Re The Joint Official Liquidators of Gti Holdings Ltd (in Liquidation)

CAMP 493 & 534/2022

(Heard together)

On Appeal From [2022] HKCFI 2598

[2024] HKCA 1198

CAMP 493/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NOS 493 OF 2022

(ON AN INTENDED APPEAL FROM HCMP NO 1556 OF 2020 & HCCW NO 51 OF 2020)

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CAMP 534/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NOS 534 OF 2022

(ON AN INTENDED APPEAL FROM HCMP NO 1556 OF 2020 & HCCW NO 51 OF 2020)

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( Heard together)

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JUDGMENT

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The Court:

1.In a nutshell, the matter arose as follows. Winding up petitions were first presented in Hong Kong by creditors against the Company, which was incorporated in the Cayman Islands but listed in Hong Kong. The Company then applied for its own winding up in the Cayman Islands, and obtained the appointment of provisional liquidators there. Those provisional liquidators applied for recognition in Hong Kong, which was granted by Harris J. Proceedings for implementing a restructuring scheme were also begun in Hong Kong for which Harris J gave directions. After the winding up petitions were adjourned by Harris J a couple of times, they came before Linda Chan J who refused to adjourn them any further and wound up the company taking the view that the scheme being proposed was not feasible. The provisional liquidators then procured the Company to be wound up also in the Cayman Islands, with themselves appointed as the liquidators, and asked the court there to issue a letter of request to Hong Kong for recognition of the liquidators. Based on the letter of request, the liquidators applied to Harris J for recognition with powers to progress the restructuring scheme in Hong Kong. After the application was passed to Linda Chan J who gave directions indicating her concerns, it was abandoned. Her Ladyship heard the liquidators on the question of costs on 26 April 2022 and made the following order (“Order”):

“ 1. The remuneration of the Applicants, and costs of and occasioned by the application be paid by the Applicants personally, and the Applicants are not entitled to recover such costs and their remuneration from the assets of the Company; and

2. The costs of the Official Receiver including the hearing on 26 April 2022 in the sum of HK$29,000 be paid by the Applicants forthwith.”

2.The judge refused leave to appeal against §1 of the Order whereupon the liquidators renewed their application for leave to appeal in this court. We heard the application, contingently “rolled up” with the appeal itself if leave be granted. Judgment was reserved which we now give.

Background

3.GTI Holdings Ltd (“Company”) was incorporated in the Cayman Islands in 2004 and had been listed on the Hong Kong Stock Exchange since 2005. Four winding up petitions were presented in Hong Kong against it between January and March 2020.[1] There was no dispute that the Company was insolvent and unable to pay its debts. The first, third and fourth petitions were subsequently withdrawn or dismissed by consent and so it is only necessary to refer below to the second petition (HCCW 51/2020), which we shall simply call the “Petition”.

4.On 26 May 2020, the Company presented a petition for its own winding up and applied for appointment of provisional liquidators for restructuring purpose, to the Grand Court of the Cayman Islands (“Cayman Court”). Two days later, such provisional liquidators (“PLs”) were appointed by the Cayman Court.

5.Based on a letter of request issued by the Cayman Court on 15 June 2020 (“1^st Letter of Request”), the PLs applied by ex parte originating summons dated 24 September 2020 (HCMP 1556/2020) for recognition in Hong Kong of their appointment.[2] By an order dated 9 November 2020, Harris J recognised their appointment and allowed them to exercise certain powers in Hong Kong for the purposes of, inter alia, putting forward and implementing a restructuring proposal, investigating the affairs of the Company, protecting and securing the assets of the Company, retaining legal advisers and bringing or defending legal proceedings in the name or on behalf of the Company.

6.On 17 December 2020 the Company filed an originating summons (HCMP 2303/2020) for, inter alia, an order for convening a meeting for the purpose of considering and, if thought fit, approving a proposed scheme of arrangement.

7.There were repeated applications to adjourn the scheme hearings, which Harris J granted, and the winding up proceedings under the Petition were also adjourned by Harris J a number of times in 2020 and 2021 based on the prospect of a debt restructuring.

8.In November 2021, there was another attempt to tide the Company over to the following year. On 8 November 2021, Harris J allowed the hearing of a fresh application for convening a scheme meeting in HCMP 2303/2020, originally scheduled for 23 November 2021, to be re-fixed to 29 March 2022.

9.However, Linda Chan J, who had become seised of the Petition, refused to adjourn it further on paper by consent between the Company and the petitioner, since there were supporting creditors who had not agreed to the proposed adjournment. When the Petition was heard on 22 November 2021, the petitioner no longer sought an adjournment and, together with a number of supporting creditors, sought a winding up order. The Company submitted that the Petition should be further adjourned as substantial steps had been taken for implementing a restructuring of all the creditors’ debts. At the conclusion of the hearing Linda Chan J made the usual winding up order (“HK WU Order”), with written reasons handed down on 2 December 2021: [2021] HKCFI 3647 (“HK WU Reasons”).

10.As a result of the HK WU Order, the Official Receiver became provisional liquidator of the Company by virtue of s. 194(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUO”).

11.An attempt to obtain a regulating order in the winding up under s. 227A of the CWUO was rejected by Linda Chan J on 15 December 2021.

12.Meanwhile, it appears that the PLs continued to collaborate with the former directors of the Company and the potential investor who had been providing funding for their work. On 14 January 2022, the PLs filed a summons inviting the Cayman Court to schedule a hearing for the winding up petition there on 22 February 2022. What the PLs stated to the Cayman Court at that juncture was the subject of subsequent criticisms by Linda Chan J, which will be mentioned below.

13.Based on the PLs’ submissions, on 22 February 2022 Doyle J of the Cayman Court made an order winding up the Company (“Cayman WU Order”) pursuant to s. 92(d) of the Companies Act (2021 Revision), appointing the PLs as the joint official liquidators (“JOLs”), with written reasons given on 15 March 2022.

14.On 1 March 2022, the Cayman Court issued a further letter of request (“2^nd Letter of Request”) to the Hong Kong court requesting the recognition of the appointment of the JOLs such that the JOLs have and may exercise, to the fullest extent permitted by the Hong Kong law, the same powers as are available to them in accordance with Part II of the Schedule 3 to the Companies Act (2022 Revision) of Cayman Islands.[3]

15.The 2^nd Letter of Request also requested the Hong Kong court to make an order that (1) the JOLs have the power to authorise the directors of the Company to approve the audited financial results of the Company; (2) the remuneration and expenses of the JOLs should be paid out of the assets of the Company in accordance with applicable rules and regulations; and (3) the JOLs be at liberty to appoint counsel, attorneys and professional advisors in Hong Kong or elsewhere as they may consider necessary to advise and assist them in the performance of their duties on such terms as they may think fit and to remunerate them out of the assets of the Company.

16.Based on the 2^nd Letter of Request, the JOLs by letter of their Hong Kong solicitors Chungs Lawyers (“CL”) dated 18 March 2022, lodged an “Ex parte Summons” in HCMP 1556/2020 before Harris J for an order that the liquidation in the Cayman Islands and the JOLs be recognised. We shall refer to this as the “Application”. The Application also sought an order that the JOLs have and may exercise in Hong Kong a number of powers, including the power to do all things necessary to implement a debt restructuring plan for the Company and to take up the role of the Company as the applicant in HCMP 2303/2020, to approve the audited financial results of the Company, to open and operate bank accounts on behalf of the Company for the purpose of collecting the assets and paying the costs and expenses of the JOLs, and “to do all other things incidental to the exercise of the JOLs’ powers”. In addition, an order was sought that the “remuneration and expenses of the JOLs be paid out of the assets of the Company in accordance with applicable rules and regulations.”

17.CL’s letter sought directions from Harris J for a short hearing and permission to file the Application papers on the ground that the JOLs urgently needed to act on behalf of the Company to progress the scheme of arrangement.

18.On 21 March 2022, Harris J directed that the Official Receiver should be informed of the Application, and that in light of Linda Chan J’s judgment winding up the Company, the Application needed to be considered thoroughly and that the hearing on 29 March 2022 in the scheme proceedings would probably have to be adjourned. The court’s letter added that: “If the scheme collapses as a result that will be a consequence of the entirely unsatisfactory delay in bringing it before the court.”

19.After being given the papers, on 28 March 2022 the Official Receiver offered her preliminary views on the Application, pointing out that in winding up the Company Linda Chan J had indicated that the proposed scheme was not feasible. The Official Receiver stated that if the scheme remained basically the same, the recognition order sought was “not desirable”. The Official Receiver was also concerned, if the scheme failed, whether the JOLs would seek further recognition for the purpose of the winding up, and concluded that she agreed with Harris J that the Application needed to be considered thoroughly.

20.On 4 April 2022 CL wrote to the clerk of Harris J informing the court that the JOLs had “received replies from 9 independent unsecured creditors so far, all of them indicated their support to the present application”, and sought Harris J’s directions for the determination of the Application.

21.On 8 April 2022, Harris J informed CL and the Official Receiver that, in light of the Official Receiver’s letter of 28 March 2022 and the history of the matter, the papers were transferred to Linda Chan J.

22.By a letter dated 12 April 2022, Linda Chan J directed that the Application would be heard on 26 April 2022, that the JOLs and their legal representatives in charge of the Application would be required to attend the hearing to explain three matters:

(1)  why the JOLs considered it proper or appropriate to make the Application on an ex parte basis, instead of making it in HCCW 51 of 2020, knowing full well that the Company had already been wound up by the Court;

(2)  why the JOLs considered it proper or appropriate to make the Application to Harris J instead of Linda Chan J and why such act should not be regarded as forum shopping; and

(3)  why the JOLs should not be personally liable for all the costs of and occasioned by the Application in any event.

23.CL replied by letter dated 14 April 2022 in which:

(1)  It was stated that:

“ After considering the delay and the uncertainties associated with the restructuring, the investor has decided not to fund the Application due to its commercial concerns. As a result, we are instructed to inform this Honourable Court that the JOLs would no longer pursued the Application and would not file the application papers with the Court. If this Honourable Court considers the Application has been issued, we respectfully seek leave to withdraw the same and a direction that the hearing fixed for 26 April 2022 at 10 a.m. before Her Ladyship be vacated.”

(2)  Explanations were given in response to the questions raised by the court as described in §22(1) and (2) above.

(3)  In response to the question on costs raised by the court as described in §22(3) above, CL’s letter stated:

“ (a) Since the JOLs’ costs of and occasioned by the Application are to be recovered from the investor, we respectfully invite her Ladyship to make no order as to costs for the Application, especially given that the Application was intended to be made on ex-parte basis, and there is no other party under the Application.

(b) If this Honourable Court considers it appropriate for the JOLs to pay the Official Receiver’s costs, we are instructed that the JOLs agree to forthwith pay all the costs of and occasioned by the Application to the Official Receiver, to be taxed if not agreed.”

24.On 19 April 2022, Linda Chan J directed that the hearing would proceed “for the purpose of determining costs and the propriety of the application, which appears to have been made for the purpose of undermining the winding up order made by this Court and is wholly unprecedented”.

The Judge’s decision

25.At the end of the hearing on 26 April 2022, the judge made the Order, as set out in §1 above. On 19 August 2022, the judge handed down her Reasons for Decision: [2022] HKCFI 2598 (“Reasons for Decision”). At §30 her Ladyship stated her view that the conduct of the PLs/JOLs had fallen far short of the standards one would expect from officers of the court in the following respects:

“ (1) The misrepresentations made by the PLs when they applied to the Cayman court for orders appointing them as JOLs and seeking recognition of their appointment in Hong Kong (‘Misrepresentations Issue’).

(2) The manner in which the JOLs made the Application to the forum of their choice (‘Forum Shopping Issue’).

(3) The misrepresentations and material non-disclosures made by the JOLs when they made the Application on an ex parte basis (‘Material Non-Disclosures Issue’).”

26.As to misrepresentations, as set out in §8(4)-(10) and §58(5) of the Reasons for Decision, the judge found that the PLs had made eight representations to the Cayman Court, which the judge criticised as being inaccurate or misleading in §§40-51 and 62 of the Reasons for Decision, as quoted and summarised as follows:

(1)  The 1^st Representation:

“ 8(4) The Company’s auditors had completed the audit of the Company’s annual results for the 18 months ended 30 June 2021 in November 2021. The audited results had been scheduled to be approved by the board of directors on 22 November 2021 but was suspended due to the WU Order (Lai 5^th §§28, 61; Lai 7^th §21)”

The judge criticised this because on the evidence before the court the audited results had not yet been “completed” by the time the HK WU Order was made on 22 November 2021. What was presented to the Hong Kong court at the time was that new auditors had been appointed on 15 October 2021 and that it was expected the audited results would be published by the end of November 2021. The judge noted that the JOLs were not able to identify any evidence that the audit had been “completed” as at 22 November 2021. See Reasons for Decision, §40.

(2)  The 2^nd Representation:

“ 8(5) The publication of the audited results would be one of the PLs’ priorities. The directors ‘are best-placed to comment on and approve the audited results’ and had planned to approve them on 22 November 2021. If the Cayman court appoint them as liquidators, they requested that ‘the [PLs], acting as agents of the Company without personal liability, be given the power to authorise the Company’s directors to approve the Company’s audited financial results (if so advised)’ (Lai 7^th §§22-23)”

The judge criticised this because upon winding up, the directors ceased to have power to act for the Company and only the Official Receiver, as provisional liquidator, had the power to approve the audited results. The PLs did not explain the basis for asking the Cayman Court to authorise them to authorise the directors in turn to approve the financial results. See Reasons for Decision, §41.

(3)  The 3^rd Representation:

“ 8(6) If the PLs are appointed as liquidators, they intend to seek a ‘swift recognition’ of their appointment in Hong Kong. Their appointment as PLs was recognised by the Hong Kong court on 9 November 2020 following a letter of request issued by the Cayman court on 15 June 2020. The Hong Kong law, as stated in their previous application for letter of request, will ‘similarly apply to the recognition of the [liquidators]’ (Lai 7^th §§24-27)”

The judge criticised this because this is a case where a winding up order had already been made in Hong Kong, and there was no precedent that the Hong Kong court would recognise and confer powers on liquidators appointed by a foreign court after the company had been wound up in Hong Kong with its own liquidators appointed in accordance with the CWUO. The judge noted that the JOLs were unable to cite any such precedent from any common law jurisdiction. The judge considered that the PLs ought to have informed the Cayman Court that what they were proposing was very different from the 1^st Letter of Request and was unprecedented. See Reasons for Decision, §§42-45.

(4)  The 4^th Representation:

“8(7) The PLs believe that recognition of their appointment is important for the following reasons: (a) to dispel the confusion over who has the authority to act on behalf of the Company; (b) the time sensitivity of the proposed restructuring and investment opportunity; and (c) running multiple processes and convening creditors’ and contributories’ meetings does not serve the interests of the Company’s creditors (Lai 5^th §87; Lai 7^th §28)”

The judge considered this a deliberate misstatement. There was no confusion: upon the HK WU Order being made, only the Official Receiver had authority to act for the Company in Hong Kong. On the contrary, confusion would ensue if the JOLs were recognised to act as liquidators in Hong Kong alongside the Official Receiver. The proposed restructuring had been found not feasible on grounds stated in the HK WU Reasons. Recognition of the JOLs could not obviate the need to carry out the winding up in Hong Kong in accordance with the CWUO, with creditors’ and contributories’ meetings. See Reasons for Decision, §§47-48 & 52.

(5)  The 5^th Representation:

“ 8(8) In light of the ‘recent improvements’ in the 3 major business segments of the Group and the ‘expected development of the business of the Company’, the PLs agree with the Management that the implementation of the ‘Restructuring Plan’ ‘remains feasible and is likely to be beneficial to the creditors of the Company’ with the continuous support of the Investor (Lai 5^th §§36, 63-69)”

The judge criticised this because, on the figures provided, after taking into account “unallocated expenses” and “finance costs”, the three selected segments suffered a net loss of over HK$25 million for the 3-month ended 30 September 2021. It was misleading to focus only on the increase in revenue and gross profit without taking into account the expenses and finance costs. See Reasons for Decision, §49.

(6)  The 6^th Representation:

“ 8(9) The s.227A application had the support of 40 creditors (including Choi) who held a total debt of HK$616 million representing 49% of the Company’s total liabilities. These creditors considered that it is in the best interests of the creditors to have the Company wound up in Cayman Islands and supported the PLs’ appointment as liquidators (Lai 5^th §§88, 95-96).”

The judge criticised this because there was no reference in the relevant affirmation to the said creditors’ support and the list of alleged supporting creditors was not signed by anyone and there was no evidence that those named in the list had in fact given support. See Reasons for Decision, §50.

(7)  The 7^th Representation:

“ 8(10) This Court ‘overlooked the ‘present and voting’ component of the 75% by value threshold for schemes of arrangement in both Hong Kong and the Cayman Islands. Accordingly, [the Court] disregarded the fact that only 54.4% by value of creditors have expressed a view to date and the fact that the overwhelming majority of that group wish to consider a restructuring’ (Cayman Judgment §13(d)).”

The judge criticised the PLs that they did not draw the Cayman Court’s attention to the fact that there was no evidence the scheme would receive support from creditors holding 75% in value and did not identify any basis for speculating that some of the creditors might not attend and vote at the meeting. The judge considered that there was no evidence that “the overwhelming majority of that group [of creditors] wish to consider a restructuring”. The judge also criticised the PLs for not drawing the Cayman Court’s attention to the fact that a scheme had to be approved by 75% in value of the creditors at each class meeting and that Champion Alliance Industries Ltd, who held security, might be in a different class from unsecured creditors, at least in relation to the secured portion of its debt. See Reasons for Decision, §51.

(8)  The 8^th Representation:

“ 58(5) The OR indicated that ‘it would be challenging for them [sic] to arrange a creditors’ meeting with hundreds of creditors (especially in light of the various pandemic safety restrictions still in place) and that alternative arrangement might be able to be coordinated between the Provisional Liquidator and the JOLs if a winding up order would be made by the Cayman court as soon as possible’. The PLs therefore invited the Cayman court to consider granting a winding up order so as ‘to progress the restructuring and/or ensure consistency of the status of the Company in the place of incorporation’ (Lai 2^nd §§26(4), 27)”

The judge said this representation was made without any factual basis and was incorrect. The position of the Official Receiver was that she was concerned about the status of the recognition order sought in light of the statutory winding up regime in Hong Kong and that if the proposed scheme was the same as the one considered previously, it was doubtful if the recognition order would be beneficial to the creditors. See Reasons for Decision, §62.

27.Further, the judge criticised the JOLs for forum shopping, essentially in making the Application to Harris J instead of her Ladyship.

28.Thirdly, the judge considered that there had been serious and deliberate breaches of the duty of full and frank disclosure when the JOLs made the Application ex parte to Harris J.[4]

29.At the end the judge made the Order, without any opposition, on the basis of the confirmation given by counsel on behalf of the JOLs that they agreed to bear all the costs of and occasioned by the Application in any event, including any costs of the Official Receiver.[5]

Application for leave to appeal

30.The JOLs applied to the judge for leave to appeal against §1 of the Order and sought an order that the Applicants’ costs of and occasioned by the appeal and below be paid out of the assets of the Company.

31.The judge heard the application for leave to appeal on 25 May 2022, and received further written submissions from the JOLs in September 2022 after the Reasons for Decision was handed down. Her Ladyship handed down her Decision refusing leave to appeal on 10 November 2022: [2022] HKCFI 3430 (“Leave Decision”).

32.The JOLs now seek leave from this court to appeal against §1 of the Order.[6] The JOLs’ draft Notice of Appeal raises 10 grounds of appeal, which are summarised and dealt with in turn below. The liquidators of the Company in the Hong Kong winding up have taken a neutral stance and did not appear at the hearing before us.

The approach to an appeal on costs

33.Whilst many arguments have been raised over a range of matters, it has to be firmly borne in mind that this is simply an appeal against §1 of the Order which is an order on costs. It is trite that the costs relating to a proceeding are very much a matter of discretion for the tribunal dealing with that proceeding. This Court will be very circumspect in intervening in a decision with such high discretionary content, and would only do so if it is satisfied that the decision below is either wrong in principle or plainly wrong. There is a very high threshold before this Court would interfere with an order for costs made by a judge. See Poon Ching Man v Lam Hoi Pun [2016] 3 HKLRD 815 at §34; Chan Shun Kei v Hong Kong Construction (HK) Ltd (CACV 192/2014, 7 March 2016), at §22. The same approach was applied by this court[7] in refusing leave to appeal from an order making foreign liquidators personally liable for costs of proceedings in Hong Kong: see Re Up Energy Development Group Ltd (in liquidation) [2023] HKCA 536 at §8.

34.We should mention that in the JOLs’ supplemental skeleton submissions (at §45), it was said that the Cayman Court had sanctioned the JOLs’ pursuit of this intended appeal. There was however no evidence before us as to what materials were placed before the Cayman Court in applying for sanction and in what terms sanction was given. In the circumstances, without any disrespect to the Cayman Court, we have to arrive at our own independent conclusion on the prospects of the appeal on the basis of the materials before us.

New Evidence

35.On 13 October 2023, the JOLs filed a summons for leave to file and serve an affirmation of Lai Wing Lun of the same date as additional evidence. The gist of new evidence is twofold. First, the liquidators appointed in the Hong Kong winding up decided to pursue a restructuring scheme similar to that previously promoted by the PLs/JOLs, but with terms less favourable to the creditors. The scheme eventually failed because the Company was delisted from the Stock Exchange in September 2023. Secondly, the audited financial statements of the Company for the 18 months ended 30 June 2021 were published in April 2023, and they were identical to the audited results that were pending publication in November 2021.

36.Since the new evidence goes to matters emerging after the Order, whether it may be adduced is not governed by the usual Ladd v Marshall conditions[8] but is subject to discretion which is exercised sparingly with due regard to the need for finality in litigation: Re China Fishery Group Ltd [2020] HKCA 169 at §26.

37.In deciding whether to give leave to appeal, we have taken into account whether it is reasonably arguable the proposed new evidence would be admitted for the purposes of the appeal if an appeal exists: see Man Lin Heung, The Administratrix of the Estate of Man Kwai Yin also known as Man Kwai Yin v 梁根林 [2019] HKCA 846 at footnote 1. We are satisfied that the new evidence has no significant bearing on the issues raised.

38.First, as to the pursuit of a similar scheme by the Hong Kong liquidators, we are not concerned with the merits of the scheme or the HK WU Order. In any event a comparison of the two schemes has little meaning given they occurred at different times under different circumstances. The fact that a scheme less favourable to creditors was pursued after the HK WU Order does not mean that the original scheme was feasible at the time and was likely to receive sufficient support from the creditors, who did not have the benefit of hindsight.

39.As to the audited financial results, the fact that they turned out to be the same as the unaudited results placed before the court at the time of the HK WU Order is neither here nor there. It does not detract in any way from the judge’s observation that the audit had not been completed in November 2021, but only shows that the auditors subsequently agreed that the unaudited results available in November 2021 were accurate. It does not invalidate the judge’s criticism of the JOLs’ statement that the auditors had “completed the audit of the Company’s annual results for the 18 months ended 30 June 2021 in November 2021”[9] without mentioning that the auditor had not actually signed off on the audit report.

Ground 1

No application made and no proceedings

40.Ground 1 contains two points. The first point is that the Application was only “intended” and never proceeded with, and that it was the judge who listed it for hearing on her own initiative. In the supplemental submissions lodged for the hearing before this court, counsel raised the point – which was not mentioned below or in the draft Notice of Appeal – that there were no “proceedings” before the judge within the meaning of Order 62 rule 6(2) of the Rules of the High Court (Cap 4A), and that the judge therefore had no jurisdiction to make the Order. Rule 6(2) provides as follows:

“Where a person is or has been a party to any proceedings in the capacity of trustee, personal representative or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee or personal representative or the mortgaged property, as the case may be; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund.”

41.We have heard no contrary argument and assume for present purposes that this rule is the sole source of power for Linda Chan J to make the order in question. Even so, there is in our view no merit in the point made. Mr William Wong SC, who appeared before us on behalf of the JOLs but not below, submitted that the papers were sent to Harris J in accordance with his Lordship’s practice of requiring the papers of such applications to be sent to him for consideration as to whether a direction should be given for the summons to be issued. We do not agree that this practice would necessarily mean that there was no proceeding and no power to make a relevant costs order when the papers were first sent to the court. In any event, having regard to what happened in fact, it is clear that the Application had moved beyond merely an “intended” application.

(1)  A letter sent on behalf of JOLs to the creditors and the Official Receiver dated 16 March 2022 stated that “… the JOLs are in the course of preparing an urgent application for the recognition of the appointment of the JOLs by the Hong Kong Court (‘Recognition Application’) and will lodge the Recognition Application with the Hong Kong Court shortly …”.

(2)  In the letter entitled “Re: Urgent Application for Recognition Order …” sent by CL to the court dated 18 March 2022, CL stated: “We write to file an urgent application for a recognition order in respect of the Company’s Cayman Liquidation and the appointment of the JOLs.” The letter also enclosed a hearing bundle containing the ex-parte summons, an affirmation in support of the application, a draft order and counsel’s skeleton submissions. We note that the letter did seek Harris J’s “directions for a short hearing and permission to file the application papers”, but we do not think that an urgent ex parte application is only to be treated as “made” after the papers have been filed in the Court Registry.

(3)  In the letter sent by CL to the Official Receiver dated 21 March 2022 enclosing the papers as directed by Harris J, CL stated that “the JOLs have lodged the urgent Recognition Application with the Court on 18 March 2022”.

(4)  In a letter to the court dated 22 March 2022, CL indicated that they had “served all the relevant papers in relation to the JOLs’ application for recognition order on the Official Receiver for her perusal, so that she will be able to provide her preliminary views on the application for the Court’s consideration”.

(5)  In CL’s letter to the court dated 4 April 2022, it was stated: “By way of Our 18/3/22 Letter, we made an urgent application for a recognition order … Before making the present application, the JOLs have written to all creditors and petitioners … to inform them of the present application.” The letter concluded by seeking Harris J’s “directions for the determination of the application for recognition.”

(6)  Even in CL’s letter to the Clerk to Linda Chan J dated 14 April 2022, there was no positive assertion that the Application had not yet been lodged, made or issued, but only a neutral statement that: “… If this Honourable Court considers the Application has been issued, we respectfully seek leave to withdraw the same …”.

42.In the circumstances it is in our view clear that the Application had been lodged with the court and the court’s judicial function had been engaged. The question of costs had in our judgment come within the purview of the court. Surely if upon the papers coming in on 18 March 2022 Harris J had simply granted the Application directing that a hearing was unnecessary, it would not have been said that he had no jurisdiction to do so because the Application had not yet been issued. Whether or not the papers had formally been filed with the Registry is not to the point. Urgent ex parte applications are regularly made by litigants and either heard or considered in writing and disposed of by judges before any papers reached the Registry. It would be startling to say that in those circumstances the court has no jurisdiction over the costs concerned, and no authority has been cited for that proposition. Even under what Mr Wong said to be Harris J’s practice, his Lordship did not tell the JOLs not to make the Application; instead he directed that the papers be served so that the Application could be “considered thoroughly and with the input from the Official Receiver”.

43.There is no reasonable prospect of success in this contention under Ground 1.

Breach of natural justice

44.The second point raised under Ground 1 is that there was a breach of natural justice in that the JOLs did not have any prior opportunity to address to the court in relation to the inaccurate or misleading statements in the 2^nd to 8^th Rrepresentations that the judge criticised them for making. We shall deal with this together with Ground 10 below.

Ground 2

45.In §§64 and 65 of the Reasons for Decision, the judge said that counsel for the JOLs gave confirmation “that they agree to bear all the costs of and occasioned by the Application in any event, including any costs of the [Official Receiver]” and that counsel did not oppose the Order.

46.Under Ground 2, the JOLs contend that they had never accepted that they should not be entitled to recover their costs and remuneration from the assets of the Company. They submit that their position at the hearing below was that there was no “Application” before the court and no order in respect of the JOL’s own costs was necessary or should be made, and that if no order was made, the JOLs as office-holders would be able to recoup their costs and remuneration from the Company’s assets in the usual way under the Cayman Court’s orders for winding up and for the 2^nd Letter of Request. It is said that at the end of the hearing before the judge, when the JOLs and their counsel responded to the judge’s query as to how the court’s decision on costs should be recorded, there could be no utility for the counsel to oppose the Order, and they should not be taken to have accepted the Order by acquiescence.

47.We do not accept this submission. It seems to us clear that viewed objectively, the JOLs had accepted that they would not seek to recover their costs and remuneration from the assets of the Company.

48.First, by letter dated 12 April 2022, Linda Chan J informed the JOLs that one of the principal purposes of requiring them to attend the hearing was for them to explain why the JOLs should not be personally liable for all the costs of and occasioned by the Application in any event. Given that the JOLs were themselves the Applicants (so that as parties to the proceedings they were themselves responsible for costs), and there was no opposing party, in the context the meaning of the judge seems to us very clear, which is that the JOLs were asked to show cause why an order should not be made that they cannot pay the costs out of the assets of the company in question. There is no suggestion that the court’s letter could be or was understood in any other way.

49.Secondly, in their letter dated 14 April 2022, specifically responding to the judge’s above direction to show cause, CL stated: “Since the JOLs’ costs of and occasioned by the Application are to be recovered from the investor, we respectfully invite her Ladyship to make no order as to costs for Application…”. In the context this statement was clearly meant to inform the judge that since the JOLs were going to recover their costs from the investor – and therefore not from the Company – it was not necessary for her Ladyship to order the JOLs to be personally liable for the costs. Before us, Mr Wong submitted that this was not so, because there was a funding agreement and the investor had lent money to the Company, and the words “to be recovered from the investor” can mean a lot of things. With respect, this ignores the context of the exchange. CL’s letter made clear that the investor had decided to back out due to commercial concerns. Yet the same letter tried to persuade the judge not to make the order contemplated because the JOLs would recover the costs from the investor. Read objectively in the context, CL’s letter could not have meant that the JOLs would nevertheless seek to have their costs and remuneration paid out from the assets of the Company.

50.Mr Wong submitted that Linda Chan J did not read the letter in that way because she nevertheless directed the hearing to proceed. We do not agree. As stated in the court’s letter dated 19 April 2022, the hearing proceeded “for the purpose of determining costs and the propriety of the Application”. The judge obviously did not agree that she should simply make no order as to costs as invited by CL, leaving the JOLs to recover their costs from the investor as stated in CL’s letter. As the judge made clear at the hearing, she preferred that the costs position was put on a formal basis, either by an order of the court or an undertaking given by the JOLs. Mr Wong also submitted that it would be illogical for the JOLs to volunteer self-penalisation in costs. This is not a valid point because what was represented was not that JOLs would be out of pocket, but that they would recover their costs from the investor.

51.Thirdly, the 3^rd affirmation of Lai Wing Lun, one of the JOLs, dated 25 April 2022 (the day before the hearing) stated:

“With regard to the issue of costs, the JOLs (as the applicants withdrawing the application) agree to bear all the costs of and occasioned by the Application in any event. Further, if this Honourable Court considers it appropriate for the JOLs to pay the Official Receiver’s costs, the JOLs agree to forthwith pay all the costs of and occasioned by the Application to the Official Receiver, to be taxed if not agreed.”

Counsel’s written note of submissions lodged on the same day stated: “The JOLs confirm that they (as the applicants withdrawing the application) agree to bear all the costs of and occasioned by the Application in any event (including any costs of the ORO).” Given that the JOLs were the applicants and the statements were made in light of the court’s above-mentioned direction to show cause, it is difficult to see what meaning they could have other than that the JOLs being the withdrawing Applicants, as opposed to anyone else including the Company, were to bear the costs. In light of the purpose of the hearing as indicated by the judge and in light of CL’s letter of 14 April 2022, a fair reading of these statements is that the JOLs themselves agreed to bear the costs without trying to make the Company responsible for them.

52.Fourthly, during the hearing, counsel at the outset repeated the submission that “the liquidators agree to bear the costs of this application and also to pay the Official Receiver’s costs”.[10] Towards the end of the hearing, when the judge expressly indicated an inclination to disallow the JOLs from recouping their own costs and remuneration from the estate of the Company, counsel for the JOLs did not argue to the contrary, but left it to the judge, as is evident from the following excerpt from the transcript: -

“ COURT: … the usual rule … is that for persons acting in the representative capacity unless the court otherwise orders they are entitled to look to the estate to pay themselves. That’s why you either require an undertaking or an express order of the court to displace that entitlement.

…

MR HO: … so your Ladyship says the liquidators paid their costs and they cannot recoup from the estate.

COURT: I want either an order or an undertaking from the liquidators themselves that the costs of and occasioned by the application will be paid by the Cayman liquidators personally and then they would not seek to recover such costs from the assets of the company.

MR HO: Then we are in the court’s hands. If the court sees fit to make such an order then of course we would have such an order that says what your Ladyship just said.

COURT: It’s up to your client. You can either give an undertaking in which case it would not be necessary for the court to make such a costs order. Let me read the wording that I have in mind … to you, it’s the remuneration and the costs of and occasioned by the application be paid by the Cayman liquidators personally and they will not seek to recover such remuneration and costs from the assets of the company.

MR HO: If that is the court’s view my instruction is that it will be proper for that to be recorded in the form of an order … because Mr Lai is only one of the liquidators. He is not able to give such undertaking without consulting the others.

COURT: I see, so I’ll make such an order … It will be in the form of order. …”[11]

53.In short, therefore, the JOLs made written statements prior to the hearing which, objectively and fairly read, meant that their costs would come from the investor who had decided not to proceed with the restructuring and that they therefore agreed to bear all the costs of the Application and not to recover them from the Company. At the hearing, counsel expressly told the court that they would leave the matter to the judge, and there was no opposition or submission against the Order eventually made (other than a submission that no order as to costs should be made as there was technically no application issued). It follows that JOLs have no reasonable prospect of success under Ground 2.

54.Further, given the Order was based on the JOLs’ own written confirmations to the court and that they made no submissions at the hearing that the Order should not be made, the judge was fully entitled and justified to make the Order and we do not think that it is fairly open to the JOLs to try to impugn it subsequently, except perhaps on grounds that it was made in excess of jurisdiction or on an error of law. Strictly speaking, therefore, it is unnecessary to deal with the other grounds of appeal. For completeness, we shall state our views on the remaining grounds in so far as we consider it appropriate to do so.

Ground 3

55.Ground 3 contends that the judge erred in thinking that because the Hong Kong court’s decision to wind up the Company was binding on the PLs and the Company, the PLs should not seek to progress a restructuring through the Cayman WU Order.

56.It is unnecessary to go into the question of “issue estoppel” mentioned by the judge in §§11-12 of her Reasons for Decision and whether the PLs were absolutely precluded by the HK WU Order from pursuing a restructuring through seeking a winding up order in the Cayman Islands. The JOLs themselves admitted before the judge that there is no precedent for overseas liquidators to seek to be recognised and given various restructuring powers in Hong Kong where the company is already being wound up by the court in Hong Kong. It would be undesirable for this Court to express any views on such novel question when the Application had been withdrawn and we have not had the benefit of any adversarial argument. What drove the judge to order costs personally against the JOLs is not so much that she disagreed with them on a question of law, but the manner in which the Application had come about. In particular, the judge considered that the JOLs made the 3^rd Representation and thereby suggested to the Cayman Court that the 2^nd Letter of Request was similar to the 1^st, and would similarly be acceded to in Hong Kong, and that they failed to draw attention to the unprecedented nature of the Application. We deal with this aspect under Ground 10 below.

Grounds 4 & 5

57.These two grounds both essentially attack the judge’s criticism of the JOLs for “forum shipping” and may be dealt with together. Ground 4 says the judge erred in concluding that the JOLs would pursue the Application only if it was heard by their chosen judge and outside the winding up proceedings. Ground 5 says the judge erred in concluding that the JOLs engaged in forum shopping and that forum shopping was demonstrated by the JOLs’ decision to abandon the Application as soon as Harris J transferred it to Linda Chan J.

58.First, should the Application have been made to the judge seised of the Hong Kong winding up? The answer in our view is yes. The making of a winding-up order marks a fundamental change to the status of the company concerned. Before it, even though the company may be significantly affected by the appointment of a provisional liquidator following the presentation of a winding up petition, the company continues in existence and can pursue its general operations, subject to some constraints. However, once a winding-up order is made, the position of the company changes – it no longer exists as a going concern, able to carry on business as before. Instead, it only continues to exist for the purpose of being wound up – for its assets to be realised and applied to satisfy its debts so far as possible, on a pari passu basis: Re MF Global Hong Kong Ltd [2015] 2 HKLRD 325, per Barma, JA at §23.

59.Given the Application was made well after the HK WU Order, it had to be dealt with on a very different basis from the application for the recognition of the PLs which was granted by Harris J in November 2020. Questions obviously arose from the reliefs sought in the Application regarding how the JOLs were to interact with the provisional liquidator or liquidator in the winding up in Hong Kong, who were supervised by the Hong Kong Court as its own officers, and how the JOLs’ acts would interact with the statutory scheme of winding up under the CWUO. Clearly the natural forum for the Application was before Linda Chan J as the judge seised of the Hong Kong winding up of the Company.

60.Moreover, given that in her HK WU Reasons and in her reasons for rejecting the s. 227A application, Linda Chan J had made findings or comments adverse to the restructuring scheme being promoted, it was doubly important that the Application, which was intended for progressing the scheme, be brought before her Ladyship or at least to her attention.

61.Instead, the JOLs lodged the Application with Harris J, without copying the papers to Linda Chan J or in any way notifying her Ladyship of the Application. Mr Wong submitted that in order to seek permission to issue the Application, the JOLs could approach either the Duty Judge or Harris J. First, it seems to us that given the nature of the Application, one would not have expected the Duty Judge to be involved. Secondly, even if the JOLs thought it might be appropriate to approach Harris J in view of the fact that his Lordship had dealt with the 1^st Letter of Request and the scheme proceedings before, there was no reason not to notify Linda Chan J of the Application, especially since she had formed the view that the scheme was not feasible. In an ex parte application such as this, it is incumbent on the applicant to make full and frank disclosure so as to avoid inconsistent findings by different judges, and failure to do so could easily be seen as a positive attempt to procure inconsistent outcomes. In the present case, in their letter to Harris J at the outset, although the JOLs mentioned the Company had been wound up, they did not flag the point that Linda Chan J had considered the proposed scheme not feasible. In fact, this was only pointed out by the Official Receiver in her letter dated 28 March 2022, in the light of which Harris J passed the papers to Linda Chan J.

62.The JOLs say that they did not withdraw the Application because it was passed to Linda Chan J, but because they perceived from Linda Chan J’s directions on 12 April 2022 that the Application was doomed to failure. But they could already see from the HK WU Reasons that the judge had taken a dim view of the proposed scheme. So in deciding to pursue a restructuring notwithstanding the winding up, the JOLs ought to be prepared to deal with such adverse views on the scheme. In the circumstances we do not think that the judge can fairly be criticised for inferring that there was forum shopping. It is unnecessary for us to go into the question whether what had happened was deliberate judge-shopping or due to a blind spot or an error in judgment on the part of the Applicants.

Ground 6

63.Ground 6 goes to a minor point as to whether the judge was correct to say that the Applicants had not disclosed to the Hong Kong court the evidence based on which they obtained the Cayman Court’s “direction” or “sanction” for their actions.[12] It does not seem to us that this ground has any material impact on the present application or the real issues raised. It is unnecessary to deal with it.

Ground 7

64.This ground attacks the judge’s view that if the possibility of asking the Official Receiver to appoint special managers for the specific purpose of pursuing the scheme of arrangement was mentioned, the Cayman Court would hold that there was no justification for the PLs to take the elaborate and costly steps of seeking orders from the Cayman Court for the purpose of pursuing the scheme.[13]

65.We accept that there was insufficient basis to conclude what the Cayman Court would necessarily or probably have done if it had been informed of the possibility of the Official Receiver appointing special managers. Still, it was an avenue available in principle, and was part of the statutory scheme in winding up, and ought to have been brought up if only by way of full and frank disclosure. The JOLs submit that it is rare for the Official Receiver to appoint special managers, and that appointing special managers for pursuing a scheme of arrangement is probably unprecedented. In that regard we can draw attention to Re King Pacific International Holdings Ltd [2002] 3 HKLRD 474 where the appointment of special managers in connection with the restructuring of a listed company was referred to in the context of an application for a stay of a winding up order. But in any event, the JOLs accept that recognising and giving restructuring powers to foreign liquidators where the company is in winding up in Hong Kong is also unprecedented. In these circumstances, the judge cannot be faulted for saying that the possibility of a route via the appointment of special managers should have been mentioned by the PLs to the Cayman Court. We are, however, prepared to accept that the omission was not deliberate, as counsel confirmed to the judge at the hearing that no one in the legal team was aware of a situation where the Official Receiver appointed agents to progress a scheme of arrangement and that this avenue had not occurred to any of them.

Ground 8

66.This ground criticised the judge for saying that instead of paying heed to the statutory scheme under the CWUO, the JOLs tried to find ways to bypass it.[14] It is contended that the Application could not bypass the statutory scheme, but simply asked the court to exercise a common law power, which would be consistent with the statutory scheme.

67.We do not think that the JOLs’ contention really grapples with the problem focused upon by the judge. The fact is that the Company had been wound up in Hong Kong and the Official Receiver had by law become its provisional liquidator in winding up. The statutory machinery for winding up the Company under the CWUO had been set in motion. Without any precedent, the PLs took steps to have the Company wound up also in the Cayman Islands with themselves appointed as liquidators, and to seek recognition and powers from the Hong Kong court to progress the scheme in Hong Kong in their capacity as such recognised foreign liquidators. They did not seek in any way to pursue the scheme within the context of the Hong Kong winding up itself; they did not consider or draw attention to the possibility of the Official Receiver, as the Hong Kong liquidator, appointing special managers for the purpose of the restructuring (see Ground 7 above); they did not even, at first, give notice of the Application to the Official Receiver or the Hong Kong judge seised of the winding up. The former was only notified when Harris J directed the Applicants to serve the papers on her; the latter was only notified when Harris J passed the papers to her. The plan therefore appears to have been to pursue the restructuring wholly outside the statutory scheme under the CWUO, except perhaps at the final stage of sanction.

68.Mr Wong submits that the power to recognise the JOLs is based on common law and needs to be exercised consistently with the statutory regime. Instead of being an answer to the judge’s criticism, this accentuates the need to pay attention to the statutory scheme, especially when, as acknowledged by the JOLs, the context of the Application was unprecedented. Viewed objectively, we consider that the judge was entitled to say that there was a failure to pay heed to the statutory scheme under CWUO.

Ground 9

69.This ground contends that, as the JOLs are officers of the Cayman Court, their right to recover their costs and remuneration from the assets of the Company is a matter for the Cayman Court. The Order “trampled” on orders already made by the Cayman Court and the legitimate authority of that court to regulate the proceedings before it and its officers. As the Application had been withdrawn, the proper course for the Hong Kong court was simply to make no order as to costs. In his submissions, Mr Wong contended that the Hong Kong court should not illegitimately “override” the orders of the Cayman Court and that there was no justification for the Hong Kong court to impose the Order which directly conflicted with orders of the Cayman Court.

70.We note that despite the Judge had expressly asked the JOLs to show cause why they should not be personally liable for all the costs of the Application in any event, this point was not raised before the judge and is in fact contrary to the indication given to the Hong Kong court that the JOLs’ costs would be recovered from the investor who had backed out of the restructuring (see §49 above). In these circumstances we do not think this point is fairly open to the JOLs to take on appeal. In any event, we do not think it is a good one.

71.First, the Cayman Court’s order issuing the 2^nd Letter of Request did not deal with costs of the subsequent steps. The 2^nd Letter of Request itself requested the Hong Kong court to recognise the JOLs, give them powers and make a number of orders including that “the remuneration and expenses of the JOLs be paid out of the assets of the Company in accordance with applicable rules and regulations”, but this was only a request, not an order of the Cayman Court. As to the Cayman WU Order, while it provided that the remuneration and expenses of the JOLs “be paid out of the assets of the Company”, this is qualified by the phrase “in accordance with Part III of the Insolvency Practitioners Regulations 2018 and Order 20 of the Companies Winding Up Rules 2018”. This is not a carte blanche for all the JOLs’ remuneration and expenses to be paid out of the assets of the Company without any further control by the court. Further, it is a general order relating to the liquidation process in the Cayman Islands and we doubt it is intended to have the effect of precluding any order depriving the JOLs of costs in all subsequent proceedings in all jurisdictions regardless of their conduct or the merits of the contentions involved.

72.Secondly, as Linda Chan J explained in her Leave Decision:[15]

“ In any event, the question as to how the Company’s assets should be used, at least insofar as they are located in or recovered by the liquidators appointed in Hong Kong, falls to be determined according to the CWUO. The JOLs have not identified any basis as to why they are entitled to stand above the statutory scheme.”

In other words, the application of the assets marshalled in Hong Kong is governed by Hong Kong law. The JOLs have not contended that the judge’s explanation is erroneous in law. Even assuming the Hong Kong winding up is ancillary to the winding up in the place of incorporation, i.e. the Cayman Islands, there is still the important function in the former of getting in and realising the Hong Kong assets. The ancillary character of the Hong Kong winding up would not relieve a Hong Kong court of the obligation to apply Hong Kong law to an issue arising in the proper application of the Hong Kong assets: see Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36 at §58. Properly approached, the Order made by Linda Chan J simply regulated the use of the Hong Kong assets, and did not “trample” on the Cayman WU Order.

73.Thirdly, the JOLs have simply asserted that the winding-up in Hong Kong is ancillary to the winding-up in the Cayman Islands, even though most of the creditors were located in Hong Kong and Mainland China and the Company was listed in Hong Kong. There was no discussion before the judge or in the argument before us where the Company’s centre of main interests was located, which may be relevant – and we put it no higher than that for we have not heard any argument in this respect – to the application for recognition and assistance from the Hong Kong court: see Re Lamtex Holdings Ltd [2021] 2 HKLRD 177; Re Global Brands Group Holdings Ltd [2022] HKCFI 1789; Re Silver Base Group Holdings Ltd [2022] HKCFI 2386. Furthermore, this case presents an unusual feature in that both the winding up petition and order in Hong Kong were the earlier in time, followed some months later by a winding up petition and order respectively in the place of incorporation. It has simply been assumed by the JOLs that the winding up in the Cayman Islands was the principal proceeding to which the Hong Kong winding up was ancillary.

74.Accordingly, there is no basis to suggest that the Order trampled on orders made by the Cayman Court or that court’s jurisdiction to regulate its own proceedings. There is no reasonable prospect of success in this ground.

Ground 10

75.Ground 10 says that the judge erred in concluding that the JOLs breached the duty of full and frank disclosure and made misrepresentations to the Hong Kong court and the Cayman Court. This may be dealt with together with the second point under Ground 1 which alleges there was a breach of natural justice in finding that the JOLs made misrepresentations in connection with the 2^nd to 8^th Representations.

76.It is in our view unnecessary to deal with each and every representation. The appeal is not one against individual findings or comments made by the judge, but against the Order. We shall focus on what appears to us to be the points of principal significance to the Order itself.

77.So far as the 3^rd Representation is concerned, what was stated in the 7^th Affirmation of Lai Wing Lun dated 17 February 2022 filed in the Cayman Court in support of the PLs’ application there was that the PLs consider the “swift recognition” of their appointment as JOLs in Hong Kong is of paramount importance; their appointment as PLs was recognised by the Hong Kong Court on 9 November 2020 following a letter of request issued by the Cayman Court on 15 June 2020; Lai is advised that the Hong Kong law position, as outlined in his affirmation used for the application for the 1^st Letter of Request, will similarly apply to the recognition of the JOLs.

78.The gravamen of the judge’s concern was that in the way the JOLs presented the matter to the Cayman Court, the application for the 2^nd Letter of Request was likened to the 1^st and the Hong Kong legal position with respect to the two requests was said to be the same, when the circumstances were actually fundamentally different because the Company had since gone into liquidation in Hong Kong. The Cayman Court was told implicitly that there would be a “swift recognition” of the JOLs. We note that at the hearing the judge raised her concern with counsel for the JOLs that the Company had been wound up in Hong Kong and the statutory machinery for winding up had come into operation, and eventually extracted an admission from counsel that he knew of no precedent in the common law world for an application like the one made by the JOLs. In these circumstances we find ourselves in agreement with the judge that the disclosure to the Cayman Court was inadequate and that the 3^rd Representation was not entirely accurate.

79.The JOLs have sought to argue that notwithstanding the prior existence of the Hong Kong winding up, upon the making of the Cayman WU Order the Cayman liquidation should have primacy as the liquidation in the place of the incorporation of the Company. We have no intention of entering into the complex questions of which liquidation should have primacy and which should be ancillary and so on, especially in the absence of adversarial argument. Nor do we think it profitable to speculate whether the Cayman Court would have made the same order had it been given a fuller and more accurate picture of Hong Kong law and its attention drawn to the unprecedented nature of what the JOLs were proposing, which was clearly a matter material to its consideration of the case. It is a salutary principle that applicants in such ex parte applications must make full and frank disclosure.

80.Connected to the above is the 4^th Representation. In Lai’s 7^th Affirmation filed in the Cayman Court, it was said that recognition by the Hong Kong court of the JOLs to be appointed by the Cayman Court was important for dispelling confusion over who had authority to act on behalf of the Company. At the hearing the judge raised with counsel what would be causing confusion and the answer counsel gave appeared to be that the PLs had previously been recognised by an order made by Harris J pursuant to the 1^st Letter of Request. Although counsel accepted that that order would cease to have effect upon the HK WU Order being made, he said that to avoid confusion, the recognition order should be expressly terminated.[16] The judge disagreed, taking the view that upon the making of the HK WU Order it was the Official Receiver who had authority to act on behalf of the Company in Hong Kong, and considered that the suggestion that the Application was needed to dispel confusion was misleading.[17] In any event, it seems to us that the need to terminate the previous recognition order relating to the PLs could be achieved by a simple application for that purpose and is not a justification for seeking a new recognition order in respect of the JOLs.

81.In terms of the 5^th Representation, the judge considered it misleading for the JOLs to assert to the Cayman Court that there had been “improvements” in the business and financial results of the Company. Mr Wong accused the judge of a breach of natural justice on the ground that the allegation was never put to the JOLs. However, we note that at the hearing, after referring to the JOLs’ statement on the improved operation and financial status, the judge specifically asked the JOLs’ counsel why the Cayman Court’s attention had not been drawn to what Linda Chan J said in the HK WU Reasons about the deterioration in the financial position of the Company. Counsel’s response was the unimpressive answer that it did not occur to anyone to mention this to the Cayman Court.[18]

82.Before us Mr Wong submitted that from a restructuring perspective, there were reasons for using gross profit (as opposed to the net loss) as a measure: first, it is a key and the simplest indicator of whether a company might have the potential of turning around; second, finance costs and other administrative expenses would be eliminated if the restructuring became effective. We have no evidential basis to assess this contention, but even assuming it is correct, the point is again that full disclosure should be made on an ex parte application such as that made to the Cayman Court, especially in light of the adverse findings made by the Hong Kong court on making the HK WU Order.

83.The 7^th Representation concerns creditors’ support for the restructuring scheme. The JOLs’ submission to the Cayman Court, as summarised in §13(d) of the Reasons for Judgment of the Cayman Court dated 15 March 2022, ran as follows:

“Chan J appears to have overlooked the ‘present and voting’ component of the 75% by value threshold for schemes of arrangement in both Hong Kong and the Cayman Islands. Accordingly, having disregarded the fact that only 54.4% by value of creditors have expressed a view to date and the fact that the overwhelming majority of that group wish to consider a restructuring, Chan J arrives at the definitive conclusion that ‘there is no basis for the Company to contend that the proposed Scheme is one which can be implemented’.”

84.If one is to amount such an ex parte attack on the Hong Kong court’s judgment in the Cayman Court, one should be extremely careful that the fullest disclosure is made. Linda Chan J considered that the JOLs failed to do so. It was asserted in counsel’s submission before us that the judge never raised this with the JOLs and breached natural justice. But this is a false point, since it is clear from the transcript that at the hearing, the judge specifically asked why the JOLs did not draw the court’s attention to the finding in the HK WU Reasons about the lack of requisite creditors’ support.[19]

85.Before us, counsel were unable to point to any evidence that showed there were such prospects of the scheme garnering sufficient creditors’ support that negated the judge’s views expressed in the HK WU Reasons. Furthermore, counsel did not seek to refute the judge’s criticism that the JOLs did not point out that one of the creditors relied on by the Company was Champion Alliance Industries Limited, whose debt accounted for over 24% of the total unsecured indebtedness but who was apparently a secured creditor. For the reasons explained by the judge, a secured creditor may have to be placed in a different class for the purpose of holding scheme class meetings, at least in respect of the secured portion of its debt.[20]

86.Consequently, the JOLs have in our view no reasonable prospect of success under this ground.

Conclusion

87.For all the above reasons, we are of the view that there is no reasonable prospect of success in the intended appeal, nor is there any other reason in the interests of justice for the intended appeal to be heard. The JOLs’ application for leave to appeal is accordingly dismissed. It follows that the JOLs’ application for leave to adduce new evidence is also dismissed.

88.Since these applications were made for the benefit of the JOLs themselves, there will be an order nisi that the JOLs are not entitled to have their costs of the applications paid out of the Company’s estate (on the understanding that this concerns the Hong Kong winding up rather than the JOLs’ position in the Cayman Winding up).

Mr William Wong SC leading Mr Look Chan Ho, instructed by DeHeng Law Offices (Hong Kong) LLP, for the Joint Official Liquidators