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First Letter of Request from Hong Kong to Shanghai for Recognition and Assistance in Cross-Border Insolvency

Published: 23 Jun 2022

By Damien Laracy:

Re Hong Kong Fresh Water International Group Ltd [2022] HKCFI 924

We have previously reported on interesting and significant developments in cross-border insolvency mechanisms for mutual recognition and assistance between Hong Kong Courts and Mainland China Courts (‘Cooperation Mechanism’) (see our earlier article: First letter of request from Mainland China to Hong Kong for recognition and assistance in cross-border insolvency.

The Cooperation Mechanism consists of two documents, namely (i) 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 (ii) 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 Mechanism provides a procedure for mutual recognition of insolvency processes and office holders by the High Court of Hong Kong and the Intermediate People’s Courts, currently in three ‘pilot’ areas: Shenzhen, Shanghai and Xiamen. 

On 6 April 2022, the Hong Kong Court granted the first application pursuant to the Cooperation Mechanism for a letter of request to be issued to the Shanghai Court. 

Background

The liquidators of Hong Kong Fresh Water International Group Limited (the ‘Company’) issued an application for a letter of request to be issued to the Shanghai No.3 Intermediate People’s Court (‘Shanghai Court’) pursuant to the Cooperation Mechanism. 

The Company was incorporated in Hong Kong, and is part of a corporate group headed by Ozner Water International Holding Limited (the ‘Parent’), a Cayman-incorporated entity listed in Hong Kong. The Company serves as an intermediate holding company within the corporate group, and its main assets in Mainland China are its shareholding in four wholly-owned subsidiaries incorporated in Shanghai (the ‘Shanghai Subsidiaries’). Both the Parent and the Company are in liquidation in Hong Kong. 

Recently, in Re Ozner Water International Holding Ltd [2022] HKCFI 363, Mr Justice Harris had granted a letter of request to the liquidators (in their capacity as the liquidators of the Parent) in order to facilitate their efforts to take control of the Parent’s assets in Shenzhen. This was the first case in which a Hong Kong Court issued a letter of request in relation to a non-Hong Kong company under the Cooperation Mechanism.

As part of the liquidators’ investigations into the Company’s affairs and preservation of the Company’s assets, the liquidators had to obtain recognition and assistance in the Mainland in order to take possession of, and deal with, the Company’s substantial assets in the Mainland, in particular with regards to the Shanghai Subsidiaries.

Decision

With reference to his earlier decision in Re Samson Paper Co Ltd [2021] HKCFI 2151, Mr Justice Harris held that issuing a letter of request in this case would be consistent with the established principles and the Cooperation Mechanism [12]:

[12] … The law is well-settled that 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. 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 granting of a letter of request in the present case would be consistent with these principles. The Liquidators have a duty to collect in the Company’s assets. The assistance that the Liquidators need in the Mainland relate to conventional asset collection action. In order to carry out this function 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.

(…)

[14] Under Hong Kong law and, in particular section 251 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, the Liquidators are authorised jointly and severally to exercise the following functions and powers:

  1. 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. 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. 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. do all other things as may be necessary for winding up the affairs of the Company and distributing its assets.’

Accordingly, Mr Justice Harris was satisfied that it is desirable that the Liquidators’ appointment is recognised and assisted in Shanghai.

Comments

This further welcomed decision reinforces the Hong Kong Court’s willingness to support and promote the recognition of Hong Kong insolvency office holders by the Mainland Courts, and the continuing efforts to strengthen the mutual recognition insolvency framework between Hong Kong and Mainland China. With the economic downturn shadowed by the persistent COVID-19 global pandemic, many businesses in Hong Kong and the Mainland are facing serious financial difficulties. Cross-border insolvency cases are no stranger to Hong Kong, and the Hong Kong Courts are equipped to provide further necessary support and assistance to liquidators appointed by the Hong Kong Court to facilitate recovery of assets in the Mainland for the benefit of creditors of a company in liquidation in Hong Kong.

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Damien Laracy

Firm: Hill Dickinson LLP
Country: Hong Kong

Practice Area: International Arbitration

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