In Nuoxi Capital v Peking University Founder Group Company Limited [2021] HKCFI 3817, the Hong Kong Court of First Instance (HK Court) examined the interplay between the determination of creditors’ contractual rights under keepwell deeds by way of proceedings in the HK Court and the impact of reorganisation proceedings in respect of the debtor in Mainland China taking place before the Beijing No.1 Intermediate People’s Court (Beijing Court).

Whilst the HK Court was willing to recognise the Mainland reorganisation proceedings, the HK Court refused to stay the proceedings in the HK Court to determine the rights of the plaintiffs under the keepwell deeds.

The HK Court noted it expected that the Beijing Court would give weight to the judgment of the HK Court interpreting the keepwell deeds given they were governed by English law and contained Hong Kong exclusive jurisdiction clauses. The HK Court also called for cooperation and coordination between the HK Courts and Beijing Courts in connection with resolving matters of this kind.

As explained below, this decision is highly significant for offshore bondholders in Mainland restructurings – in particular those who have relied on keepwell deeds.

Background to the case

The case concerned the ongoing reorganisation under Mainland China law of Peking University Founder Group Company Limited (PUFG), a holding company for a tech group linked to one of China’s top universities. The reorganisation proceedings were commenced in February 2020 by an order of the Beijing Court, after PUFG became insolvent.

Two BVI incorporated subsidiaries of PUFG, Nuoxi Capital Limited (Nuoxi) and Kunzhi Limited (Kunzhi) had issued bonds in 2017 and 2018 (Nuoxi and Kunzhi together the Issuers). These bonds were respectively guaranteed by two Hong Kong incorporated subsidiaries of PUFG, Hong Kong JHC Co Limited (HKJHC) and Founder Information (Hong Kong) Limited (FIHK) (HKJHC and FIHK together the Guarantors, and the Guarantors together with the Issuers the Plaintiffs).

To further support these bond issuances, PUFG had executed keepwell deeds in favour of the Plaintiffs (the Keepwell Deeds). The Keepwell Deeds were governed by English law and provided for the exclusive jurisdiction of the Hong Kong courts.

The Keepwell Deeds provided that PUFG must cause each of the Plaintiffs:

  • to have a consolidated net worth of at least US$1 at all times; and
  • to have sufficient liquidity to ensure timely payment of each of the Plaintiffs of any amounts payable by them under the bonds.

At the time of the case the Issuers had defaulted under the bonds, demand had been made against the Guarantors who had also defaulted, and all of the Plaintiffs were in liquidation.

The Plaintiffs submitted claims in PUFG’s reorganisation proceedings contending that the Company had breached its obligations to them under the Keepwell Deeds. However, the status and effectiveness of the Keepwell Deeds in the Mainland reorganisation was put in doubt after PUFG’s administrators in Beijing (the Administrators) rejected those claims. The Plaintiffs lodged objections against the Administrators’ decisions on the claims, which are pending determination.

Applications before the HK Court

The Plaintiffs also commenced proceedings in before the HK Court against PUFG on the Keepwell Deeds (the HK Actions). They argued that if the Keepwell Deeds had been complied with, then they would have been able to comply with their payments obligations to bondholders. They therefore asserted that in this context their loss was equal to the amount that the bondholders should have received, being RMB12 billion.

The Plaintiffs applied for an expedited trial of the HK Actions, as they were concerned that the Administrators would not set aside funds to pay them if they were eventually admitted as creditors in PUFG’s reorganisation. The Plaintiffs accepted that all they could obtain from the HK Court is a declaration of their rights as a matter of English law, and were not seeking an order that PUFG should pay them a sum of money.

In the meantime, the Administrators applied to the HK Court for recognition and assistance in respect of PUFG’s Beijing reorganisation proceedings and a stay of the HK Actions. The application was supported by a letter of request from the Beijing Court.

Recognition of the Administrators

The HK Court found that PUFG’s reorganisation process under the PRC Enterprise Bankruptcy Law was a set of “collective insolvency proceedings”, and could properly be recognised by the HK Court following established common law principles.

Stay of the HK Actions

Supported by expert evidence on Mainland law, the Administrators argued that the HK Actions should be stayed and the Plaintiffs should be required to pursue their claims in Beijing, because (so the Administrators argued):

  1. The Plaintiffs had elected to proceed in Mainland China and submitted to the jurisdiction of the Beijing Court;
  2. As a matter of Mainland China law, the Beijing Court had to determine the Plaintiffs’ claims and would not recognise a Hong Kong judgment, thus making the HK Actions futile, wasteful and creating the risk of conflicting decisions;
  3. The HK Actions should be stayed in view of the principle of modified universalism; and
  4. The Beijing Court was as well placed as (if not better place than) the HK Court to determine the Plaintiffs’ claims.

The HK Court noted that the Plaintiffs’ right to have any dispute determined before the agreed court is an important and substantial one and not a formal or technical right. The HK Court will only deprive a party of this right if a compelling reason is demonstrated. The HK Court did not find any compelling reason to deprive the Plaintiffs of this right in this case.

The HK Court rejected the Administrators’ arguments in respect of the stay:

  • On arguments (1) and (3), the submission of a claim in foreign insolvency proceedings did not create an absolute bar to a creditor seeking adjudication of the claim in another jurisdiction. Having submitted to foreign insolvency proceedings, a creditor would only be prevented from using other proceedings to achieve a result which is inconsistent with that mandated by the foreign insolvency regime – i.e. trying to obtain more than he would obtain if he proved in the insolvency proceedings. This was not the case here, where the Plaintiffs only sought a declaratory relief establishing their rights under English law, which invoked a purely adjudicatory jurisdiction of the HK Court.
  • In other words, there was a distinction between legal proceedings to adjudicate contractual rights and proceedings to recover in a debtor’s insolvency proceedings.
  • A number of potentially complicated issues that would be central to the determination of the HK Actions were matters of English law. For example, PUFG’s performance of its obligations under the Keepwell Deeds were expressed to be subject to relevant regulatory approvals, which it undertook to use its best efforts to obtain. While the question of what approvals were needed are a matter of Mainland law, whether the PUFG had used its “best efforts” to obtain them was a matter of English law.
  • On argument (2), the HK Court summarised the experts’ views as it being unclear whether any judgment obtained by the Plaintiffs in Hong Kong being recognised and enforced in the Mainland. However the HK Court considered that a declaratory judgment obtained in Hong Kong would be of value to the Plaintiffs in advancing their claims in the reorganisation, including in proceedings to challenge the Administrators’ decision before the Beijing Court. The HK Court suggested that it would be “extraordinary” and would “demonstrate a startlingly lack of comity” if the Beijing Court did not give weight to a judgment from a Hong Kong court interpreting English law pursuant to an exclusive jurisdiction clause.
  • On the argument (4), the HK Court noted that Mainland judges had often faced difficulties in determining disputes governed by foreign law, because of their lack of familiarity with foreign legal concepts. The argument that the Beijing Court would be better placed than the HK Court in adjudicating the disputes arising out of the construction of the Keepwell Deeds was “unconvincing”.

Disposal of the applications

While the HK Court recognised PUFG’s Beijing reorganisation proceedings, it refused to stay the HK Actions.

The HK Court also suggested it might be possible for the Beijing Court and HK Court to agree a way to move forward cooperatively, with the HK Court dealing with issues of the construction of the Keepwell Deeds. To that end, the HK Court directed that the Administrators provide a copy of its decision to the Beijing Court.

The HK Actions was adjourned for a case management conference to be fixed, where directions to progress the HK Actions would be given.


This decision is particularly topical given the increasing waves of onshore defaults in Mainland China. Hopefully, it will herald a more principled and coordinated approach by the offshore and onshore courts – with one court exercising a contractual jurisdiction, and another exercising an insolvency jurisdiction. That would be good news for offshore bondholders.

Whether such a principled and coordinated approach will materialise remains to be seen, and very much depends on the attitudes of the Mainland courts. Offshore bondholders will no doubt keenly watch out for any development, as will we.

Key Contacts

Paul Apáthy
Paul Apáthy
Partner, Sydney
+61 2 9225 5097
Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Alexander Aitken
Alexander Aitken
Partner, Hong Kong
+852 2101 4019
Jojo Fan
Jojo Fan
Partner, Hong Kong
+852 2101 4254
Peter Ng
Peter Ng
Senior Associate, Hong Kong
+852 2101 4238