Hong Kong and Mainland Cooperation: Mainland Court grants first recognition and assistance to Hong Kong Liquidators

Key takeaways

On 15 December 2021, the Shenzhen Intermediate People’s Court handed down the first ruling by a Mainland court under the cross-border cooperation agreement for insolvencies. The Shenzhen Court granted the application by Derek Lai and Glen Ho as liquidators of Samson Paper Company Limited (Company) for recognition and assistance in the Mainland. The Shenzhen Court’s judgment can be accessed here.  

This is a landmark judgment implementing the cross-border cooperation mechanism signed in May 2021. See our earlier posts on the cross-border cooperation agreement and the first letter of request under such arrangement. 

More significantly, it is a step forward in ensuring an efficient collective insolvency process that provides vital assistance to Hong Kong liquidators in their administration of Mainland assets and affairs in the three pilot areas, and to Mainland bankruptcy administrators in dealing with assets and affairs in Hong Kong. As the cross-border arrangement is more of a framework for cooperation, we keenly await to see how further Hong Kong and Mainland judgments build on this framework to foster deeper cooperation.

Judgment

The Mainland Court’s judgment offers insight into the factors considered and the powers to be conferred in an application by a Hong Kong liquidator for recognition and assistance in the Mainland.  

1. The Mainland Court needed to be satisfied that the Company’s centre of main interests (COMI) was Hong Kong.  There is a rebuttable presumption that the COMI is the Company’s place of incorporation.  The Shenzhen Court held that the Company’s COMI was Hong Kong because it was incorporated in Hong Kong, engaged in paper trading in Hong Kong for more than 40 years and its main assets were in Hong Kong.  
2. The Court had jurisdiction to recognise and confer powers on the Hong Kong liquidators as the Company’s main property in the Mainland was its wholly owned subsidiary which was incorporated in and had its business address in Shenzhen.
3. In addition to the power to take over the property, seals, books of accounts, documents and other materials belonging to the Company, the Shenzhen Court also granted the liquidators powers to decide on the Company’s internal management, determine the Company’s daily expenses and other necessary expenses, management, and dispose of the Company’s property.
4. The liquidators’ powers were however made subject to the proviso that further court approval would be required if the performance of their duties involved the relinquishment of property interests, creation of property security, borrowing, transferring property out of the Mainland and other acts of property disposal that would have a significant impact on the interests of creditors.

Comments

It is not yet clear whether these powers are exhaustive or whether on another application, the Mainland Courts would be receptive to granting additional powers, either in the initial recognition application or on further application to the Mainland Court. Nevertheless, being recognised as a liquidator by the Mainland Court at least enables the Hong Kong liquidator to seek further directions and relief from the Mainland Court.

The first recognition and assistance case took about 6 months, from filing of the application in Hong Kong in June 2021 to the Shenzhen Intermediate People’s Court’s ruling in December 2021. We expect that subsequent applications would probably take a shorter timeframe.   

Separately, on 14 January 2022, Harris J granted another application by Hong Kong liquidators for recognition and assistance in the Mainland. We will monitor developments in this area.