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2022-01-doc2 Cross-border insolvency law in PR of China

The last few weeks I have asked your input on several country’s status re cross-border insolvency law. Your views and comments were sought for India, Brazil and Australia. This time it’s China.  Your input (cases, literature, views) will contribute to the draft text for the 5th edition of Wessels International Insolvency Law Part I. Many thanks for the improvement of the text of my forthcoming book. As noted earlier, providing input is based on the idea of my chosen writing process, a ‘deliberate public participatory drafting process’, see my blog at https://bobwessels.nl/blog/2021-12-doc1-book-on-international-insolvency-law-your-input-needed/. This fourth blog focuses on (legislative) developments in some 30 countries (outside of the EU, obviously these draft texts are rather short), in the blog at hand: China. I also look forward to comments on the draft text below, preferably soon, but on 15 January 2022 at the latest via: info@bobwessels.nl. The second half of January 2022 I hope to finalize the manuscript and send it to Wolters Kluwer’s editorial office. Below is the draft text:

[10362c] China. In June 2007 in the People’s Republic of China the Enterprise Bankruptcy Law came into effect. It contains one single provision that relates to cross-border insolvency. See Article 5, which contains the following text: ‘Insolvency procedures commenced in accordance with this Law is binding on debtor’s property located outside the territory of the People’s Republic of China (the P.R.C.). Where the verdict or ruling entered into by a foreign court involving the debtor’s property within P.R.C.’s territory requires the acceptance and execution by Chinese Court, the Chinese Court shall, based upon relevant petition or requests, check the foreign verdict or ruling and render the ruling of recognition and execution in accordance with the international agreements to which P.R.C. is a party or based on the principle of mutual reciprocity after ascertaining that there is no violation of basic principles of P.R.C. Laws, no detriment to state sovereignty, security and social public interests and no harm to the legitimate rights and interests of creditors in P.R.C.’ For an analysis, also referring to other sources, see Zhang/Gao (2011); Arsenault (2011); Gong (2013), Shen Yuhan and Peng Fei, in: Corporate Restructuring and Insolvency in Asia 2020, 186ff.; Meeson, ICR 2020, 379ff; Sng et al., in: MüKoInsO (2021), 781; Meeson, ICR 2021, 186ff.
The People’s Republic of China reflects a rather peculiar situation in that it is one ‘State’, however within that entity three administrative regions have their own form of sovereignty (Taiwan, Macao, Hong Kong) in such a way that insolvency judgements have to be recognised in the other region where it should have effect. It is obvious that in the field of cross-border insolvency cooperation, China presents a set of unique questions arising from its ‘one country, two systems’ policy and its historic separation between the Mainland and Taiwan. In her Leiden PhD Xinyi Gong (2016) has assessed the four domestic insolvency systems and compared their quality with two larger frameworks, from the EU and UNCITRAL. She compiled a list of recommendations for gradual future development of systemic cooperation within the Chinese inter-regional context. It is named List of Recommendations to CICIA (China’s Inter-regional Cross-Border Insolvency Arrangement) and can be found at https://bobwessels.nl/blog/2016-09-doc12-towards-chinas-inter-regional-cross-border-insolvency-arrangement-cicia/. The CICIA is a commendable contribution to the process of building towards a workable framework of cross-border practice. I am not aware of attemps to realise one or more of these recommendations. See also on cross-border issues between the three regions and mainland China: Moustaira (2019), 36ff.
Two other developments are worth mentioning.

Pilot Measure. In May 2021 Mainland China and Hong Kong Special Administrative Region (SAR) concluded a cross-border insolvency cooperation arrangement (also called Pilot Measure). It has been reached between the Supreme People’s Court of the People’s Republic of China and the Government of the Hong Kong Special Administrative Region, to be applied by three courts mentioned specifically, and it marks a significant step towards mutual recognition in cross-border insolvency cases, laying down the bedrock for future cooperation. Yet, as Guo and Wessels (2021) set out, the new arrangement is still a rough draft, without considering detailed issues such as parallel proceeding, applicable laws, forms of cooperation or group insolvencies. In these authors’ first evaluation they argue that in the specific legal-institutional context of the Mainland and Hong Kong it may be appropriate to create a set of rules which reflects a mix of soft law instruments as being discussed in this book. In July 2021, Mr Justice Harris used the Pilot Measure to request the Mainland court to recognise and assist Hong Kong liquidators (Re Samson Paper Co Ltd [2021] HKCFI 2151; [2021] HKCLC 1053). In Re HNA Group Co Limited [2021] HKCFI 2897, the Hong Kong Court (Justice Harris) recognised for the first time reorganisation proceedings commenced under the Mainland Enterprise Bankruptcy Law.
Belt and Road. Another notable development is China’s initiative to create the so-called Belt and Road Initiative (BRI). BRI is China’s strategy to seek to connect Asia with Africa and Europe via land and maritime networks with the aim of improving regional integration, increasing trade and stimulating economic growth. As Wee (2020) argues, it will be critical for the realization of the BRI that China’s cross-border insolvency law is fit for it. Wee defends that adoption of the Model Law will not prejudice China’s interests. Indeed, for China (and the related countries) there is still a long way to go before a comprehensive Mainland China-Hong Kong and also a BRI focused cross-border insolvency framework is in place. See also Guo (2020), 108ff.