To Recognize or Not to Recognize? Comparative Study of Lehman Brothers Cases in the Mainland China and Taiwan

International Corporate Rescue, Vol. 10, Issue 4, p. 240, Chase Cambria Publishing, 2013

11 Pages Posted: 25 Jun 2013 Last revised: 30 Jul 2013

See all articles by Xinyi Gong

Xinyi Gong

Leiden University - Leiden Law School

Date Written: June 24, 2013


What’s happened in China when Lehman Brothers collapsed? In 2008 a fund management firm in the Mainland China* lodged a lawsuit against Lehman Brothers International Europe (LBIE) (Hua An Funds v. LBIE) based on the fund product cooperative agreement. In 2009 Taipei District Court recognized a ruling rendered by Hong Kong High Court, in which Hong Kong High Court appointed three joint liquidators for Lehman Brothers Commercial Corporation Asia Limited (LBCCA) (Taipei Fubon Bank v. LBCCA). The Lehman Brothers proceedings vividly demonstrated the diversity of cross-border insolvency legislations, especially the different recognition criteria, in the Mainland China and Taiwan. The sole article dealing with cross-border insolvency issues in the Mainland is article 5 of Enterprise Bankruptcy Law (EBL, the bankruptcy law of the Mainland China), which adopts universalism with limitations and stipulates criteria for recognition of foreign insolvency proceedings. As reflected in Hua An Funds case, without interpretation of article 5, more emphasis was laid on relevant international treaty and reciprocity by the Mainland court. Article 4 of Taiwan Bankruptcy Act adopts the principle of territoriality. Nevertheless, in the Lehman Brothers cases, the Taiwanese court held that the limitation on the effect should be restricted to the local assets alone, instead of on the entire effect of the foreign insolvency proceeding. Parallel recognition criteria are applied in Taiwan. The reason for multi-layered recognition systems in matters of cross-border insolvency is two-folded. One is mainly out of political concern; the other is caused by its outmoded bankruptcy legislation. Driven by close economic interaction, cross-strait legal cooperation may have to be taken into consideration. With respect to cross-border insolvency, a cross-border insolvency cooperative regime becomes more and more necessary because diverse cross-border insolvency systems cause difficulty in achieving efficiency of insolvency proceeding, collectivity of debtor’s assets and equal treatment of creditors, especially among regions with close economic contact. For instance, the joint liquidators appointed by Hong Kong High Court for Lehman Brothers applied different strategies in order to seize the assets located in the Mainland China and Taiwan. Doubts arise whether or not it is possible to coordinate the cross-border insolvency between the Mainland China and Taiwan. I submit that the answer is that a model of cross-strait insolvency cooperation shall be a political neutral and business oriented one. In that regard, UNICTRAL Model Law (including its Legislative Guide) is a better solution.

In this article the Mainland China purely serves as a geographic term to describe the geopolitical area under the jurisdiction of the People's Republic of China (PRC), generally excluding the PRC Special Administrative Regions of Hong Kong and Macao.

This paper was prepared for a meeting of PhD-researchers, organized by the Netherlands Association for Comparative and International Insolvency Law, March 15, 2013.

Keywords: Lehman Brothers, China, the Mainland, Taiwan, Hong Kong, Recognition, Cross-border Insolvency

Suggested Citation

Gong, Xinyi, To Recognize or Not to Recognize? Comparative Study of Lehman Brothers Cases in the Mainland China and Taiwan (June 24, 2013). International Corporate Rescue, Vol. 10, Issue 4, p. 240, Chase Cambria Publishing, 2013. Available at SSRN:

Xinyi Gong (Contact Author)

Leiden University - Leiden Law School ( email )

P.O. Box 9520
2300 RA Leiden, NL-2300RA

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