Hong Kong Court Recognises Mainland Chinese Reorganisation Proceedings for the First Time

The very first case that the Hong Kong Court recognised and granted assistance to bankruptcy administrators appointed by the Mainland Chinese courts in insolvency proceedings commenced in Mainland China was Re CEFC Shanghai International Group Limited [2020] HKCFI 167. Following the latest developments in the insolvency and restructuring regime, the Hong Kong Court has made further strides towards the enhanced cross-border restructuring cooperation in Re HNA Group Co Limited [2021] HKCFI 2897, in which the Honourable Mr. Justice Harris recognised Mainland Chinese reorganisation proceedings for the very first time (the “Decision”).

Background

HNA Group Co Limited (the “Company”), a company incorporated in Hainan, China, is the holding company of the HNA Group, a Chinese conglomerate with a portfolio spanning sectors including aviation, real estate, tourism, and financial services.  Although it was one of the most active investment groups of the world at one point, the group was brought to its knees in 2021 when it declared bankruptcy pursuant to failed debt restructuring efforts.  An application was made by the Bank of Hainan Company Limited to the Hainan Province Higher People’s Court (the “Hainan Court”) seeking bankruptcy reorganisation of the Company on insolvency grounds.  

Pursuant to the Enterprise Bankruptcy Law and the Provisions of the Supreme People’s Court, an Order for reorganisation was made by the Hainan Court on 10 February 2021 (the “Hainan Reorganisation”).  Administrators, including Beijing-based lawyers and an officer of the Hainan Province Legal Administrative Office, were appointed to comprise the Administrator.  The same Order provided that certain members of the Company’s group may continue to manage its assets and business affairs, subject to the powers of the Administrator.

An application was made by the Administrator to the Hainan Court for a letter of request to be made to the Hong Kong Companies Court seeking the recognition of the Hainan Reorganisation, to assist the Administrator in Hong Kong.  

The Hong Kong Court’s Decision 

Harris J reiterated that recognition will be granted when:

  1. The foreign insolvency proceedings are collective insolvency proceedings; and
  2. The foreign insolvency proceedings are opened in the company’s country of incorporation.

These are well-established requirements laid down in several previous cases: Re Joint Liquidators of Supreme Tycoon Ltd [2018] HKCFI 277; Re Joint Provisional Liquidators of China Lumena New Materials Corp [2018] HKCFI 276

The Hainan Reorganisation was granted pursuant to Chapter 8 of the Enterprise Bankruptcy Law, which allows debtors or creditors to apply to the Mainland Court for recognition of a formal reorganisation process.  The objective is to “restructure debt and rehabilitate a company’s business and avoid liquidation”.  As the Hainan Reorganisation concerns all the Company’s creditors, Harris J found it to be collective insolvency procedure upon a proper construction. 

As the Hainan Reorganisation was ordered by the Hainan Court in respect of the Company which was incorporated in Hainan, the second criteria was clearly satisfied. 

The Hainan Reorganisation was therefore recognised by the Hong Kong Companies Court.  The terms of the Order sought were conventional and are appended to the Decision.  

The Role of the Cooperation Agreement

As discussed in our previous article, the Mainland and Hong Kong entered into a new cooperation mechanism on 14 May 2021 in the form of 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 and the Supreme People’s Court’s Opinion on taking forward a pilot measure in relation to Recognition and Assistance to Bankruptcy (Insolvency) Proceedings in the Hong Kong Special Administrative Region (the “Cooperation Agreement”).  Pursuant to the Cooperation Agreement, Shanghai, Shenzhen, and Xiamen agreed to terms with Hong Kong where the cities would mutually recognise and assist each other in cross-border insolvency matters.  

As Hainan is not party to the Cooperation Agreement, the Cooperation Agreement mechanism does not come into play.  However, reaffirming his decision in Re CEFC, Harris J decided that reciprocity is not a requirement for common law recognition and assistance in Hong Kong.  The possibility that the Hainan Court may not recognise Hong Kong insolvency proceedings and officeholders does not itself prevent the Hong Kong Court from granting recognition of the Hainan Reorganisation at the Hainan Court’s request.   

Conclusion

The Decision is the latest welcome addition to a line of encouraging recent developments in the insolvency sphere.  The fact that the Hainan Reorganisation was recognised notwithstanding the fact that Hainan is not amongst the parties of the Cooperation Agreement demonstrates the Hong Kong Companies Court’s pragmatism and flexibility.  From Re CEFC, to the Cooperation Agreement, to the Decision, the Hong Kong regime has consistently strived towards fostering an enhanced cross-border insolvency cooperation regime. 

*this article was first published by Conventus Law

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Evelyn Chan, Partner
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Adriel Wong, Associate
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Contributing Advisors