On 17 May 2022, the Guangzhou court made a bankruptcy order against the mainland China company, Guangdong Overseas Construction Corporation (company), and appointed an administrator over the company. Pursuant to a letter of request issued by the Guangzhou court to the Hong Kong court, the administrator made an application to the Hong Kong court for recognition and assistance in respect of the bankruptcy order.

The unusual feature of this case lay in the fact that the letter of request was issued by the Guangzhou court, which was not one of the three pilot areas designated under the insolvency cooperation mechanism between Hong Kong and mainland China.

Linda Chan J noted that in Re HNA Group Co., Ltd [2023] HKCFI 2897, the three individuals representing the administrator appointed by the Hainan Province Higher People's Court  applied for recognition and assistance from the Hong Kong court in respect of the reorganisation process of the company as approved by the Hainan court.

In that case, the Honourable Mr. Justice Harris considered that although the cooperation mechanism did not extend to the Hainan court, the issue whether it was appropriate for a court outside the three pilot areas to apply for recognition and assistance was a matter for the Supreme People's Court (SPC) (see Hogan Lovells client alert Breaking new ground – Hong Kong court recognizes mainland reorganization for first time).

Linda Chan J said she respectfully agreed with the view of Mr. Justice Harris: although the letter of request did not refer to the involvement of the SPC, it was "reasonable to assume that the SPC would have been informed about the Letter of Request before it was issued to the Hong Kong court."

Court's approach

The court explained that its jurisdiction to recognize and assist office-holders appointed by a court of another jurisdiction derives from common law, and the court will provide recognition and assistance if the applicant satisfies the following criteria (see Hogan Lovells client alert Hong Kong court highlights COMI over place of incorporation when recognising foreign insolvency processes):

• The foreign insolvency proceeding is a collective insolvency proceeding which includes proceedings in a civil law jurisdiction.
• The foreign insolvency proceeding is conducted in the jurisdiction in which the company's centre of main interest is located.
• The assistance is necessary for the administration of a foreign winding up or the performance of the office-holder's functions, and the order is consistent with the substantive law and public policy of the assisting court so it is not available for purposes which are properly the subject of other schemes.

The court further commented that as a matter of practice and to ensure consistency between applications, applicants seeking recognition of and assistance to insolvency proceedings in mainland China courts should follow the "Procedures for a Mainland Administrator's Application to the Hong Kong SAR Court for Recognition and Assistance – Practical Guide" issued by the Department of Justice, regardless of whether the application comes from a pilot area under the insolvency cooperation mechanism.

Decision

Applying the principles set out above, the court granted an order for recognition and assistance on the basis that (i) the insolvency proceedings of the company was a collective insolvency proceeding; (ii) the insolvency proceedings of the company were conducted in mainland China which was both the place of incorporation of the company and its centre of main interest; (iii) the assistance sought was necessary given that the company had valuable assets in Hong Kong and the administrator was under a duty to take control of such assets; and (iv) the order sought was consistent with the substantive law and public policy of the court.

Key takeaway

The case of Re Guangdong Overseas Construction Corporation demonstrates the flexibility of the common law in granting recognition of and assistance to foreign insolvency proceedings. It also provides helpful guidance and comfort to mainland China administrators appointed by courts in non-pilot areas of the insolvency cooperation mechanism who would like to apply to the Hong Kong court for recognition and assistance.

Authored by Jonathan Leitch, Nigel Sharman, and Carrie Yuen.