future a protocol will be entered into between Hong Kong and the Supreme People’s Court which will provide for such mutual recognition.  Any application made by the provisional liquidators of the Company is likely to move in tandem with the finalisation and implementation of that protocol.

3.  For the purposes of the application I have been referred to an English translation of an article written by three judges in the Shenzhen Bankruptcy Court, which is part of the Shenzhen Intermediate People’s Court, discussing recognition by Hong Kong of Mainland appointed liquidators and prospective recognition of Hong Kong liquidators appointed over Hong Kong incorporated companies in             the Mainland.  The article recognises that such recognition should be possible.  I have appended the article to the decision.  The English language translation of the article has been usefully translated by the Petitioner’s solicitors.  The original Chinese version can be found at: https://wemp.app/posts/c4ee81da-dfc9-45e3-b440-fcf9d88d47c1.

4.  I have requested that the order appointing the provisional liquidators includes amongst the powers an express provision permitting the provisional liquidators to make an application for recognition by Shenzhen Bankruptcy Court subject to my approval of the various stages of the application.

Appendix

The People’s Judicature │ by Yue Yanni, Tang Shan and Wang Fang

Exploring the Practice of Cross-border Insolvency between Mainland China and Hong Kong

Original source: “The People’s Judicature” Issue 25, 2020.  First published online on the public WeChat account of “The People’s Judicature”.  Thanks to the author and The People's Judicature Magazine for authorizing the republication on the public WeChat account of the China Bankruptcy Law Forum!  To be more reader-friendly, the footnotes have been omitted here, should you need the same, please refer to the original article on The People’s Judicature.

Exploring the Practice of Cross-border Insolvency between Mainland China and Hong Kong

Yue Yanni, Tang Shan and Wang Fang

(Shenzhen Intermediate People’s Court)

The Mainland and Hong Kong have always maintained close trade exchanges.  The economic, manpower, and cultural exchanges between the two places demand higher requirements for the coordination of their legal systems.  There has been fruitful judicial cooperation between the two places at different levels, both between the central government and the Hong Kong Special Administrative Region government, as well as in court cases or particular legal systems.  However, due to the complexity of the liquidation regime, judicial cooperation between the two places has not been able to make a major breakthrough, affecting integration of the business environment of the two places to a certain extent.

According to information published by the Ministry of Commerce of the People’s Republic of China, from January to December 2018, non-financial direct investment from the Mainland in Hong Kong was US$70.05 billion, accounting for 58.1% of the total investment of US$120.5 billion, revealing a year-on-year increase of 25.1%.  As of the end of December 2018, the mainland’s non-financial direct investment in Hong Kong totalled US$622.37 billion, accounting for 52.7% of the total investment of US$1181.82 billion.  Statistics show that the total investment by mainland enterprises in Hong Kong exceeds more than half of the overseas investment by Chinese enterprises.  In the development of the market economy, the liquidation mechanism actually plays the role of market self-cleansing and self-adjusting, but this mechanism is constrained by the barriers between the insolvency/liquidation systems across the border; and the fact that there are very few instances of official arrangements or judicial assistance cases involving insolvency procedures between the two places.  Companies facing financial difficulties are often clueless when cross-border asset issues are involved.  In fact, this has already resulted in cross-border companies unable to undergo fair liquidation or restructuring as corporate rescue measures.  Therefore, the call for breakthroughs in the insolvency/liquidation systems is getting more prominent as market economy develops.

As a starting point, this article discusses the case of Shenzhen Nianfu Supply Chain

Co., Ltd. (“Nianfu”), the first insolvency proceedings in the Guangdong-Hong Kong-Macao Greater Bay Area which obtained judicial recognition and assistance from the Hong Kong Court.  It will then explore the necessity and plausibility of Mainland liquidation administrators coming to Hong Kong for applying judicial recognition and assistance; laying out how Mainland liquidation administrators can carry out their duties in Hong Kong; and will further discuss the implications on future handling of cross-border insolvency cases by the Mainland, aiming to realise cross-border assistance in insolvency cases in the Guangdong-Hong Kong-Macao Greater Bay Area.

1.   Background — Hong Kong’s judicial assistance in the insolvency proceedings of Nianfu

Nianfu is a well-known and established supply chain service company in Shenzhen. The company operates import and export services through two subsidiaries in Hong Kong (the “Subsidiaries”).  On 19 December 2018, the Shenzhen Intermediate People’s Court of Guangdong Province accepted the liquidation case of Nianfu and appointed Shenzhen Zhengyuan Liquidation Co., Ltd. as liquidation administrators of Nianfu.

The liquidation administrators found through investigation that there were a large number of capital exchanges between the Subsidiaries and Nianfu.  The Subsidiaries’ payables to Nianfu were as high as RMB2.7 billion.  Since the business of the Subsidiaries is an important part of the supply chain management of Nianfu, only by investigating the flow of funds and goods among the three entities can the operation of Nianfu be fully ascertained.  Yet, the common sole director of the Subsidiaries was unable to perform his duties due to objective reasons, the Subsidiaries’ property and accounts were therefore unattended, and their bank accounts in Hong Kong were frozen and unusable.

After consulting the creditors, the liquidation administrators was of the view that there was an urgent need for the application for recognition of the Mainland insolvency proceedings of Nianfu in Hong Kong.  Therefore, the liquidation administrators submitted an application to the High Court of Hong Kong on 19 May 2020, requesting confirmation of the identity of the liquidation administrators and seeking assistance to fully perform its duties in Hong Kong.  The Shenzhen Intermediate Court also sent a letter of request for judicial recognition and assistance to the High Court of Hong Kong in this regard.

On the 7^th day after the submission of such application, the High Court of Hong Kong handed down a decision by paper disposal, recognising the insolvency procedures of Nianfu in Hong Kong, and approving the application for assistance by the liquidation administrators.  Since then, the liquidation administrators had enjoyed the right to act as the representative of Nianfu, with the assistance of the Hong Kong High Court, in carrying out its duties in Hong Kong, including taking over the Subsidiaries, investigating the business operation of the Subsidiaries, restoring normal use of the Hong Kong bank accounts, disposing assets and equity of the Subsidiaries, and other related work.

2.   The Hong Kong Court recognizes and assists the development of the practice of liquidation procedures in the Mainland

As of June 2020, there have been 3 cases where the Hong Kong Courts recognised and assisted insolvency proceedings in the Mainland, namely the Guangdong International Trust and Investment Company insolvency case in 2001 (the “Guangxin Case”), the liquidation of Shanghai Huaxin International Group Co., Ltd in 2019 (the “Huaxin Case”); and the latest Nianfu case (the “Nianfu Case”).  Through these three cases, it is evident that Mainland courts and liquidation administrators have changed their attitude from passive to active on cross-border insolvency issues.  These cases have also shown the scope of assistance Hong Kong Courts can offer to Mainland liquidation administrators.

(1)   The Guangxin Case — the First Case of Judicial Recognition and Assistance In July 2001, in the Guangxin Case, i.e.CCIC Finance Limited v GITIC & GITIC Hong Kong, as CCIC’s claim against GITIC was not recognised as secured debts in the Mainland, CCIC then applied to the Hong Kong Court for a garnishee order over the debts of GITIC Hong Kong (a subsidiary to GITIC) owed to GITIC, hoping to take advantage of the barriers between the insolvency systems across the border to obtain individual settlement.

In response, the Guangdong Provincial Higher People’s Court appointed the GITIC’s liquidator to attend the hearing in Hong Kong, requesting the Hong Kong court to suspend the enforcement actions of CCIC against the GITIC’s property.  Deputy High Court Judge Gill, after considering the nature of the liquidation procedures against GITIC Hong Kong (as the subsidiary of GITIC), the purpose and actual operation of the liquidation proceedings of GITIC (the parent company) in the Mainland, the intention of CCIC and other relevant factors, ruled that GITIC’s liquidation proceedings in the Mainland covers its assets of GITIC Hong Kong.  Therefore, CCIC’s application for a garnishee order absolute was rejected, and the Hong Kong Court ordered the termination of CCIC’s enforcement actions against GITIC Hong Kong.

(2)   The Huaxin Case — a Milestone

Huaxin Company is a mainland-incorporated investment holding company.  It has a subsidiary in Hong Kong, namely Shanghai Huaxin Group (Hong Kong) Co., Ltd. (“Huaxin Hong Kong”).

On 24 August 2018, Right Time Global Investment SPC-Right Time Value Investment Fund SP (“Right Time Fund”) obtained a default judgment against Huaxin Company in Hong Kong, amounting to approximately 29 million euros.  On 12 August 2019, in order to enforce the default judgment, Right Time Fund obtained a garnishee order nisi issued by the Hong Kong court regarding Huaxin Company’s claims against Huaxin Hong Kong, totalling approximately HK$7.2 billion.  The hearing for the garnishee order was scheduled on 11 December 2019.

On November 15, 2019, the Shanghai Bankruptcy Court made liquidation order against Huaxin Company and appointed liquidation administrators.  Huaxin Hong Kong also entered into the liquidation proceedings in Hong Kong.  In order to prevent Right Time Fund from obtaining a garnishee order absolute, the liquidation administrators of Huaxin Company urgently applied to the High Court of Hong Kong for the recognition of and assistance to the liquidation proceedings in the Mainland, and requested the hearing for the garnishee proceedings to be adjourned until after 8 January 2020.

In view of the urgency of the matter, the Shanghai Court issued a letter of request on 10 December 2019 to facilitate the recognition application.  On 18 December 2019, the Hong Kong High Court heard the liquidation administrators’ application and made an order confirming the effect of Huaxin's liquidation proceedings in the Mainland in preventing the enforcement actions and other legal proceedings in Hong Kong.  At the same time, the Hong Kong Court also authorised the Mainland liquidation administrators to exercise the following powers in Hong Kong:-

(i)  To request and receive from third parties documents and information concerning Huaxin Company and its promotion, formation, business dealings, accounts, assets, liabilities or affairs including the cause of its insolvency;

(ii)  To locate, protect, secure and take into their possession and control all assets and property in Hong Kong to which Huaxin Company is or appears to be entitled;

(iii)  To locate, protect, secure and take into their possession and control the books, papers, and records of Huaxin Company including the accountancy and statutory records in Hong Kong, including accountancy and statutory records in Hong Kong, and to investigate the assets and affairs of Huaxin Company and the circumstances which gave rise to its insolvency;

(iv)  To take all necessary steps to prevent any disposal of Huaxin Company’s assets and, in particular, to secure any credit balances in any bank accounts in the name or under the control of Huaxin Company in Hong Kong;

(v)  To operate, open, or close any bank accounts in the name and on behalf of Huaxin Company for the purpose of collecting the assets and paying the costs and expenses of the liquidators;

(vi)  To retain and employ barristers, solicitors or attorneys and/or such other agents or professional persons as the liquidators consider appropriate for the purpose of advising or assisting in the execution of their powers and duties under the order by the Hong Kong Court; and

(vii)  So far as may be necessary to supplement and to effect the powers set out herein, to bring legal proceedings and make all such applications to this Court, whether in their own names or in the name of Huaxin Company, on behalf of and for the benefit of Huaxin Company, including any applications for orders for disclosure, the production of documents, and/or examination of any other third party court orders, freezing orders, search and seizure orders, and any other reliefs.

The Huaxin Case was the first case where a Mainland liquidation administrator has proactively applied to the Hong Kong court for recognition of and approval of the Mainland insolvency proceedings.  In the Huaxin Case, the liquidation administrator obtained the right to perform its duties in Hong Kong, which reveals the general rights and powers the Hong Kong Court may grant to a foreign liquidator in Hong Kong.  This is a milestone in the development of cross-border insolvency judicial cooperation.

(3)   The Nianfu Case — a comprehensive view

Shortly after the Hong Kong Court’s recognition and assistance in the Huaxin Case, the Hong Kong Court quickly handed down an order regarding the recognition and assistance application of the liquidation administrator of the Nianfu which was accepted by the Shenzhen court.

In the Nianfu Case, the Hong Kong Court not only granted the liquidation administrator of Nianfu the same seven general powers (or standard powers) as granted to the liquidation administrator in the Huaxin Case, the Court also specifically allowed the liquidation administrator to act as shareholder representative to exercise Nianfu’s rights in its Hong Kong subsidiaries.  The Hong Kong Court explained that the main reason for granting such right was that Nianfu had two subsidiaries in Hong Kong, which had a total assets of approximately RMB 12 million in multiple banks (which had already been frozen) and a total receivables of approximately RMB 4.1 billion.  As the sole director of the two subsidiaries had been committed to prison since 2018, the aforementioned assets and receivables cannot be dealt with.  Therefore, it was necessary for the liquidation administrator of Nianfu to exercise Nianfu’s shareholder rights over the two subsidiaries on behalf of Nianfu, in order to reappoint a new director for the two subsidiaries to deal with the said assets and receivables.

Hence, from the fact that the Hong Kong Court has granted special powers to the liquidation administrator of Nianfu, it can be observed that when the Hong Kong Court provides assistance to the outside-border liquidation administrator, the Court grants powers in terms of “general powers + special powers”, with regards to the claims of the applicant. In the Huaxin Case, as the liquidation administrator’s requests could be catered by the scope of the general powers of liquidators, the Court granted the standard powers when making an order of assistance, giving liquidation administrator of Huaxin Company the 7 general powers.  Different from the Huaxin Case, the liquidator of the Nianfu needed to handle a wider range of matters in Hong Kong, especially to exercise shareholders’ rights in its Hong Kong subsidiaries as a shareholders’ representative, which could not be dealt with by any of the 7 general powers.  Therefore, the Court adopted the “general powers + special powers” approach when granting powers to the liquidation administrator.

Based on this instance, suppose that a mainland liquidation administrator wants the Hong Kong Court to authorize it to sell assets of an insolvent company in Hong Kong, or to sign agreements with other parties in the name of the insolvent company, on the basis of the Court’s approach in the Nianfu Case, these may fall under matters that warrant special powers from the Court.  Based on the analysis on the Nianfu Case, an overview of the powers that might be granted to the liquidation administrator by the Hong Kong Court can be seen below (see Figure 1)

[Figure 1: Overview of powers of Mainland liquidation administrator]

3.   Considerations and Procedure of Application for Hong Kong Judicial Assistance in Insolvency Proceedings

The application for recognition and assistance in the Nianfu Case, as summarized by the Hong Kong Court contains certain reference value for the mainland courts and liquidation administrator.

(1) Necessity: the struggle between costs and benefits

The driving force for cross-border applications for recognition and assistance is that after obtaining recognition and assistance from overseas courts, the insolvency liquidation process will proceed more expeditiously and smoothly.  Creditors may thus obtain a higher percentage of repayment.  When handling insolvency proceedings, it is not uncommon to reveal that insolvent companies have assets in Hong Kong.  Yet, there are not many cases where liquidation administrator actually initiate cross-border assistance procedures.  On one hand, this is likely because many insolvency practitioners in the Mainland are unfamiliar with Hong Kong legal procedures, which leads to fear of difficulties in pursuing such applications in Hong Kong; on the other hand, the cost of going to Hong Kong to request recognition and assistance is disproportionate to the benefit.  Even if the insolvency company has a subsidiary in Hong Kong, the subsidiary is no longer in operation or the value of the property of the insolvent company in Hong Kong may be much lower than the cost of cross-border applications for recognition and assistance.

In the insolvency proceedings of Nianfu, the liquidation administrator emphatically considered the following factors:-

(i)  The necessity of investigating the foreign transactions of subsidiaries in Hong Kong for clearing and confirming the claims of Nianfu (as the parent company)

Nianfu is a supply chain service company; its transaction model is quite different from the general commercial transaction model of ordinary companies (see Figure 2).  Nianfu and its Hong Kong subsidiaries play a bridging role between a company’s domestic and overseas sale and purchases.  However, due to the interruption of Nianfu’s business, the flow of capital and goods has also been interrupted.  To ascertain the actual transactions of Nianfu will need to turn to investigations of its subsidiary companies in Hong Kong.  Hence, this special transaction structure dictates the need to obtain important information from its subsidiaries as a reference in the process of verifying claims and corporate liabilities.

[Figure 2: Comparison chart of supply chain service company]

(ii)  The necessity of verifying the receivables and payables between the Hong Kong subsidiaries for recovering the receivables of Nianfu

Since the Hong Kong subsidiaries play an important part of the supply chain business of Nianfu, Nianfu has frequent transactions with the Hong Kong subsidiaries, amount of which are huge.  The books shows that the subsidiaries owe hundreds of millions RMB to Nianfu.  The liquidation administrator needs to investigate documents, audited accounts and use other possible means to verify the recoverability of claims and conduct collections in Hong Kong.

(iii)  The necessity of exercising control over its subsidiaries in Hong Kong in the capacity of a Shareholder to handle foreign investment shareholders’ rights

Due to the inability of the director to perform its duties, the subsidiaries established by Nianfu in Hong Kong are not under management, which seriously affects the interests of Nianfu as a shareholder.  The Hong Kong subsidiaries have a huge registered capital and a large amount of external businesses, rendering its shares an important asset of Nianfu.  The liquidator has the responsibility to control the Hong Kong subsidiaries as a shareholder representative, to preserve the property of the subsidiaries, and to find out the actual value of their shares, which are important to determining the disposal of the shares of the subsidiaries in the insolvency proceedings.  Based on the aforementioned, the liquidation administrator forms the opinion that a comprehensive handling of Hong Kong subsidiary companies is crucial to the orderly progress of the insolvency procedures of Nianfu and the protection of creditors’ interests.

In light of the above, in deciding whether to apply for recognition and assistance, one should consider whether such application will benefit the creditors.  If future benefits exceed the costs of such application, the liquidation administrator should proceed to apply for recognition and assistance.  Costs in this regard include both insolvency expenses and time costs.

As to benefits, since the value of the cross-border property can only be verified in the actual investigation and recovery process, there is a certain degree of uncertainty as to whether the creditors will ultimately benefit.  When judging the necessity, it is necessary for the liquidation administrator to conduct a preliminary investigation of the situation, and propose a corresponding plan from a diligent, responsible and professional perspective.

(2)  Feasibility: the development of close connection

The possibility of obtaining recognition and assistance for the Mainland insolvency proceedings from the Hong Kong Court is the second factor that should be considered when deciding whether to make an application to the Hong Kong Courts.  Under normal circumstances, the Mainland courts and liquidators will demonstrate whether the mainland procedures meet the legal requirements for recognition and assistance by Hong Kong Courts.  However, it appears from the Nianfu Case that, since the Huaxin Case, the Hong Kong Court puts a stronger emphasis on facts and/or circumstances of the case rather than the legal requirements.

The Hong Kong Court has fully and clearly demonstrated in the Huaxin Case the legal requirements for the review of the Mainland insolvency proceedings, with the requirement being that the proceedings must be a collective liquidation procedure initiated by the court in the place where the company is registered.  In Mainland judicial practice, it is rare to initiate insolvency proceedings against companies domiciled in the Mainland but not registered in the Mainland.  Therefore, it can be said that the insolvency procedures initiated by the Mainland courts would generally meet the legal requirements for granting recognition and assistance by the Hong Kong Courts.

Therefore, the focus in judging the possibility of Hong Kong Courts recognizing the insolvency proceedings in the Mainland and providing assistance, should be on the facts of the case, which is the proximity between the extraterritorial proceedings and Hong Kong.  This question is precisely the core issue where the Mainland courts and liquidators should sufficiently address in ascertaining whether Hong Kong Courts will grant recognition and assistance.

In the Guangxin Case, the Huaxin Case and the Nianfu Case, the fact that the insolvent company has assets in Hong Kong has been pointed out in all of the corresponding judgments handed down by the Hong Kong Court.  The judgments also referred to the issues and questions targeted by the Mainland liquidation administrators in bringing out applications to Hong Kong Courts.  It can therefore be inferred that a factual requirement for Hong Kong Courts to provide assistance, is whether there is a close connection between the liquidation administrator’s duty and Hong Kong.

When the insolvent companies have assets in Hong Kong, it must be regarded as evidence of close connections.  In the 3 cases discussed hereinabove, the insolvent companies all had assets in Hong Kong.  What is worth highlighting is that, assuming that Nianfu had no assets in Hong Kong, and the liquidation administrator only makes an application on the ground of investigating the business activities of the bankrupt company in Hong Kong, would the Hong Kong Court still grant recognition?  The author is of the view that Hong Kong Courts might consider the complexity of the matters for which the Mainland liquidation administrator requires assistance before making a decision.  “For relatively simple and straightforward matters like requiring banks to submit account information, overseas liquidators do not need to go to Hong Kong Courts for assistance at the first instance, as the liquidator can apply directly to the bank”.  Therefore, when most Mainland liquidation administrator file applications for recognition and assistance to the Hong Kong Courts, they only need to consider whether the liquidation administrators’ performance of duties is closely related to Hong Kong; and whether such performance of duties in Hong Kong is so complicated that the liquidation administrator require assistance from a court.

(3) Summary of Procedure: procedures centred on liquidation administrators

In the insolvency proceedings, the liquidation administrator appointed by the court is the subject who applies for recognition and assistance from outside the territory. Therefore, the specific process is centred on the liquidation administrator (see Figure 3).

[Figure 3: Flow chart of Mainland liquidation administrator applying for recognition and assistance from Hong Kong Courts]

Step 1: Preparation before application

According to the usual practice of Hong Kong Courts, the liquidator should first apply to the Mainland court for a letter of request before applying to the Hong Kong Court.  The contents of the letter of request should cover:-

(1)  introduction of the basic case, highlighting the circumstances of the case accepted, the circumstances of the assigned liquidation administrator, and jurisdictional issues;

(2)  the introduction of the statutory powers of the Mainland liquidation administrator;

(3)  the necessity of filing an application for recognition and assistance; and

(4)  the specific requirements for recognizing insolvency procedures and assisting liquidators.

To facilitate the making of a recognition order, the Hong Kong Court laid down a standard form of order for granting recognition and assistance in Re Joint and Several Liquidators of Pacific Andes Enterprises (BVI) Ltd (Unrep, HCMP 3560/2016, 27 January 2017).  Judging from the Huaxin Case and the Nianfu Case, the Honourable Mr Justice Harris of the High Court of Hong Kong hopes that Hong Kong practitioners will then advise Mainland liquidation administrator and courts to apply for recognition and assistance according to the terms in the standard form of order.

The terms in the form of order are the 7 general powers to be granted to a liquidator as listed above.  In practice, there can be many variations in expressions when the Chinese letter of request is being translated into English, which might be different from the expressions used in the standard form of order in English that is familiar to Hong Kong judges.  Thus, mainland courts and liquidators need to pay attention to the translation of the letter of request.  Where there is no existing insolvency recognition and assistance arrangements signed between the two places, the Hong Kong Court is prepared to grant the liquidation administrator the 7 general powers. Based on the needs of the case, terms praying for special assistance from the Court can be added or adjusted accordingly.

Step 2: Submitting an application

The Mainland liquidation administrator is the subject of recognition and assistance in Hong Kong.  The Mainland liquidation administrator should submit the following information when filing an application:-

(1)  The originating summons for the application, precisely stating the claims and demands;

(2)  The draft order which the liquidation administrator seeks from the Court; (due to the substantial differences in the jurisdiction and language between the Mainland and Hong Kong, it is recommended to entrust a Hong Kong lawyer to handle the matter, where the Hong Kong lawyer shall draft the order in accordance with the requirements of the Hong Kong Courts, including cover letters, the lawyer(s)’s affidavit/affirmation, skeleton submissions and case authorities supplementing the submissions);

(3)  A letter of request for recognition and assistance issued by a Mainland court;

(4)  An affidavit/affirmation of the person in charge of the liquidation administrator (which is usually a company), stating the case and focusing on the case’s connection with Hong Kong;

(5)  Other evidences and materials, to further prove the necessity and reasonableness of the extraterritorial recognition and assistance; and

(6)  Decision of accepting insolvency proceedings and appointment of designated liquidation administrator.

Step 3: Participating in the application review process

For extra-territorial liquidation administrator applying for recognition and assistance, the Hong Kong High Courts will generally conduct a hearing, which the representative the liquidation administrator (a company) should attend.  In cases where the facts are very clear, it may be done by paper disposal.  For example, after the liquidation administrator of Nianfu had submitted an application for recognition and assistance, since they had submitted sufficient materials to prove the necessity for granting recognition and assistance, the Hong Kong High Court dealt with the case by paper disposal

Step 4: Receiving judgment

The Hong Kong High Court will generally make an order after the hearing and then issue a written judgment.  The liquidation administrators can exercise in Hong Kong the powers granted after obtaining the order.

4.   Two Implications of the Nianfu Case on Cross-border Insolvency Cooperation

(1)  Coupling of actual needs and practical conditions: Cross-border insolvency cooperation can first achieve a breakthrough within the Guangdong-Hong Kong-Macao Greater Bay Area

In the world-famous Tokyo Bay Area, New York Bay Area, and San Francisco Bay Area, their legal systems are all consistent, which are all developed within one country, one political system, and one legal system.  Resources within these areas can flow freely without barriers.  However, the Guangdong-Hong Kong-Macao Greater Bay Area in China is under the framework of a one country, two systems, three separate customs areas, and three currencies.  Its complexity and particularity have brought a variety of cross-border barriers to border-free economic exchanges.  The fundamental differences in the legal systems have become the most difficult obstacle to overcome. With the support of national policies and the need for economic integration, Guangdong, Hong Kong and Macao have achieved a lot in judicial cooperation, ranging from border inspection and quarantine, cross-border commercial arbitration, lawyers practicing in multiple locations, the establishment of the First Circuit Court of the Supreme People’s Court, the establishment of Guangdong-Hong Kong-Macau Copyright Registration Hall, the exchange of legal talents, to the cross-border cooperation in police affairs in Guangdong, Hong Kong and Macao.

Exchange platforms have also been established at multiple levels in the judicial field and insolvency intermediaries across the Mainland and Hong Kong, for instance, the annual market-oriented bankruptcy forum led by the Shenzhen Courts has been successfully held for 3 years.  It has been a new norm for judges and insolvency practitioners to exchange ideas in the Greater Bay Area.  The Nianfu Case this year is also the first insolvency case recognised and assisted by the Hong Kong Court since the establishment of the Greater Bay Area economic circle.  The exchange of legal culture and judicial practice has laid a solid foundation for the three places to break cross-border insolvency barriers in the Greater Bay Area and realize the rapid and free flow of market resources.

(2) Referencing the Mode and Methods of adjudication: Hong Kong Courts’ recognition and assistance methods are worthy of reference

There are very few cases where the Mainland courts recognize and provide assistance in extraterritorial insolvency proceedings, The major known cases are:-

·  In 2001, the Intermediate People’s Court of Foshan City, Guangdong Province, recognized the Milan Court’s decision in September 1999 in accordance with the “China-Italy Civil Judicial Assistance Treaty”;

·  In 2012, the Intermediate People’s Court of Wuhan City, Hubei Province recognized the bankruptcy judgment of the Montabaur District Court; and

·  In 2014, the Supreme People’s Court confirmed that the liquidator’s capacity as litigation representative of China Environmental Protection Technology Group Co., Ltd in China Environmental Technology Group Co., Ltd. v Thumb Environmental Technology Group.

However, these judgments are all judgments on insolvency reviewed in accordance with the foreign-related procedures under civil litigation in the Mainland.  The reasons of recognising the insolvency proceedings and the specific methods of providing judicial assistance are very different to those under the “United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency” and “EU Bankruptcy Procedure Rules”, which are more globally recognised.

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.

Conclusion

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.

Public account editor: Hu Zhu Xian