THE inability of insolvent firms seeking to resume assets in China may develop into a serious problem, say insolvency experts. Because China does not recognise ex-territorial claims and legal representatives appointed in Hong Kong, a company going bankrupt in the territory is unlikely to see again its assets held on the mainland by its partners there. Investors stand a greater exposure to such risks because more companies are moving the bulk of their operations to China. Official Receiver Robin Hearder said most conflicts arising from cross-border insolvencies would be related to China. He said the problem existed because China did not recognise liquidation in Hong Kong and no statistics were available to show the seriousness of the problem. But some practitioners believed the problem could be huge. Graeme Halford of Baker & McKenzie said: 'It is a profound problem.' Mr Hearder said the Hong Kong Law Reform Insolvency Sub-Committee would look into the matter in view of the growing threat of cross-border insolvencies. It would formulate a proposal to tackle the issue by the middle of next year. While it would address problems related to many other countries, how to protect investors from the risks of investing in China would be the most important issue, he said. Ron Harmer, who is leading an Asian Development Bank (ADB) survey on bankruptcy in China, said the revised bankruptcy law to be issued by the State Council early next year would not ease the problem because the law would remain territorial. 'China has a strong view that no country can claim assets in other countries,' he said. Receivers have to negotiate with the Chinese partners and officials on an informal basis if they want to claim assets in joint ventures, according to John Lees, who is working on the ADB project. 'The most practical way is to work under the Chinese laws and system,' Mr Lees said. Conflicts arose because ailing companies had not injected the agreed amount of capital in the joint ventures, he said. 'A company close to insolvency in Hong Kong usually does not fulfil all its obligations in its joint venture in China and, of course, the China partners won't allow receivers to claim the assets,' he said. But Mr Harmer believed China would have to consider signing bilateral agreements with other countries as the problem of cross-border insolvency would threaten the development of trade and foreign investment in the long term. He said officials in China were open to the possibility of signing bilateral agreements. The director of professional practices of the Hong Kong Society of Accountants, Winnie Cheung, said the problem could only be solved by international co-operation. It was important for other countries to recognise liquidation in Hong Kong, she said.