Problems of judicial recognition and enforcement in insolvency matters across the border of Hong Kong and China

Abstract

'In our modern era of globalisation, failing or failed companies disrupt international trade and commerce unless cross-border insolvency (CBI) laws enable their orderly restructuring or liquidation across multiple jurisdictions. The bankruptcy of Lehman Brothers in 2008 is the quintessential CBI: the US investment bank’s bankruptcy resulted in 75 separate legal proceedings in nine countries concerning US$639 billion in assets, US$619 billion in debt and 25,000 employees worldwide. CBI concerns a failing or failed debtor company whose creditors, assets and/or place of incorporation are located in different jurisdictions. Therefore, restructuring or liquidation of the debtor company occurs in multiple jurisdictions, and judicial decisions made in one jurisdiction may not be recognised or enforced in another. Before China assumed sovereignty over Hong Kong in 1997, China regarded Hong Kong as a foreign jurisdiction and, as such, judicial recognition between them was sought through international conventions. However, after the handover, international conventions could no longer be applied because under international law 'an international convention may only be applied among states as independent subjects of the international community, but not directly to any part of a country without transplantation'. (Zhu, 2009) Hong Kong-China CBI thus belonged to neither international nor ‘traditional’ domestic laws. This legal lacuna poses challenges to Hong Kong and Chinese courts in granting judicial recognition to assist in restructuring or liquidation and ensuring justice is done in resolving CBI disputes. The existing legal framework for judicial recognition lies with the Agreement of Mutual Recognition and Enforcement of Judgments in Civil and Commercial Matters between Mainland China and Hong Kong SAR (the 2006 Agreement). However, as suggested by its name, the agreement applies only to civil and commercial matters and does not cover CBI matters. This unsettled CBI issue must be resolved, given Hong Kong’s status as a global financial centre and China’s as the world’s second largest economy, because their courts are asked frequently to adjudicate on CBI disputes even though neither jurisdiction has adopted the UNCITRAL Model Law on Cross-Border Insolvency which establishes international CBI standards. I, the presenter, will examine methods to fill the legal lacuna and resolve the unsettled CBI issue: specifically, whether an extension of the 2006 Agreement could cover Hong Kong-China CBI cases; whether a treaty or bilateral agreement that focuses on mutual judicial recognition of CBI judgments will be signed; or whether Hong Kong and Chinese courts would sign Memorandums of Understanding for CBI judicial recognition.'