On 17 December 2021, the High Court in Nuoxi Capital v Peking University Founder Group Company Limited [2021] HKCFI 3817 held that the claims under a Keepwell Deed, notwithstanding ongoing insolvency proceedings in the Mainland, should be determined in Hong Kong in accordance with its exclusive jurisdiction clause.
The Hong Kong Court of First Instance recognised the reorgansation proceedings of a company based in the PRC for the first time in Hong Kong in Re HNA Group Co Limited [2021] HKCFI 2897.
Background
As the public may be aware, there are ways to put a company into liquidation, one of which is what is called “soft-touch” liquidation. The definition of the soft-touch liquidation was set out in a British Virgin Islands judgment — Re Constellation Overseas Ltd BVIHC (Com) 2018/0206, 0207, 0208, 0210 & 0212. It was held that the essence of a soft-touch provisional liquidation is that a company remains under the day- to-day control of the directors but is protected against actions by individual creditors.
When creditors try to recover debt from a distressed company in different jurisdictions, they will incur significant costs. In particular, in Hong Kong, the creditors could apply to the High Court for sanctioning a scheme of arrangement, in the hope of settling the debt. While the High Court would decide on whether it is appropriate to sanction the scheme, it would also consider if it is appropriate for the creditors to pursue parallel proceedings in multiple jurisdictions.
Before 14 May 2021, there was no procedure between Mainland China and Hong Kong for mutual recognition of insolvency processes. This situation changed on 14 May 2021.
On 14 May 2021, Hong Kong’s Secretary for Justice, Ms. Teresa Cheng, SC, and Mainland China’s Vice-President of the Supreme People’s Court (“SPC”), Mr. Yang Wanming, signed a record of meeting in Shenzhen concerning mutual recognition of and assistance in insolvency proceedings between the courts of the Mainland and the Hong Kong Special Administrative Region (“HKSAR”).
The recent decision by the Hong Kong Courts in Re Ando Credit Ltd [2020] HKCFI 2775 represents a step in the right direction in judicial cooperation over cross-border insolvency between Hong Kong and the Mainland.
A crucial aspect in cross-border insolvency proceedings is the mutual recognition of the winding-up order and execution of the same to allow liquidators to reach assets in other jurisdictions in satisfaction of the Company’s debts.