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Hong Kong and Mainland Cooperation: Framework for Mutual Recognition and Assistance in Insolvency

Posted on 12 August 2021

Key Takeaways

  • On 14 May 2021, the Supreme People's Court (“SPC”) and the Government of the HKSAR entered into a new arrangement for the mutual recognition of and assistance to insolvency proceedings between the Courts of the Mainland and the HKSAR (“Cooperation Mechanism”).
  • Under the new arrangement, insolvency representatives (such as liquidators) in Hong Kong can apply for recognition in the Mainland (Shanghai, Xiamen and Shenzhen) and vice versa.
  • A further consequence of the Cooperation Mechanism is that it will now be easier for petitioners to wind up a foreign incorporated company in Hong Kong where the assets of the company are located in the Mainland.

Summary of the New Arrangement

On 14 May 2021, the SPC and the Government of the HKSAR signed the record of meeting concerning mutual recognition of and assistance to insolvency proceedings between the Courts of the Mainland and the HKSAR, agreeing to implement the Cooperation Mechanism providing for mutual cooperation by the Courts of the two jurisdictions in cross-border corporate insolvency cases.

Under the Cooperation Mechanism, Mainland bankruptcy administrators can apply to the Hong Kong High Court for recognition and assistance to Mainland bankruptcy proceedings. Likewise, Hong Kong appointed liquidators can apply to the Intermediate People’s Courts for recognition and assistance. Currently this is limited to pilot areas of Shanghai, Xiamen and Shenzhen for recognition of and assistance to Hong Kong insolvency proceedings. This will include mutual recognition of debt restructurings and business reorganisations.

The Cooperation Mechanism and the procedure for making recognition applications to the Mainland and Hong Kong Courts are set out in greater detail in an Opinion issued by the SPC (“SPC Opinion”) and a Practical Guide issued by the HKSAR government (“HK Practical Guide”).

What it means for Hong Kong liquidators applying for recognition


The Cooperation Mechanism applies to collective insolvency proceedings commenced in Hong Kong, including “compulsory winding up, creditors’ voluntary winding up and scheme of arrangement promoted by a liquidator or provisional liquidator” (SPC Opinion, Article 2).

The new arrangement will only apply to proceedings in which the debtor’s centre of main interest (“COMI”) is in Hong Kong continuously for at least 6 months. While the COMI generally means the place of incorporation of the debtor company, the Courts will also take into account other factors, including the company’s principal place of business, and the location of its principal assets and principal office (SPC Opinion, Article 4).

There must be a connection between the debtor company and the pilot area, in that the company’s principal assets are located in the pilot area, or it has a place of business or representative office there (SPC Opinion, Article 5).


The first step for a Hong Kong liquidator or provisional liquidator is to apply to the Hong Kong Court for a letter of request. This is a familiar procedure, which has existed at common law prior to implementation of the Cooperation Mechanism. The application is generally made by summons to the Hong Kong Court, supported by affidavit evidence and a draft letter of request.

Once the Hong Kong Court has issued the letter of request, the next step is for the Hong Kong liquidator to submit their application to the relevant Court in the Mainland. The application must be accompanied by the letter of request and the Hong Kong Court’s judgment ordering the letter of request, together with supporting documents evidencing that the requirements of the application have been satisfied (SPC Opinion, Articles 6 and 7).

Consequence of recognition

The immediate effect of the Mainland Court’s recognition of the Hong Kong proceedings are: (i) further payments of debts to individual creditors will be invalidated; (ii) any civil action or arbitration proceedings involving the debtor company which have been commenced will be stayed automatically, and (iii) procedures for execution against the debtor’s property will be suspended (SPC Opinion Articles 11 to 13).

Other powers under the Cooperation Mechanism 

Hong Kong liquidators may also seek orders that they be allowed to perform certain duties (including taking possession of the company’s assets, conducting investigations into the company’s financial position and so on). Such other duties must be within the scope of the Enterprise Bankruptcy Law of the PRC (the “EBL”) and the laws of the HKSAR. If the exercise of such duties involves the disposal of property which has a major impact on creditors’ interest, they must seek separate approval from the Mainland Court (SPC Opinion Article 14).

Hong Kong liquidators or creditors may also apply to the Mainland Court to seek designation of a Mainland administrator to assist with the performance of the liquidators’ duties in the Mainland (SPC Opinion Article 15).

When the liquidators distribute the assets of company to its creditors, the property located in the Mainland should be used to first satisfy preferential claims under the law of the Mainland. The remainder should be distributed in accordance to the Hong Kong insolvency proceedings provided that the creditors in the same class are treated equally (SPC Opinion Article 20).

What it means for Mainland bankruptcy administrators applying for recognition

Likewise, Mainland appointed bankruptcy administrators may apply to the Hong Kong Courts for:

  1. recognition of bankruptcy liquidation, reorganisation and compromise proceedings under the EBL,
  2. recognition of their appointment as administrators, and
  3. assistance for the discharge of their duties.

The procedure for Mainland appointed bankruptcy administrators seeking recognition and assistance is largely the formalisation of the Hong Kong Court’s existing approach in recognising and assisting foreign insolvency proceedings under common law principles. In short, the bankruptcy administrator should first obtain a letter of request from the Mainland Court setting out the terms of the order to be sought from the Hong Kong Court of First Instance.

The administrator can then apply to the Court of First Instance by originating summons with supporting affidavit evidence, on an ex parte basis, for a standard-form order. If the administrator seeks substantive orders additional to that in the standard-form order, which affects specific parties (e.g. an order for the production of documents by a specific party), the relevant party should be identified as a respondent and served with the application.

Significance of the new arrangement and continuing developments

Given the ever-closer business ties between Hong Kong and the Mainland in the recent years and the fact that Hong Kong is a major platform for Mainland incorporated or Mainland based companies to raise capital, the Courts in both jurisdictions have and will continue to see an increasing number of insolvency cases with cross-border elements.

The Cooperation Mechanism will promote cooperation between Hong Kong and Mainland Courts in these cases, and bridge the differences in the insolvency regimes of the two jurisdictions which may otherwise be a hindrance to mutual recognition and assistance.

Further the new arrangement may also facilitate applications to wind up foreign incorporated companies in Hong Kong who mainly operate in the Mainland, particularly those listed on the Hong Kong Stock Exchange. Prior to the introduction of the Cooperation Mechanism, it has been difficult to wind up a foreign company in Hong Kong where its assets are in the Mainland, even if the company is listed in Hong Kong (see comments of Harris J in Re China Huiyuan Juice Group Limited [2020] HKCFI 2940 regarding the inability of a liquidator to realise assets in the Mainland may render winding up in Hong Kong of little or no benefit). However, with the Cooperation Mechanism in place, a liquidator appointed in Hong Kong may well be able to realise assets in the Mainland. Accordingly, there is now renewed optimism that a Hong Kong Court will appoint a liquidator over such companies (see the recent case of Re China All Access (Holdings) Limited [2021] HKCFI 1842).