The pilot measure for mutual recognition and assistance of insolvency proceedings between the courts of three pilot areas in Mainland China and Hong Kong was agreed in mid-2021, which is known as the Cooperation Mechanism.
Since then, liquidators in Hong Kong have had a more certain and structured route to seek, through Hong Kong Court, recognition and assistance from the designated Mainland courts in the three pilot areas including Shanghai, Shenzhen and Xiamen.
- The Cooperation Mechanism is now well established in Hong Kong.
- The Hong Kong Court has been consistently willing to give effect to the Cooperation Mechanism, issuing letters of request to Mainland courts in the three pilot areas.
- Complying with the procedural requirements is important to avoid delay (which may, in turn, affect the effectiveness of the intended recognition and assistance).
- The Cooperation Mechanism does not limit Hong Kong Court jurisdiction under common law to provide recognition and assistance to administrators appointed by Mainland courts outside the three pilot areas.
The recent case of Re Husk's Green Technology Holding Co Ltd (in Liquidation)  HKCFI 3054 (24 November 2023) is a further example of the Hong Kong Court’s consistent willingness to issue letters of request; which on this occasion extended for the first time (as far as we are aware) to Xiamen Intermediate People’s Court. It also highlights the importance of properly preparing for the application to avoid delay.
Previous Successful Applications
A catalogue of cases underline successful applications in which the Hong Kong Court has issued the requested letters of request:
- Re Samson Paper Co Ltd  3 HKLRD 727 (to Shenzhen Intermediate People’s Court in respect of a Hong Kong company in creditors’ voluntary liquidation).
- Re Zhaoheng Hydropower (Hong Kong) Ltd  HKCFI 248 (to Shenzhen Intermediate People’s Court in respect of compulsory winding-up of a Hong Kong company by the Hong Kong Court).
- Re Ozner Water International Holding Ltd  HKCFI 363 (to Shenzhen Intermediate People’s Court in respect of compulsory winding-up of a Cayman company (registered non-Hong Kong company) by the Hong Kong Court).
- Re Hong Kong Fresh Water International Group Ltd  HKCFI 924 (to Shanghai No.3 Intermediate People’s Court in respect of compulsory winding-up of a Hong Kong company by the Hong Kong Court).
- Re Trinity International Brands Limited  HKCFI 1581 (to Shanghai No. 3 Intermediate People’s Court in respect of a Hong Kong company in creditors’ voluntary liquidation).
Requirements for Letter of Request
Among the successful cases, Linda Chan J sets out in Re Trinity International Brands Limited (supra) a helpful summary of the conditions that liquidators must satisfy in their application for a letter of request :
- Compliance with the five requirements stipulated in the Cooperation Mechanism, which are: -
- The application is made by a liquidator in insolvency proceedings in Hong Kong (including compulsory winding up, voluntary winding up and scheme of arrangement promoted by a liquidator or provisional liquidator and sanctioned by the Hong Kong court);
- Recognition and assistance is sought from a court at a pilot area in the Mainland (Shanghai, Shenzhen and Xiamen);
- The order sought is for recognition of the HK liquidator’s office, and grant of assistance for discharge of his duties as liquidator or provisional liquidator;
- Hong Kong has been the centre of main interests (COMI) of the company in liquidation continuously for at least 6 months;
- The company’s principal assets in the Mainland are in a pilot area, or it has a place of business or a representative office in a pilot area; and
- Recognition and assistance sought is necessary to enable them to carry out their functions as liquidators of the company in the Mainland. A common example is where the liquidators are not able to take control of the company’s assets located in the Mainland without assistance from the Mainland courts.
Re Husk's Green Technology Holding Co Ltd (in Liquidation)  HKCFI 3054
Husk’s Green Technology Holding Co., Limited (Husk) is a Hong Kong company which wholly owns five subsidiaries incorporated in the Mainland (Mainland Subsidiaries). The applicant, as a creditor-petitioner, presented a winding-up petition against Husk and subsequently Husk was ordered to be wound up. The Official Receiver became the provisional liquidator of Husk and later appointed Huens as provisional liquidators. Subsequently, upon the petitioner’s application, the winding up of Husk was converted into a creditors’ voluntary winding up.
The petitioner then issued a summons to seek a letter of request for recognition and assistance pursuant to the Cooperation Mechanism. The application was adjourned sine die at the first hearing because, inter alia, the petitioner was not the liquidator of Husk (and therefore had no locus to make the application) and the supporting evidence filed was not sufficient to meet the requirements under the Cooperation Mechanism.
The petitioner restored the application after filing further evidence, including resolutions confirming his appointment as the liquidator of Husk.
At the adjourned hearing, the petitioner failed to submit a draft order and a draft letter of request. The Hong Kong Court found it unacceptable.
However, following the petitioner's further submission of required documents, the Court allowed the application for issuing a letter of request. In particular, the Court held that requirements under the Cooperation Mechanism had been satisfied:
- Husk is in creditors’ voluntary liquidation (i.e. within the definition of “insolvency proceedings in Hong Kong) and the petitioner is the liquidator of Husk;
- Xiamen Intermediate People’s Court is a court within one of the three pilot areas (i.e. Shanghai, Shenzhen and Xiamen);
- The order sought is for recognition of the liquidator’s office and grant of assistance for the discharge of his duties as liquidator of Husk;
- Husk is a Hong Kong company with its COMI in Hong Kong; and
- Husk’s principal and valuable assets are Mainland subsidiaries.
Additionally, the terms of the letter of request revised at the request of the Court met with the Court's approval.
Further, the Court was also satisfied it was necessary for the petitioner-liquidator to seek recognition and assistance from the Xiamen court, given that the Mainland subsidiaries (wholly owned by Husk) were the principal if not only valuable assets of Husk.
Moreover, the assets were at risk from ongoing PRC legal and execution proceedings against four of the Mainland subsidiaries – but none of the officers of these subsidiaries had taken any step to deal with the same. Judgments in default could be entered against them and assets of these subsidiaries could then be taken away by way of execution.
After two years since implementation of the Cooperation Mechanism, there are now precedent cases of letters of request issued to Mainland courts in all three pilot areas in Shanghai, Shenzhen and Xiamen. This route has become more commonly used to apply for a letter of request where assistance needs to be sought from courts in the three pilot areas.
The Hong Kong Court has shown its consistent willingness to accede to such requests under the framework of the Cooperation Mechanism even when there were initial defects in the application, as in the case of Husk's Green Technology .
It remains to be seen whether the Cooperation Mechanism will be extended to other cities in the Mainland to further facilitate the mutual recognition and assistance of insolvency proceedings between the Mainland and Hong Kong.
This Husk's Green Technology case also highlights the importance of ensuring that the application complies not only with relevant requirements under the Cooperation Mechanism but also those discussed in case authorities.
Otherwise, as in this case, there was a delay of more than two months since the original hearing was adjourned sine die, which could pose a serious problem when there are ongoing legal and execution proceedings against most of the Mainland subsidiaries.
On the other side of the coin, a Mainland administrator who intends to seek recognition and assistance from the courts of Hong Kong should pay regard to the suggestions and sample documents from a guideline issued by the Department of Justice entitled “Procedures for a Mainland Administrator’s Application to the Hong Kong SAR Court for Recognition and Assistance - Practical Guide”.
Lastly, it should also be mentioned that the Cooperation Mechanism is intended to provide clear guidance on the manner in which the application for recognition and assistance should be made in Hong Kong Court and the Mainland Courts in the three pilot areas. It does not serve as the exclusive channel through which an application for recognition and assistance of insolvency proceedings has to be made.
For Hong Kong, the jurisdiction to recognise and assist liquidators appointed by a court in other jurisdictions is based on common law. In other words, the Cooperation Mechanism does not limit Hong Kong Court’s jurisdiction to provide recognition and assistance to the three pilot areas, as reciprocity is not a requirement of common law recognition and assistance in Hong Kong (per Harris J in Re CEFC Shanghai International Group Limited  1 HKLRD 676).
As such, even though Guangzhou is not one of the three pilot areas, the Hong Kong Court granted, for example, recognition and assistance outside the regime of the Cooperation Mechanism in an application by an administrator appointed by the Guangzhou Intermediate People’s Court in Guangdong Overseas Construction Corporation (in Liquidation)  3 HKLRD 262 in May 2023.