Hong Kong Court recognises Mainland reorganisation for the first time

The Hong Kong Court has broken yet more new ground by recognising Mainland reorganisation proceedings for the first time in Re HNA Group Co Limited [2021] HKCFI 2897.

Previously, Mainland liquidation proceedings had been recognised by the Hong Kong Court (for the first time in CEFC Shanghai International Group Ltd [2020] HKCFI 965, and later in Shenzhen Everich Supply Chain Co Ltd [2020] HKCFI 96).

Background

The reorganisation concerned HNA Group Co Limited (HNA), a company incorporated in Mainland China. It was the holding company of the well-known HNA Group, a conglomerate based in Hainan with an extensive business in the aviation, real estate and tourism sectors, amongst many others.

In the last few years, HNA became embroiled in serious financial trouble, which was only exacerbated by the COVID-19 pandemic. This culminated in reorganisation proceedings commenced in the Hainan Court under the Mainland Enterprise Bankruptcy Law. The Hainan Court appointed administrators who were tasked with overseeing HNA's restructuring (the Administrators).

The Administrators required the recognition and assistance of the Hong Kong Court to (among other things) locate the assets, books and records of HNA in Hong Kong.

Therefore, the Administrators applied and obtained a letter of request from the Hainan Court for the recognition and assistance in Hong Kong Court.

Decision

Mr Justice Harris reiterated the standard two-fold test as previously stated in CEFC Shanghai International Group Ltd [2020] HKCFI 965: the Hong Kong Court may grant recognition and assistance if the proceedings (i) amounted to a "collective insolvency process", and (ii) were opened in the relevant company's country of incorporation.

In this case, the second requirement was plainly met as the recognition proceedings were commenced in Mainland China, where HNA was incorporated.

For the first requirement, Mr Justice Harris likewise held it was met after considering the following factors:

1. Although there was no direct comparable restructuring procedure in Hong Kong, the reorganisation concerned all creditors of HNA. This clearly amounted to a collective insolvency procedure.
2. While the Hainan Court allowed the management of certain HNA's subsidiaries to remain in the hands of their directors, this did not contradict the nature of a collective insolvency procedure. What mattered was the effect that the process had on HNA's debts and creditors, not the management of its business and assets.
3. Reciprocity is not a requirement for granting recognition and assistance in Hong Kong. The mutual arrangement for recognition and assistance of insolvency proceedings between the Hong Kong and Mainland courts (which we discussed here) only covers the courts in three pilot cities at the moment: Shenzhen, Shanghai and Xiamen. Although the cooperation arrangement does not cover Hainan, and therefore Hainan Court may not recognise Hong Kong insolvency proceedings, this was not a bar for Hong Kong Court to grant recognition of Hainan proceedings.

As the requirements were met, Mr Justice Harris granted the recognition and assistance order sought by the Administrators.

Comments

This decision marked yet another instance of the growing close cross-border insolvency cooperation between Mainland China and Hong Kong.

It was also a reminder that reciprocity is not a requirement for granting recognition and assistance in Hong Kong.