Comparing Hong Kong and Chinese Insolvency Laws and Their Cross-Border Complexities

Abstract

The focus of this article is on cross-border insolvency (CBI) cases, particularly those across the border of Hong Kong and China (the Hong Kong-China CBI cases). CBI cases can initiate from the filing of a petition by a foreign party (eg the creditors of the debtor company in Hong Kong) against a local party (represented by the debtor company or its director(s) or liquidator(s) in China), or vice versa. The foreign party (in Hong Kong) may be required by the local courts (in China) to file suit against the local party for it to access the assets belonging to or shared by the local party. On the other hand, there may already be rulings made by the foreign courts against the local party. In such a situation, to gain recognition (of the foreign rulings) by the local courts — which can give orders for the foreign party (or the liquidators appointed by them) to access the local party’s assets within their jurisdiction — the foreign party must seek to rely on bilateral recognition treaties (signed by governments of the nations of both parties, foreign and local) or on the traditional legal principle of comity (ie reciprocity, a philosophy for mutual benefit). The situation for HK-China CBI cases is opaque due to the lack of local cross-border legislation in Hong Kong. In China, there is only one article (Article 5) of the 2006 Enterprise Bankruptcy Law that concerns cross-border insolvency, yet the article is rarely invoked by the Chinese courts. It is important to note here that neither Hong Kong nor China has adopted the UNCITRAL Model Law on Cross-Border Insolvency. Furthermore, the border between the HKSAR and mainland China is not a border as is usually understood in the context of the Model Law. In the context of the Model Law, the term ‘foreign’ is used to describe a collective judicial or administrative proceeding in a ‘foreign State’, which intrinsically excludes Hong Kong due to its status as a special administrative region within its sovereign, China. As such, it is important to note that, although internationally accepted soft law standards such as the Model Law provides institutional guidance to CBI matters, it is not entirely compatible with HK-China CBI cases, unless and until those matters involve a third jurisdiction; and that third jurisdiction is typically a tax haven jurisdiction, as those exemplary cases illustrated in this article.