The Restructuring Review: Hong Kong

Overview of restructuring and insolvency activity

The Hong Kong Special Administration Region (Hong Kong) is in a unique position as a special administrative region within the People's Republic of China (PRC). Hong Kong has had this unique character since 1997 when China resumed sovereignty from the United Kingdom. Much has been said about the challenges to the 'one country, two systems' principle in the past few years, especially following the political unrest during 2019 and the introduction of the National Security Law.2 The Basic Law, which is, in effect, a mini Constitution, for Hong Kong remains in place until 2047, which allows Hong Kong to retain, among other things, its legal system.

Hong Kong's attractiveness as a business centre within Asia is due to its free trade economic system, low taxes and minimal government intervention. Hong Kong's legal system, which is based on English common law rules and the rule of law, remains a key reason for many companies wanting to raise capital and do business in Hong Kong. That said, many businesses (including many companies listed on the Hong Kong Stock Exchange (HKSE)) have chosen to structure their business with holding companies in an offshore Caribbean jurisdiction such British Virgin Islands, Cayman Islands or Bermuda. It is quite common to see a holding company incorporated in an offshore jurisdiction with business operations run out of Hong Kong (and often intermediary companies incorporated in Hong Kong) and with operating subsidiaries in the PRC or elsewhere in the region. Hong Kong remains a key offshore capital-raising centre for Chinese enterprises. At the end of 2021, 1,368 mainland Chinese companies were listed in Hong Kong, with total market capitalisation of around US$4.3 trillion, or 79 per cent of the market total. Since 1993, mainland companies have raised more than US$1.019 billion via stock offerings in Hong Kong.3

For this reason, many insolvency cases in Hong Kong have cross-border elements. As is set out in more detail below, foreign companies can be wound up in Hong Kong and, over the last decade, there has been significant development of jurisprudence of common law cross-border recognition cases.

A significant development in 2021 was the new mutual recognition regime between Hong Kong and the PRC, which is discussed in more detail in Section III. As the only jurisdiction with a clear recognition pathway with the PRC, this places Hong Kong in the prime seat as a restructuring hub for cases with a PRC connection.

The downward trend of formal liquidation proceedings has continued over the last couple of decades. Although there was a slight increase in 2009 at the time of the global financial crisis, we have not seen a similar increase in the past couple of years during the covid-19 pandemic. In 2020, 449 winding-up petitions were presented and 234 winding-up orders made. In 2021, petitions increased slightly to 493, but only 299 winding-up orders were made. In 2022 (until the end of March), 75 petitions have been presented and 46 winding-up orders made.4 We have not seen the covid-19 pandemic having a significant effect (if any) on the number of filings. The potential reasons for this are discussed in more detail in Section IV below.

Schemes of arrangement remain an important restructuring tool and the trend over the last few years suggests that this will continue to be the case. A number of HKSE-listed companies have used parallel schemes in Hong Kong and the relevant offshore jurisdiction (in their place of incorporation) to implement restructuring.

General introduction to the restructuring and insolvency legal framework

Hong Kong's insolvency regime evolved from that of the United Kingdom and the emphasis is on the protection of the creditors rather than on the rescue of the companies. The legislation concerning corporate insolvency is contained in the Companies Ordinance (Cap. 622) (CO), the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO) and the Companies (Winding Up) Rules (Cap. 32H). Certain provisions of the Bankruptcy Ordinance (Cap. 6) and Bankruptcy Rules (Cap. 6A) are also applicable in governing the insolvency of companies.

i General procedures

Corporate insolvency proceedings include creditors' voluntary liquidation, members' voluntary liquidation, compulsory liquidation and receivership. Restructurings may be effected by private contractual arrangements or by using schemes of arrangement. Solvent or defunct companies may be disposed of by way of members' voluntary liquidation and deregistration.

ii Winding up companies incorporated or registered in Hong Kong

It is common to put a financially troubled company into liquidation. In Hong Kong, a company may be wound up by the following different methods:

  1. members' voluntary liquidation (Sections 228 and 233 to 239A of the CO);
  2. directors' voluntary liquidation (Section 228A of the CO);
  3. creditors' voluntary liquidation (Sections 228 and 240 to 248 of the CO); or
  4. compulsory liquidation by the court (Sections 177 and 178 and other relevant sections of the CO).

Members' voluntary liquidation

This is a common way to wind up a company when it no longer wishes to exist or has achieved the purpose for which it was set up, realises all its assets, discharges all its liabilities and distributes the surplus funds among the shareholders. However, the method is available only for a solvent company as it requires the directors to sign a certificate of solvency confirming that the company will be able to pay its debts in full for at least 12 months from the commencement of the liquidation. Members' voluntary liquidation is common in group restructuring situations.

Directors' voluntary liquidation

This is unique to Hong Kong. If the directors of the company are of the view that the company, by reason of its liabilities, can no longer continue its business, they may use this route by calling a meeting and delivering to the Registrar of Companies a winding-up statement to commence the winding up of the company. This is the quickest way to initiate a liquidation by the company's directors.

Creditors' voluntary liquidation

Despite the name of this process, creditors themselves cannot initiate this proceeding. This is done by the directors of the company, usually in circumstances whereby they form the view that the company cannot, by reason of its liabilities, continue its business, by calling a meeting of the company's shareholders to pass a resolution to wind up the company voluntarily.

When calling a creditors' meeting, notice must be sent to creditors and also published in the government gazette and in English and Chinese newspapers. The company must also hold the creditors' meeting on the same day or the day after the passing of the shareholders' resolution. The creditors may also decide who they wish to appoint as the liquidator of the company.

Compulsory liquidation by the court

A compulsory liquidation is usually commenced by presenting a winding-up petition to the court, in most circumstances by a creditor of the company. It is, however, not uncommon for a company itself (by the shareholders passing a special resolution), the official receiver or a shareholder to present the petition for winding up. A compulsory liquidation is generally more expensive and time-consuming than a voluntary winding up, given that it is a court-driven process.

The grounds by which a company can be wound up by the court are specified in Section 170 of the CWUMPO. The grounds include:

  1. the company has, by a special resolution (75 per cent or more), resolved that it must be wound up;
  2. the company is unable to pay its debts; or
  3. the court considers that it is just and equitable for the company to be wound up.

It is most common for a company to be wound up by the court on the ground that it is unable to pay its debts. There is no exhaustive definition of inability to pay debts in the legislation. There are two tests for insolvency: the cash flow test and the balance sheet test. Under the cash flow test, the company is deemed to be insolvent when it is unable to pay its debts when they fall due. Under the balance sheet test, the company is insolvent when its liabilities exceed its realisable assets. That said, a company will be deemed to be unable to pay its debt if a creditor to whom the company is indebted of a sum equal or over HK$10,000 issues a statutory demand for payment when it is due by serving it at the registered address of the company and the company fails to pay the sum within 3 weeks after the service of the demand.

After the presentation of the petition for winding up, a court hearing will be held a couple of months later. It is the responsibility of the petitioner to advertise the petition to give any interested party the opportunity to notify the petitioner as to whether it supports or opposes the petition. At the hearing, the court will determine, on equitable principles, whether the petition should be successful. In the circumstances that the petition is unopposed, the court is likely to grant the winding-up order at the first hearing. The court, however, will not make an order to wind up the company if the company is able to establish that there is a genuine dispute regarding the debt that is the subject of the petition.

When the winding-up order is made, the official receiver automatically becomes the provisional liquidator (PL). The official receiver or PL will then call for the first meetings of creditors and contributories of the company. A committee of inspection will usually be formed at the first meeting and the creditors may nominate a liquidator to replace the PL.

iii Provisional liquidation

As Hong Kong does not yet have a formal procedure for corporate rescue, it is sometimes appropriate to use the compulsory winding-up procedure, coupled with the appointment of a PL, to achieve a period of provisional liquidation. The PL can be granted powers to restructure the company.

This is done by the presentation of a petition to the court for a compulsory winding up of the company (under Sections 177 to 179 of the CWUMPO), together with an application to the court for the appointment of a PL. This is the only method that effectively protects the directors from personal liability and gives the company some chance of being saved from final liquidation, because (1) the PL immediately replaces the directors as manager of the company's business and affairs, (2) the company is not immediately in liquidation (because liquidation will commence only when the court eventually decides to make a winding-up order, which might not happen for a few weeks or months) and (3) the appointment of the PL automatically suspends all legal proceedings against the company. This method (i.e., petition plus PL appointment) is, however, more expensive in terms of legal fees and takes a little longer than other methods of putting a company into liquidation.

The appointment of a PL solely for the purpose of restructuring is not possible in Hong Kong. In Re Legend International Resorts Ltd [2006] 2 HKLRD 192, Justice Harris held that the court would appoint a PL only on conventional grounds (i.e., to preserve the company's assets and prevent dissipation). Nevertheless, in the right circumstances, for instance with strong creditor support, a PL can be given powers to restructure the company's business and debts.

Because of the test in Re Legend, we have seen the practice develop in recent years of PLs being appointed with restructuring powers in offshore jurisdictions (being the place of incorporation of the company) and then having their appointment recognised in Hong Kong.

iv Alternative restructuring methods

Contractual arrangements

Also known as restructurings or workouts, contractual arrangements are mutual agreements between the debtor company and the creditor in which the court is not involved. The terms of the arrangement are set by the parties involved. The company and the creditors are contractually bound by the terms of the arrangement once the arrangement is agreed.

In practice, the debtor will need agreement from 100 per cent of creditors concerned to prevent any dissenting creditors from initiating winding-up proceedings. There is no legal protection from creditors. There is no moratorium, and creditors can commence liquidation proceedings if they do not agree to the terms.

With regard to financial creditors, the Hong Kong Monetary Authority (HKMA) and the Hong Kong Associations of Banks have issued formal but non-statutory guidelines on multiple bank restructuring. The rules stress the importance of banks acting quickly but providing sufficient liquidity to obtain a considered view of the borrower's future prospects. The guidelines also state that if a clear majority of the banks agree to support a company, others should carefully review their own positions.

Schemes of arrangement

In recent years, we have seen schemes of arrangement used more frequently by companies to give effect to a debt restructuring,5 particularly in situations in which there are large numbers of creditors (e.g., bondholders) when it would be impossible to obtain consent of all of the creditors and the size of the debt justifies the expense. Importantly, schemes of arrangement are neither an insolvency nor a bankruptcy process (so should not trigger insolvency event of default provisions) and are relatively low profile in terms of publicity.

A scheme of arrangement enables a company to agree with its creditors, or one or more classes of its creditors, a compromise in respect of its debts owed to those creditors. One of the key advantages to a scheme of arrangement is that it requires the approval of only 50 per cent in number and 75 per cent in value of the creditors who vote. Once approved by the court, a scheme of arrangement will bind all creditors, irrespective of whether and how they voted.

A company in financial difficulties will put together, with the assistance of its professional advisers (usually specialist lawyers and financial advisers), a proposal to be presented to the company's creditors. The proposal will usually set out proposed terms for a compromise of the company's debts, such that the creditors are required to accept less than the amount they are owed, in full and final settlement of the debt obligation.

For a scheme to be binding, the following procedures must be followed:

  1. obtain approval from the Hong Kong court to convene a meeting of creditors to vote on the scheme (first court hearing);
  2. call a meeting of the company's creditors in accordance with directions given by the court;
  3. creditors to vote in favour of the scheme: 50 per cent in number and 75 per cent in value of the creditors who vote in each class; and
  4. obtain sanction of the court – this involves the court considering whether the scheme is fair (second court hearing).

In some restructuring cases, there might be hostile creditors who seek to wind up or commence proceedings against the debtor company. Schemes of arrangement do not involve any moratorium or stay of proceedings. So, in these scenarios (and is often the case for Hong Kong restructurings), prior to launching a scheme, the debtor company might need to appoint PLs to implement their restructuring via a scheme. The appointment of PLs includes a stay of proceedings, which gives the debtor company (and its PLs) some breathing space to implement the restructuring and has the effect of having a moratorium in place. The asset dissipation risk test from Re Legend will need to be satisfied for the court to appoint a PL.


Receivership is a remedy by which a person, normally an insolvency practitioner, is appointed to act as the custodian of a company's assets or take control of its business operations. A receiver of a company's property does not wind up the company. A receiver may be appointed by the court for protecting a specific asset of the company that is the subject of a dispute or by a creditor who has legal charge over the asset.

A receiver's powers and duties will be set out in the relevant security document under which the receiver was appointed. Typically, the security document provides for powers to take control and realise the secured assets under the security document.

v Securities

In Hong Kong, the most common forms of security are mortgages, charges, pledges and liens.


A mortgage is the transfer of the ownership of an asset by way of security for specific obligations on the express or implied condition that it will be transferred back to the mortgagor once that obligation is discharged. A mortgage can be legal or equitable in nature. A legal mortgage involves the transfer of the legal ownership in the assets, whereas an equitable mortgage involves only the transfer of the mortgagor's beneficial interest in the asset. If the mortgagor is in default of its specific obligations, both the legal and the equitable mortgagees are entitled to take possession and sell the asset.


Different from a mortgage, a charge does not transfer ownership of the asset; it only creates certain rights over the charged asset. A charge can be fixed or floating. A fixed charge gives the chargee the right to the proceeds of the asset when the chargor is in default. A floating charge is created over a class of assets (present or future). The chargor under the floating charge can continue to deal with the assets in the ordinary course of business until the charge crystallises. Once crystallised, a floating charge becomes a fixed charge and attaches to the charged assets.


A pledge is formed when possession of the asset is transferred to the pledgee, whereas ownership of the pledged asset is retained by the pledgor. The pledgee has the right to retain the pledged asset until the underlying obligation of the pledgor is discharged. The pledgee also has the right to sell the pledged assets if the pledgor defaults.


A lien is the right by which a party can retain possession of an asset until underlying obligations are discharged. Unlike a pledge, the holder of the lien has no right to sell the relevant assets.

Companies incorporated in Hong Kong or foreign companies registered as non-Hong Kong companies are required to register the specified type of securities with the Registrar of Companies. Failure to do so will render the securities ineffective against other creditors and liquidators of the company.

vi Directors' duties

Directors' duties are classified into two main categories: fiduciary duties and duties of care, skill and diligence. The general principles of fiduciary duties are derived from common law, which includes the duty to act in good faith in the interest of the company and shareholders as a whole.

When a company approaches liquidation, a director has the duty to take into account the interests of the company's creditors and decide whether the company should continue trading, because they might be ordered to repay or restore money or property to the company or otherwise to contribute towards the assets of the company by way of compensation as the court thinks fair.

If the company is in liquidation, a liquidator could apply to the court for an order disqualifying any of the company's directors from holding directorships for other companies in the future. Grounds for such a disqualification order include fraudulent trading (discussed below), breach of fiduciary duties and other conduct that is such as to make the director unfit to be involved in the management of a company. A disqualification can be given for up to 15 years.

A director could also be liable for fraudulent trading pursuant to Section 275 of the CWUMPO if it is then shown that the company's business has been carried on with intent to defraud its creditors or for any fraudulent purpose. A director, or any persons who were knowingly party to the carrying-on of the company's business in such a manner, may be personally liable for all or any of the company's debts as the court may direct. Apart from civil liability, any such person commits a criminal offence and may be liable for imprisonment and a fine. Historically, there have not been any fraudulent trading cases in Hong Kong, as it is notoriously hard to prove the fraud element. Although a director could be liable for fraudulent trading under the law, allowing the company to trade while it is insolvent is not an offence in Hong Kong, unlike in many other jurisdictions.

A director could also be liable for misfeasance pursuant to Section 276 of the CWUMPO if they breach their directors' duties and as a result of the breach caused the company to suffer loss. The section applies not only to a director but also to any past or present officers of the company who have breached their duties (e.g., by misapplying the company's money). If found liable, the director could be accountable for the loss of the company.

vii Clawback

Once a company goes into liquidation, either voluntarily or by order of the court, the transactions it entered into when the company was in financial distress will be scrutinised and be liable to be set aside in the following situations.

Unfair preference

A company gives an unfair preference if, prior to its liquidation, it enters into any transaction influenced by the desire to prefer a particular creditor. The liquidator could apply to the court for the transaction to be set aside. Under Section 266 of the CWUMPO, a liquidator could apply to the court and challenge the validity of such a transaction if it took place two years prior to the commencement of the liquidation if the creditors are associates (e.g., directors, shadow directors and officers of the company) and six months for non-associates.

Transaction at an undervalue

A transaction at an undervalue is a transaction entered into by the company prior to its liquidation without any consideration (i.e., as a gift or a value that is significantly less than the value of the consideration provided by the company). The liquidator may challenge the validity of any such transactions that took place five years prior to the commencement of liquidation.

Floating charge

Under Section 267 of the CWUMPO, if a company goes into liquidation and within 12 months (or two years if the person in favour of whom the floating charge is created is an associate) before the commencement of the liquidation the company grants a floating charge over its business or assets, then such a floating charge will be valid to secure money lent by the chargee to the company after the creation of the charge, but it will be invalid as a security for any money previously lent by the chargee to the company. The invalidity does not result if, immediately after the creation of the charge, the company can be shown to have been fully solvent.

Winding up of foreign companies

The global trend of cross-border insolvencies continues to evolve in different parts of the world. Because Hong Kong is not a party to the UNCITRAL Model Law on Cross-Border Insolvency, over the last decade, the Hong Kong court has used common law principles to recognise foreign insolvency procedures and appointment of foreign insolvency office holders.

Hong Kong's insolvency legislation contains no provisions regarding cross-border insolvency. Prior to July 2014, foreign liquidators usually wound up foreign companies in Hong Kong if they needed to empower themselves to investigate as a Hong Kong liquidator, incurring substantial time and resources. There were often difficulties faced by foreign liquidators when satisfying the necessary jurisdictional nexus.

In L v G Limited [2016] 1 HKLRD 167, Justice Harris explains the following jurisdictional requirements.

  1. There is a strong presumption that a company's place of incorporation should be the appropriate jurisdiction to petition for its winding up.
  2. Section 327 of the CWUMPO allows the Hong Kong court to wind up a foreign company in the circumstance provided in Subsection 3, and such jurisdiction is discretionary.
  3. The circumstances in which the Hong Kong court will exercise the discretion are:
    • there must be sufficient connection with Hong Kong (first core requirement);
    • there must be a reasonable possibility, if a winding-up order is made, that it would benefit those applying for the same (second core requirement); and
    • one or more persons who have an interest in the distribution of the company must be individuals upon whom the Hong Kong court can exercise its jurisdiction (third core requirement). Together, these are often referred to as the three core requirements, as introduced in Kam Leung Sui Kwan v Kam Kwan Lai & Ors FACV 4/2015, also known as the Yung Kee case.
  4. Where the liquidators are appointed in jurisdictions with similar insolvency regimes to Hong Kong, the court may assist by granting orders allowing them to investigate the affairs of a company.
  5. This could be done by acquiring a letter of request from the foreign company's place of incorporation and then making a paper application for a recognition order.

China Huiyuan Juice Group Limited [2020] HKCFI 2940 (China Huiyuan) is an increasingly stringent interpretation of the three core requirements. Prior to China Huiyuan, a company's listing status in Hong Kong was always regarded as sufficient to satisfy the first core requirement. Factually, in most cases, there is more than one creditor subject to the jurisdiction of the Hong Kong court, so the third core requirement is commonly satisfied. However, there had been little jurisprudence regarding the second core requirement.

In China Huiyuan, Justice Harris held that the second core requirement was not satisfied because:

  1. the petitioner would be required to prove that realisation of a listing status would bring a real prospect of a material financial benefit to creditors;
  2. in view of the subject corporate structure, it appears that it would be difficult for a Hong Kong liquidator to be recognised in the Cayman Islands, British Virgin Islands or mainland. A Hong Kong liquidator would therefore not be able to take control, carry out meaningful investigation or commence legal proceedings in relation to the corporate group's matters; and
  3. upon those assumptions, it followed that if the benefit that is sought by winding up the company is to recover assets in mainland China, it is not a benefit that can be obtained by winding up the company in Hong Kong.

Further, on 24 August 2021, Justice Harris declined to wind up an offshore incorporated listed company in Grand Peace Group Holdings Limited [2021] HKCFI 2361, and summarised the principles on winding up listed companies in Hong Kong as follows.

  1. For holding companies incorporated in an offshore jurisdiction, owning a subsidiary incorporated in another offshore jurisdiction and owning operating subsidiaries with assets in mainland China, the general rule is that a creditor should petition to wind up that holding company in its place of incorporation.
  2. One should deviate from the general rule only if a creditor can show that a Hong Kong liquidator would be able to control the mainland subsidiaries. But the creditor is unlikely to be able to prove that unless:
    • the centre of main interests (COMI) of the intermediate offshore subsidiary is in Hong Kong and thus it is possible to obtain recognition in the mainland via the cooperation arrangement signed on 14 May 2021 (see below for further details of the arrangement); and
    • the liquidator appointed over the holding company can petition to wind up an offshore subsidiary in Hong Kong as a creditor.

viii Recognition of insolvency proceedings from common law and non-common law jurisdictions

Joint Official Liquidators of A Co v B [2014] 4 HKLRD 3746 was the first case that set out a clear mechanism7 for foreign liquidators to, pursuant to a letter of request from a jurisdiction with a similar insolvency regime, apply for recognition in Hong Kong.

The introduction of the common law recognition and assistance regime was welcomed by the insolvency industry, giving rise to a number of applications. Cases that followed clarified the limit of the recognition regime.

In Joint Administrators of African Minerals Ltd (in administration) v Madison Pacific Trust Ltd [2015] 4 HKC 215, the Administrators of African Minerals Limited (AML) made an urgent ex parte application seeking to restrain the enforcement of security over shares held by the AML.

AML was the guarantor under a facility and had charged its shares in favour of the lenders. The agent of the facility was Hong Kong company Madison Pacific Trust Limited. The High Court of England appointed administrators over AML and imposed a moratorium ordering that 'no step may be taken to enforce security over the Company's property except (a) with the consent of the administrator or (b) with the permission of the court' (see Paragraph 4 of [2015] 4 HKC 215).

The administrators made the application in Hong Kong seeking recognition of (1) the administration and (2) the moratorium preventing enforcement of the security, but it was rejected by Justice Harris on the ground that the court's power to assist a foreign liquidation was limited to the type of order that was available to a liquidator in Hong Kong under the Hong Kong insolvency regime and common law and equitable principles. Hong Kong does not have any equivalent mechanism to administration or moratorium on the enforcement of a secured debt and therefore these could not be recognised.

Over the next five years, the jurisprudence that developed involved only recognition of liquidators or PLs from common law jurisdictions, primarily from the Caribbean jurisdictions. It was therefore a welcome surprise when in 2019 Justice Harris recognised Japanese winding-up proceedings and granted the bankruptcy trustee the standard recognition order,8 which includes the power to apply for examination of a person or to seek documents concerning the company's affairs.9

The decision confirmed that the Hong Kong court will recognise foreign insolvency proceedings that are (1) collective in nature and (2) opened in the company's country of incorporation. Despite Japan having a civil law system, Justice Harris held that the winding-up proceedings in Japan were collective in nature and that the powers of a trustee under the Japanese winding-up proceeding are similar (though not identical) to the rights of a liquidator in Hong Kong.

ix Recognition of PRC winding-up proceedings

In Re CEFC Shanghai International Group Limited (in Liquidation in the Mainland of the People's Republic of China) HCMP2295/2019 [2020] HKCFI 167, Justice Harris made the very first order that a PRC administrator be recognised in Hong Kong. The learned judge granted an order in terms of the administrator's application on the basis that the PRC insolvency proceedings are collective insolvency proceedings and are opened in the company's country of incorporation. A similar decision was followed in Re Shenzhen Everich Supply Chain Co Ltd (in Liquidation in the Mainland of the People's Republic of China) HCMP708/2020 [2020] HKCFI 965. In that case, Shenzhen Everich Supply Chain Co Ltd was wound up and its administrator appointed by the Shenzhen court.

Recent legal developments

i New recognition regime between Hong Kong and mainland China

On 14 May 2021, the government of Hong Kong and the Supreme People's Court signed the Record of Meeting of the Supreme People's Court and the Government of the Hong Kong Special Administrative Region on Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region, which is a significant development in judicial cooperation in cross-border insolvency matters between the two jurisdictions.

Pursuant to The Supreme People's Court's Opinion on Taking Forward a Pilot Measure in relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region (the Opinion), a Hong Kong liquidator or PL may apply to the PRC courts for recognition and assistance and PRC administrators can seek the same in Hong Kong. Personal bankruptcy is not included in this new mechanism.

The Opinion covers (1) compulsory winding up, (2) creditors' voluntary winding up, and (3) schemes of arrangement provided that Hong Kong is the COMI of the debtor for at least six months continuously before the application. COMI is defined as the place of incorporation of the debtor, but the Supreme People's Court will take into account other factors, including (1) the place of principal office, (2) the principal place of business and (3) the place of principal assets of the debtor.

Both liquidators and PLs in Hong Kong benefit from the Opinion, but they can utilise the recognition mechanism only when the debtor's principal assets, place of business or representative office is situated in Shanghai, Xiamen or Shenzhen, being the three pilot areas under the Opinion. It is expected that the cooperation mechanism will gradually extend beyond these areas.

Once the application is allowed, (1) payment of debts made by the debtor to individual creditors will be invalid, (2) civil proceedings or arbitrations involving the debtor that have not yet concluded will be suspended, and (3) PRC measures for preserving the debtor's property will be lifted and any execution suspended (in other words, a creditor moratorium).

Nevertheless, the PRC court may dismiss the application on any one of the following grounds:

  1. Hong Kong is not the COMI of the debtor or it has been situated in Hong Kong for less than six months continuously before the application;
  2. Article 2 of the Enterprise Bankruptcy Law of the PRC is not satisfied;10
  3. mainland creditors are treated unfairly;
  4. there is fraud; or
  5. other circumstances in which the Supreme People's Court considers that recognition or assistance should not be rendered (e.g., violation of PRC law or public order or good morals offences).


The Opinion was quickly put into use in the recent case of Samson Paper Company Limited (In Creditors' Voluntary Liquidation) [2021] HKCFI 2151, in which Justice Harris decided that the Opinion applies to the subject company because its COMI has been in Hong Kong since its incorporation. Justice Harris also found it desirable for the liquidators' appointment to be recognised and assistance to be provided by the Shenzhen court for the liquidators to collect the assets. The learned judge issued a simplified Chinese version of the letter of request (in the form annexed to the decision) to the Bankruptcy Court of the Shenzhen Intermediate People's Court, seeking its assistance in aid of the company's liquidation and the liquidators.

Further, in China All Access (Holdings) Limited [2021] HKCFI 1842, the court was asked to consider whether an immediate winding-up order should be made against China All Access (Holdings) Limited (CAA), a Cayman Islands company. CAA argued that such an order should not be made because the second core requirement was not satisfied (i.e., CAA's assets are located in Malaysia and the PRC, mostly in Shenzhen). It was argued that because the operating subsidiaries are separated from CAA by intermediate British Virgin Islands subsidiaries, the liquidators would face difficulties in controlling the operating PRC subsidiaries.

Justice Harris explained that a significant element of the Opinion is whether in the six-month period before an application for recognition is made, the COMI of the relevant company has been located in Hong Kong. If so, regardless of the company's place of incorporation, the PRC court may recognise liquidators appointed by the Hong Kong court and grant them assistance to carry out their function. Justice Harris held that CAA had its COMI in Hong Kong and therefore allowed the application. He held that on the balance of probabilities there is a real possibility of the winding-up order benefiting the petitioner and that the second core requirement was satisfied.

In Ozner Water International Holding Limited (in Liquidation) [2022] HKCFI 363, the court handled its first application under the Opinion where the entity in question was not Hong Kong incorporated. Ozner Water (incorporated in the Cayman Islands) was wound up by the Hong Kong court and its Hong Kong liquidators obtained a letter of request issued to the Shenzhen court. The court was prepared to issue the letter of request for the following reasons:

  1. the assets the liquidators were seeking to control were located in the mainland and hence the relevant mainland court would be the most appropriate body to determine the scope of power of the liquidators in relation to the assets;
  2. although Ozner Water was not incorporated in Hong Kong, its COMI has been in Hong Kong since its incorporation as it has always been run out of Hong Kong; and
  3. the assistance the liquidators needed in the mainland related to asset recovery and the liquidators were empowered by Hong Kong laws to commence proceedings outside Hong Kong to discharge their duties to recover assets.


On 6 April 2022, the Hong Kong court decided on its first application for a letter of request to be issued to the court in Shanghai in Hong Kong Fresh Water International Group Limited (in liquidation) [2022] HKCFI 924. In this case, after granting a winding-up order against HK Fresh Water, upon the liquidators' application, Justice Harris also issued a letter of request. When deciding on the COMI of HK Fresh Water, Justice Harris found that the company's affairs had been managed by the liquidators in Hong Kong since at least March 2021 and that this satisfied the six-month test under the Opinion.


On 16 September 2021, the decision of Re Jiang Wenyu and Others (HCMP1220/2021) was handed down. The decision involved an application made to the Hong Kong court for an order recognising the PRC reorganisation of HNA Group Co, Limited and its administrators appointed by the Hainan Province Higher People's Court (Hainan court).

The application was made following the issuance of a letter of request by the Hainan court to the Hong Kong court. Justice Harris granted recognition on the basis that (1) the PRC reorganisation proceedings were characterised as collective insolvency procedures and (2) the subject company was incorporated in the PRC. He also noted that reciprocity is not a requirement of common law recognition and assistance in Hong Kong. So, even though the Hainan court is not one of the three pilot areas specified in the Opinion, that is not an issue for recognition and assistance in Hong Kong (i.e., an application for recognition in Hong Kong can come from any court in PRC).

ii Are keepwell deeds enforceable?

Keepwell deeds are an instrument that is widely used in financing structures involving an offshore debtor with an ultimate parent incorporated in mainland China. Such deeds typically include the onshore parent's undertaking to maintain a certain shareholding, a positive net worth and sufficient liquidity in the offshore debtor, or availability to the offshore debtor of sufficient funds to enable it to perform its payment obligations.

The major benefit of using keepwell deeds is that they are not regarded as subject to the regulatory requirements in mainland China that apply against actual guarantees. For example, guarantees must be registered with the State Administration of Foreign Exchange of the People's Republic of China. Nevertheless, it is expected that the regulatory requirements may evolve in due course to also cover keepwell deeds.

The recent case of Nuoxi Capital Limited (in liquidation in the British Virgin Islands) v Peking University Founder Group Company Limited [2021] HKCFI 3817 involved the use of keepwell deeds as part of the security package for financing in mainland China by offshore financiers.

This case considered the enforceability of keepwell deeds given by the defendant in respect of a number of its subsidiaries, relating to US$1.7 billion of debt. The keepwell deeds were governed by English law and contained Hong Kong exclusive jurisdiction clauses. Prior to trial, the PRC administrator of the defendant (1) applied for a stay of the actions in Hong Kong so that the disputes between the parties could be resolved in reorganisation proceedings taking place before the Beijing No.1 Intermediate People's Court (Beijing court), and (2) issued an originating summons (which was supported by a letter of request from the Beijing court dated 5 November 2021) for an order for recognition and assistance of the reorganisation proceedings in Beijing.

The applications gave rise to issues that were novel to the Hong Kong court, regarding the interplay between the exercise of a party's contractual rights and the impact of insolvency proceedings as and when a debtor becomes insolvent and a party to a formal insolvency process. The court decided as follows.

  1. The submission of the claims by a creditor in the reorganisation in Beijing, although constituting submissions to the jurisdiction for the Beijing court for the purpose of proving in the reorganisation, does not debar the creditor from commencing the proceedings in Hong Kong pursuant to the contractual jurisdictional clause in the keepwell deeds.
  2. The plaintiffs' right to have their claims determined before the agreed court is a significant one and should be respected. Such a right would be deprived only if a compelling reason is demonstrated. They should be allowed to have their claim tried in Hong Kong and, if successful, obtain the benefit of a judgment that they can use to support the claim they intend to raise in the reorganisation.
  3. Although the defendant argued that it would be more straightforward to have the plaintiffs' claims dealt with by the Beijing court all together, the Hong Kong court considered such an argument insufficient to prevent the parties from having their claims dealt with before the contractually agreed court, because the defendant could not demonstrate that the Beijing court would not give any weight to a Hong Kong judgment.
  4. Justice Harris therefore dismissed the defendant's application to stay the actions but made an order recognising the reorganisation proceedings in Beijing and providing assistance in the terms sought by the defendant.

This decision illustrates that the mere existence of foreign winding-up proceedings does not override parties' contractually agreed jurisdiction clauses unless there are compelling reasons to convince the Hong Kong court otherwise. The Hong Kong court nevertheless would be open to offer suitable assistance and recognition to the foreign insolvency proceedings as the court deems fit.

Significant transactions, key developments and most active industries

The covid-19 pandemic has caused unprecedented disruptions and challenges to businesses around the globe. To mitigate the effects, governments worldwide have adopted different relief measures. A number of jurisdictions implemented temporary changes to their insolvency laws, such as temporary suspension of wrongful trading rules in the UK,11 increasing the statutory minimum amount to serve a creditor's statutory demand in Australia12 and lengthening the amount of time for a debtor to respond to a creditor's demands in Singapore.13

Instead of implementing temporary changes to the insolvency law, the Hong Kong government responded by adopting a series of fiscal measures. In the financial years 2020–2021 and 2021–2022, the Hong Kong Government adopted an HK$80 billion employment support scheme,14 which provided time-limited financial support to employers in return for an undertaking to retain employees, a one-off cash payout of HK$10,00015 to every Hong Kong permanent identity card holder aged 18 or above and the disbursement of a HK$5,000 electronic consumption voucher16 by instalments to every eligible Hong Kong resident. In response to the 'fifth wave' of the covid-19 pandemic in Hong Kong in early 2022, the Hong Kong government renewed some of the fiscal measures for the financial year 2022–2023. This includes launching new rounds of the employment support scheme17 and the electronic consumption voucher scheme.18

The retail, food and beverage industries were heavily hit by the covid-19 pandemic. The value of total retail sales in February 2022, provisionally estimated at HK$25.2 billion, decreased by 14.6 per cent compared with the same month in 2021.19 In the food services sector, which mainly covers restaurants, gross surplus decreased from HK$9.4 billion in 2019 to HK$7.5 billion in 2020, accounting for 6.5 per cent of total receipts in 2020. The drastic drop in sales and revenue in these industries was mainly due to the worsening of the local epidemic situation and further tightening of anti-epidemic measures such as social distancing, which at times limited restaurants to two patrons per table, no dine-in services after 6pm and inbound travel restrictions such as compulsory quarantine. It is uncertain whether the fiscal measures adopted by the Hong Kong government are sufficient to help these industries to overcome the economic slowdown.

The HKMA, which regulates the banking sector in Hong Kong, has also taken a host of measures to support small and medium-sized enterprises and individuals in need. This includes20 the release of HK$1 trillion of leading capacity, converting trade financing lines into temporary overdraft facilities and deferred repayment of trade facilities.

According to the data published by the Hong Kong Official Receiver's Office,21 an increase of 9.80 per cent in compulsory winding-up petitions were presented and a decrease of 18.26 per cent of bankruptcy petitions were presented in 2021 when compared with the figures in 2020. These figures were lower than expected and might be due to the relief measures mentioned above. However, how long the effect of these temporary relief measures will last is unknown. This calls for a need to reconsider the introduction of a statutory corporate rescue regime.

Currently, Hong Kong does not have a statutory corporate rescue regime. A financially distressed company in Hong Kong can rescue its business only by entering into (1) a scheme of arrangement or (2) a private debt restructuring agreement(s) with its major creditors. Neither of these options is ideal as they do not provide for any statutory moratorium and schemes of arrangement can be expensive.


Hong Kong has not adopted the UNCITRAL Model Law on Cross-Border Insolvency in its domestic legislation. There is also no statutory regime for recognition of foreign insolvency provisions. Historically, if a foreign liquidator required authority in Hong Kong, the standard practice would be to apply for a parallel winding up in Hong Kong.

As is set out in detail in Section III above, the Hong Kong court has taken a pragmatic approach by using common law principles to recognise and assist foreign insolvency office holders in appropriate circumstances. The Hong Kong court has developed a standard practice for applications of this type so that orders can be granted very quickly and usually without the need for a hearing.22

The recent line of decisions continues to demonstrate that the Hong Kong court is prepared to recognise foreign liquidators and provide assistance based on the established common law principles (see Section III).

Future developments

There is currently no statutory corporate rescue procedure. The Hong Kong government previously aimed to introduce the Companies (Corporate Rescue) Bill to the Legislative Counsel in early 2021 for the introduction of a statutory corporate rescue procedure and insolvent trading provisions. This has not yet been introduced to the Legislative Council and the time frame for introduction remains unclear.

We expect to see more case law following the new mutual recognition regime bewteen Hong Kong and mainland China and the expansion of the regime beyond the three pilot cities in mainland China.


1 Eloise Matsui is a partner, Stephanie Poon is a senior associate, and Rosy Chan and Vivian Lau are associates at Stephenson Harwood.

2 Hong Kong's National Security Law became law on 30 June 2020. It is both a PRC national and a Hong Kong regional law.

3 'Economic and Trade Information on Hong Kong' 30 March 2022 from the Hong Kong Trade Development Council, .

4 Statistics from the Official Receiver's Office, The Hong Kong Government, 'Statistics on Compulsory Winding-up and Bankruptcy',

5 Re Winsway Enterprises Holdings Ltd [2017] 1 HKLRD 1 and Re Kaisa Group Holdings Ltd [2017] 1 HKLRD 18.

6 Judgment dated 21 July 2014.

7 This new practice is followed by subsequent court decisions, including but not limited to The Joint Official Liquidators of Centaur Litigation SPC (in liquidation), Rennie Produce (Aust) Pty Ltd (in liquidation in Australia), Bay Capital Asia Fund, LP (in official liquidation) and DBS Bank (Hong Kong) Limited and The Joint Provisional Liquidators of BJB Career Education Company Limited (in provisional liquidation) and Xu Zhendong.

8 As set out in Re Joint and Several Liquidators of Pacific Andes Enterprises (BVI) Ltd HCMP560/2016.

9 Re Kaoru Takamatsu [2019] HKCFI 802.

10 Article 2 sets out the circumstances under which a debtor can make a bankruptcy application to the People's Court, namely where the debtor cannot pay off their debts due and their assets are not enough for paying off all of the debts, or they apparently lack the ability to pay off their debts.

11 UK Parliament. House of Lords Library. 16 December 2020. 'Covid-19: Suspension of wrongful trading liability provisions'. See

12 Corporations Amendment (Statutory Minimum) Regulations 2021.

13 Supreme Court Singapore. 'Impact of COVID-19 (Temporary Measures) Act 2020 on Bankruptcy and Winding Up Applications'. See

14 The HKSAR Government. Press Releases. 12 May 2020. 'First tranche of wage subsidy under Employment Support Scheme'. See

15 The HKSAR Government. 'Cash Payout Scheme $10,000'. See

16 The HKSAR Government. 'Consumption Voucher Scheme $5,000'. See

18 New Round of Consumption Voucher Scheme. See

19 The Census and Statistics Department. 31 March 2022. 'Provisional statistics of retail sales for February 2022'. See

21 Official Receivers' Office. 'Statistics on Compulsory Winding-up and Bankruptcy.' See

22 Re Joint and Several Liquidators of Pacific Andes Enterprises (BVI) Ltd HCMP 3560/2016.

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