Milestone in Cross-Border Insolvency: A Successful Claim in the Pilot Measure from Hong Kong to Mainland China | Jones Day
The situation: Following the signing of minutes of a meeting between the Hong Kong Secretary of Justice and the Vice President of the Supreme People’s Court (“CPS”) in May 2021, which established consensus on recognition Mutual and Insolvency Assistance between Mainland China and Hong Kong, a CPS Notice and a Hong Kong Government Practical Guide have been published to implement the arrangement (“Pilot Measure”). The liquidators of a company recently applied to the Hong Kong High Court to issue a letter of demand, under the pilot measure, to the Shenzhen court to facilitate the performance of their duties by the liquidators in China. continental.
The result: The Hong Kong court agreed that recognition and assistance from mainland China was needed for the liquidators to recover the company’s assets in mainland China and issued a letter of demand to the Shenzhen court in accordance with the guidelines.
Looking forward: It is worth looking at how the Shenzhen court grants recognition and grants authority to liquidators. In particular, does the Shenzhen court provide liquidator assistance for assets outside the pilot area (for example, an apartment in Beijing) and in areas outside of Shenzhen (for example, entities located in Xiamen, which is also in the pilot area)?
Context of the pilot measure
The mechanism set out in “The Supreme People’s Court Opinion on the Implementation of a Pilot Measure Regarding the Recognition and Assistance in Insolvency Proceedings in the Hong Kong Special Administrative Region” (the “Pilot Measure” ) aims to recognize and assist Hong Kong insolvency proceedings in three mainland Chinese cities: Shanghai, Xiamen and Shenzhen (“Pilot Zone”). It applies to proceedings if the debtor’s center of main interests (“CIM”), which generally refers to the place of incorporation, has been in Hong Kong for at least six months and the debtor’s principal assets are located in the area. pilot, or if the debtor has an establishment or representative office in the pilot area. To request recognition and assistance, a request letter in Simplified Chinese issued by the High Court of Hong Kong (“Hong Kong Court”), along with a copy of the judgment in Simplified Chinese, must be submitted to the Court. people of mainland China. .
Background of Samson Paper Company LimitedLiquidation of
On July 18, 2020, Samson Paper Holdings Limited (“SPHL”), a company incorporated in Bermuda and listed on the Hong Kong Stock Exchange Limited, filed a petition in Bermuda for the liquidation of SPHL and the appointment of joint interim liquidators of the Bermuda. (“JPL”) with the aim of carrying out a “light” restructuring. On August 13, 2020, the Hong Kong court recognized the JPL’s appointment and issued an order staying all actions or proceedings against the assets or business of SPHL in Hong Kong without leave from the Hong Kong court. On August 14, 2020, the shareholder (an indirect and wholly owned subsidiary of SPHL) adopted a special resolution of Samson Paper Company Limited (“Samson” or the “Company”), an entity engaged in product training of the paper with its main head office. in Hong Kong, to liquidate the Company by voluntary liquidation of creditors and Messrs. Lai Kar Yan (Derek) and Ho Kwok Leung Glen have been appointed joint and several liquidators of the Company (the “Liquidators”). The Company had significant assets located in Mainland China, including wholly owned subsidiaries in Shenzhen (which also had subsidiaries in Xiamen and Shanghai), claims on mainland incorporated entities totaling over HK 420 million and an apartment. in Beijing. seek the help and recognition of Mainland China to take possession and control of the company’s assets in Mainland China. The liquidators filed a petition with the Hong Kong court seeking a letter of petition from the Bankruptcy Court of the Shenzhen Intermediate People’s Court (“Shenzhen Court”) to act in favor of the liquidation proceeding by: (i) acknowledging the liquidation procedure and the appointment of liquidators of the Shenzhen Court; and (ii) direct and direct that the Liquidators may exercise the powers available to them under Hong Kong law, and to the fullest extent permitted by Mainland law.
As a first step, the Hong Kong court ruled that since the Company’s assets were mainly located in Shenzhen, recognition and assistance to liquidators was desirable so that they could recover the assets falling within the jurisdiction. of the Shenzhen court. Second, since the Company was incorporated in Hong Kong and had always been managed from Hong Kong, the COMI requirement was met. In addition, the court considered that the principles governing the granting of a rogatory commission were well established in Re Sea Containers Ltd  SC (Bda) 26 Com, Re China Agrotech Holdings Ltd  HKCLC 365 and Re Southern Pacific Personal Loans Ltd  Ch 426. As a result of these cases, the court ruled that it had inherent jurisdiction to grant a demand letter authorizing the Hong Kong liquidators to seek recognition and assistance in another jurisdiction. The court asked which was the most appropriate or practical jurisdiction to decide the issue in question, applying generally applicable jurisdictional principles. The court ruled that these jurisdictional principles had been observed, noting that liquidators had a duty to recover the assets of the company and that they were empowered by law to initiate legal proceedings for the recovery of the assets.
As the Honorable Justice Harris said, this case “would be the first time that a Mainland court has formally recognized and assisted a liquidator appointed by the High Court of Hong Kong” and is indeed “significant in the development of cooperation between Hong Kong and the mainland in the field of corporate insolvency. “This case sets a precedent for insolvency practitioners, and many of them are expected to follow suit. ‘to come up.
Since the company is incorporated in Hong Kong, there was not much discussion in the court’s opinion on COMI, one of the main requirements of the pilot measure. However, the court took the opportunity to consider Groupe Re Melars Ltée  EWHC 1523 (Ch), in which ICC Deputy Judge Baister of the Commercial and Real Estate Courts of England and Wales sets out the criteria for determining the location of the COMI. This case should be of great importance to practitioners when the issue of ICM arises in future cases.
Three key points to remember
- This is the first case in Hong Kong seeking the issuance of a letter of demand by the Hong Kong court to a mainland court for recognition and assistance to Hong Kong liquidators under the pilot measure.
- As it is a ex part request, applicants must prepare a detailed supporting statement to meet the usual full and frank disclosure requirement. In addition, various draft documents, including a draft letter of request in English and Simplified Chinese, must be prepared before the hearing for consideration by the court.
- Practitioners should keep in mind that the pilot measure is only applicable when the principal assets or the place of business or the representative office of the debtor are located in Shanghai, Xiamen or Shenzhen in mainland China.