Recognition of Foreign Insolvency Proceedings – "Muddling On"?

The judgment of the Companies Court in Re China Fishery Group Ltd [2019] HKCFI 174 comes on the back of its judgment in Re CW Advanced Techonologies Ltd [2018] HKCFI 1705. Both judgments consider (among other things) the general principles for recognition of foreign insolvency proceedings and the giving of assistance to foreign office holders associated with insolvency proceedings or other forms of corporate rehabilitation. They highlight the complexities of the issues involved.

In Re China Fishery Group Ltd, a US Chapter 11 Trustee of a Singaporean company within the group applied for the Hong Kong court's permission to use its decision (discharging the appointment of provisional liquidators in Hong Kong) for the purposes of bankruptcy proceedings in the Southern District of New York. The application was tantamount to an application for judicial assistance.

One of the principal reasons the US Trustee's application failed was that the court found there was no relevant connection between the Singaporean company (in respect of which the US Trustee had been appointed) and the jurisdiction of the US bankruptcy court.

Some of the complexities that underpin common law principles for the recognition of foreign insolvency proceedings are also illustrated in Re CW Advanced Technologies Ltd – a case in which the Companies Court, for the first time, considered the possibility of recognising and giving assistance in support of the Singaporean insolvency regime in Hong Kong proceedings.

The Hong Kong courts do not recognise and assist all foreign insolvency proceedings and office holders. How they might approach an application for recognition of US Chapter 11 proceedings remains a matter in respect of which there is (at present) no legal authority in Hong Kong.

There are no statutory provisions in Hong Kong empowering the courts to recognise or provide assistance to foreign insolvency office holders. The United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-border Insolvency is not formally recognised in Hong Kong (unlike in Singapore, which adopted it in 2017).

In the absence of statutory cross-border corporate rescue and insolvency procedures, the Hong Kong courts continue to rely on common law principles. Although the application of these principles is not without problems, in recent years the courts have shown some willingness to assist the effective implementation of cross-border insolvency and restructuring regimes. 

While the government is planning to introduce legislation to provide for a corporate rescue procedure for Hong Kong, the legislative timetable is uncertain. Also being considered is the adoption of the UNCITRAL Model Law on Cross-border Insolvency. It is also understood that the government is considering conducting a standalone consultation on reciprocal enforcement for cross-border insolvency matters between Hong Kong and the Mainland.

Such initiatives will be welcomed in Hong Kong (should they be implemented). In the meantime, Hong Kong muddles on*.

Editorial Note*: "To muddle on" – For example, to continue doing something without a clear plan or purpose or without enough resources.