A major step in developing Mainland China's cross‐border insolvency law

Abstract

AbstractSection 5 of Mainland China's Enterprise Bankruptcy Law provides that, in the absence of treaties, Chinese courts may recognise foreign insolvency proceedings based on reciprocity. The meaning of reciprocity is very uncertain, and no rules have been laid down on how recognition or assistance may be given to foreign insolvency proceedings. The Mainland has not entered into any treaty or arrangement on the matter with another jurisdiction. On 14 May 2021, the Mainland signed an agreement with Hong Kong, under which the Mainland issued an Opinion on the rules for the recognition of and assistance to Hong Kong insolvency proceedings. This article argues that this is a momentous development for both the Mainland and Hong Kong. It explains how the Opinion adapted provisions and ideas from the UNCITRAL Model Law on Cross‐Border Insolvency with modifications to suit the Mainland's needs and the objectives it wanted to achieve; in particular, the Mainland's concern with mitigating the risks arising from the Opinion's implementation. At the same time, however, cases decided after the coming into force of the arrangement revealed the hurdles posed by the corporate structure that Chinese groups in Hong Kong adopted to the utility of the arrangement, foreshadowing dynamic developments in practice and debate in the doctrinal and theoretical spheres.