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From restructurings to cross-border insolvency proceedings, legal frameworks in Hong Kong and Taiwan are evolving to help businesses respond to financial challenges

HONG KONG

TAIWAN

HK charging order absolute affirmed despite liquidation in BVI

Jingtian & Gongcheng’s dispute resolution team secured an important victory for a creditor client (the applicant) with the landmark dismissal of an appeal by the debtor (the second respondent) against a charging order absolute over its significant shareholding in a Hong Kong-listed company.

The Hong Kong High Court ruled that the second respondent could not rely on ongoing foreign insolvency proceedings in the British Virgin Islands (BVI) – which have yet to be recognised in Hong Kong – to shield itself from enforcement.

The notable judgment regarding cross-border insolvency, handed down by Justice Anthony Chan on 15 August 2025 in Lead Good Group Limited v Creditland Group Limited (2025), confirms Hong Kong’s robust pro-enforcement approach in cross-border disputes. It provides clarity for creditors involved in foreign insolvency proceedings and highlights the importance of acting swiftly and diligently in enforcement actions.

Hong Kong court backs charging priority

The second respondent appealed against the charging order absolute made by Master Matthew Leung of the Hong Kong High Court on 9 December 2024. In the hearing, Justice Chan dismissed the appeal and ruled that for non-statutory insolvency cases, the common law principle “first past the post wins” should be the applicable general rule.

The high court reaffirmed its stance that formal recognition was required before it would give effect to a foreign insolvency. Also, the court for the first time provided guidance on its power to grant the charging order and clarified the meaning of “undue prejudice” under s.20(3)(b) of the High Court Ordinance (Cap.4).

Attempts to obstruct applicant fail

The second respondent is a company registered in the BVI. In January 2024, the applicant obtained leave from the Hong Kong court to enforce a China International Economic and Trade Arbitration Commission (CIETAC) arbitral award against the respondents (the recognition order).

In an attempt to obstruct the applicant’s enforcement efforts, the respondents applied to set aside the order. The applicant responded by taking out an application for security, and security for costs, under order 73 rule 10A of the Rules of the High Court.

The respondents later undertook to pay such sums into court, but failed to do so. Their setting aside application was accordingly dismissed.

In May 2024, the applicant applied for a charging order nisi (to secure payment of debt) over the shares of a Hong Kong-listed company owned by the second respondent, which was granted in July 2024.

Insolvency and appeal

The second respondent later claimed to be in financial distress and applied to the BVI court in June 2024 for “light touch” provisional liquidation with a view to restructuring its debts.

Since it was already “insolvent”, the second respondent argued that allowing the applicant to continue with enforcement would cause prejudice to other creditors – so requested discharge of the charging order nisi.

In December 2024, after considering the parties’ expert evidence on the financial status of the second respondent – namely whether the second respondent was insolvent at the material time – the court ruled that the charging order nisi be made absolute.

But matters did not end there. In April 2025, the BVI court made a winding-up order against the second respondent after its provisional liquidators reported failure to restructure the company. The second respondent then appealed against the charging order absolute, arguing that its subsequent winding up constituted a change of circumstances, and asked the Hong Kong court to exercise its discretion afresh to set aside the charging order absolute.

Recognition required for foreign insolvency

The judge considered two major issues in this appeal.

1. Must the foreign insolvency be recognised in Hong Kong before it can be given effect? The court held that formal recognition is required before Hong Kong will give effect to foreign insolvency proceedings.

Following established common law precedents in British Arab Commercial Bank plc v Algosaibi and Bros Co (2011) and OOO Nevskoe v UAB Baltijos (2023), the court held that the rule of pari passu (on equal footing) distribution of assets applies to domestic insolvencies, while the common law “first past the post wins” principle should generally apply to foreign insolvency (sometimes referred to as non-statutory insolvency).

In this case, there was no recognition of the BVI insolvency in Hong Kong.

Further, as the BVI winding-up order provided that the liquidators of the second respondent could apply for recognition of their appointment in any foreign countries, it could not be said that the second respondent insolvency was intended to have extra-territorial effect automatically or without recognition.

Therefore in this case, the Hong Kong position remains that formal recognition is required before a Hong Kong court will give effect to foreign insolvency proceedings.

In this ruling, the court made an important distinction between domestic and foreign insolvencies.

The judge remarked that if the winding-up order was made in Hong Kong, the court would decline to make a charging order absolute because under the rule of pari passu, distribution should be preserved for all creditors of the debtor in question, and no creditor should be allowed priority over the others.

However, the court confirmed that in foreign insolvencies, the applicable principle is “first past the post” unless formal recognition has been obtained.

2. Would the charging order absolute cause “undue prejudice” to other creditors? Under section 20(3)(b) of the High Court Ordinance, when deciding whether to grant a charging order, the court must consider all circumstances, in particular “whether any other creditor of the debtor would be likely to be unduly prejudiced by the making of the order”.

Adopting the common law position, the court clarified that the expression of “undue prejudice” means whether other creditors would suffer “some prejudice over and above the prejudice they would inevitably suffer”.

The fact that a charging order gave one creditor priority over other creditors was not “undue prejudice” because such security and priority were inherent in the making of a charging order.

Instead, “undue prejudice” required something more, such as “sharp conduct” by the judgment creditor – for instance, putting other creditors off the scent by purporting to agree to forego immediate pursuit of a claim, acting in undue haste to obtain a preferred position, and unfair use of special knowledge.

The court ruled that undue haste in obtaining a preferred position could not be equated with acting with urgency to take enforcement action.

It held that the applicant was acting within its rights in seeking priority through a charging order.

Practical implications

The second respondent’s attempts to evade the enforcement efforts in Hong Kong by taking advantage of foreign proceedings proved to be unsuccessful.

Importantly, the Hong Kong court provided crucial guidance on the meaning of “undue prejudice”.

Following this appeal ruling, creditors will no doubt act promptly and diligently when taking enforcement actions in Hong Kong.

Jingtian & Gongcheng
Suites 3203–3207, 32nd Floor,
Edinburgh Tower, The Landmark,
15 Queens Road Central, Hong Kong
Tel: 852 2926 9300
Email: jingtianhk@jingtian.com

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Restructuring and insolvency laws in Taiwan

During business operations, companies may undertake intra-group restructuring to enhance efficiency and optimise resources, often driven by financial or tax considerations. When facing financial distress, formal procedures such as bankruptcy or reorganisation may become necessary to protect creditor interests and seek a path to recovery. Whether through internal restructuring or court-supervised processes, these mechanisms help businesses to adapt to changing circumstances. In Taiwan, there are established and viable legal frameworks available to facilitate restructuring and insolvency processes.

Key considerations for group restructuring

Restructuring is common within group companies, often involving integration or adjustment of group resources or business operations to streamline operations and enhance efficiency. When undertaking group restructuring, it is essential to consider multiple facets such as operational impact, regulatory compliance, financial arrangements and tax implications to maximise benefits for the entire group.

Group restructuring can take various forms depending on the business objectives and group goals, including share transfers, asset transfers, spin-offs, share exchanges, and share swaps. When the goal is to integrate group resources by consolidating two companies into one, two primary options are typically considered.

In the event of a merger, the acquiring company assumes all the assets/liabilities of the acquired company on the merger record date. Accordingly, a merger is more straightforward as assets, agreements and employees are transferred by operation of law. However, it may entail additional procedures and costs to change registered ownership of assets from the acquired entity to the acquiring entity.

As for an asset transfer, if assets cannot be transferred immediately, the parties may enter into transitional service agreements before liquidating the transferor, allowing business continuity without disruption. Nonetheless, the liquidation process may require additional time and costs.

Before deciding on a restructuring option, it is crucial to conduct due diligence to verify whether there are any registered assets under the transferor (such as factory registrations, or intellectual property rights) or supplier qualifications (such as green marks or special licences) that cannot be immediately transferred. Additionally, the overall timeframe and costs should be carefully evaluated to determine the most suitable restructuring approach.

Reorganisation and insolvency triggers

Every business faces significant challenges that necessitate reorganisation or, in more severe cases, insolvency. In Taiwan, if a company incurs losses amounting to half of its paid-in capital, the board of directors must report them at the next shareholders’ meeting. If the company’s assets are insufficient to satisfy its debt, the board shall, in principle, declare bankruptcy.

Timeline of bankruptcy procedures

Under the Taiwan Bankruptcy Act, a bankruptcy petition may be filed by one or more creditors. After receiving the petition, the court must decide within seven days, extendable by an additional seven days. In practice, the process is often prolonged due to the complexity of insolvency cases. The court typically requires the petitioner to prove that the prerequisites for bankruptcy proceedings are met. However, the court may investigate the debtor, creditor(s) and other interested parties.

Bankruptcy estate control and trustee

Once bankrupt, the debtor loses the right to manage and dispose of property classified as the bankruptcy estate. Meanwhile, all creditors’ efforts to enforce their claims against the debtor must stop, except for claims secured by pledge, mortgage, or lien before the adjudication of bankruptcy.

Additionally, the court will appoint a trustee, usually an impartial professional, such as a CPA, lawyer, or reputable person in the debtor’s field of business. The trustee is entrusted with a wide range of powers, including the ability to revoke gratuitous or non-gratuitous acts conducted by the debtor, review and verify the debtor’s asset statement and creditor list, and distribute the bankruptcy estate. With this authority, the trustee must act with a duty of care and will be subject to scrutiny by the court.

Creditor claims and meeting deadlines

When a bankruptcy is adjudicated, the court will set a 15-day to three-month period for creditors to register claims and schedule the first creditors’ meeting, which must take place within one month of the adjudication date. Failure to file a claim within the specified period precludes the creditor from receiving repayment from the bankruptcy estate, unless the debt is secured.

The first creditors’ meeting shall determine matters such as management of the bankruptcy estate and whether to continue the debtor’s business. Unless otherwise provided by the Bankruptcy Act, these resolutions shall be adopted by most creditors who account for more than half of the creditors present at the meeting and whose aggregate claims amount to more than half of the total claims. Any objection to the inclusion of a claim must be raised before the first creditors’ meeting concludes.

After receiving claims from creditors, the trustee will prepare a distribution plan for court approval and publication for creditors to review. Objections must be raised within 15 days. If no objections are received, the bankruptcy estate is liquidated and distributed to the creditors according to their priority,

Debtor misconduct civil and criminal

Even though the debtor’s ability to operate the company will be delegated to the trustee, the debtor remains responsible for its conduct. Engaging in dishonest conduct, such as hiding assets, falsifying financial records, or making preferential payments, may lead to civil liability for damages under the Civil Code and criminal liability under the Bankruptcy Act or the Criminal Code. These offences apply mutatis mutandis to responsible persons such as de facto and de jure directors, officers and liquidators.

Taiwan reorganisation as alternative relief

Like other jurisdictions, Taiwan provides a “Plan B” for companies in distress. Specifically, if a public company has a viable opportunity for rehabilitation, the company or qualified interested parties, such as qualified shareholders, employees, or labour unions, may petition the court for reorganisation. The court will conduct a preliminary review to assess whether the company has viable prospects for reorganisation. In recent approved cases, the court has granted reorganisation on the basis that the company retained certain valuable technologies, had not entirely lost its operational capacity, and with the support of major creditors.

However, it is not uncommon for the court to reject such petitions, particularly where the company has a severe asset shortfall or has ceased operations, failed to propose a feasible reorganisation plan, and/or faced clear opposition from its creditors.

Conclusion

This article provides an overview of restructuring and insolvency in Taiwan. Foreign investors are strongly advised to seek in-depth consultation with experts in the legal, financial, and tax fields to make informed decisions tailored to their specific circumstances.

Lee and Li Attorneys-at-Law
8F, No. 555, Sec. 4
Zhongxiao E. Rd.
Taipei 110055 Taiwan
Tel: +886 2 2763 8000
Email: attorneys@leeandli.com

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