HONG KONG – Secretary for Justice Teresa Cheng Yeuk-wah on Wednesday hailed as a “major breakthrough” the recent agreement between officials from the mainland and the Hong Kong Special Administrative Region on the mutual recognition of insolvency proceedings.
Writing on her blog, Cheng said the signing of the Record of Meeting on Mutual Recognition of & Assistance to Bankruptcy fully reflected the uniqueness of “one country, two systems” as Hong Kong becomes the only jurisdiction outside the mainland where mutual recognition of insolvency proceedings are allowed.
Secretary for Justice Teresa Cheng said businesses may also choose Hong Kong law as the applicable law for their contracts when investing in the mainland
“It highlights the trust of our country in Hong Kong’s judicial system and the firm support for Hong Kong to become an international legal hub,” Cheng said.
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She said new mechanism would allow liquidators from Hong Kong to apply in mainland courts for recognition of insolvency proceedings in the financial hub. Likewise, bankruptcy administrators from the mainland may apply to the High Court in Hong Kong for recognition of bankruptcy proceedings in the mainland.
Cheng said the mechanism would provide balance and protect the interests of creditors and debtors alike while using debt restructuring to reduce unemployment.
“It encourages enterprises to make use of debt restructuring procedures to facilitate creditors to reach a consensus on the restructuring plan as soon as possible. Companies under financial distress can reduce the risk of liquidation through debt restructuring and therefore prevent layoffs,” she said.
Cheng said the mechanism would also further improve the business environment and encourage investment, adding that it covers bankruptcy compromise and reorganization in the mainland as well as debt restructuring in Hong Kong.
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“Through the implementation of the ‘one country, two systems’ policy and leveraging Hong Kong’s uniqueness as the only common law jurisdiction in China, the most important aim of the co-operation mechanism is to explore the rules governing cross-border insolvency at first, and then further provide high quality cross-boundary legal and dispute resolution services with a view to contributing to the promotion of rule of law involving foreign parties and the building of rule of law in China,” she said.
In the long run, more businesses will be attracted to invest in Hong Kong, which in turn will consolidate the city’s role as a platform for enterprises to tap into the mainland market, she added.
Cheng said businesses may also choose Hong Kong law as the applicable law for their contracts when investing in the mainland.
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