A Welcome Red Packet – Hong Kong Court Recognizes Mainland Chinese Administration For First Time

Just in time for the Chinese New Year, a Hong Kong court has taken a major step forward in the developing law on cross-border insolvency by recognizing a mainland Chinese liquidation for the first time. In the Joint and Several Liquidators of CEFC Shanghai International Group Ltd [2020] HKCFI 167, Mr. Justice Harris granted recognition and assistance to mainland administrators in Hong Kong so they could perform their functions and protect assets held in Hong Kong from enforcement.

He also declined to follow English precedent dating back more than a century by granting a stay on creditor proceedings in Hong Kong, reasoning that it was in line with modern thinking and practice in cross-border insolvency that a debtor's assets should be distributed as part of a single proceeding, as per the pari passu principle.

A valuable asset

CEFC Shanghai International Group Ltd. (Company) is a mainland-incorporated holding company and part of a conglomerate whose business interests include capital financing, petroleum refining, and infrastructure. It was placed into insolvent liquidation on 15 November 2019 pursuant to an order by the Shanghai Court under the Enterprise Bankruptcy Law (EBL). Administrators were appointed on 24 November 2019.

The Company's assets in Hong Kong included a claim against a Hong Kong subsidiary in liquidation, Shanghai Huaxin Group (Hong Kong) Ltd. amounting to HK$7.2 billion (Receivable). After their appointment, the...