The Principle of Presumed Reciprocity on Recognising and Enforcing Foreign Court Insolvency Procedure in China

China has been consistently improving and enhancing its approval and support system for foreign insolvency procedures in recent years. One example of this effort is the implementation of the principle of reciprocity, which is an important evaluation principle for approval and support applications for foreign insolvency procedures.

When reviewing approval and support applications for foreign insolvency procedures in the past, Chinese courts followed the principle of essential reciprocity, which means that the endorsement for foreign insolvency procedures would only be accepted if the foreign country had already recognised China’s insolvency procedures. Thus, under the principle of essential reciprocity, it is challenging for foreign insolvency procedures to be recognised in the Chinese courts.

To address this issue, China has implemented a system of presumed reciprocity. This principle states that if a foreign country has not previously rejected China's approval and support application for insolvency procedures, and if there is a likelihood of future approval and enforcement of China’s insolvency procedures in that foreign country based on its legal system, then it is presumed that there is a reciprocal relationship between the two countries.

On 16 January 2023, the Beijing No. 1 Intermediate People's Court (“Beijing Court”) implemented the principle of presumed reciprocity for the first time, recognising the insolvency procedures undertaken by the Aachen Local Court in Germany. The background is that a company registered in Aachen, Germany, was ruled to be insolvent by the Aachen District Court on 1 January 2011, due to its insolvency and inability to pay debts. The insolvency procedure of the company was initiated, and Dr Andreas Ringstmeier (“DAR”) was appointed as the insolvency administrator.

In order to dispose of the company’s property located in Beijing, DAR applied to the Beijing Court for recognition of the German judgment and his capacity as the insolvency administrator, because he intended to go through ownership transfer procedures for the Beijing property.

This application may have a significant impact on creditors in China. Therefore, in order to ensure the interests of stakeholders, the Beijing Court issued a public announcement on the “National Enterprise Bankruptcy Information Disclosure Platform” of China regarding the recognition of the German insolvency administrator's application, and held a hearing. During the period of the public announcement, no stakeholders raised objections or asserted their rights to the Beijing Court.

The Beijing Court has upheld the “German Insolvency Law”, which may recognise foreign insolvency procedures. Although China’s insolvency procedures have not been formally recognised by German courts, Germany’s insolvency law permits the recognition of China’s insolvency procedures. Furthermore, there is no evidence to suggest that German courts are reluctant to recognise China's insolvency procedures. Thus, the Beijing Court ruled that a reciprocal relationship exists between China and Germany.

International trade and transnational business operations are becoming increasingly frequent, which puts higher demands on Chinese courts in managing cross-border insolvency cases. This case holds great significance in promoting the development of the Chinese court's management of cross-border insolvency cases.