Hong Kong and the Mainland have agreed a new co-operation mechanism for cross-border insolvency.
Hong Kong’s Secretary for Justice, Teresa Cheng SC and Vice-President of the Supreme People’s Court (SPC) Yang Wanming, signed the record of meeting concerning mutual recognition of and assistance to insolvency proceedings between the courts of the mainland and the Hong Kong Special Administrative region in Shenzhen today, 14 May 2021.
Under the agreement, liquidators from Hong Kong may apply to mainland courts for recognition of insolvency proceedings in Hong Kong, whilst bankruptcy administrators from the mainland can apply to the Hong Kong High Court for recognition of bankruptcy proceedings in the mainland.
In a statement, the Hong Kong government said the new co-operative framework expressly covers bankruptcy compromise and reorganization in the mainland as well as debt restructuring in Hong Kong, thereby encouraging the use of restructuring of debts to revive businesses with a view to reaching consensus among creditors from both places and abroad.
Under the arrangement, the SPC will designate a number of pilot areas where the relevant Intermediate People's Courts and HKSAR courts will commence work on mutual recognition of and assistance in insolvency proceedings in accordance with the laws. The initial pilot areas are Shanghai, Xiamen, and Shenzhen given the close trade ties with Hong Kong.
An opinion and a practical guide have been issued giving further details and model documents to be used when making applications before the court.
The announcement of the mechanism comes as the Hong Kong courts have taken welcome steps to develop the common law principles relating to cross-border insolvency in Hong Kong and mainland China (see our alerts, Round 2 – Hong Kong court grants recognition of mainland insolvency proceedings for the second time and Another first – Hong Kong court grants provisional liquidators permission to seek Mainland recognition).
We will provide further commentary on this ground-breaking arrangement in due course.
Authored by Jonathan Leitch and Nigel Sharman.