Cross-Border Insolvency and Dispute Resolution Keepwell: Nuoxi Capital Ltd v Peking University Founder Group Co Ltd


In Nuoxi Capital Ltd v Founding Group of Peking University Co Ltd [2021] HKCFI 3817, Justice Harris ruled that keepwell disputes should be resolved in Hong Kong in accordance with the exclusive jurisdiction clause, notwithstanding the Court’s recognition of the mainland keepwell provider’s insolvency proceeding.

Since the resolution of disputes would involve certain questions of continental law, his Lordship would be in favor of coordination with the continental court.

Harris J’s decision is momentous and revolutionary in its far-reaching implications, learned in reasoning and pragmatic in results. It offers a golden opportunity for practical cross-border restructuring and dispute resolution cooperation between courts in Hong Kong and mainland China.

Material facts

Peking University Founder Group Co Ltd (“PUFG“) was incorporated on the mainland, an investment holding company, and part of a conglomerate with various companies.

The PUFG group has issued bonds through subsidiaries of BVI (“Issuers“), and the bonds were guaranteed by subsidiaries in Hong Kong (“Guarantors“).

The bonds were also backed by Keepwell deeds between PUFG, issuers and guarantors. In short, Keepwell’s actions required PUFG to ensure that each of the issuers and guarantors: (1) have a consolidated net worth of at least $ 1 at all times, and (2) have sufficient liquidity to ensure timely payment by each of the Issuers and Guarantors of all sums payable under the obligations. The Keepwell Acts were expressly governed by English law and contained an exclusive jurisdiction clause in favor of the courts of Hong Kong.

In February 2020, at the request of a bank, the specific Beijing court issued an order ordering PUFG to begin the reorganization in accordance with the corporate bankruptcy law (“Continental reorganization“), and the appointed directors (“Administrator”) To oversee the reorganization of the PUFG.

Issuers and guarantors have defaulted on the bonds. They have themselves been liquidated in their respective jurisdictions and their liquidators have been appointed.

The issuers and guarantors (all in liquidation) in turn claimed that PUFG had breached its obligations to them under Keepwell’s acts. They first filed claims with the Administrator in Beijing based on the Keepwell Acts. These claims were rejected by the Administrator. They then brought proceedings against PUFG in Hong Kong (“Written actions“).

In response, PUFG called for the stay of legal actions on the grounds that issuers and guarantors had submitted evidence of debt as part of the continental reorganization.

In addition, the administrator asked the Hong Kong court to recognize and assist the mainland reorganization by staying the lawsuits.

Harris J’s decision

Harris J. found that:

(1) Legal actions would not be stayed.

(2) The Court would recognize the continental reorganization, but would not impose a stay of legal proceedings.

(3) Before going any further with the legal actions, the Court would favor coordination with the Beijing court because “it may be possible for the courts to agree on how the issues are to be decided, the court of Hong Kong dealing with questions of construction of Keepwell’s acts ”(at [70]).

His Lordship reasoned as follows.

First, the Court would apply the exclusive jurisdiction clause unless there are good reasons not to do so. The Court would not deprive any part of the right to invoke the exclusive jurisdiction clause unless a compelling reason is demonstrated.

Second, PUFG could not demonstrate a compelling reason for the court to depart from the exclusive jurisdiction clause simply because the issuers and guarantors presented evidence of debt as part of the continental reorganization. There is a distinction between a creditor seeking to settle a dispute only and a creditor seeking to recover the foreign insolvency of a debtor. The presentation of proof of debt does not prejudice a creditor seeking to settle a dispute in a jurisdiction which is not the insolvency jurisdiction.

Third, the Hong Kong court would be in a better position than the Beijing court to decide questions of English law, and the judgment of the Hong Kong court on the substantive dispute should carry weight in the mainland court.


This decision is arguably the most important and groundbreaking cross-border insolvency decision rendered by the Hong Kong court in a generation. It paves the way for transparent cooperation between the courts of Hong Kong and the mainland in the management of large bankruptcies, in accordance with the spirit of cooperation enshrined in Opinion of the Supreme People’s Court on the Implementation of a Pilot Measure Regarding the Recognition and Assistance in Insolvency Proceedings in the Hong Kong Special Administrative Region.

Supported by many authorities cited in the judgment, Justice Harris’ approach shows how mature insolvency systems deal with potential conflicts between jurisdictions.

As his Lordship pointed out, the continent’s cross-border insolvency regime is still in its infancy. This judgment thus provides the best educational material for anyone interested in cross-border insolvency in the Greater China region.

Indeed, the Decision can be described as a historic decision in which the principle of “one country, two systems” is enshrined.

Patrick Fung SC and Look Chan Ho represented the issuers and guarantors in this matter and are co-authors of this article.

Jose Maurellet SC and Tom Ng represented PUFG and the Administrator.


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