Foreign investors in Chinese groups that have gone bankrupt could be given powers to liquidate assets on the mainland in a deal with Hong Kong that aims to boost business confidence in the country’s legal system.

The mechanism will obligate courts in Shanghai, Shenzhen and Xiamen to recognise insolvency orders filed by company creditors in Hong Kong, conduit for Chinese companies raising money from global investors. It means that investors can more easily seek to wind up Chinese businesses’ assets on the mainland to recover their money. The scheme could be expanded to more Chinese cities in future.

The scheme, which was launched this month, comes as international investors increase their exposure to China. The country has at the same time been hit by a spate of defaults and corporate restructurings. China’s court system, which is controlled by the ruling Communist party, has historically not recognised insolvency decisions made in Hong Kong and elsewhere.