Hong Kong: first request for recognition and assistance to liquidators in mainland China

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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 main features of the cooperation mechanism in relation to Hong Kong. Kong- Mainland China’s cross-border insolvency set out in the minutes of the meeting of the Supreme People’s Court and the Hong Kong Special Administrative Region government and mutual recognition and assistance in bankruptcy (insolvency) proceedings between the Mainland China Court and the Hong Kong Special Court Administrative Region (meeting report), which was signed by the Hong Kong Justice Secretary and the Vice President of the Supreme People’s Court (SCC) on 14 May 2021.

Within 2 months of the signing of the meeting minutes, on July 8, 2021, the first request was made for a request letter to be issued by the Hong Kong High Court to the Bankruptcy Court of the Intermediate People’s Court of Shenzhen to Re Samson Paper Company Limited (in voluntary liquidation of creditors) [2021] HKCFI 2151. The application was granted by the Court on July 20, 2021.

context

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

It was then resolved that the Company be liquidated due to insolvency and that Mr. Lai and Mr. Ho be appointed liquidators (Liquidators).

The liquidators were of the view that they needed recognition and assistance in managing the Company’s substantial assets on the mainland, which are primarily located in Shenzhen. These assets include wholly-owned subsidiaries in Mainland China (including a wholly-owned subsidiary in Shenzhen), claims on affiliates incorporated in Mainland China, and an apartment in Beijing.

SPC’s opinion

In order to provide further guidance on the cooperation mechanism as part of the report of the meeting, the PSC issued an opinion on the implementation of a pilot measure concerning the recognition and assistance in insolvency proceedings in Hong Kong Special Administrative Region (PSC opinion).

Article 4 of the CPS opinion provides that:

  1. SPC opinion applies to Hong Kong insolvency proceedings[1] where Hong Kong is the center of the debtor’s main interests;
  2. “Center of main interests” generally refers to the place of incorporation of the debtor. Other factors such as the location of the main office, the main place of business and the location of the debtor’s main assets will also be taken into account by the courts in Mainland China; and
  3. When a Hong Kong liquidator requests recognition and assistance, the debtor’s center of main interests must have been in Hong Kong for at least 6 months.

Section 6 of the CPS Notice sets out the documents that a Hong Kong liquidator seeking recognition and assistance of Hong Kong insolvency proceedings is required to submit, including:

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

The liquidators’ request for a letter of request

In light of the requirements set out in the above-mentioned CPS opinion, the liquidators requested that a letter of demand be issued by the Hong Kong High Court to the Bankruptcy Court of the Shenzhen Intermediate People’s Court for them to can recover the assets under the jurisdiction of the Shenzhen court.

The Court summarized the relevant principles governing the granting of letters rogatory:

  1. The Court has inherent jurisdiction to grant a Letter of Request to enable Hong Kong liquidators to seek recognition and assistance in another jurisdiction; and
  2. In deciding whether to grant a letter rogatory, the Court must determine which jurisdiction is the most appropriate or practical jurisdiction to decide the question in question, applying generally applicable principles of jurisdiction.

The Court considered that the granting of a letter rogatory in the present case would be in accordance with the above principles. The liquidators have a duty to collect the assets of the Company. Liquidators have express statutory power in Hong Kong to initiate legal proceedings to recover assets, which includes initiating proceedings outside Hong Kong.

For the benefit of the judge of the Shenzhen court who will deal with the request for recognition and assistance of the liquidators, the court further summarized the powers and functions of the liquidators under Hong Kong law as follows:

  1. Take in their custody, or under their control, all property and objects in action to which the Company has or appears to be entitled;
  2. Sell ​​the movable and immovable property and objects in action of the Company by public auction or under private signature, with the power to transfer all the goods and objects in action to any natural or legal person, or to sell them in lots;
  3. Perform all acts and perform, in the name and on behalf of the Company, all deeds, receipts and other documents, and for this purpose use, if necessary, the seal of the Company; and
  4. Do any other things that may be necessary to wind up the affairs of the Company and distribute its assets.

The Court found it desirable that the liquidators should be able to exercise the same functions and powers in Shenzhen as in Hong Kong as long as the laws of the mainland provide that an administrator from the mainland has the same or substantially the same functions and powers. similar.

Under these circumstances, the court ordered that a letter of request in Simplified Chinese be issued to the Shenzhen Intermediate People’s Court to seek assistance in the liquidation of the company and its liquidators.

Comment

This case is a milestone in cross-border cooperation between Hong Kong and Mainland China in the area of ​​corporate insolvency. If the letter of request is acted upon, this will be the first time that there will be formal recognition of a liquidator appointed by a court in Hong Kong by a court in mainland China. We anticipate that the existence of the meeting record and SPC opinion will lead to more requests for recognition and assistance from Hong Kong liquidators in mainland China in the future.


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