Fangda and Nagashima Ohno & Tsunematsu advise on the first recognition of a Japanese insolvency proceeding by a Chinese court

Nagashima Ohno & Tsunematsu represented a Japanese company in applying for initiation of a civil rehabilitation proceeding before the Tokyo District Court, which is a restructuring-type insolvency proceeding in the Japanese insolvency regime. The Tokyo District Court decided to initiate the civil rehabilitation proceeding and appointed a supervisor to supervise the debtor.

As the Japanese company had assets in Shanghai, to facilitate the civil rehabilitation proceeding in Japan, Fangda represented the company in filing an application before the Shanghai No. 3 Intermediate People’s Court, seeking recognition of the Tokyo District Court’s decision to initiate the civil rehabilitation proceeding and the appointment of the supervisor. Nagashima Ohno & Tsunematsu provided legal opinions on Japanese law in the recognition proceeding.

The Shanghai No. 3 Intermediate People’s Court issued an order in September 2023, recognizing the Japanese civil rehabilitation proceeding and the legal standing of the supervisor, and allowing the supervisor to supervise the Japanese company’s self-management of its own assets and business operations in China.

According to public information, this decision was the first recognition of a Japanese insolvency proceeding by a Chinese court. When examining whether a reciprocal relationship existed between China and Japan, the Shanghai No. 3 Intermediate People’s Court clarified that the precedents in which both countries denied recognition of each other’s civil and commercial judgments were not relevant to cross-border insolvency cases. Further, the court held that there was a reciprocal relationship between China and Japan in cross-insolvency cases because there was no legal obstacle under Japanese law for a Japanese court to recognize a Chinese insolvency order.

This case marks an important further development in China’s judicial practice on cross-border insolvency. For one thing, the court actively explored the criteria for Chinese courts to recognize foreign insolvency proceedings. Those criteria include the scope of foreign insolvency proceedings, the principle of reciprocity, the reasons for non-recognition, and the legal standing and duties of foreign administrators. For another, this case reflects the positive and open attitude of Chinese courts towards extraterritorial requests in cross-border insolvency cases.

The Fangda team was led by Partner Nuo Ji, with Partner Lingqi Wang and counsel Jessica Li primarily in charge of the case and with associate Yujun Zhang providing support.