Member Article

In May 2021, we published an article, Milestone in Hong Kong-Mainland China cross border insolvency: Mutual recognition of and assistance to Insolvency Proceedings between Hong Kong and Mainland China, which highlighted the key features of the cooperation mechanism in relation to Hong Kong-Mainland China cross border insolvency set out in the Record of Meeting of the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region and Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Court of the Mainland and the Hong Kong Special Administrative Region (Record of Meeting), which was signed by Hong Kong’s Secretary for Justice and the Vice-President of the Supreme People’s Court (SPC) on 14 May 2021.

Within 2 months of the Record of Meeting being signed, on 8 July 2021 the first application was made for a letter of request to be issued by the High Court of Hong Kong to the Bankruptcy Court of the Shenzhen Intermediate People’s Court in Re Samson Paper Company Limited (in Creditors’ Voluntary Liquidation) [2021] HKCFI 2151. The application was allowed by the Court on 20 July 2021.

Background

Samson Paper Company Limited (Company), is incorporated in Hong Kong. It is part of a corporate group headed by Samson Paper Holdings Limited (Holdco), which is incorporated in Bermuda and listed on the Hong Kong Stock Exchange. On 24 July 2020, Mr. Derek Lai and Mr. Glen Ho of Deloitte were appointed as soft-touch provisional liquidators of Holdco by the Supreme Court of Bermuda. Their appointment was recognised in Hong Kong on 13 August 2020.

It was later resolved that the Company be wound up on insolvency grounds and that Mr. Lai and Mr. Ho be appointed as liquidators (Liquidators).

The Liquidators were of the view that they needed to obtain recognition and assistance to deal with the Company’s substantial assets in the Mainland, which are principally located in Shenzhen. These assets include wholly-owned subsidiaries in Mainland China (including a wholly-owned subsidiary in Shenzhen), receivables due from affiliated companies incorporated in the Mainland and an apartment in Beijing.

The SPC Opinion

To provide further guidance on the cooperation mechanism under the Record of Meeting, the SPC issued an Opinion on Taking Forward a Pilot Measure in relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region (SPC Opinion).

Article 4 of the SPC Opinion provides that:

1. The SPC Opinion applies to Hong Kong Insolvency Proceedings^[1] where Hong Kong is the centre of main interests of the debtor;
   
   
2. “Centre of main interests” generally means the place of incorporation of the debtor. Other factors such as the place of principal office, the principal place of business and the place of principal assets of the debtor will also be taken into account by the courts in Mainland China; and
   
   
3. When a Hong Kong liquidator applies for recognition and assistance, the centre of main interests of the debtor shall have been in Hong Kong for at least 6 months.
   
   

Article 6 of the SPC Opinion sets out the materials which a Hong Kong liquidator applying for recognition of and assistance to Hong Kong Insolvency Proceedings is required to submit, which include:

1. A letter of request for recognition and assistance issued by the High Court of Hong Kong; and
   
   
2. A copy of the judgment in respect of which the application for recognition and assistance is made.
   
   

The Liquidators’ application for a letter of request

In light of the requirements set out in the SPC Opinion mentioned above, the Liquidators applied for a letter of request to be issued by the High Court of Hong Kong to the Bankruptcy Court of the Shenzhen Intermediate People’s Court so that they can collect in the assets within the jurisdiction of the Shenzhen Court.

The Court summarised the relevant principles governing the grant of a letter of request:

1. The Court has an inherent jurisdiction to grant a letter of request in order to permit Hong Kong liquidators to seek recognition and assistance in another jurisdiction; and
   
   
2. In considering whether to grant a letter of request, the Court has to consider which jurisdiction is the most appropriate or convenient forum for the determination of the issue in question, applying generally applicable jurisdictional principles.
   
   

The Court considered that the granting of a letter of request in the present case would be consistent with the above principles. The Liquidators have a duty to collect in the Company’s assets. The Liquidators have an express statutory power in Hong Kong to commence legal proceedings to recover assets and this includes commencing proceedings outside Hong Kong.

For the benefit of the judge of the Shenzhen Court who will deal with the Liquidators’ application for recognition and assistance, the Court further summarised the Liquidators’ powers and functions under Hong Kong law as follows:

1. To take into their custody, or under their control, all the property and things in action to which the Company is or appears to be entitled;
   
   
2. To sell the real and personal property and things in action of the Company by public auction or private contract, with power to transfer the whole of the property and things in action to any person or company, or to sell them in parcels;
   
   
3. To do all acts and execute, in the name and on behalf of the Company, all deeds, receipts and other documents, and for that purpose use, when necessary, the Company’s seal; and
   
   
4. To do all other things as may be necessary for winding up the affairs of the Company and distributing its assets.
   
   

The Court considered it desirable that the Liquidators are able to exercise the same functions and powers in Shenzhen as in Hong Kong to the extent that the laws of the Mainland provide that an administrator in the Mainland has the same or substantially similar functions and powers.

In the circumstances, the Court ordered that a letter of request in simplified Chinese be issued to the Shenzhen Intermediate People’s Court seeking its assistance in aid of the Company’s liquidation and its liquidators.

Comment

This case is a milestone development in cross border cooperation between Hong Kong and Mainland China in the corporate insolvency arena. If the letter of request is acted upon, this will be the first time that there has been formal recognition of a liquidator appointed by a Hong Kong Court by a court in Mainland China. We anticipate that the existence of the Record of Meeting and SPC Opinion will lead to more applications for recognition and assistance by Hong Kong liquidators in Mainland China in the future.

^[1] “Hong Kong Insolvency Proceedings” in the SPC Opinion means the collective insolvency proceedings commenced in accordance with the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and the Companies Ordinance (Cap. 622).