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Re Samson Paper Co Ltd: First application by Hong Kong liquidators for recognition and assistance in Mainland China

2021-08-30

Introduction

In our Insolvency newsletter article published in July, we discussed that the Supreme People’s Court (the “SPC”) and the Secretary of Justice of Hong Kong signed the “Record of Meeting between the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region on the Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region” (the “Cooperation Mechanism”) on 14 May 2021, which laid down a procedure for mutual recognition of insolvency processes and office holders by the Hong Kong Court and the Intermediate People’s Courts in the pilot areas, i.e. Shenzhen, Shanghai and Xiamen.

In the recent case of Re Samson Paper Co Ltd [2021] HKCFI 2151, the very first application was made and allowed for a letter of request to be issued by the Hong Kong Court to a Mainland Court pursuant to the Cooperation Mechanism.

Re Samson Paper Co Ltd: First application by Hong Kong liquidators for recognition and assistance in Mainland China 

Background

Samson Paper Company Limited (the "Company") was incorporated in Hong Kong and is part of a corporate group headed by Samson Paper Holdings Limited, a company incorporated in Bermuda and listed on The Stock Exchange of Hong Kong Limited.

On 14 August 2020, intermediate group subsidiary, which held the voting shares in the Company resolved to wind up the Company, and liquidators (the “Liquidators”) were subsequently appointed. A substantial part of the Company’s assets are located in the Mainland China and fall into three categories: (i) wholly-owned subsidiaries located in Shenzhen, Nanning, Xiamen and Shanghai; (ii) receivables in the aggregate sum of approximately HK$422 million due from affiliated companies incorporated in the Mainland; and (iii) an apartment in Beijing.

 

The SPC Opinion

In order to provide further guidance on the Cooperation Mechanism, the SPC issued the “Opinion on Taking Forward a Pilot Measure in relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region” (the “SPC Opinion”). Article 4 of the SPC Opinion states that:

  1. The SPC Opinion applies to Hong Kong Insolvency Proceedings where Hong Kong is the centre of main interests of the debtor;
  2. “Centre of main interests” generally means the place of incorporation of the debtor. Other factors such as the place of principal office, the principal place of business and the place of principal assets of the debtor will also be taken into account by the courts in Mainland China; and
  3. When a Hong Kong liquidator applies for recognition and assistance, the centre of main interests of the debtor shall have been in Hong Kong for at least 6 months.

Article 6 of the SPC Opinion further provides the materials required in respect of an application for recognition of and assistance to Hong Kong Insolvency Proceedings by a Hong Kong liquidator, which include (i) a letter of request for recognition and assistance issued by the High Court of Hong Kong; and (ii) a copy of the judgment determining that a letter of request should be issued.

 

Issuing a letter of request

In light of the requirements set out in the SPC Opinion as discussed above, the Liquidators applied to the Hong Kong Court and requested the Court to issue a letter of request in simplified Chinese to the Bankruptcy Court of the Shenzhen Intermediate People’s Court (the “Shenzhen Court”) on the basis that they need to obtain recognition and assistance from the Shenzhen Court in order to deal with the substantial assets of the Company located in Mainland China.

In determining whether to grant a letter of request, the Court is guided by the following principles:-

  1. the Court has an inherent jurisdiction to grant a letter of request in order to permit Hong Kong liquidators to seek recognition and assistance in another jurisdiction; and
  2. in considering whether to grant a letter of request, the Court has to consider which jurisdiction is the most appropriate or convenient forum for the determination of the issue in question, applying generally applicable jurisdictional principles.

On the facts, Harris J found that granting a letter of request in the present case would be consistent with the above principles and it is desirable that the Liquidators be able to exercise the same functions and powers in Shenzhen as in Hong Kong to the extent that the laws of the Mainland provide that an administrator in the Mainland has the same or substantially similar functions and powers.

Accordingly, the Court ordered that a letter of request in simplified Chinese be issued to the Shenzhen Court requesting that the Shenzhen Court make an order recognising the Liquidators and providing assistance to them. A copy of the letter of request was appended to the decision.

 

Conclusion

It remains to be seen whether the Shenzhen Court would accede to the letter of request, and if so, then it will be the first occasion in which Hong Kong-appointed liquidators are formally recognised and assisted by a court in the Mainland. With the increasing interaction of business transactions and corporate structures between parties from Hong Kong and Mainland China, the introduction of the Cooperation Mechanism, as illustrated by the present case, may serve as a useful and practical solution to facilitate more efficient corporate restructuring actions and is expected to be frequently deployed.


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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 © 2020

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