In light of the global economic dislocation and significant challenges faced by many businesses in Asia over the past year, the Hong Kong Companies Court has recently been grappling with multiple crossborder corporate insolvencies, including many that relate to Mainland China-based businesses. In this context, judicial attention has focused on a number of interesting and novel issues leading to some important legal developments and key practice points for market participants and practitioners alike.
In this update, we highlight a selection of key Court decisions which focus on cross-border recognition and assistance, restructuring and schemes of arrangement, the winding-up of foreign companies in Hong Kong and other insolvency-related issues.
These decisions mark, among other things, the first time insolvency officeholders appointed in Mainland China were recognized in Hong Kong, provide clarity on the scope of judicial assistance in Hong Kong that may be granted to foreign insolvency officeholders, illustrate a new focus on a company's center of main interest when weighing up the primacy of competing insolvency proceedings, revisit the circumstances in which a scheme of arrangement in Hong Kong may compromise foreign-law-governed debt and shed light on why widely held expectations about the centrality of Hong Kong in the winding-up of certain Mainland Chinese business groups may be misplaced.
The corporate insolvency landscape in Hong Kong continues to evolve, and may do so even more rapidly if and when important statutory reforms which are expected to be progressed this year, not least the long-awaited corporate rescue regime, materialize.
Cross-Border Recognition and Assistance
A framework for Reciprocal Cooperation between Mainland China and Hong Kong?
The Hong Kong Government has for some time been considering a cross-border arrangement or framework between Hong Kong and Mainland China in relation to cross-border insolvency and restructuring matters. In June 2020, the Hong Kong Government published a consultation paper setting out details of a proposed framework. Under that framework, it is proposed that Hong Kong would continue to rely on the common law principles developed by the Courts (some of which are discussed below) to underpin recognition of Mainland Chinese "collective insolvency proceedings" in Hong Kong and new Mainland Chinese legislation based on the UNCITRAL Model Law on Cross-Border Insolvency would be enacted in Mainland China to facilitate recognition of Hong Kong insolvency proceedings.
It is not yet precisely clear when a cross-border arrangement between Hong Kong and Mainland China will be entered into but it is anticipated that this will occur in the near future and hopefully sometime in 2021. As the implementation of such an arrangement would further reinforce Hong Kong's position as a major financial center and cement its status as the gateway to Mainland China, developments in this area will be keenly watched.
A refresher on the principles underlying the recognition of 'soft-touch' provisional liquidators in Hong Kong
Re Moody Technology Holdings Ltd  HKCFI 416
The Hong Kong Companies Court helpfully revisited the following principles underpinning the jurisdiction to recognise and grant powers to foreign 'soft-touch' provisional liquidators (in this case, appointed in Bermuda over a Hong Kong-listed company):1
- Soft-touch provisional liquidation is impermissible in Hong Kong (Re Legend International Resorts Ltd  2 HKLRD 192). In this respect, "the present Hong Kong position is an uncommon and peculiar one in the common law world."
- Nonetheless, the doctrine of modified universalism means that the Hong Kong Court may recognise a foreign insolvency proceeding notwithstanding the absence of an identical proceeding in Hong Kong.
- Soft-touch provisional liquidation and provisional liquidation in Hong Kong differ only in degree, not in kind. Both are species of collective insolvency proceedings and where circumstances warrant it, provisional liquidators in Hong Kong may be granted powers to explore and facilitate a restructuring of the company.
- A refusal to recognise soft-touch provisional liquidation in Hong Kong may create discriminatory consequences - for example, provisional liquidators often have the same need to investigate the debtor's affairs, whether or not appointed on a soft-touch basis.
- Recognition of soft-touch provisional liquidators in Hong Kong merely recognises their status as agents of the company and gives effect to their management and governance powers under the law of the company's incorporation.
1 The essence of 'soft touch' provisional liquidation is described in the decision as being where "a company remains under the day-to-day control of the directors, but is protected against actions by individual creditors. The purpose is to give the Group the opportunity to restructure its debts, or otherwise achieve a better outcome for creditors than would be achieved by way of liquidation".
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