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Foreign investors in a Chinese group that may go bankrupt have the right to reach an agreement with Hong Kong to liquidate their assets in the mainland, with the aim of enhancing the confidence of the company in the Chinese legal system.
This mechanism will force the courts in Shanghai, Shenzhen and Xiamen to recognize bankruptcy orders filed by creditors of Hong Kong companies, which is a channel for Chinese companies To raise funds From global investors. This means that investors can more easily seek to end Chinese corporate assets in the mainland to recover funds. The plan may be expanded to more Chinese cities in the future.
The plan was launched this month, at a time when international investors increased their investment in China.The country has also suffered Mass default And company reorganization. China’s court system is controlled by the ruling Communist Party and has historically denied bankruptcy decisions made in Hong Kong and elsewhere.
Patrick Cowley, head of KPMG’s Asia restructuring services, said: “This may be a game-changing step.”
The lack of agreement has always been a problem for investors.Hong Kong Court Refused Huiyuan Juice Group, one of China’s largest juice producers, received a petition from investors in November after investors defaulted. The court held that the liquidator appointed by Hong Kong is unlikely to be recognized in Mainland China.
The lawyer said that this leaves the creditors without much recourse.
Although Hong Kong’s status as a global financial center Under pressure After Beijing promulgated the controversial national security law last year, the city’s commercial legal system still enjoys a high reputation.
A senior bankruptcy lawyer said in Hong Kong that the transaction “enables liquidators outside China to take mainland company assets into their hands for the first time.”
The mechanism also means that Hong Kong courts will recognize certain bankruptcy procedures in the mainland legal system.
Restructuring expert Borrelli Walsh’s bankruptcy practitioner Kevin Song (Kevin Song) in Beijing said: “Once a creditor appoints a liquidator for a Hong Kong group, the liquidator can apply to the Chinese courts. Equal rights to the group’s assets in the mainland.”
However, the program has not been tested, and there is no guarantee that all applications submitted through the program will be approved. The lawyer said that China still needs to prove that international creditors can recover assets from insolvent mainland groups, warning some people may try to persuade them not to fall within the scope of the agreement.
According to the legal opinion issued by the Supreme People’s Court of the Supreme People’s Court of China, if the mainland court believes that assisting the liquidator appointed by Hong Kong “will disrupt public order or good morals” or “treat creditors in the mainland unfairly”, they can also refuse to assist. .
“What we need now is to file the right case to submit the case to Shenzhen, Shanghai or Xiamen courts… Use this as an example and prove that it works,” said Cowley of KPMG.
A bankruptcy expert in mainland China warned that the relevant authorities will also carefully review any destructive economic impact.
Experts said: “Due to potential consequences, such as foreign creditors wanting to control assets such as factories or warehouses with a large number of employees, Chinese companies will go bankrupt as a result, which will cause people to worry.” “This may undermine the stability of the local economy.”
Lawyers still believe that the agreement will enhance Hong Kong’s reputation as a platform for investing in Chinese companies.
Davyd Wong, an insolvency expert at Yang Zhongli Law Firm (YTL), said: “At present, they are investing, which is a gamble.” “When will [Chinese companies] Sell stocks or bonds in Hong Kong. . . The guarantee for these debts is a mortgage on mainland assets. “
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