(a) In relation to each type of insolvency procedure available in the legal system of this economy, to what extent are the claims of foreign creditors recognised in the context of administration of that procedure?

The claims of foreign creditors are recognized on the same basis as are the claims of Hong Kong creditors.

(b) What principles or rules apply to the recognition and admission of claims by foreign creditors? (for example

(i) Are claims by foreign creditors subject to particular rules in relation to priority of payment?

No, the claims of foreign creditors are treated the same as the claims of similarly situated Hong Kong, China creditors. Hong Kong, China law does not discriminate against foreign creditors.

(ii) Do foreign creditors have to satisfy special or additional requirements in order for their claims to be admitted?)

No, although in practice the foreign claims would have to be translated and submitted in English.

(c) What law is applied to establish the validity of foreign claims?

For a claim to be admitted in a Hong Kong, China proceeding, it must be a valid claim under Hong Kong, China law (including Hong Kong, China private international law rules).

(a) To what extent does the insolvency law of this economy claim jurisdiction over assets of a corporate debtor situated abroad?

The Companies Ordinance is silent as to whether or not a Hong Kong, China winding up has extraterritorial jurisdiction. However, it is clear from the case of American Express International Banking Corp v Johnson [1984] HKLR 372 that:

(1) a Hong Kong, China liquidator may go abroad to protect the assets of a Hong Kong, China company that is in liquidation in Hong Kong, China;

(2) a liquidator may also seek the return of overseas assets so they may be distributed in the Hong Kong, China proceeding;

(3) Section 269 of the companies Ordinance, which governs matters involving uncompleted attachments and executions, does not have extraterritorial effect;

(4) Old Section 266 of the Companies Ordinance, which involved preferences, does not have extraterritorial effect (obiter).

Hong Kong, China's new preference provisions (discussed in Section K2(a) above) are based almost verbatim on the preference provisions in the UK Insolvency Act. Recent judicial decisions in England have held that the relevant sections under English law do have extraterritorial effect. See, eg Barclays Bank plc v Homan [1993] BCLC 680, 690. Therefore, the logical conclusion is that Hong Kong, China's new preference powers also have extraterritorial effect. See Charles D. Booth & Philip St. J. Smart, The New Avoidance Powers under Hong Kong, China Insolvency Law: A Move from Territoriality to Extraterritoriality (manuscript under submission) (1998); Booth & Smart, New Insolvency Law: Traps and Gaps, supra.

(a) To what extent do the rules of private international law of the legal system of this economy recognise insolvency procedures commenced in foreign jurisdictions?

Under Hong Kong, China law there is no statutory provision that governs the recognition of foreign insolvencies. Rather, Hong Kong, China relies on a common law approach that follows the English developments.

Hong Kong, China law draws a distinction between the recognition of foreign bankruptcies and the recognition of foreign liquidations. This distinction is relevant to the insolvency of companies, because there is precedent for a Hong Kong, China court following the criteria for recognizing a foreign bankruptcy in a case in which recognition was granted to US rehabilitation proceedings. Modern Terminals (Berth 5) Ltd v States Steamship Co [1979] HKLR 512. But see Mobil Sales and Supply Corporation v Owners of 'Pacific Bear' [1979] HKLR 125.

It is clear that foreign bankruptcies are recognized under Hong Kong, China law, when:

(1) Declared by a court in the jurisdiction in which the debtor was domiciled at the commencement of the bankruptcy or

(2) The debtor submits to the jurisdiction of the foreign court.

Some English authorities also propose that a foreign bankruptcy should be recognized when (1) the debtor carries on business within the jurisdiction of the foreign court or (2) when the debtor resides within the jurisdiction of the foreign court. For further discussion of the principles for the recognition of foreign bankruptcies in particular, and recognition generally, see Philip St. J. Smart, Cross-Border Insolvency 161 (2d ed 1998).

For liquidations, the general rule is that liquidations granted under the law of the place of the company's incorporation are recognized under Hong Kong, China law. See Irish Shipping, supra, at 439. Other grounds upon which recognition may be based include the following:

(1) That the company carries on business within the jurisdiction of the foreign court;

(2) That the company submits to the insolvency jurisdiction of the foreign court; or

(3) That there is no likelihood of a liquidation occurring in the jurisdiction in which a company is incorporated. See Re Russo-Asiatic Bank (1930) 24 HKLR 16, appeal dismissed, (1930) HKLR 100.

(b) Under what circumstances, if any, may orders or judgments resulting from foreign insolvency procedures or administrations be recognized or enforced in the legal system of this economy?

The rules discussed in P3(a) immediately above regarding recognition of foreign bankruptcies and liquidations would also be applicable in regard to non-insolvency remedies. It is clear that Hong Kong, China courts have the inherent jurisdiction to assist a foreign representative from any jurisdiction.

To the extent that foreign law vests movable property worldwide in a foreign liquidator, it will also operate to vest in a foreign liquidator Hong Kong, China movable property that is not subject to prior attachment, execution, or valid charge - provided that the foreign law extends to movable property in Hong Kong, China. Such vesting is automatic and does not require the order of a Hong Kong, China court. Of course, title does not usually vest in a foreign liquidator. However, Hong Kong, China law would most likely allow the foreign liquidator to deal with the foreign company's movable assets in Hong Kong, China, subject to any pre-existing attachment, execution, or charge (assuming that the foreign law extends to the Hong Kong, China property).

To gain control over a foreign company's immovable property in Hong Kong, China, a foreign representative may seek to be appointed as the receiver of the foreign company's immovable property, with the power to sell the property and distribute the proceeds to the company's creditors after satisfying prior encumbrances.

The foreign liquidator would also be able to commence the non-insolvency debt collection procedures noted in Section E above.

(a) What recognition is accorded in the legal system of this economy to the status and capacity of insolvency administrators (for example trustees, liquidators, receivers) appointed in foreign insolvency procedures?

See Section P3 immediately above.

(b) To what extent are foreign insolvency administrators entitled to claim, take control of, and realise or deal with property of the corporate debtor situated within the jurisdiction of the legal system of this economy?

See Section P3 above.

(a) To what extent does the legal system of this economy recognise the validity of rights of security asserted by foreign creditors over assets of the corporate debtor?

Hong Kong, China recognizes such rights. Section 80(3) & (4) provides guidance as to the registration of charges where the property is situated out of Hong Kong, China.

(b) Are any special rules applicable to determine the validity, extent and ranking of such security rights?

Under Hong Kong, China law, the rights of foreign creditors would be treated the same as the rights of local creditors, and might involve the application of Section 80(3) & (4) in regard to charges on property outside Hong Kong, China.

As a matter of practice, however, the cooperation of the foreign jurisdiction in which the property is located will normally have to gained to enable the property to be returned to Hong Kong, China to be distributed in a Hong Kong, China winding-up proceeding. This will normally be a matter for the foreign court to decide.

For a case in which the Hong Kong, China liquidators worked closely with their US counterparts and secured the approval of a US court to return assets to Hong Kong, China, see In re Axona International Credit & Commerce Ltd, 88 BR 597 (Bankr SDNY 1988), aff'd 115 BR 442 (SDNY 1990), appeal dismissed, 924 F2d 31 (2d Cir 1991).

(a) To which international conventions having some application in insolvency matters is this economy a party?

Hong Kong, China has not entered into any such conventions,

(b) When were these conventions entered into, and what other states are parties?

Not applicable.

(c) What observations can be made about the practical results achieved under these international instruments?

Not applicable.

(a) Are there any other particular issues or special problems in the field of cross-border insolvency, not included in the answers supplied above, which have presented themselves before the courts of the legal system of this economy?

There is a need for Hong Kong, China and the PRC to resolve cross-border insolvency matters that involve the two jurisdictions. In addition, further thought needs to be given to one of the issues raised in CTIETCC, namely, when it is appropriate for a Hong Kong, China court to wind up a PRC company, especially when the PRC company is not in the process of being wound up in the PRC.

(a) Is the government of this economy aware of the UNCITRAL model law on cross-border insolvency, approved by the United Nations in June 1997?

In the Consultation Paper on the Winding Up Provisions of the Companies Ordinance, the Sub-Committee on Insolvency briefly discusses the UNCITRAL Model Law and refers to the draft from May 1997 (paras 21.32-.33 at p 168). It is unclear from the Consultation Paper whether the Sub-Committee was aware that the draft was approved in June 1997.

(b) If so, are you aware of whether the government has any proposals to enact the terms of the model law?

The Sub-Committee notes that the model law was being actively considered by both the United States and Australia but noted that 'it would be premature for Hong Kong, China to adopt what is still only a draft, as legislation.' Id, para 21.33 at 168. However, the Sub-Committee did recommend that in redrafting the provisions on cross-border insolvency in the Companies Ordinance the 'law Draftsman might consider the extensive definitions that have been developed in the draft guide.' (Id, para 21.34 at 168).