Enforcement of Mainland Judgments and Recognition of Mainland Insolvency in Hong Kong – Must-know Favourable Developments and Milestone Cases

Issue: 2023-06

With the rapid economic integration between Hong Kong and Mainland China, it is often common for the parties to a Mainland dispute to be holding assets in Hong Kong, and the winning party would wish to enforce the Mainland judgment in Hong Kong or otherwise to find ways to get ahold of the counterparty’s assets in Hong Kong.

However, as we shall discuss below, the existing regime for enforcement of Mainland judgments in Hong Kong is highly restrictive, and only applies to limited types of Mainland judgments. As an alternative, there is a trend for winning parties to explore commencing insolvency proceedings in Mainland China, and seek recognition of the Mainland insolvency proceedings in Hong Kong to take control of the counterparty’ Hong Kong assets.

In this article, we will discuss the current legal framework on the recognition of Mainland insolvency proceedings and the enforcement of Mainland judgment, as well as key new legislation and court rulings which facilitate deeper cross-border mutual assistance.

Recognition of Mainland insolvency proceedings in Hong Kong

The “Cooperation Mechanism”

In Hong Kong, there is no legislation regulating the recognition and assistance of foreign insolvency proceedings, and the same is governed by common law. To facilitate economic integration and development in Hong Kong and the Mainland, the Supreme People's Court of China and the Government of Hong Kong reached a consensus in May 2021 in relation to mutual recognition of and assistance to insolvency proceedings between the courts of the Mainland and of Hong Kong (the “Cooperation Mechanism”).

However, it is specified under the Cooperation Mechanism that an application for recognition of Mainland insolvency proceedings must be initiated by an Intermediate People’s Court in the pilot areas designated by the SPC, i.e. Shenzhen, Shanghai and Xiamen. This has raised uncertainty as to whether in light of the terms of the Cooperation Mechanism, a Mainland court outside the pilot areas may initiate a request for assistance to the Hong Kong court.

Liquidation proceedings in non-pilot areas may be recognized in Hong Kong?

In late 2021, shortly following the introduction of the Cooperation Mechanism, an order for recognition of and assistance was first granted in Re HNA Group Co., Ltd [2021] HKCFI 2897 at the request of a Mainland court outside the pilot areas under the Cooperation Mechanism. In a recent milestone case, Re Guangdong Overseas Construction Corporation [2023] HKCFI 1340 in May 2023, the Court has further upheld the principle adopted in the Re HNA Group case.

It is explicitly stated in the Re Guangdong case that the Cooperation Mechanism and the relevant guidelines merely prescribe the procedure and manner in which an application for mutual recognition and assistance is to be made. As the power of the court to recognize and assist office-holder appointed by a court of another jurisdiction derives from common law, whether the request is initiated by a Mainland court outside the pilot areas shall not be a consideration of the Hong Kong court.

With the pro-assistance approach adopted by the Hong Kong courts, the position is now generally settled that insolvency proceedings in non-pilot areas can also obtain recognition and assistance in Hong Kong.

Enforcement of Mainland judgments in Hong Kong

The existing regime

The existing regime for enforcement of Mainland judgments in Hong Kong is mainly outlined under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597) (the “MJREO”) which came into effect on 1 August 2008.

Under the MJREO, a Mainland judgment registered in Hong Kong will have same force as a judgment originally given by the Court of First Instance in Hong Kong. However, the existing regime is highly restrictive and only Mainland judgments meeting the following requirements are enforceable in Hong Kong:-

1. Choice of Mainland Court Contract: The disputes covered by the Mainland judgment must arise from a civil or commercial contract which contains an exclusive jurisdiction clause in favour of the Mainland courts.

2. Final and Conclusive Judgment enforceable in the Mainland China: The judgment must be final and conclusive (as defined under the MJREO) as between the parties to the judgment, and must be enforceable in the Mainland China.

3. For payment of a sum of money: The judgment must order the payment of a sum of money, and the same does not include a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty. This excludes Mainland judgments providing non-monetary reliefs.

4. Judgment made by a Designated Mainland Chinese Court: The judgment must be given by a designated Mainland Chinese court, which only include the Supreme People’s Court, Higher People’s Courts, Intermediate People’s Court and recognized Primary People’s Courts.

The new regime

In January 2019, the Supreme People’s Court of the People’s Republic of China and the Department of Justice of Hong Kong signed a new arrangement for the reciprocal recognition and enforcement of judgments relating to civil and commercial matters.

The new regime establishes a more comprehensive mechanism for reciprocal recognition and enforcement of judgments in civil and commercial matters between Hong Kong and Mainland China, and many of the restrictive features under the existing regime are relaxed:-

1. Expanded Scope of Disputes: The scope of the new regime is expanded to cover most civil and commercial matters as well as criminal matters with monetary compensation or damages ordered. Notably, specified intellectual property right matters (e.g. trademark, copyright, and patent and design infringement cases) as well as unfair competition matters are covered under the new regime.

2. Choice of Mainland Court Requirements Removed: Generally, only a connection with the Mainland is required under the new regime. For example, the connection may be based on the fact that the individual defendant has a place of residence in Mainland China, or a company defendant being registered or having its principal office there. As for contractual dispute, that the place of performance of the contract was in the Mainland, and in the case of a tortious or infringement dispute, that the tortious or infringement act was committed in Mainland China.

3. Extension to the enforcement of non-money judgments: Apart from monetary judgments, the new regime extends to cover judgments which require the performance of an act by a party to the original proceedings for the judgment. This entails that injunctions and specific performance ordered by Mainland court may also be enforceable in Hong Kong.

4. Judgments by Lower Mainland Courts Covered: The new regime is broadened to cover judgement, ruling, conciliatory statement or order of payment made by lower Mainland courts not currently recognized under the existing regime.

The bill for the new regime was passed in late 2022 and the effective date is yet to the announced. However, a recent blog post made by the Secretary of Justice, Mr. Paul Lam, SC, stating that the Department of Justice will strive to bring the new ordinance, MJCCO into operation as soon as possible, has raised the public’s anticipation that this long-awaited new regime for reciprocal enforcement of judgments in Mainland and Hong Kong will be implemented very shortly.

We will keep you posted as to further legal development on mutual assistance between Hong Kong and Mainland China. If you have any questions or concerns on the reciprocal enforcement of judgments as well as the mutual recognition of insolvency proceedings in Hong Kong and Mainland China, please let us know and we are happy to discuss.

© Vivien Chan & Co., Newsletter issue 06, June 2023

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