NAVIGATING CHINESE INSOLVENCY LAW – WHY THAT MAY BE RELEVANT TO YOU

 

The Asian Business Law Institute spoke to Sim Kwan Kiat for a flavour of his years of experience advising clients in China-related matters and his observations of recent developments in the Chinese insolvency scene and how they may impact businesses in the region.

 

BY CATHERINE SHEN

 

According to a report by Nikkei Asia, the Association of Southeast Asian Nations, or ASEAN, overtook the European Union and the United States to become China's largest trading partner in the first half of 2020. On a more granular level, Chinese businesses are also seen as increasing their presence in the region, led by the expansion of large tech companies. Against this backdrop, the Asian Business Law Institute (ABLI) spoke to Mr Sim Kwan Kiat, Head of Restructuring & Insolvency of Rajah & Tann Singapore LLP, to get a flavour of his years of experience advising clients in China-related matters and his observations of recent developments in the Chinese insolvency scene and how they may impact businesses in Singapore and ASEAN.

 

ABLI: For starters, there still seems to be a general misconception that restructuring and insolvency law is only relevant when businesses go sour. As a specialist in this field, have you also found yourself having to "correct" such perception from time to time? 

Sim Kwan Kiat (SKK): When business is going on as usual, it is perfectly understandable that most companies do not spend too much time thinking of insolvency or restructuring issues. From time to time and where appropriate, we do advise businesses that it is useful to know the early signs to look out for, the options if the business needs help, and the consequences of each option. There is merit in thinking about such issues early; in many cases the business waited too long before taking the necessary steps. Having said that, generally businesses are now more aware - particularly in light of global challenges such as the pandemic - of the need to consider insolvency and restructuring issues as part of their overall strategy and contingency planning.

ABLI: Turning more specifically to China, what were some of your early encounters with Chinese insolvency or restructuring laws? Over the years, have you noticed an uptick in the number of Singaporean companies or businesses in Southeast Asia in general that need to navigate the Chinese corporate restructuring landscape?

SKK: Some of my early encounters with the Chinese insolvency regime involved issues whether a Singapore insolvency office holder would be recognised in Mainland China, and conversely, the effect of an order from a Chinese court on Singapore entities. We are now seeing more cases and inquiries on the interplay between Chinese law and laws of other jurisdictions. With more trade and investment, and greater connectivity, between China and the Southeast Asian region (in fact, Xinhuanet.com reported in July that trade between China and ASEAN had increased by 85 times since the first dialogue between the parties 30 years ago), it is not surprising to see an increase in cross-border issues, including insolvency-related ones.

As between China and Singapore, noteworthy developments include the first reported Singapore High Court decision in recognising a judgment from the Suzhou Intermediate People's Court in 2014 (Giant Light Metal case [2014] SGHC 16), and based on the principle of reciprocity, the recognition of a Singapore High Court judgment by the Nanjing Intermediate People's Court (the Kolmar case in 2016). In the insolvency context, in 2020 the Singapore High Court granted recognition of a winding up order from the Nanjing Bankruptcy Court under the UNCITRAL Model Law on Cross-border Insolvency.[1]

And in many aspects, the Chinese insolvency and restructuring regime has not remained static through the years; it has been evolving. I see a heightened emphasis on the important role and function of the insolvency and restructuring regime in the economy, and an increasing interest in cross-border insolvency. There is also a very active insolvency and restructuring community in China, with various platforms for discussing and highlighting the latest developments in this area in different parts of the country.

ABLI: In May this year, China's Supreme People's Court and the Government of the Hong Kong Special Administrative Region (HKSAR) agreed to a mechanism for mutual recognition of each other's insolvency proceedings. What do you think of this arrangement from a neutral third-party perspective?

SKK: The Mainland-HKSAR arrangement is a welcome development and its ramifications are not confined to those two locations. For example, Southeast Asian investors in the Mainland and HKSAR want to know what to expect in the insolvency of an enterprise with businesses and assets at both locations. For businesses and insolvency practitioners, this arrangement brings about more certainty and clarity on the framework for dealing with a cross-border matter.

More generally, this mechanism is reflective of a collaboration mindset, and prompts one to consider whether an arrangement or protocol bearing some features of the Mainland-HKSAR arrangement is possible amongst jurisdictions in Southeast Asia. Admittedly, the context and circumstances in the region are different. Nonetheless, it is useful for us to keep a close watch on the developments and experience in the implementation of the Mainland-HKSAR arrangement, which will offer learning points for the region as we work towards greater harmonisation of cross-border practices.

 

Together with The Hon Mr Justice Jonathan Harris, Judge of the Court of First Instance of the High Court of HKSAR and Shen Yuhan, Partner, King & Wood Mallesons, Kwan Kiat will speak at webinar Playbook on China’s Corporate Restructuring Tools and Their Cross-border Implications organised by ABLI on Thursday, 21 October 2021 at 3:30pm (SGT). Secure your spot here (SAL members can sign up here) for this rare opportunity to learn about Chinese restructuring and insolvency practices delivered in English.