8 Oct 2021

Re HNA Group Co., Limited: First instance of Hong Kong Court’s recognition of the PRC reorganization proceedings

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:

Date of Judgement/
Agreement

Development

Relevant Case

13 January 2020 Hong Kong Court recognized and assisted Mainland liquidators for the first time Re CEFC Shanghai International Group Ltd [2020] HKCFI 167; [2020] HKCLC 1
14 May 2021 The Cooperation Agreement came into effect N/A
4 June 2020 Hong Kong Court recognized and assisted Mainland liquidators for the second time Re Shenzhen Everich Supply Chain Co Ltd [2020] HKCFI 965; [2020] HKCLC 891
20 July 2021 Hong Kong Court requested the Mainland Court to recognize and assist Hong Kong liquidators pursuant to the Cooperation Agreement for the first time Re Samson Paper Co Ltd [2021] HKCFI 2151; [2021] HKCLC 1053
16 September 2021 Hong Kong Court recognizes reorganization proceedings in the Mainland for the first time Re HNA Group Co., Limited [2021] HKCFI 2897

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.

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