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Slide back to legal updates A groundbreaking milestone under "one country, two systems" – mutual recognition and assistance in insolvency proceedings between Hong Kong and Mainland China May, 2021 A major milestone has been reached for Hong Kong's legal regime in light of a new cooperation framework agreed between Hong Kong and Mainland China on cross-border insolvency.

The Secretary for Justice, Ms Teresa Cheng, SC, and the Vice-president of the Supreme People's Court (SPC), Mr Yang Wanming, signed a record of meeting concerning mutual recognition of and assistance to insolvency proceedings between courts of the Mainland and Hong Kong in Shenzhen on 14 May 2021.
Under the cooperation framework, liquidators from Hong Kong may apply to Mainland courts for recognition of insolvency proceedings in Hong Kong and likewise bankruptcy administrators from the Mainland may also apply to the High Court of Hong Kong for recognition of enterprise bankruptcy proceedings in the Mainland. It also expressly covers debt compromises and reorganization in the Mainland as well as corporate debt restructuring proceedings in Hong Kong. Under the new mechanism, the SPC may designate a number of pilot areas in which the relevant Intermediate People’s Courts and Hong Kong courts will cooperate in accordance with the laws and the aforementioned framework. Initially, the SPC has designated Shanghai, Xiamen and Shenzhen as pilot cities in light of their close business ties with Hong Kong. As stated in the record of meeting, the number of pilot cities will increase progressively over time.

The details of the arrangement are set out in: (1) the Opinion issued by the SPC (highlighting substantive matters such as the procedures of an application made by a Hong Kong liquidator or provisional liquidator, and the criteria of the People’s Court’s decisions upon receiving the application); and (2) the Practical Guide issued by the Hong Kong Department of Justice (outlining the procedures for a Mainland bankruptcy administrator’s application to the Court of First Instance of the High Court of Hong Kong for recognition and assistance, together with the relevant template forms for such applications).
Significance of the cooperation framework The arrangement highlights the unique role enjoyed by Hong Kong under "one country, two systems", fostering further legal co-operation in civil and commercial matters. Similar to other recent reciprocal arrangements concluded between Hong Kong and Mainland China including, among other things, the mutual recognition and enforcement of judgments in civil or commercial matters and the mutual enforcement of arbitral awards, the new framework also enables a high level of economic integration, development and judicial assistance between the two legal systems, optimises the business environment underpinned by the rule of law, and further enhances Hong Kong's position as the preferred venue for international capital raising.
Furthermore, in light of the challenging times posed by the COVID-19 pandemic, cross-border insolvencies are becoming more prevalent. Taking into account the vast number of Mainland companies who have listed and raised capital in Hong Kong and then remitted those funds back to the Mainland for use in their operations, this new recognition arrangement will not only benefit insolvency practitioners, but also encourage the use of debt restructuring to reach consensus among creditors from both places and abroad which will further increase the likelihood of the companies being rescued. The mutual recognition of court orders between these two closely interlinked jurisdictions will also improve transparency and certainty of the legal system, as well as the confidence of investors and creditors locally, and globally. How we can help Our firm has extensive experience in restructuring and insolvency matters. Our Insolvency and Restructuring team is led by our Special Counsel who has previously worked in the Hong Kong Monetary Authority and has a deep experience with financial system regulations and corporate rescues. Our firm also advises companies (listed or private), high-net-worth individuals as well as other investors and have extensive experience of acting for these parties.

If you have any questions regarding the above, please do not hesitate to contact us.
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Partner (+852) 3468 7203 jamesyeung@hkyt.com James Yeung