RE JIANG WENYU AND OTHERS

HCMP 1220/2021

[2021] HKCFI 2897

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1220 OF 2021

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D E C I S I O N

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1.  I have before me an originating summons issued on 25 August 2021 seeking an order recognising the reorganisation of HNA Group Co., Limited and three individuals as able to represent the Administrator appointed in the Mainland, which I shall and to exercise the powers specified in the Order that I have decided should be granted providing recognition and assistance to the Mainland reorganisation process.

2.  The Company is the holding company of a well-known and substantial business group based in Hainan.  The Company was established on 16 April 1998.  It developed an extensive group of businesses extending to aviation, investments in hotel and golf courses and various other business activities.  It has in the last few years, developed very serious financial problems which culminated in an application to the Hainan Province Higher People’s Court by the Bank of Hainan Company Limited seeking bankruptcy reorganisation of the Company on the grounds of insolvency.  It is my understanding that it is necessary in order for a Mainland court to order that a reorganisation process should commence for it to be demonstrated that the Company is insolvent.

3.  On 10 February 2021 the Hainan Province Higher People’s Court ordered that a reorganisation commence pursuant to Article 22(i) and Article 24(i) of the Enterprise Bankruptcy Law and Article 18 and Article 19 of the Provisions of the Supreme People’s Court which provide for the appointment of an administrator during the course of Enterprise Bankruptcy cases.  The Order established a liquidation group which was formally appointed as the Company’s administrator (“Administrator”).  The Administrator was tasked with a broad range of duties:

(1)   Taking over all the debtors’ assets, company seals and books of accounts, documents and other materials;

(2)   Investigating into the debtor’s financial position and preparing the reports on such financial position;

(3)   Determining the internal management and affairs of the debtor;

(4)   Determining the daily expenses and other necessary expenses of the debtor;

(5)   Determining the continuation or suspension of the business operation of the debtor prior to the holding of the first creditors’ meeting;

(6)   Managing and disposing of the debtors’ assets;

(7)   Engaging in lawsuits, arbitration or other legal proceedings for and on behalf of the debtor;

(8)   Calling for the convening of the creditors’ meetings;

(9)   Other functions that this Court deems necessary to be performed by the administrator.

4.  The court also made on the same day an order granting        self-management of various assets and the business affairs of 64 members of the Group of which the Company is the holding company.

5.  The Administrator applied to the Hainan Province Higher People’s Court for a letter of request directed to the Hong Kong High Court seeking recognition of the reorganisation in the Mainland and providing powers of assistance to particular representatives of the Administrator in Hong Kong.  It is these three individuals who are the Applicants in the present proceedings.  Two of them are lawyers with King & Wood Mallesons (Beijing), who are on the panel which constitutes the Administrator. The third is Mr Jiang Wen Yu, who is Level 1 Officer of the Secretarial Office of Hainan Province Legal Administrative Office.  The powers of assistance that have been sought by the Applicants are conventional.  They can be seen from the form of order that I have made which is appended to this decision.

6.  There are a number of issues which need to be considered before I determine that this is a proper case in which to make a recognition and assistance order.  The first concerns the process that the court is being asked to recognise as the Hong Kong court will only recognise what, assessed by Hong Kong legal principles, constitutes a collective insolvency process.  The second is that the foreign insolvency proceedings are opened in the Company’s country of incorporation or where it has its centre of main interests[1]. The second issue is uncontroversial as the Company is incorporated in the Mainland.  The first, namely the character of the reorganisation process, requires consideration.

7.  In the previous paragraphs I have briefly described what the reorganisation process involves.  It is as the name suggests a process specifically provided for by Chapter 8 of the Enterprise Bankruptcy Law, which deal with reorganisation, and is a mechanism which allows a debtor or creditor to apply to the court for recognition of a formal reorganisation process, which is intended to restructure debt and rehabilitate a company’s business and avoid liquidation.  If the court approves the reorganisation plan, but it is not possible successfully to implement it, Article 88 provides that the court should terminate the reorganisation procedure and declare the company bankrupt.  We do not have in Hong Kong a directly comparable procedure and I do not think it will be helpful to explore such similarities as the reorganisation procedure has, with the insolvency procedures in Hong Kong.

8.  It is clear in the present case that the Mainland reorganisation concerns all of the Company’s creditors and its character is clearly properly characterised as a collective insolvency procedure.  It, therefore, seems to me that it should be and is capable of being recognised in Hong Kong.  The fact that some of the Company’s subsidiaries remain managed by their directors is not in my view inconsistent with treating the Company’s reorganisation as a collective insolvency process as what is principally relevant is the effect the process has on the Company’s debt and creditors rather than the management of its business and assets.

9.  The final issue is one that arises by virtue of the cooperation agreement that was signed the Secretary for Justice and the Supreme People’s Court on 14 May 2021, providing a procedure for recognition and assistance of insolvency proceedings between Hong Kong and three Intermediate People’s Courts in the Mainland, namely, Shenzhen, Shanghai and Xiamen.  Self-evidently, the arrangement does not extend to Hainan.  As I explained in [25] of my decision in Re CEFC Shanghai International Group Limited[2] in which I considered the relevant principles extensively in the context of the first application by a Mainland administrator for formal recognition in Hong Kong, reciprocity is not a requirement of common law recognition and assistance in Hong Kong.  Therefore, the fact that it may be that the Hainan Province Higher People’s Court would not recognise Hong Kong insolvency proceedings and liquidators, is not of itself a bar to the Hong Kong court granting recognition at the request of the Hainan court.  If there is an issue concerning whether or not it is appropriate for a court in the Mainland other than one of the three specified courts to apply for recognition and assistance that seems to me to be a matter for the Supreme People’s Court.  It is not of itself a consideration to be taken into account by the Hong Kong court in determining whether or not to grant recognition and assistance.

10.  As I have already indicated the substantive terms of the order that are sought are conventional and for the above reasons I have determined that I should make an order in the terms sought by the Applicants.

Appendix
Order

1.  The reorganisation of HNA Group Co., Limited (海航集团有限公司) (in Reorganisation in the Mainland of the People’s Republic of China) (“Company”) and the appointment of the HNA Group Liquidation Group of the Company the members of which comprise (i) Ren Qinghua (任清华), (ii) Lin Ji Jun (林继军), (iii) Huang Ge (黄革), (iv) Yi Xi Chun (易细纯), (v) Luo Jing Hui (罗精晖), (vi) Jiang Wen Yu (蒋文玉), (vii) King & Wood Mallesons, Beijing (北京市金杜律师事务所) of 18th Floor, East Tower, World Financial Center, 1 Dongsanhuan Zhonglu, Chaoyang District, Beijing 100020, the People’s Republic of China, and (viii) Ernst & Young Huaming Accounting Firm (安永华明会计师事务所) of Level 16, Ernst & Young Tower, Oriental Plaza, No. 1 East Changan Avenue, Dongcheng District, Beijing 100738, the People’s Republic of China as the administrator of the Company (“Administrator”) (with JIANG Wen Yu (蒋文玉), WANG Le (王乐), and HE Luting (贺璐婷) being the authorised representatives of the Administrator for the purposes of representing the Administrator in the Hong Kong Special Administrative Region (“Applicants”) and exercising any powers pursuant to this Order) be recognised by this Court);

2.  The Administrator has and may exercise in the Hong Kong Special Administrative Region the following powers:

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

(b)  to locate, protect, secure and take into their possession and control all assets and property within the jurisdiction of this Court to which the Company is or appears to be entitled;

(c)  to locate, protect, secure and take into their possession and control the books, papers, and records of the Company including the accountancy and statutory records within the jurisdiction of this Court and to investigate the assets and affairs of the Company and the circumstances which gave rise to its insolvency. The books, records and documents of the Company include:

(i) emails exchanged and other correspondence between the Company and its auditors, and the Company and other third parties; and

(ii) documents and information provided by the Company to its auditors and provided by the auditors to the Company in relation to the audit work;

(d)  to take all necessary steps to prevent any disposal of the Company’s assets and, in particular, to secure any credit balances in any bank accounts in the name or under the control of the Company within this jurisdiction;

(e)  to operate and open or close any bank accounts in the name and on behalf of the Company for the purpose of collecting the assets and paying the costs and expenses of the Administrator;

(f)  to retain and employ barristers, solicitors or attorneys, accountants and/or such other agents or professional persons as the Administrator considers appropriate for the purpose of advising or assisting in the execution of their powers and duties under this Order; and

(g)  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 the Company or the Administrator, on behalf of and for the benefit of the Company, including any applications for:

(i) orders for disclosure, the production of documents and/or examination of third parties which may be made by the Administrator to facilitate the Administrator's investigations into the assets and affairs of the Company and the circumstances which gave rise to its insolvency; and/or

(ii) ancillary relief such as freezing orders, search and seizure orders in any legal proceedings commenced.

3.  Anything that is authorised or required to be done by the Administrator may be done by all or any one or more of the Applicants and the application of the common chop of the Administrator entitled “海航集团有限公司管理人”.

4.  If the Administrator wishes to apply for a stay or other directions in respect of proceedings in the High Court of any sort as a consequence of the recognition of their appointment by this order such application shall be listed before the Honourable Mr Justice Harris or such other judge as he shall direct. The Administrator shall write to the clerk to the Honourable Mr Justice Harris seeking case management directions for the determination of any application that they wish to make pursuant to this order.

5.  The Administrator do have liberty to apply; and

6.  The costs of the application be paid out of the assets of the Company as an expense of the liquidation.