The petitioner had applied for the appointment of provisional liquidators over Ando Credit Limited (the company) for the purposes of seeking recognition from the Shenzhen Bankruptcy Court. The application was unopposed. The Honorable Mr. Justice Harris commented that he thought it unnecessary to go into the nature of the underlying debt or the background to the application.
Of particular interest, however, was that the appointment was sought with a view to enable the Hong Kong provisional liquidators to recover substantial receivables thought to be owed to the company by debtors in the Mainland.
Harris J cited his previous decision in Re CEFC Shanghai International Group Ltd  1 HKLRD 676 (see Hogan Lovells client alert A welcome red packet – Hong Kong court recognises mainland Chinese administrators for the first time) in which he had noted that there had not yet been a case in which a court in the Mainland had granted formal recognition of a foreign liquidator. There had been a number of cases which contained an element of recognition but according to His Lordship these were not viewed by Mainland judges as involving the formal recognition of a foreign insolvency proceeding.
It was anticipated, however, that in the near future a protocol would be entered into between Hong Kong and the Supreme People’s Court which would provide for mutual recognition.
The court had been referred to an English translation of an article written by three judges in the Shenzhen Bankruptcy Court, discussing the prospective recognition of Hong Kong liquidators appointed over Hong Kong incorporated companies in the Mainland and which recognized the possibility of such recognition. The translation was appended to the judgment.
The article details extensively the Hong Kong authorities which recognize and assist Mainland insolvency proceedings (as in CEFC and Re Shenzhen Everich Supply Chain Co Ltd  HKCFI 965, also see Hogan Lovells client alert Round 2 - Hong Kong Court grants recognition of Mainland insolvency proceedings for the second time) and also sheds light on the latest judicial thinking in relation to reciprocal recognition by the Mainland courts.
In particular the article addresses the possibility of the Mainland courts considering that "Hong Kong Courts' recognition and assistance methods are worthy of reference" in future applications for reciprocal recognition and assistance from Hong Kong liquidators, such as is the case in Ando. The article said it was apparent that Mainland courts and liquidation administrators had changed their attitude from passive to active on cross-border insolvency issues.
"Since the implementation of the Enterprise Bankruptcy Law in China [in 2007], 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 [also known as Shenzhen Everich] are worthy of reference when the Mainland courts hear cross-border insolvency cases in the future.
The Hong Kong Courts in the Nianfu Case and previously in the Guangxin Case, and Huaxin Case [also known as CEFC] have shown an open attitude towards recognition and assistance to Mainland insolvency proceedings. This provides a factual 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."
The article went on to say that 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 would proceed more expeditiously and smoothly, with creditors obtaining a higher percentage of repayment."
The authors said that the Hong Kong courts had, "shown an open attitude towards recognition and assistance to Mainland insolvency proceedings," and that this provided a, "factual basis for the Mainland courts to hear applications for recognition and assistance from Hong Kong liquidators in the future on the principle of reciprocity."
In Ando, Harris J specifically requested that the order appointing the provisional liquidators in Hong Kong include, amongst other powers, the express provision permitting the provisional liquidators to make an application for recognition by the Shenzhen Bankruptcy Court, subject to His Lordship’s approval of the various stages of the application.
We will closely monitor the progress of Ando and provide further updates of how the provisional liquidators fare in the Mainland courts as and when they become available.
Authored by Jonathan Leitch, Phoebe Yan, and Nigel Sharman.