Re Up Energy Development Group Ltd

HCCW 91/2016

[2022] HKCFI 1329

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 91 OF 2016

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Before: Hon Linda Chan J in Court

Date of Hearing: 1 April 2022 (remote hearing)

Date of Judgment: 6 May 2022

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J U D G M E N T

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1.This is a somewhat unusual case. An unpaid creditor to which a substantial sum is owed asks the court to make a winding up order against an insolvent listed company, but the provisional liquidators appointed by the court of the place of incorporation oppose the application on the ground that there is no benefit in the court making such an order. The proposition, if accepted, would mean that an unpaid creditor which advanced loan to a foreign company in Hong Kong and is able to satisfy the 3 core requirements cannot seek a winding up order under s.327(1) of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUO”) so as to bring into operation the statutory scheme of winding up in Hong Kong. It is unusual because the proposition flies against the long line of authorities decided in the context of s.327 (and the equivalent provisions in other jurisdictions) and the fact that the court has in the past wound up many foreign listed companies. It is also unusual for office holders to oppose a winding up order in circumstances where they have not carried out any meaningful investigation into the affairs of the company, despite having been appointed to office for over 5 years.

A. BACKGROUND

2.The company concerned is Up Energy Development Group Limited (“Company”). It was incorporated in Bermuda on 30 October 1992. Apart from maintaining a registered office where the register of members, register of directors and register of convertible notes have been kept, the Company has not carried on any other activity in Bermuda.

3.The Company is registered under Part 16 of the Companies Ordinance (Cap. 622) (“CO”) as a non-Hong Kong company. It has since at least 1992 established a principal place of business in Hong Kong. Since 2 December 1992, the shares of the Company have been listed on The Stock Exchange of Hong Kong Limited (“HKEx”).

4.As required by the Listing Rules[1], the Company had sufficient management presence in Hong Kong. The Company and all the directors, irrespective of where they reside, gave an undertaking to HKEx to comply with the Listing Rules.

5.The Company is an investment holding company and its subsidiaries principally engage in development, construction and operation of coal mining and coke processing facilities in the Mainland (together “Group”). According to the financial information published by the Company, until December 2015, the major assets of the Group were:

(1) 3 coal mines in Northern Xinjiang in the Mainland namely, Xiaohuangshan Mine, Shizhuanggou Mine and Quanshuigou Mine, all of which had been under construction (collectively “Three Mines”);

(2) Baicheng Mine in Xinjiang; and

(3) 3 ancillary production facilities for coal coking (“Coking Plant”), coal washing and water recycling.

6.Although the major assets of the Group are located in the Mainland, the Company has carried on most of its financing activities in Hong Kong. These included issuing convertible notes due in 2016 and 2018, borrowing long term facilities and loans from banks and issuing new shares.

7.During 2013 to 2016, the Company suspended construction of the Three Mines, the water recycling plant and the coal washing plant due to financial difficulties. Subsequently, the Company stated that it intended to focus on the development of Xiaohuangshan Mine first and would resume construction of the other 2 mines in the next step[2]. The Company failed to renew the mining licences in relation to these 2 mines, and the licences expired in December 2015.

8.On 19 February 2016, the Company announced that it had not settled the principal amounts payable on the convertible notes due in 2016 or within the remedial period. This led to cross-default on the convertible notes due in 2018 and the amount of HK$3,459 million became payable.

9.On 1 March 2016, HEC Securities Limited[3] (“Petitioner”) served a statutory demand requiring the Company to pay HK$230 million together with interest at 5% p.a. from 1 January 2016 (“Debt”), being the amount due and payable on the convertible notes issued by the Company. This was followed by the Petitioner presenting the petition on 29 March 2016 (as amended on 31 May 2016 and re-amended on 12 July 2016) (“Petition”). As the Company has failed to satisfy the statutory demand, it is deemed insolvent by virtue of s.178(1)(a)(ii) of the CWUO.

10.In the Petition (§6), the Petitioner referred to the Group structure chart as of 30 June 2015 which showed that the Company had the following direct and indirect wholly-owned subsidiaries in Hong Kong:

(1) Direct subsidiaries:

(a) West China Mining Holdings Ltd (“West China”), which owns indirectly 100% of Baicheng Mine;

(b) Up Energy (Hong Kong) Ltd (“UE HK”), which owns indirectly (i) 79.2% of Xiaohuangshan Mine, (ii) 70% of Water Recycling Plant, (iii) 79% of Coking Plant, and (iv) 70% of Up Energy (Fukang) Trading Ltd (a Mainland company);

(c) Up Energy Development (HK) Ltd (“UE Development”), which owns 50% of Up Energy Management Ltd (“UE Management”);

(d) UE Management;

(e) UP Energy Trading Ltd (“UE Trading”); and

(f) Up Energy Finance Ltd (“UE Finance”).

(2) Indirect subsidiaries:

(a) Up Creative Technology (Hong Kong) Limited (“UC Technology”), held through Up Energy Development Group (BVI) Company Ltd (“UE BVI”); and

(b) Up Energy Resources (Hong Kong) Ltd (“UE Resources”), held through UE BVI. As at 30 September 2015, UE Resources obtained a long term facility of HK$317 million from Minsheng Bank Hong Kong, which was guaranteed by the Company and Qin Jun.

11.On 18 May 2016, Credit Suisse AG, Singapore Branch (“CS”), a creditor to whom HK$154.3 million was owed, presented a winding up petition against the Company in Companies (Winding Up) 2016: No. 183 (“Bermuda Proceedings”). Separately, CS filed a notice of intention to appear and supports the Petition.

12.On 30 June 2016, trading of the Company’s shares was suspended due to its failure to release annual results for the financial year ended 31 March 2016.

13.On 18 October 2016, HKEx informed the Company that it had been placed into the first stage of delisting, and the Company was required to comply with the following resumption conditions[4]:

(1) demonstrate that it has a sufficient level of operations or assets of sufficient value as required under LR 13.24;

(2) publish all outstanding financial results and address audit qualifications (if any); and

(3) have the winding up petitions against the Company (and its subsidiaries), where applicable, withdrawn or dismissed and the provisional liquidators discharged.

14.In the meantime, CS applied for appointment of provisional liquidators to supervise the process of restructuring. By orders dated 7 and 28 October 2016, the Bermuda court appointed Mr Lai Win Lun and Mr Osman Mohammed Arab, both of RSM Corporate Advisory (Hong Kong) Limited, and Mr Roy Bailey of EY Bermuda Limited, as provisional liquidators of the Company (collectively “PLs”).

15.On 19 April 2017, HKEx informed the Company that it had been placed in the second stage of delisting, and the Company must submit a viable resumption proposal at least 10 days before the second stage expired on 29 September 2017.

16.On 28 April 2017, the PLs obtained a further order from Bermuda court (“2017 Order”) under which:

(1) they were granted extensive powers, by virtue of s.170(3) of the Companies Act 1981 (“Act”), to the exclusion of the directors of the Company, to, inter alia, (a) ascertain and secure the assets of the Group, review the books of accounts of the Company wherever located, (b) conduct investigations and obtain information necessary to locate, secure, take possession of and recover assets of the Company, (c) enter into settlements and compromises with creditors and debtors without further sanction of the Bermuda court, (d) carry on the business of the Company so far as may be necessary for the restructuring of the Company, (e) commence proceedings outside Bermuda for the purpose of seeking recognition of their appointment in Hong Kong and the BVI, and (f) consider and implement a scheme of arrangement with the creditors under s.99 of the Act;

(2) they may bring or defend any proceedings in the name and on behalf of the Company which relate to the property of the Company or which is necessary for the purpose of effectually winding up the Company and recovering its property as provided under s.174 of the Act;

(3) any obligation upon the PLs to consult with the Company in respect of the restructuring proposal, funding of the restructuring and ongoing business operations of the Company is dispensed with;

(4) they may submit bills of costs for taxation in respect of all costs, charges and expenses of those persons employed by them which shall be taxed on an attorney-and-own-client basis;

(5) no payment or disposition made by or with the authority of the PLs in carrying out their duties and in the exercise of their powers under the Order shall be avoided by virtue of s.156 of the Act; and

(6) in the event that a winding up order is made against the Company, any fees and expenses of the PLs including all costs and charges of any persons employed by them in accordance with the terms of the orders made by the Bermuda court shall be treated as fees and expenses properly incurred in preserving, realizing or getting in the assets of the Company for the purpose of rule 140 of the Companies (Winding-Up) Rules 1982 and paid on a first priority basis.

17.Upon the PLs’ application, the Bermuda court issued a letter of request dated 23 June 2017 requesting the Hong Kong court to recognise the appointment of the PLs. On 7 July 2017, the PLs issued an ex parte originating summons in HCMP 1570/2017 to seek recognition of their appointment in Hong Kong. The application was stated to have been made under the CWUO and inherent jurisdiction of the court, although the relevant provision was not identified.

18.By order dated 16 August 2017, Harris J made an order recognising the appointment of the PLs in HCMP 1570/2017 (“Recognition Order”) in the following terms:

“2. The [PLs] have and may exercise such powers as are available to them as a matter of Bermuda law and would be available to them under the laws of Hong Kong as if they had been appointed provisional liquidators of the Company under the laws of Hong Kong and in particular, without prejudice to the generality of the foregoing, for the following purposes:

(a) to request and receive from third parties documents and information concerning the Company and its promotion, formation, business dealings, accounts, assets, liabilities or affairs including the cause of its insolvency;

(b) to locate, protect, secure and take into possession and control all assets and property within the jurisdiction of this Honourable Court to which the Company is or appears to be entitled;

(c) to locate, protect, secure and take into their possession and control the books, papers and records of the Company including the accountancy and statutory records within this jurisdiction of this Honourable Court and to investigate the assets and affairs of the Company and the circumstances which gave rise to its insolvency;

(d) to retain and employ barristers, solicitors or attorneys and/or such other agents or professional persons as the [PLs] consider appropriate for the purpose of advising or assisting in the execution of their powers and duties; and

(e) so far as may be necessary to supplement and to effect the powers set out at sub-paragraphs (a) to (c) above, to bring legal proceedings and make all such applications to this Honourable Court whether in their own names or in the name of the Company on behalf of and for the benefit of the Company including any applications for:

(i) orders for disclosure, the production of documents and/or examination of third parties which it is anticipated may be made by the [PLs] to facilitate their investigations into the assets and affairs of the Company and the circumstances which gave rise to its insolvency; and/or

(ii) ancillary relief such as freezing orders, search and seizure orders in any legal proceedings commenced.

3. Anything that is authorized or required to be done by the [PLs] is to be done by all or anyone or more of the persons appointed.

4. For so long as the Company remains in provisional liquidation in Bermuda, no action or proceeding shall be proceeded with or commenced against the Company or its assets or affairs, or their property within the jurisdiction of this Honourable Court, except with leave of this Honourable Court and subject to such terms as this Honourable Court may impose.”

19.The Recognition Order was sought and obtained by the PLs upon their ex parte application. It appears that the PLs had not drawn to the attention of the court that:

(1) the Recognition Order would not bind the Company or its creditors as they are not parties to the OS;

(2) the powers sought and obtained by the PLs go far beyond the stated purpose of considering and implementing a restructuring proposal in respect of the Company’s debts;

(3) almost all the fundraising activities had been carried out by the Company in Hong Kong or were governed by Hong Kong law. As such, any investigation or work required to be carried out by the PLs would have to be carried out in Hong Kong; and

(4) the PLs would not be subject to the supervision of the Official Receiver (“OR”) or the court they would otherwise have been subject had they been appointed as provisional liquidators by an order made in these proceedings.

20.Since their appointment, the Company under the control of the PLs has taken elaborate steps with a view to resume trading on HKEx. These include:

(1) On 29 September 2017, the Company submitted a draft resumption proposal, which was subsequently modified on 9 November 2017. HKEx did not consider the proposal viable and so informed the Company in its letter dated 17 November 2017.

(2) On 28 November 2017, the Company applied to the Listing Committee (“LC”) and subsequently to the Listing (Review) Committee (“LRC”) for a review of the decision to place the Company in the third stage of delisting. On 31 August 2018, HKEx informed the Company that the decision was upheld, and the Company was required to submit a viable resumption proposal by 25 February 2019.

(3) On 25 February 2019, the Company submitted a fresh resumption proposal. That proposal was subsequently modified and clarified in response to queries made by HKEx.

(4) By letter dated 20 March 2020, the LC informed the Company that it considered the resumption proposal not viable and decided to cancel the listing of the Company’s shares (“LC Decision”).

(5) On 30 March 2020, the Company requested for review of the LC Decision. On 30 October 2020, the LRC informed the Company that its resumption proposal was not viable and upheld the LC Decision (“LRC Decision”).

(6) On 6 November 2020, the Company applied to the Listing Appeal Committee (“LAC”) for a review. At the hearing on 21 April 2021, extensive written and oral submissions were made by the Company. In its decision dated 30 April 2021 (“LAC Decision”), the LAC upheld the LRC Decision.

(7) This notwithstanding, HKEx postponed execution of the LAC Decision on the basis that the Company would apply for leave for judicial review in respect of the LAC Decision.

(8) On 6 July 2021, the Company applied for leave to apply for judicial review of the LAC Decision. After a fully contested rolled-up hearing, on 21 December 2021, Coleman J refused the application with costs against the Company.

21.In the meantime, on 30 September 2019, a proposed scheme of arrangement between the Company and all its creditors (“Scheme”) was approved by the requisite majorities of creditors. The Scheme was sanctioned by the Bermuda court on 1 November 2019, but would not become effective until (1) the Hong Kong court sanctions the Scheme; and (2) HKEx approved resumption of trading of the Company’s shares. As the Company has not been able to resume trading, the Scheme lapses.

22.Notwithstanding the lack of success in obtaining HKEx’s approval on resumption, the Petitioner (and the supporting creditors) did not seek a winding up order against the Company. Instead, the Petitioner and the PLs filed numerous consent summonses, in each instance, without the consent of the creditors who had given notice of intention to appear, asking the Court to adjourn the Petition. This resulted in the Petition having been adjourned many times.

23.Meanwhile, according to the information contained in the Company’s public announcements and the annual report for the year ended 31 March 2019, the assets in Hong Kong as identified in the Petition continued to reduce in that:

(1) Baicheng Mine (owned indirectly by West China) was amongst the 109 mines required to be closed down pursuant to the notice dated 16 February 2017 issued by the Xinjiang Government, and the Company’s shares in West China had been pledged in favour of China Minsheng Banking Corp., Ltd, Hong Kong Branch;

(2) The Company’s shares in UE HK (alongside with the shares in 2 other wholly owned subsidiaries incorporated in Bermuda and the Mainland) were charged as security in connection with the issue of convertible notes;

(3) The Company resolved to put UE Development into creditors’ voluntary winding up on 29 March 2019, thereby reducing the Company’s indirect shareholding in UE Management from 100% to 50%;

(4) The Company resolved to put UE Trading into creditors’ voluntary winding up on 8 June 2018;

(5) The Company allowed UE Resources to be struck off from the Companies Register on 1 April 2021;

(6) UC Technology remains an indirect wholly owned subsidiary; and

(7) UE Finance remains wholly owned by the Company.

24.At the hearing on 31 August 2021, Harris J gave leave to the Petitioner to re-amend the Petition and declined to make an immediate winding up order against the Company for the reasons stated in his Decision [2021] HKCFI 2595. His Lordship adjourned the Petition until the 2^nd Monday after the handing down of the application for judicial review brought by the Company and made clear (at §8) that “[i]f the judicial review is unsuccessful presumably the Company will be wound up either in Bermuda or possibly if there is no opposition, I may be prepared to make an order in Hong Kong.”

25.The Petition was listed for hearing before this Court on 10 January 2022. Shortly before the hearing, the Petitioner and the PLs filed a consent summons to seek an order that the Petition be dismissed with no order as to costs save that the costs of the OR be deducted from the deposit. However:

(1) No explanation was provided by the Petitioner or the PLs as to why the Petition should be dismissed with no order as to costs and whether the creditors who had filed notices of intention to appear, had agreed to the proposed order.

(2) It appears that the PLs, who were supposedly under a duty to protect the interests of the unsecured creditors, had not considered the fact that after the dismissal of the Petition, the creditors would not be able to invoke the statutory scheme for winding up under the CWUO.

(3) Nor had the PLs considered why a winding up order to be made against the Company in Bermuda would be sufficient for the purpose of investigating and liquidating the affairs of the Company which had been carried out in Hong Kong and recovering assets located in Hong Kong or from persons or entities which are amenable to the jurisdiction.

26.The PLs were directed to address the question as to (1) whether a winding up order made against the Company in Bermuda would be sufficient to deal with all affairs of the Company in Hong Kong; (2) whether in the absence of a winding up order made in Hong Kong, the provisions under the CWUO would apply to the Company; (3) whether a winding up order would be recognised more easily and efficiently in the Mainland; (4) if liquidators are appointed in Hong Kong, whether they can take control over the BVI subsidiaries by appointing themselves as directors of those subsidiaries and any other means; and (5) any other matters which the PLs consider relevant to the question of whether or not the Company should be wound up in Hong Kong. The Petition was adjourned to 14 February 2022 to give sufficient time for the parties to address the questions.

27.At the hearing on 14 February 2022, Ms Tinny Chan, counsel for the Company, opposed the Petition on the following grounds[5]:

(1) The Company is expected to be wound up by the Bermuda court on 11 March 2022, whereupon the liquidation process will be commenced in Bermuda for the creditors’ benefit;

(2) The creditors were “relatively apathetic” regarding where the Company is to be wound up in that (a) only CS (representing 2.57% of unsecured debt) appeared as supporting creditor; (b) Capital Sunlight Ltd, Integrated Capital (Asia) Ltd (“ICA”) and Kaisun Holdings (“Kaisun”) (representing 10.98% of unsecured debt) opposed the Petition, (c) China Minsheng Banking Corporation Ltd, Hong Kong branch, Deutsche Bank AG Singapore branch and Hao Tian Development Group Ltd (representing 20.99% of unsecured debt) were neutral, and 52 creditors (representing 65.46% of unsecured debt) had not indicated their stance;

(3) The second core requirement is indispensable. Harris J in his Decision of 31 August 2021 found that such requirement was not satisfied. In any event, on the basis of the matters pleaded in the Petition, the second core requirement was not satisfied;

(4) The BVI law expert confirmed that the liquidators appointed by the Hong Kong court would not be able to register themselves as members or directors of the Company’s subsidiaries incorporated in the BVI;

(5) The Mainland law expert opined that the Mainland court would only grant recognition and assistance if the requirements stipulated in articles 4 to 7 of the SPC Opinion are met, which included the centre of main interest (“COMI”) of the company have been in Hong Kong for at least 6 months. This plainly cannot be met by the Company;

(6) The affairs of the Company in Hong Kong can be sufficiently dealt with by way of recognition and assistance granted by the Hong Kong court, on the premise that the court “may grant orders that give the foreign officeholder substantially the same powers to, for example, investigate the affairs of the company as would be available to a liquidator if the foreign jurisdiction has similar provisions in its insolvency regime”, citing Re Moody Technology Holdings Ltd [2020] 2 HKLRD 187, §§16-25, 41; Re Lamtex Holdings Ltd [2021] 2 HKLRD 177, §§7, 9, 13, 19 and 22; Re CEFC Shanghai International Group Ltd [2020] 1 HKLRD 676, §§8-13; and

(7) Even if the powers of liquidators appointed in Hong Kong court are more extensive, it is not a reason to “bypass the second core requirement”. Ms Chan contends that:

“[t]he objective is to allow the company to be wound up in the place to which it is most connected or sufficiently connected, and to give effect to the winding up order pronounced in such jurisdiction; parties should not be encouraged to shop for the most potent and robust insolvency jurisdiction to wind up a company” (“Contention”)

28.As the PLs had not dealt with the question of jurisdiction (as described in §26(2) above), they were directed to address that question. However, in her supplemental skeleton, Ms Chan repeated her contentions that (1) the 3 core requirements must be satisfied; and (2) a recognition application “obviates rather than supports the need for another winding up order by the Hong Kong court”, relying on Re Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plc [2007] 1 AC 508, §22. Ms Chan submits that the proper course would be the one suggested by Harris J in Re G Ltd [2016] 1 HKLRD 167, §6.

29.In view of the stance taken by the PLs and the lack of assistance on the question of jurisdiction, the Petition was adjourned to allow the parties to address the question which affects not just the Company but the right of the creditors to invoke the statutory regime of winding up in respect of a foreign company.

30.By order dated 11 March 2022, the Bermuda court made a winding up order against the Company. In the meantime, the Petitioner filed expert opinions on Bermuda law, BVI law and Mainland law in response to the opinions filed by the PLs in opposition to the Petition.

B. ISSUES

31.As can be seen from the above background, there is no dispute that the Company is insolvent and should be wound up. One would have thought that so long as the Petitioner is able to satisfy the 3 core requirements for the court to exercise its discretion to wind up the Company under s.327(3)(c) of the CWUO, the Petitioner is entitled ex debito justitiae to a winding up order against the Company. There is no dispute that the first and third core requirements are satisfied.

32.At the hearing, the PLs (represented by Ms Rachel Lam SC leading Ms Tinny Chan) and ICA (represented by Ms Audrey Eu SC leading Mr Anson Wong Yu Yat) continue to oppose the Petition on the following grounds:

(1) Hong Kong court should give “primacy” to the Bermuda court and decline to make a winding up order against the Company (Primacy Ground);

(2) Harris J already made a finding that the second core requirement was not satisfied (Second Core Requirement Ground);

(3) If there are matters which need to be dealt with in Hong Kong, the liquidators appointed in Bermuda can seek recognition and assistance from the Hong Kong court under the common law or seek a winding up order in Hong Kong. There is no present need to seek such assistance (Recognition Ground); and

(4) An ancillary winding up order would lead to additional time and costs, and add to the burden of the estate rather than benefit it (Ancillary winding up Ground).

33.On the other hand, Mr Toby Brown (appearing with Ms Jacquelyn Ng), counsel for the Petitioner, submits that the real issue is whether an ancillary winding up order should be made by the court. It is difficult to fathom why the PLs would devote time and the Company’s funds to oppose a winding up order in circumstances where the Company has assets in Hong Kong and there are clear advantages in the court making a winding up order against the Company.

34.In considering whether a company should be wound up, the court looks at the situation of the company as at the date of the hearing. As the Company has already been wound up in Bermuda, the real issue is whether the Petitioner is able to satisfy the second core requirement so as to bring into operation the statutory scheme of winding up under CWUO with liquidators appointed to carry on an ancillary liquidation in Hong Kong.

35.As will be seen further below, the Recognition Ground is premised on the assumption that in the absence of a winding up order, the court has the power under the common law to make the provisions under the CWUO applicable to the Company. For the reasons explained in section B3 below, I do not think that the assumption is right.

B1. Primacy Ground

36.Ms Eu contends that the “normal rule” is to wind up a company at the place of incorporation and the other jurisdictions to recognise the foreign liquidators so as to give “primacy to the home jurisdiction”. Reliance is placed on the expert evidence (which has not been identified in her written or oral submissions) and “a long line of authorities”. When this Court asks Ms Eu which authorities she seeks to rely on, she points to the following authorities:

(1) Re Joint Liquidators of Supreme Tycoon Ltd [2018] 1 HKLRD 1120 where Harris J said (at §12):

“… the rationale underlying the common law power of assistance is modified universalism. In the conventional case, one would expect an insolvent company to be wound up in its place of incorporation and for its liquidators to consider whether or not it is necessary to seek recognition and potentially assistance from the court in Hong Kong. In the case of liquidators appointed in jurisdictions with similar insolvency regimes to Hong Kong, the assistance may extend to granting orders that give the foreign liquidators substantially similar powers to, for example, investigate the affairs of a company by examination and orders for the production of documents as a Hong Kong liquidator would have. Indeed, as recognised by the Privy Council, the common law power of assistance exists for the purpose of surmounting the practical problems posed for a worldwide winding-up of the company’s affairs by the territorial limits of the powers of each country’s court.”

(2) In Re Moody Technology Holdings Ltd (滿地科技股份有限公司) [2020] 2 HKLRD 187 where DHCJ William Wong SC said (at §16) that “[a] crucial feature of cross-border insolvency cooperation is the recognition of foreign proceedings” and “[t]he raison d’être for recognising foreign proceedings is the avoidance of parallel proceedings”.

37.Neither Supreme Tycoon nor Moody Technology supports Ms Eu’s contention:

(1) Supreme Tycoon was concerned with an ex parte application made by the foreign liquidators for recognition and assistance for the specific purpose of obtaining information and collecting assets from the persons amenable to the jurisdiction. There was no discussion or holding in support of Ms Eu’s contention.

(2) Similarly, in Moody Technology, the court dealt with an ex parte application[6] made by the foreign liquidators for recognition of their appointment and the powers set out in the letter of request for restructuring purpose. Again, there was no discussion or holding which supports the notion that the local court should decline to make a winding up against the foreign company once winding up proceedings have been commenced at the place of incorporation.

38.It is not surprising that Ms Eu is unable to cite a single authority in support of her contention as it goes against the statutory right given to the creditor (and the company) to present a winding up petition against a foreign company under s.327(3) of the CWUO and the well established principles governing how the court would exercise the discretionary jurisdiction under that section.

39.Ms Lam readily accepts that the Petitioner’s right to seek a winding up order from the court is a legitimate one, and there is no authority in support of the proposition that the local court should decline to make a winding up order against the foreign company on the “primary” ground when the 3 core requirements are satisfied.

40.In her written submissions, Ms Lam no longer advances the Contention. Instead, she sets out the “traditional” English and Hong Kong approach to cross-border insolvency where liquidations were commenced and carried on in the place of incorporation (as principal liquidation) and the jurisdictions where there are assets to be collected or affairs to be administered (as ancillary liquidations) so as “to bring about a distribution of the company’s worldwide assets on as uniform a basis as was consistent with overriding principles of local insolvency law”, citing Singularis Holdings Ltd v PricewaterhouseCoopers [2015] AC 1675, §10, per Lord Sumption; In re International Tin Council [1987] Ch 419, 446G-447B, per Millett J; Re Information Security One Ltd [2007] 3 HKLRD 780, §8, per Kwan J (as she then was).

41.Ms Lam also refers to the development of cross-border insolvencies in common law jurisdictions which she describes as “generally favoured an approach/doctrine commonly referred to as ‘modified universalism’” in that:

(1) The principal feature of modified universalism is the requirement that so far as consistent with justice and public policy the courts in the local jurisdiction cooperate with the court in the country of the principal liquidation to ensure that all of a company’s assets are distributed to its creditors under a single system of distribution (Re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852, §30, per Lord Hoffmann; Cambridge Gas Transport Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plc [2007] 1 AC 508, §16, per Lord Hoffmann).

(2) Thus, the common law regime of recognition and assistance is developed to obviate the need of a parallel winding up order in a foreign jurisdiction. As pointed out in Cambridge Gas at §22, cited in Re Moody Technology Holdings Ltd [2020] 2 HKLRD 187, §16.

(3) The doctrine of modified universalism was also reaffirmed in Singularis, which set down some limits to the common law power of the court to recognise and grant assistance to foreign insolvency proceedings (at §§19, 25).

(4) Since then, common law authorities continue to embrace modified universalism (Stichting Shell Pensioenfonds v Krys [2015] AC 616[7]).

42.Ms Lam acknowledges that the above authorities do not say that domestic court cannot wind up a foreign company. The real question is whether it is appropriate to do so on the facts of each case:

(1) An ancillary winding up order can still be made in Hong Kong if the 3 core requirements are satisfied.

(2) By way of example, in Re Lamtex Holdings Ltd [2021] 2 HKLRD 177 the court decided not to give primacy to winding up proceedings in the place of incorporation where the COMI of the company was located in Hong Kong and a “soft-touch” restructuring had been abused to engineer a de facto moratorium when there was no credible plan for restructuring (§§28, 35-36, 39 and 42).

43.Lastly, Ms Lam contends that the current practice under Hong Kong law is that set out in Re G Ltd [2016] 1 HKLRD 167, §6

“[O]ne would expect an insolvent company to be wound up in its place of incorporation and for its liquidators to consider whether or not it is necessary to seek recognition and potentially assistance from the court in Hong Kong. If they do the most straightforward way for them to proceed is to obtain a letter of request from the local court and then apply ex parte on paper for a recognition order … If the liquidators think that it is desirable that the foreign company is put into liquidation in Hong Kong and they are satisfied that they will be able to demonstrate to this Court that the criteria by which such petitions are assessed are satisfied, they can apply for a winding-up order and if the circumstances require it apply for themselves to be appointed provisional liquidators in Hong Kong pending the determination of the petition.”

44.Except Re Lamtex and Re G Ltd, in all the authorities cited by Ms Lam, the courts were not concerned with the question whether the discretionary jurisdiction to wind up foreign companies should be exercised in favour of the petitioner. Instead, the courts were dealing with specific issues arising in the liquidation carried out in the place of incorporation of the company (Stichting Shell, Re Moody) or the liquidations carried out in different jurisdictions and the principles governing the approach of the courts in dealing with such issues (Cambridge Gas, Singularis, HIH Casualty). Indeed, the very fact that the courts had to deal with such cross-border insolvency issues was precisely because it was permissible and unobjectionable for liquidations to have been commenced in the jurisdictions where the assets were located or where the company’s affairs had been carried out and required investigation. They are not authorities to suggest that once the winding up process has been commenced in the place of incorporation, the court should decline to make a winding up order against that foreign company when the 3 core requirements are satisfied. The suggestion that it has been the practice of the court to exercise the discretion in this way does not accord with the fact that the court has made many winding up orders against foreign companies, in particular those companies whose shares had been listed on HKEx.

45.In my judgment, it is important to understand the genesis of the courts imposing the 3 core requirements in considering whether to exercise its discretionary jurisdiction to wind up a foreign company. This was sufficiently explained by CJ Ma and Lord Millett NPJ in Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501, §§18-24, and may be summarised as follows:

(1) Section 327(1) and (3) of the CWUO confers a discretionary jurisdiction on the court to wind up a foreign company (§§18, 21).

(2) The most appropriate jurisdiction in which to wind up a company is the jurisdiction where it is incorporated. There must be “some connection between the foreign company and the jurisdiction” other than the petitioner’s decision to present a winding up petition in the jurisdiction. It is unhelpful and potentially misleading to describe the jurisdiction under s.327 as “exorbitant” or as “usurping” the functions of the courts of the country of incorporation (§19).

(3) The courts have adopted self-imposed constraints on the making of a winding up order against a foreign company by requiring the petitioner to satisfy the 3 core requirements before it would exercise its statutory jurisdiction to wind up a foreign company.

(4) The origin of imposing the 3 core requirements is to be found in Re Real Estate Development Co [1991] BCLC 210, at 217, where Knox J said (§21):

“the proposition that there must be a sufficient connection between the company and the jurisdiction in which it is sought to wind it up prompted the question: sufficient for what? He answered the question by saying that the connection must be:

sufficient to justify the court setting in motion its winding up procedures over a body which prima facie is beyond the limits of territoriality”.

(5) As regards the second core requirement, the presence of significant assets normally means that a winding up order is likely to benefit the creditors but is not essential. It is sufficient that there is a reasonable possibility that the petitioner will derive a benefit from the making of a winding up order in the local jurisdiction. For this purpose, ownership of the assets by the company is not a matter of crucial importance: Re Eloc Electro-Optieck and Communicatie BV [1982] Ch 43 (§§22-23).

(6) Ultimately, the question to be considered by the court in the case of a creditor’s petition is (§24):

“whether there is a sufficient connection between the company and this jurisdiction to justify the court in ordering a company to be wound up despite the fact that it is incorporated elsewhere; and that in deciding that question the fact that there is a reasonable prospect that the petitioner will derive a sufficient benefit from the making of a winding up order, whether by the distribution of its assets or otherwise, will always be necessary and will often be sufficient” (underlined added)

(7) A creditor’s purpose in presenting a winding-up petition is to obtain payment of his debt, so that the existence of significant assets within the jurisdiction will usually suffice; and if the creditor thinks it worthwhile, he may seek winding-up orders in different jurisdictions until his debt is satisfied (§26).

46.As is clear from Kam v Kam and the authorities discussed therein, the imposition of the 3 core requirements was in recognition of the fact that prima facie the most appropriate place to wind up a foreign company is the place of its incorporation and the domestic court would give primacy to that court. There is no separate or additional requirement for the domestic court to decline a winding up order against a foreign company on the ground that the company has been or will be wound up in the place of incorporation. Once the petitioner discharges the burden of showing that the foreign company is insolvent and the 3 core requirements are satisfied, the court will be prepared to make a winding up order against the company unless there is evidence to suggest that the debts will be paid from another source or that a viable restructuring proposal has the support of the requisite majority of creditors. If the company is not able to do either, it is difficult to see how the mere fact that foreign company has already been or will be wound up in the place of incorporation would affect or displace the right of the creditors to seek a winding up order from the Hong Kong court against that company.

47.In the case of a non-Hong Kong company whose primary listing has been on HKEx, it would not be difficult for the petitioner to satisfy the 3 core requirements. This is because save where exempted by HKEx, such listed company invariably have:

(1) maintained a principal place of business in Hong Kong and have given an undertaking to comply with the Listing Rules;

(2) maintained sufficient management presence in Hong Kong;

(3) raised funds through the issue of shares, convertible notes or bonds and benefitted from the ability to trade such equities and financial instruments on HKEx;

(4) borrowed loans from banks and other financial institutions in Hong Kong;

(5) the obligation to comply with the provisions under the CO which apply to a non-Hong Kong company; and

(6) the obligation to comply with the Securities and Futures Ordinance (Cap. 571) and the regulatory regime administered by the Securities and Futures Commission.

48.In respect of such listed company, it would be unreal or artificial to suggest that the court should ignore all the affairs carried out by the company in Hong Kong and the corresponding need to investigate them, and leave the control and supervision over the winding up to the court of the place of incorporation. This is particularly so where the company was incorporated in offshore jurisdictions like the BVI, Cayman Island and Bermuda which do not require the company to carry on any business or meaningful activity in the place of incorporation other than appointing agents to deal with the corporate filings and maintaining the registers of members, directors and charges.

49.The present case is a paradigm example. Other than maintaining its registers and complying with the statutory requirements of filings, the Company has not carried on any business or other activity in Bermuda. Nor does the Company have any assets in Bermuda. It is difficult to see why all the affairs arising in the liquidation of such company in Hong Kong should be left to the liquidators appointed in Bermuda.

B2. Second Core Requirement Ground

50.Ms Eu submits that in his Decision dated 31 August 2021, Harris J already decided (at §§5-7) that the second core requirement was not satisfied. Unless this Court is convinced that the Decision is wrong, this Court should “follow it as a matter of judicial comity” (Kan Fat-tat also known as Kan Fat v Kan Yin-tat also known as Kan Tat [1987] HKLR 516 at 534, per DHCJ Robert Tang QC). Given the long and consistent line of authorities in this area of the law both in Hong Kong and other common law jurisdictions, certainty, more than comity, is also important.

51.I am unable to accept the submission. As is clear from the Decision, Harris J, after hearing arguments from the parties, was not satisfied that this was a case where an immediate winding up order should be made. Had the learned Judge reached a firm conclusion or made a finding to the effect that the second core requirement had not or would not be satisfied, he would have dismissed the Petition. This was not his view. Instead, the learned Judge made clear at §8 of the Decision that “[i]f the judicial review is unsuccessful presumably the Company will be wound up either in Bermuda or possibly if there is no opposition, I may be prepared to make an order in Hong Kong.”.

52.Mr Brown submits (and I agree) that the second core requirement is not a high threshold to discharge and the Petitioner is only required to demonstrate a real possibility of benefit. In this regard:

(1) In Kam v Kam, the second core requirement was described as “a reasonable prospect that the petitioner will derive a sufficient benefit from the making of a winding up order against the company”.

(2) Recently, in Re Shandong Chenming Paper Holdings Ltd v Arjowiggins HK2 Ltd [2020] HKCA 670[8], at §27, a case where the Mainland company which maintained dual primary listing on HKEx and Shenzhen Stock Exchange and did not have any asset in Hong Kong, the Court of Appeal affirmed Harris J’s decision that “the leverage created by the prospect of a winding-up petition” constituted a reasonable prospect that the defendant would derive a benefit from a winding up order and the second core requirement can be “moderated” [9]. The nature or extent of the benefit was explained by Barma JA (at §27) in this way:

“Moreover, to insist on this requirement being met is clearly sensible, in that there would seldom be circumstances in which it would be justified to set in motion the court’s winding-up machinery where to do so could provide no reasonable prospect of benefit of any kind to the petitioner. That said, the overarching nature of the enquiry, the purpose of which is to ascertain whether it would be appropriate to put into motion the winding-up machinery in respect of a particular overseas company, would, I think, allow for some flexibility as to the nature or extent of the likely benefit to the petitioner that should be shown in order to satisfy the second core requirement, as long as the benefit can be said to be a real possibility, rather than a merely theoretical one.” (underlined added)

53.Ms Eu submits that the benefits and advantages identified by Mr Brown have not been pleaded in the Petition and it is not permissible for the Petitioner to rely on them. I disagree.

(1) While it is correct that normally a petitioner’s case is confined to the matters pleaded in the petition, in the present case, it is the PLs who contend at the hearing on 10 January 2022 that there is no benefit for the court making a winding up order against the Company. The Petitioner must be allowed to respond to the point by identifying the benefits and advantages which will be available to the Petitioner and the creditors generally upon the court making a winding up order against the Company.

(2) In any event, as stated in §§25-29 above, more than sufficient time and opportunity has been given to the parties to address the issue. There is no unfairness in the court considering the respective contentions raised by the parties.

54.It is indisputable that the Company has assets in Hong Kong which may be recovered by the liquidators appointed under CWUO for the benefit of the creditors:

(1) There is cash deposit in its bank account presently stands at HK$0.2 million.

(2) Although the PLs have not disclosed how much cash funds the Company has had during the past 5 years, it is reasonable to assume that the amount would be substantial as the Company had incurred substantial legal costs in dealing with resumption of trading, the Scheme, the Petition and the Bermuda Proceedings, and paying remuneration to the PLs. Ms Lam confirms that these costs and remuneration were paid by the Company, part of which had been derived from the loans advanced by 2 funders, Kaisun and ICA. Upon the court making a winding up order against the Company, these payments insofar as they were made after the presentation of the Petition (being the date of the commencement of the winding up) and not sanctioned by the court are void and liable to be returned to the Company.

(3) The Company has at least 3 direct subsidiaries in Hong Kong namely, (a) UE HK, (b) UE Resources (which can readily be revived), and (c) UE Finance which has HK$6 million of receivables.

55.For this reason alone, I am satisfied that there is a reasonable prospect that the Petitioner will derive a sufficient benefit from the making of a winding up order against the Company. It follows that the second core requirement is satisfied.

B3. Recognition Ground

56.Mr Brown points to the following clear advantages which will be available to the liquidators if the Company is wound up by the court, but would not be available to the liquidators appointed in Bermuda (“Bermuda Liquidators”), assuming the court has power and is prepared to grant a recognition order in their favour:

(1) It would provide the Bermuda Liquidators with more extensive powers under CWUO;

(2) Some powers that may be provided under a recognition order are more effectively exercised by the liquidators appointed in Hong Kong (“HK Liquidators”); and

(3) There would be saving in time and costs in the court making a winding up order as opposed to the Bermuda Liquidators making an application for a recognition order.

57.So far as “more extensive powers” is concerned, Mr Brown submits that:

(1) In an ancillary liquidation, the liquidators are entitled to the full suite of powers of winding up as available in the ancillary jurisdiction (Bank of Credit and Commerce International SA (No 10) [1997] Ch 213, at 246E).

(2) By contrast, the power to provide assistance by way of a recognition order is limited to rendering assistance in respect of matters which could be done under the law by which they had been appointed (Penta Investment Advisers Ltd v Allied Weli Development Ltd (formerly known as Hennabun Capital Group Ltd) (CACV 58/2016, 18 July 2017), at §7.5).

(3) Thus, the powers granted under a recognition order are the “lowest common denominator” between the two jurisdictions.

(4) In the schedule prepared by the PLs, while there are overlaps between the powers under the Act and the CWUO, there are no equivalent provisions of ss.276 and 277 of the CWUO. The potential claim for misfeasance and wrongful trading provide a reasonable possibility of benefit to the petitioner and other creditors for the purpose of the second core requirement (Stocznia Gdanska SA v Latreefers Inc (No. 2) [2001] 2 BCLC 116, at §40, per Morritt LJ, as applied by Harris J in The Joint and Several Liquidators of China Medical Technologies Inc. v Samson Tsang Tak Yung unrep., HCCW 435 of 2012, 28 August 2014, §§14-17).

(5) There is public interest in ensuring that the causes of the company’s failure are properly investigated and any misconduct identified and sanctioned (Re Pantmaenog Timber Co Ltd [2004] 1 AC 158, at 164, 172-173, 177, per Lord Walker). The ability to conduct investigations into the company’s assets is sufficient to meet the second core requirement (Re Zhu Kuan Group, HCCW 874/2003, 2 August 2003, at §§43-50)

58.Ms Lam does not dispute that the Company and the HK Liquidators may benefit from the above advantages. However, she submits that the affairs of the Company in Hong Kong “can be sufficiently dealt with by way of recognition and assistance granted by the Hong Kong Court in the context of cross-border insolvency”. Reliance is placed on:

(1) Re Lamtex, §§7, 9, 13, 19, 22; Re Moody, §§16-25; Re CEFC Shanghai International Group Ltd [2020] 1 HKLRD 676 §§8-13.

(2) Mr Tucker’s opinion on Bermudian law, who opines that the recognition and assistance regime “would likely allow the liquidator appointed in Bermuda to deal with a range of matters in Hong Kong” such as (a) avoidance of disposition after commencement of winding up, (b) unfair preference, (c) fraudulent trading, (d) disclaiming onerous property, (e) examination of persons concerned with company’s property and provision of information, and (f) delivery of property to liquidator.

(3) The assumption that the Hong Kong court has the power under the common law to confer all the powers under the CWUO to the Bermuda Liquidators if the same powers exist under the Act.

59.I shall first consider whether the court does have power under the common law to make the provisions under the CWUO available to the Bermuda Liquidators or the Company in the absence of a winding up made by the Hong Kong court.

60.The starting point is that winding up is the creature of statue. The only way to bring into operation the statutory scheme of winding up is by the court making a winding up order against the company. The principle has been sufficiently explained in Ayerst v C&K (Construction) Ltd [1976] AC 167, at 176E-177D, per Lord Diplock; and In re International Tin Council [1987] Ch 419, 446A-447B, per Millett J. In In re BCCI (No. 10) [1997] Ch 213, at 239F, Sir Richard Scott VC said:

“Just as companies are creatures of statute, the law and procedure governing the dissolution of companies is statutory. Many of the rules of winding up have been borrowed from bankruptcy law and practice – rule 4.90 is an example – but, none the less, the power of the courts to wind up companies is a statutory power……The courts have, in my judgment, no more inherent power to disapply the statutory insolvency scheme than to disapply the provisions of any other statute” (underlined added)

61.Unless and until the court makes a winding up order against the Company, there is no basis to bring into operation the statutory scheme for winding up under the CWUO. Nor is there any basis for the court to confer any of the powers or provisions under the CWUO to the Bermuda Liquidators or the Company.

62.The same conclusion can be reached by examining the provisions under the CWUO which apply to company wound up by the court. It can be seen that except s.268B, all the provisions, as mandated by their wordings, only apply to a company wound up by the court and liquidator appointed in Hong Kong. These include:

(1) s.182 which renders any disposal of assets after the commencement of the winding up void unless sanctioned by the court;

(2) s.183 which renders any attachment, sequestration, distress, or execution put in force against the estate after the commencement of the winding up void;

(3) s.199 which gives a wide range of powers to the liquidators specified in Schedule 25 some of which may be exercised without the sanction of the court or the committee of inspection;

(4) s.200 and s.204 which empower the court and the OR respectively to supervise and control over the conduct of the liquidators. They provide the avenues for the creditors to challenge any conduct which has fallen short of the standards required of the liquidators. These are important safeguards to ensure that the liquidators would faithfully perform their duties and observe all the requirements imposed on them by statutes, rules or otherwise with respect to the performance of their duties;

(5) s.211 which empowers the court to order any contributories, trustee, receiver, banker, agent or officer of the company to pay, deliver, convey, surrender, or transfer to the liquidators any money, property, or books and papers in their hands to which the company is prima facie entitled;

(6) s.224 which empowers the court, on proof of probable cause, for believing that a contributory or any past or present officer of the company has absconded or is about to quit Hong Kong or otherwise to abscond or to remove or conceal any of his property for the purpose of evading payment of calls or debts due to the company or avoiding examination respecting the affairs of the company, to order that the contributory or officer be arrested and his books, papers and movable personal property seized and safely kept;

(7) the provisions which confer a right on the liquidator of a company wound up by the court (and no one else) to set aside antecedent transactions which were not in the interests of the company or otherwise upset the pari passu distribution of assets amongst the creditors including (a) s.264B in respect of extortionate transaction entered into by the company 3 years before the winding up order; (b) s.265D in respect of transaction at an undervalue; and (c) s.266 in respect of unfair preference;

(8) s.267 which renders invalid a floating charge on the undertaking or property of the company created in favour of any person in the period of 1 to 2 years before the commencement of winding up of the company;

(9) s.268 which empowers the liquidator to disclaim any onerous property of the company;

(10) s.269 which restricts the right of a creditor as to execution or attachment over the company’s property to retain the benefit thereof unless he has completed the execution or attachment before the commencement of winding up;

(11) ss.271 – 274 which give “teeth” to the liquidator’s exercise of power to require the past or present officer of the company to provide information, disclose and deliver the property, books and papers to the liquidator by making it an offence if they fail to do so;

(12) s.275 which makes the directors liable for fraudulent trading, both in respect of having to compensate the company for the loss suffered and as a criminal offence;

(13) s.276 which provides for commencement of misfeasance proceedings against delinquent officer of the company, and makes them liable to pay damages to the company and as an offence; and

(14) s.268A which empowers the court to order public examination of promoters, directors, officers, provisional liquidator and provisional liquidator of the company, while s.268B empowers the court to order private examination of any person capable of giving information concerning the promotion, formation, trade, dealings, affairs or property of the company.

63.The above provisions have no application to a foreign company which has not been wound up by the Hong Kong court. No matter how one reads the wordings of the provisions, it is impossible to discern any basis for the court to make such provisions available to the foreign liquidator as if the company has been wound up when no such order has in fact been made by the court.

64.Although in the cases cited by Ms Lam the courts referred to the court’s power under the common law to recognise and assist foreign liquidators and the principle of “modified universalism”, those statements were made in the context of the company having already been wound up in the place of incorporation (and carried on as principal liquidation) and in other jurisdictions (and carried on as ancillary liquidations) or where the courts were dealing with the specific cross-border issues arising in the course of liquidations in one or more jurisdictions.

65.The only case (cited by the parties) where the court identified and explained the source of the court’s power to assist foreign liquidation is Singularis where Lord Sumption (at §10) said this:

“The English courts have for at least a century and a half exercised a power to assist a foreign liquidation by taking control of the English assets of the insolvent company. The power was founded partly on statute and partly on the practice of judges of the Chancery Division. Its statutory foundation was the power to wind up overseas companies. The exercise of this power generated a body of practice concerning what came to be known as ancillary liquidations. The English court would order the winding up in England of a company already in liquidation or likely to go into liquidation under the law of its incorporation, provided that there was a sufficient connection with England and a reasonable possibility of benefit to the petitioners. In theory, the effect of the winding up was to create a statutory trust of the worldwide assets of the company to be dealt with in accordance with English statutory rules of distribution: Ayerst v C&K (Construction) Ltd [1976] AC 167, Banco Nacional de Cuba v Cosmos Trading Corpn [2000] 1 BCLC 813, 819-820 (Sir Richard Scott V-C). In practice, as Millett J pointed out in In re International Tin Council [1987] Ch 419, 446-447, ‘Although a winding up in the country of incorporation will normally be given extraterritorial effect, a winding up elsewhere has only local operation.’ The English courts recognised the limits of the international reach of their own proceedings by treating the English winding up as ancillary to the principal winding up in the country of the company’s incorporation. They exercised their power of direction over the liquidator by limiting his functions to getting in English assets and to dealing with them in such a way as to bring about a distribution of the company's worldwide assets on as uniform a basis as was consistent with certain overriding principles of English insolvency law. The earliest reported case in which the practice was recognised is the decision of Kay J in In re Matheson Bros Ltd (1884) 27 ChD 225, but it is likely to have been older than that. In these cases, the court is exercising the ordinary powers of the English court to control the winding up of a company, which are wholly statutory. But the court was using them for a purpose which differed from that for which they were conferred, and on principles which departed from those applicable by law in the winding up of an English company. To that extent only, the English courts were exercising a common law power.” (underlined added)

66.Much reliance has been placed by Ms Lam on the Privy Council’s judgment in Cambridge Gas as authority in support of the proposition that the court has power under the common law to assist a foreign liquidator in the absence of winding up in the domestic court. However, that part of the ratio has been held to be incorrect for the reasons explained by Lord Sumption in Singularis, at §18:

“Cambridge Gas [2007] 1 AC 508 marks the furthest that the common law courts have gone in developing the common law powers of the court to assist a foreign liquidation. It has proved to be a controversial decision. So far as it held that the domestic court had jurisdiction over the parties simply by virtue of its power to assist, it was subjected to fierce academic criticism and held by a majority of the Supreme Court to be wrong in Rubin v Eurofinance SA (Picard intervening) [2013] 1 AC 236. So far as it held that the domestic court had a common law power to assist the foreign court by doing whatever it could have done in a domestic insolvency, its authority is weakened by the absence of any explanation of whence this common law power came and by the direct rejection of that proposition by the Judicial Committee in Al Sabah v Grupo Torras SA [2005] 2 AC 333, a case cited in argument in Cambridge Gas but not in the advice of the Board. Lord Walker, giving the advice of the Board in Al Sabah, had expressed the view that there was no inherent power to set aside the Cayman trusts at the request of a foreign court of insolvency, in circumstances where a corresponding statutory power existed under the Cayman Bankruptcy Law but did not apply in the circumstances. The Board considers it to be clear that although statute law may influence the policy of the common law, it cannot be assumed, simply because there would be a statutory power to make a particular order in the case of domestic insolvency, that a similar power must exist at common law. So far as Cambridge Gas suggests otherwise, the Board is satisfied that it is wrong for reasons more fully explained in the advice proposed by Lord Collins of Mapesbury. If there is a corresponding statutory power for domestic insolvencies there will usually be no objection on public policy grounds to the recognition of a similar common law power. But it cannot follow without more than there is such a power. It follows that the second and third propositions for which Cambridge Gas [2007] 1 AC 508 is authority cannot be supported.” (underlined added)

67.The Hong Kong cases relied on by Ms Lam are all based on the principles expounded in Singularis or Cambridge Gas and do not take the point any further. In all these cases, the court was only concerned with recognising and assisting the foreign liquidators for the specific and limited purpose, such as implementing a restructuring or ordering a private examination against the persons within the jurisdiction. There was no analysis or conclusion as to how, in the absence of a winding up order made against the foreign company, the court could make the provisions under the CWUO available to the foreign liquidators.

68.Even if (which I do not think is right) the court does have power under the common law to confer upon the Bermuda Liquidators the powers under the CWUO (such as ss.199, 200, 204, 211, 268A, 268B), one cannot equate the powers given to the foreign liquidators with the substantive provisions which confer jurisdiction on the court to set aside the specified types of antecedent transactions (ss.182, 183, 264B, 265D, 266-269) or the specific offences created by the provisions (ss.224, 271-276) and contend that the court can make such provisions or offences applicable to a foreign company which has not been wound up in Hong Kong. Neither Ms Lam nor Ms Eu has been able to cite any authority in support of such proposition.

69.Ms Lam submits that the PLs’ concerns are 2 folds. First, the court should weigh the pros and cons of making a winding up order against the Company specifically, whether the order would benefit the creditors and whether those powers are necessary at the present stage. Second, there is not a hint that the Bermuda Liquidators require broader powers under the CWUO to investigate the affairs of the Company in Hong Kong or to collect and sell the assets in Hong Kong at this stage. I disagree.

(1) The first point is based on the assumption that the court can through a recognition order make available those provisions to the Company if the same powers exist under the Act, which I do not think can be done.

(2) The second point is made in circumstances where the PLs admittedly have not carried out any meaningful investigations into the affairs of the Company. It does not seem to me that the PLs can rely on their own inaction to justify their view that there is no need for investigation. In any event, the PLs’ view cannot be right. One of the basic functions of the liquidator is to investigate the causes of the Company’s failure and the conduct of those concerned in the management of the Company in the interest of public (Re Pantmaenog Timber Co Ltd, as approved in Re Kong Wah Holdings Ltd (2006) 9 HKCFAR 766, §§23, 26). It is irrelevant that the PLs take a different view on the functions of liquidators.

70.I should add that Ms Lam acknowledges that it may be that the way to make the substantive provisions under the CWUO available to the Bermuda Liquidators is to seek a winding up order from the court and this can be done as and when the need arises in future. I am unable to accept the suggestion given that:

(1) the PLs have not carried on any meaningful investigation into the affairs of the Company; and

(2) the PLs are supposed to protect the interests of the unsecured creditors and to act in their best interests. The course suggested by Ms Lam is manifestly disadvantageous to the creditors as the commencement date of the winding up would be postponed by at least 6 years. This means that the Company would lose the benefits of most of the provisions whereby the Company or the HK Liquidators can seek to set aside the antecedent transactions entered into by the Company.

B4. Ancillary Winding up Ground

71.In light of my holding on the Recognition Ground, it is not necessary to consider the Ancillary Winding up Ground as all the submissions advanced by counsel are based on the assumption that in the absence of a winding up order, the court has power to make available the provisions under the CWUO to the Bermuda Liquidators if the same powers exist under the Act. Nevertheless, I will deal with the arguments advanced by the parties, in case this matter goes further.

72.Mr Brown submits that it is difficult, time consuming and costly for the Bermuda Liquidators to satisfy the court that it is appropriate for the court to grant a recognition order for the purpose of giving them the powers under the CWUO. The difficulty can be seen from Re Rennie Produce (Aust) Pty Ltd (in Liq) [2020] 3 HKLRD 685. In that case:

(1) the liquidators appointed in Australia sought an order for examination of and production of documents against certain parties in Hong Kong. The liquidators need to satisfy the court that the equivalent Australian legislation was at least as extensive as ss.286B and 286C (§17).

(2) DHCJ Maurellet SC declined to make the order and adjourned the application to allow the liquidators to seek an order from the Australia court (§50). As explained by the learned Judge, the issue was not whether an Australia court could make the order sought in Hong Kong but whether the Australia court would make the order if asked as a matter of that court’s “settled practice” (§34).

(3) Even if it was unnecessary to obtain mirror order from the court of the jurisdiction of incorporation (§47), it would appear that at a minimum, expert evidence on the settled practice would be required, as stated in Re Allied Weli Development Ltd, CACV 58/2016, 18 July 2017.

73.Ms Lam does not dispute the point. Instead, she submits that:

(1) The existence of additional powers under the CWUO is a “hypothetical benefit that potentially arise in all cases” (Re China Huiyuan Juice Group Ltd [2021] 1 HKLRD 255 at §26). Whilst the powers may be seen as a “benefit”, such approach would substantially widen the scope of the jurisdiction as previously exercised. It seems antithetical to there being a “requirement” if the mere existence of powers itself satisfies the second core requirement.

(2) Such approach could also encourage parties to take a “race to the court” approach, disapproved in Stichting Shell Pensioenfonds v Krys.

(3) As a matter of comity, the Hong Kong court will also be astute to the sensitivities of fellow courts in common law jurisdictions which often deal with cross-border insolvency issues involving Hong Kong.

74.I shall deal with the last 2 points first. In my view, they are based on a misunderstanding of the nature of ancillary winding up and how it has been conducted by the liquidators in the past. In as early as 1997, the English Court of Appeal has already in Re BCCI (No. 10), at 238G-246F, analysed and explained the concept of ancillary winding up and how it works in practice. As stated by Sir Richard Scott VC (at 246C-F):

“This line of authority establishes, in my opinion, at least the following propositions. (1) Where a foreign company is in liquidation in its country of incorporation, a winding up order made in England will normally be regarded as giving rise to a winding up ancillary to that being conducted in the country of incorporation. (2) The winding up in England will be ancillary in the sense that it will not be within the power of the English liquidators to get in and realise all the assets of the company worldwide. They will necessarily have to concentrate on getting in and realising the English assets. (3) Since in order to achieve a pari passu distribution between all the company’s creditors it will be necessary for there to be a pooling of the company’s assets worldwide and for a dividend to be declared out of the assets comprised in that pool, the winding up in England will be ancillary in the sense, also, that it will be the liquidators in the principal liquidation who will be best placed to declare the dividend and to distribute the asses in the pool accordingly. (4) None the less, the ancillary character of an English winding up does not relieve an English court of the obligation to apply English law, including English insolvency law, to the resolution of any issue arising in the winding up which is brought before the court. It may be, of course, that English conflicts of law rules will lead to the application of some foreign law principle in order to resolve a particular issue.”

75.Thus, the mere fact that a foreign company is wound up by the court of the place of incorporation does not obviate the need for a winding up order against the company in other jurisdictions. If and to the extent that there are assets within the domestic jurisdiction (which would normally be sufficient to satisfy the second core requirement and possibly, the first core requirement), those assets will be taken and dealt with by the liquidators appointed in that jurisdiction and the liquidation will be carried on as ancillary liquidation.

76.As pointed out by Ms Maureen Chan, solicitor for the OR, where the company concerned had been wound up in its place of incorporation, normally the same individuals would be appointed as liquidators in both jurisdictions. These liquidators would enter into protocols, approved by the courts of both jurisdictions, to regulate and harmonize the liquidations, so as to reduce the conflicts and complications which may arise in cross-border insolvency matters. See for eg., Re Kong Wah Holdings Ltd & anor (No. 2) [2004] 3 HKC 596, per Kwan J (as she then was). This has been how liquidations in respect of foreign companies have been carried out in the places of incorporation and in Hong Kong. There is no reason why the same practice cannot be followed by the Company.

77.Ms Lam submits that if a winding up order is made against the Company on a “may as well do so” basis, this could very well add to the burden of the estate rather than benefit it, given that:

(1) The funds received by the HK Liquidators from realising the Company’s assets would be subject to an ad valorem duty payable to the OR pursuant to ss.203 and 296 of the CWUO and ss.6-7 and Item 1 of Table B of Schedule 3 to the Companies (Fees and Percentages) Order (Cap. 32C).

(2) The costs of liquidation, such as the costs of compliance with statutory filing and advertising requirements, may be increased or even duplicated, especially if 2 different sets of liquidators are appointed in Hong Kong and in Bermuda. This may result in further delay.

78.The costs and expenses identified by Ms Lam are not substantial, at any rate, as compared to the benefits of the court making a winding up order against the Company. The ad valorem fee is only payable out of the assets realised in Hong Kong, and the rate ranges from 10%[10] to 1%[11]. There will be little duplication of costs if the same persons are appointed as liquidators in both jurisdictions. As matter now stands, it is by no means clear that the PLs should be appointed or remain as liquidators of the Company. I say this because upon this Court’s enquiry, Ms Lam confirms that the PLs have been acting with the benefit of the funding provided by the 2 funders. Although it has not been disclosed by the PLs as to whether they had entered into any funding agreement with the funders and, if so, on what terms, it is very likely that such agreement exists. This may be a cause for concern if and to the extent that the PLs have agreed to subject themselves to the control or influence of the funders, such that the court should appoint other persons as HK Liquidators (Re Goodway Ltd [1999] 1 HKC 141, §§23-29, per Yuen J). As the PLs have not carried out any meaningful investigation in respect of the Company’s affairs, there is no question of any learning or costs being wasted if other persons are appointed as HK Liquidators.

79.In my view, far from avoiding parallel proceedings and saving any costs and time, if the Company were not wound up by the court, multiple proceedings would ensue which, in turn, would increase the time and costs for administering the affairs in Hong Kong. In this regard:

(1) Even if (which I do not think is right) the Bermuda Liquidators can through recognition and assistance ask the Hong Kong court to confer certain powers on them or make available certain substantive provisions to the Company, such application would involve the Bermuda Liquidators making an application to the Bermuda court for the order sought, follow by that court issuing a letter of request to the Hong Kong court. The Bermuda Liquidators would then rely on the letter of request and commence fresh proceedings in Hong Kong to seek the order. As it is not the practice of the court to give a carte blanche approval to foreign liquidators, it is likely that the Bermuda Liquidators would have to make successive applications to the court for recognition orders for the specific purposes or issues.

(2) In so far as the application affects any third parties, in fairness to such parties and as a matter of expedience (so that the order would bind such parties), the application would have to be made inter partes by commencing fresh proceedings against such parties.

(3) The PLs would not be able to benefit from the procedure under the CWUO and the Companies (Winding up) Rules (Cap. 32H), which permit applications to be made summarily through a summons issued in the winding up proceedings against anyone within or outside jurisdiction.

80.It cannot be in the interests of the creditors for the Company to have to bear the time and costs in making successive applications to the court for recognition orders as suggested by Ms Lam.

C. DISPOSITION AND COSTS

81.For the reasons set out above, I hold that:

(1) The mere fact that the Company has been wound up by the Bermuda court is not a ground for the court to decline to make a winding up order against the Company;

(2) The Petitioner has demonstrated that there is a reasonable possibility of benefit to the creditors if a winding up order is made against the Company. This is sufficient for the purpose of the second core requirement;

(3) In the absence of a winding up order made against the Company, the court does not have power under the common law to confer any powers on the Bermuda Liquidators or make any provisions under the CWUO available to the Company; and

(4) A winding up order against the Company would be in the interests of the creditors as it would avoid the need for the Bermuda Liquidators to make successive applications to the court for recognition and powers under the CWUO, even assuming the court has power to do so (which I do not think there is).

82.It follows that the Petitioner is entitled to a winding up order against the Company and I so order.

83.As for costs, I make a costs order nisi that:

(1) the costs of and occasioned by the hearings on 14 February 2022 and 1 April 2022 be paid by ICA and the PLs to the Petitioner and the OR, with certificate for 2 counsel, to be taxed if not agreed;

(2) For the purpose of Order 62 rule 6(2) of the Rules of the High Court, I direct that the PLs are not entitled to recover their costs from the estate of the Company; and

(3) Save as aforesaid, the costs of and occasioned by the Petition including one set of costs payable to the supporting creditors, shall be paid out of the assets of the Company.

84.It seems to me that it is appropriate to order the PLs and ICA to bear the costs of the 2 hearings, as such costs were incurred as a result of their opposition to the Petition when there is no valid ground for such opposition. 

Mr Toby Brown and Ms Jacquelyn Ng, instructed by Lam & Co, for the Petitioner

Ms Rachel Lam SC leading Ms Tinny Chan, instructed by Chungs Lawyers, for Joint Provisional Liquidators of the Company

Ms Audrey Eu SC leading Mr Anson Wong Yu Yat, instructed by Fan Wong & Tso, for the opposing creditor (Integrated Capital (Asia) Limited)

Ms Maureen Chan, of Official Receiver’s Office, for the Official Receiver

White & Case, for the opposing creditor (China Minsheng Banking Crop., Ltd.), is absent

Chiu & Partners, for the opposing creditor (Hao Tian Development Group Limited), is absent

Clifford Chance, for the supporting creditor (Credit Suisse AG, Singapore Branch), is absent