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HK Court’s First Recognition of the Liquidation Committee of a PRC State-Owned Enterprise

2008-04-01

In 佛山市宏達發展公司清算組 v. East Legend Investment Limited (HCA 581/2002), the Hong Kong Court of Appeal for the first time affirmed the status of the liquidation committee of a PRC state-owned enterprise.  In the light of the new PRC Enterprise Bankruptcy Law, it is quite possible for the Hong Kong courts to recognize a PRC liquidation committee in the future.

佛山市宏達發展公司清算組 v. East Legend Investment Limited (HCA 581/2002)

This case concerns a state-owned enterprise incorporated in the PRC (“the SOE”), which had its business licence revoked as a result of non-compliance with PRC Regulations.The liquidation committee of the SOE (the “Liquidation Committee” or the “Plaintiff”) brought an action against a Hong Kong company (the “Defendant”) seeking return of the properties purchased with the SOE’s funds and repayment of the balance of the SOE’s funds.

Whether a liquidation committee has capacity to sue on behalf of a company?

The Defendant challenged the Liquidation Committee’s capacity in instituting the action (locus standi), as the SOE had ceased to exist upon revocation of the business licence.Relying on the Directions of the Supreme People’s Court of the PRC, Deputy High Court Judge To ruled that the Liquidation Committee had capacity to sue and be sued until completion of the liquidation and de-registration process.

The Defendant was found in breach of a transfer agreement between the parties and the Plaintiff was entitled to recover the properties and outstanding amount of the SOE’s funds.

New PRC Enterprise Bankruptcy Law Ironing out Uncertainties

A New PRC Enterprise Bankruptcy Law has come into force since 1 June 2007, which establishes an Administrator’s System.An administrator will be appointed by courts and mainly responsible for supervising and undertaking reorganization and liquidation proceedings.

The new law provides that the liquidation committee composed of personnel from relevant departments and agencies or an intermediary organization established in accordance with the law, such as a law firm, accounting firm, bankruptcy liquidation firm, etc. may serve as administrator.Moreover, article 25(7) of the new law expressly states that the administrator shall represent the enterprise in legal actions.The status of a PRC liquidation committee or administrator is therefore not likely to be in dispute in future litigations.


For enquiries, please contact our Litigation & Dispute Resolution Department:

E: ldr@onc.hk                                             T: (852) 2810 1212

W: www.onc.hk                                          F: (852) 2804 6311

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
Published by ONC Lawyers © 2008

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