China, HK agree on cross-border insolvency framework
Hong Kong courts and Chinese pilot city courts will be able to recognize insolvency, bankruptcy and restructuring proceedings under their respective laws.
The Supreme People’s Court of China has designated Shanghai, Xiamen and Shenzhen as pilot cities where the relevant Intermediate People’s Courts and the courts of Hong Kong will be allowed to recognize and assist each other in bankruptcy, insolvency and restructuring proceedings.
Under the new framework, Hong Kong liquidators can apply to mainland courts for recognition of insolvency proceedings under Hong Kong law and be assisted in performing their duties as liquidator.
Likewise, mainland bankruptcy administrators can apply to the Hong Kong High Court for recognition of mainland China bankruptcy proceedings and be assisted in discharging their administrator duties.
The framework makes it easier to rescue financially troubled companies, offers better protection of the debtor company’s assets and better protects the interests of creditors, the Hong Kong government said in an official statement.
The framework expressly covers the mainland bankruptcy compromise and reorganization as well as debt restructuring in Hong Kong, and therefore encourages the use of debt restructuring to revive businesses, especially to facilitate consensus among mainland creditors. , Hong Kong and abroad.
“This may open up more opportunities for the debtor company to seek a successful rescue,” the official statement said. “In the long term, the framework will give additional reassurance to investors and further improve the business environment on the mainland and in Hong Kong.”
A set of Supreme People’s Court Opinions and a Hong Kong Government Practice Guide have been published to provide guidance on the procedures used to deal with requests for mutual recognition and assistance in bankruptcy / insolvency proceedings .
Shanghai, Xiamen and Shenzhen were selected as the first pilot cities due to their close commercial ties with Hong Kong and their status as popular investment destinations for Hong Kong residents. The system will gradually extend beyond these pilot areas.
The “revolutionary” cross-border protocol aims to bridge the gap that exists in the coordination of insolvency and restructuring processes between Hong Kong and the mainland, said Jonathan Leitch, Hong Kong-based restructuring partner at Hogan Lovells.
“Now, when a liquidator appointed in Hong Kong applies to the People’s Court of China for recognition and assistance, provided the liquidator can demonstrate that the debtor’s ‘center of main interests’ is in Hong Kong, the People’s Court has good reasons to help, ”he says.
“This judicial mechanism represents a significant improvement over the current status quo where the efforts of a Hong Kong liquidator to access and monetize assets on the mainland for the benefit of all creditors are often frustrated. In addition, foreign investors and foreign creditors of Chinese companies can now have more say in what happens when an insolvency situation arises.