In another leap forward for cross-border insolvency cooperation between Hong Kong and Mainland China, the Hong Kong Court has issued its very first letter of request to a Mainland Court requesting recognition and assistance of Hong Kong liquidators under the new arrangement for mutual recognition of and assistance to insolvency proceedings introduced on 14 May 2021 (New Arrangement, which we wrote about here), in Re Lai Kar Yan (Derek) and Ho Kwok Leung Glen as the Joint and Several Liquidators of Samson Paper Co Ltd (In Creditors’ Voluntary Liquidation) [2021] HKCFI 2151.

Background

Samson Paper Company Limited (Samson), a company incorporated in Hong Kong, was wound up by its shareholders on the grounds of insolvency. Liquidators were appointed and later confirmed at a meeting of creditors. The liquidators subsequently discovered that Samson owned substantial assets in Shenzhen, which is one of the three cities in Mainland China designated as pilot cities under the New Arrangement.

In order to deal with assets under the jurisdiction of the Shenzhen Intermediate People’s Court (Shenzhen Court), the liquidators would need to have their appointments recognised there.

Under the New Arrangement, in order for an application to the Mainland court for recognition to be granted, two documents from the Hong Kong Court are necessary: (i) a letter of request and (ii) a judgement determining that a letter of request should be issued.

The liquidators therefore applied to the Hong Kong Court for the issuance of a letter of request in simplified Chinese to the Shenzhen Court. The Court had no difficulty granting the application.

Key points highlighted by the Hong Kong Court

Jurisdiction

Referring to an Opinion issued by the Supreme People’s Court of the PRC as part of the New Arrangement (SPC Opinion), Mr Justice Harris noted the jurisdictional constraint therein that the SPC Opinion will apply only where the centre of main interests (COMI) of the debtor company has been in Hong Kong continuously for at least six months. Mr Justice Harris held that the COMI of a debtor company incorporated in Hong Kong should be regarded as located in Hong Kong in the absence of evidence suggesting otherwise. Accordingly, this was a proper case for the liquidators to seek recognition and assistance under the New Arrangement.

Applicable jurisdictional principles on the issuance of a letter of request to a foreign court

Mr Justice Harris held that the Court had an inherent jurisdiction to grant a letter of request to a foreign court to help Hong Kong liquidators seek recognition and assistance in another jurisdiction. Applying the established jurisdictional principles, he found that the criteria for issuing a letter of request were satisfied in this case. Factors considered included that the assistance needed in the Mainland in this case related to conventional asset collection actions, that Hong Kong liquidators have express statutory power under Hong Kong law to commence legal proceedings to recover assets, and that this power extends to commencing proceedings outside Hong Kong.

Reciprocity

Referring to his decisions in Re CEFC Shanghai (see our earlier post here) and Re Shenzhen Everich (see our earlier post here), Mr Justice Harris reaffirmed the willingness of the Hong Kong Courts to grant recognition and assistance to liquidators appointed in the Mainland subject to the procedures stipulated in the SPC Opinion and limitations under Hong Kong law. This is also expressly confirmed in the text of the letter of request issued in this case.

Comment

This is the first instance where a Hong Kong Court has issued a letter of request under the New Arrangement. A formal recognition by the Shenzhen Court, if granted, would also be the first occasion on which a court in the Mainland has recognised and assisted a liquidator appointed in another jurisdiction.

The fact that the New Arrangement was put to use so soon after it was put in place suggests that it addresses a pressing practical need in the market.