In Re HNA Group Co., Limited (in Reorganization in the Mainland of the People’s Republic China) [2021] HKCFI 2897 (“Decision”), the Hong Kong Court has for the first time granted order for recognition of and assistance to the reorganization proceedings in the mainland China (“Mainland”).

This Decision is yet another significant milestone for cross-border restructuring cases spanning Hong Kong and the Mainland. In addition to the earlier judgements in Re CEFC Shanghai International Group Limited [2020] 1 HKLRD 676 and Re Shenzhen Everich Supply Chain Co, Ltd [2020] HKCFI 965, this recent Decision further demonstrates the Hong Kong Court’s readiness to support, recognize and assist cross-border insolvency, liquidation and reorganization proceedings.

Brief Facts

Incorporated in the Mainland and headquartered in Hainan province, HNA Group Co., Limited (the “Company”) is a conglomerate with diverse business and investments but has become debt-laden in recent years. Pursuant to Article 22(i) and Article 24(i) of the PRC Enterprise Bankruptcy Law, the Hainan Province Higher People’s Court commenced reorganization proceedings against the Company (“Reorganization”) and appointed a group of administrators (“Administrators”), who was tasked with managing the assets and business affairs of the 64 member companies in Shanghai, Shenzhen and Hong Kong under the Company’s group.

Upon the Administrators’ application, the Hainan Province Higher People’s Court (the “Hainan Court”) issued a letter of request addressed to the High Court of Hong Kong (the “Hong Kong Court”) to seek recognition of the Reorganization in the Mainland and assistance to representatives of the Administrators in Hong Kong.

The Hong Kong Court’s Decision

In deciding whether it was a proper case to make an order for recognition and assistance, the Hong Kong Court considered the following three issues:

1. Whether the Reorganization, assessed by Hong Kong legal principles, constitutes a collective insolvency process?

2. Whether the Reorganization takes place in the Company’s country of incorporation or where the Company has its centre of main interests?

3. Whether the fact that the Hainan Court may not recognize Hong Kong insolvency proceedings and liquidators bars the Hong Kong Court from granting recognition and assistance in aid of the Reorganization?

As to the first issue, the Hong Kong Court is satisfied that the Reorganization, being a process specifically prescribed by Chapter 8 of the PRC Enterprise Bankruptcy Law, concerns all the Company’s creditors, and its character is considered as a collective insolvency procedure under Hong Kong law.

As to the second question, the Hong Kong Court takes no issue because HNA is incorporated in the Mainland where the Reorganization takes place.

As to the third issue regarding reciprocity, the Hong Kong Court referred to the Cooperation Agreement signed by the Secretary for Justice and the Supreme People’s Court on 14 May 2021 (“Cooperation Agreement”), which provides for a procedure for the recognition of and assistance to insolvency and reorganization proceedings between Hong Kong and three Intermediate People’s Courts in Shenzhen, Shanghai and Xiamen. The Hong Kong Court acknowledges that the Cooperation Agreement does not extend to Hainan.

That said, although the Hainan Court does not fall within the scope of the Cooperation Agreement, and there is a possibility that the Hainan Court may not recognize Hong Kong insolvency and liquidation proceedings, this is not of itself a bar to Hong Kong Court granting an order for recognition, as reciprocity is not a requirement for such recognition under Hong Kong’s common law regime.

For the reasons above, the Hong Kong Court has granted an order for recognition of and assistance to the Reorganization in Mainland at the request of the Hainan Court.

Commentary

This Decision exemplifies the willingness of the Hong Kong Court to recognize the reorganization proceedings in the Mainland and thereby provide recognition and assistance to cross-border insolvency cases.  From a macro perspective, this Decision is an important development, in line with the trend of closer cross-border insolvency cooperation between Hong Kong and the Mainland over the past two years:

With a more open-minded and welcoming attitude of the Courts in the two jurisdictions towards mutual recognition of insolvency, liquidation and reorganization proceedings, Hong Kong cross-border insolvency law is expected to continue to develop and mature, which would reinforce Hong Kong’s position as Asia’s leading financial and debt restructuring hub.

This article is co-authored by our Partner and Head of Litigation and Dispute Resolution Department, Ms. Heidi Chui, Senior Associate, Mr. Kyle Lo, and Trainee Solicitor, Mr. Charles Luk. Please contact Ms. Heidi Chui [heidi.chui@sw-hk.com] for any further enquiries or information.

This newsletter is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage.

On 5 October 2021, our firm’s Partner, Mr. Calvin Lo, was invited to speak at a legacy planning sharing seminar held by Manulife Hong Kong. During the sharing session, Mr. Lo introduced and analyzed the pros and cons of various legacy planning tools, including wills, trusts, enduring power of attorney, and insurance policies. He also shared valuable insight on how to prevent potential future challenges against the validity of wills and trusts and explained the importance of early planning by analyzing a legacy dispute case of a famous celebrity.

For more information or enquiries, please contact our partner Mr. Calvin Lo.

Our firm’s Partners, Mr. Willy Cheng, Ms. Heidi Chui, Mr. Rodney Teoh, Mr. Gordon Tsang, and Senior Associate, Mr. Terence Lau have successfully passed the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) Legal Professional Examination.

From the left: Senior Associate Mr. Terence Lau, Partners Ms. Heidi Chui, Mr. Willy Cheng, Mr. Rodney Teoh, and Mr. Gordon Tsang

• Mr. Willy Cheng – Partner | China Practice, Immigration, Litigation & Disputes Resolution, Real Estate
• Ms. Heidi Chui – Partner | Banking & Finance, Arbitration, Litigation & Disputes Resolution, Insolvency and Restructuring, Technology, Media & Telecommunications
• Mr. Rodney Teoh – Partner | Corporate Finance, Corporate Commercial Law, Corporate Services, China Practice, Investment Funds, Technology, Media & Telecommunications
• Mr. Gordon Tsang – Partner | China Practice, Corporate Commercial Law, Corporate Services, Corporate Finance
• Mr. Terence Lau – Senior Associate | Corporate Commercial Law, Corporate Services, Corporate Finance

The Greater Bay Area (GBA) Legal Professional Examination is a liberalisation measure under the Mainland & Hong Kong Closer Economic Partnership Arrangement. Hong Kong legal practitioners with 5 or more years of post-qualification experience, can, after relevant training, passing the examination and assessment, become eligible to practise PRC law in civil and commercial legal matters (including litigation and non-litigation matters) in the 9 cities of the GBA.

Through our association with one of the largest full-service law firms in Mainland China, AllBright Law Offices, together with our team at SW, we will continue to provide our clients in the GBA with premium, efficient, and innovative legal services.

For more information, please contact our Partners Mr. Willy Cheng, Ms. Heidi Chui, Mr. Rodney Teoh, or Mr. Gordon Tsang.