Cross-border case testifies to city's improving business environment

Editor's note:

Shanghai authorities have officially launched the nation's first foreign-related judicial documentary series, "Foreigners Tell Stories: A Rule-of-Law Business Environment." This highly anticipated sequel builds on the success of its first season, which garnered worldwide attention. The second season delves deeper into Shanghai's ambitious "Five Centers" initiative.

Masanori Kawai is a partner at Nagashima Ohno & Tsunematsu, a Japanese law firm. In 2011, he began handling China-related legal affairs, in his capacity as the representative of the firm’s Shanghai office that same year.

In 2019, a Japanese trade and investment company, in dire financial straits, applied to the Tokyo District Court in Japan to initiate civil rehabilitation proceedings.

The court issued a ruling commencing rehabilitation, after appointing Japanese supervisors (bankruptcy administrators) for the case.

However, the company owned quite a few assets in China, including property in Shanghai and equities in listed and unlisted companies, which were all beyond the jurisdiction of the bankruptcy ruling by the Japanese court, though the disposal of assets in both countries was essential to the success of the civil rehabilitation process, not least because this would ensure fair repayment to all creditors, including those in China.

“As the company’s legal representative, we hoped to facilitate the recognition of the Japanese civil rehabilitation ruling by Chinese justice,” Kawai said.

Previously, given the absence of any precedent for mutual recognition of court awards or rulings between the two countries, this exploration in the field of cross-border bankruptcy was nothing short of groundbreaking.

Huang Xianhua, deputy presiding judge of the bankruptcy tribunal at the Shanghai No. 3 Intermediate People’s Court, asserted that in recent years considering China’s increasing emphasis on cross-border bankruptcy, there has been significant headway in this aspect.

This case marked the first time a Chinese court recognized a Japanese bankruptcy proceeding and the rulings given by a Japanese supervisor.

Since a significant number of Japanese companies hold assets in China, the settlement of this case has instilled much confidence among Japan’s judicial and legal practice communities, with the message driven home that in the future, in the event of debtors confronting bankruptcy proceedings in Japan or their administrators seeking to dispose of assets in China, they could have resort to an additional legal pathway by applying for legal recognition, Kawai noted.

“We also hope that Japanese courts would recognize bankruptcy-related judgments and rulings handed down by Chinese courts, so as to boost economic and trade exchanges between the two countries. All this testifies to Shanghai’s improving business environment,” he added.