Global investors are gaining power to push Chinese debtors back to the mainland

Foreign investors of bankrupt Chinese groups in a deal with Hong Kong may be given the authority to liquidate assets on the mainland, which aims to boost business confidence in the country’s legal system.

The mechanism obliges the courts of Shanghai, Shenzhen and Xiamen to recognize insolvency orders by the creditors of the company in Hong Kong raise money from global investors. This means that investors can more easily try to liquidate the assets of Chinese businesses on the mainland to recover their money. In the future, the scheme may be expanded to more cities in China.

The scheme, launched this month, comes at a time when international investors are increasing their influence over China. The country was subjugated at the same time default wave և Corporate restructuring. China’s judiciary, controlled by the ruling Communist Party, has historically not recognized insolvency decisions in Hong Kong and elsewhere.

“This is probably a game-changing move,” said Patrick Cowley, head of KPMG Asia Reconstruction Services.

For investors, the lack of agreement remained the key moment. Hong Kong court refused Investors’ mediation to stop one of China’s largest juice producers, Huiyuan Juice Group, in November after a bond default. The court ruled that Hong Kong-appointed liquidators were unlikely to be recognized in mainland China.

Lawyers say it left its creditors without much help.

Prior to Hong Kong’s status as a global financial center under pressure The city’s commercial legal system remains under scrutiny after Beijing enforced a controversial national security law last year.

The deal “brought the company’s assets to mainland liquidators outside China for the first time,” said an insolvent solvent lawyer in Hong Kong.

The mechanism also means that Hong Kong courts will recognize some insolvency proceedings in the mainland legal system.

“Once a creditor appoints a group liquidator in Hong Kong, the liquidator can go to mainland Chinese courts to have equal rights to the group’s assets on the mainland,” said Kevin Song, an insolvency specialist at Beijing Reorganization in Beijing.

However, the scheme has not been tested and does not guarantee that all applications will be satisfied. Proponents of her case have been working to make the actual transcript of this statement available online.

According to a legal ruling issued by the Supreme People’s Court of China, the mainland courts may refuse to support Hong Kong-appointed liquidators if they find that it “violates” public order or morals “or” treats continental creditors unfairly. ” ,

“What we need now is to file the right cases to go to the courts of Shenzhen, Shanghai or Xiamen. “Give examples to show it works,” said KPMG Cole.

An insolvency expert on the mainland China has warned that the authorities will also scrutinize any harmful economic consequences.

“There will be concern about possible consequences, such as the bankruptcy of Chinese companies, as foreign lenders want to control assets, such as factories or warehouses where large numbers of people work,” he said. “This could destabilize local economies.”

Lawyers still believe the deal will boost Hong Kong’s reputation as a platform for investing in Chinese companies.

“They’re investing right now, it’s a bit of a gamble,” said David Wong, insolvency specialist at YTL Law Office. “When? [Chinese companies] sell shares or bonds in Hong Kong. “The collateral for these debts is pledged to the assets on the continent.”

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