Vol 20 (2023) - Issue 2

Article preview

Opening a Door between PRC and Hong Kong in Insolvency Proceedings: Insight from Re Samson Paper Limited

Synopsis
Having recently marked the 25-year anniversary of 'One Country Two Systems' between the People's Republic of China ('PRC') and the Hong Kong Special Administrative Region of the People's Republic of China ('Hong Kong'), under which Hong Kong is able to maintain a separate Common law based legal system, there is now an increasing focus on how to facilitate interaction between the two distinct legal systems.
How questions about these two legal systems interact and provide judicial assistance to each other will not only be of interest to local practitioners, but practitioners and scholars everywhere as it foreshadows how the PRC legal system will ultimately cooperate with other foreign jurisdictions around the world. Given the inbound and outbound investment into and out of China over the last 40 years, often through Hong Kong, the ever-growing number of bilateral ties has created increasing demand for legal certainty and transparency from the PRC courts, not least if and when those investments run into trouble. In a landmark move recently, a mutual recognition framework has been established between Hong Kong and PRC to allow the Hong Kong courts to recognise and grant assistance to insolvency practitioners in corporate insolvencies appointed by certain PRC Courts, and vice versa. This is a significant step towards resolving one of the longstanding issues arising from Hong Kong's role, as an international financial centre, being used to raise funds by PRC companies whose main assets and operations are in PRC resulting in 'offshore' creditors not having recourse to 'onshore' assets or security and vice versa, if insolvency ensues. This raises as many questions as there are opportunities to innovate given the lack of a detailed legal framework in the new arrangement, especially from the PRC courts. In search of a more concrete framework following the new arrangement, this article analyses the first PRC court case, Samson Paper Company Limited, that granted recognition and assistance to Hong Kong insolvency practitioners. It sheds the first light for foreign practitioners on the PRC court's attitude and how they intend to play a more facilitative role among parties whilst safeguarding the local public interest.
It is unveiled that the practice and standard adopted by the PRC courts which should be incorporated into existing treaty or supra-national law to better fit the needs of key stakeholders in cross-jurisdictional situations, including an important clarification in terms of the scope of the powers the PRC court will grant to the Hong Kong liquidators and provides a pointer as to the future possible ways that the PRC will deal with issues of judicial comity in the increasing important area of cross-border insolvency.