Joint and Several Liquidators of Hsin Chong Construction (Asia) Ltd (in Liquidation) v. Otis Elevator Co (H.K.) Ltd and Others

HCCW 316/2018

[2026] HKCFI 5794

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMI NISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 316 OF 2018

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BETWEEN

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D E C I S I O N

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I. INTRODUCTION

1.Before me are the following Summonses in relation to the same payments made to the 1^st, 3^rd and 4^th Respondents (collectively, the “Respondents”):-

(1)  The Summons filed by the liquidators (the “Liquidators”) of Hsin Chong Construction (Asia) Limited (In Liquidation) (the “Company”) on 1 November 2024 (the “Liquidators’ Summons”) for a declaration pursuant to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (the “CWUMPO”) that the following payments (the “Relevant Payments”) (totalling HK$49,162,000) are void and the sums (the “Relevant Sums”) of the payments should be returned to the Company:-

(a)  The payments made to the 1^st Respondent in the total sum of HK$4,738,000 (the “R1’s Payment”);

(b)  The payments made to the 3^rd Respondent in the total sum of HK$20,323,000 (the “R3’s Payment”); and

(c)  The payments made to the 4^th Respondent in the total sum of HK$24,101,000 (the “R4’s Payment”); and

(2)  The Summons filed by the Respondents on 15 July 2025 (the “Respondents’ Summons”) also under section 182 of the CWUMPO for a retrospective validation order in respect of the Relevant Payments.

2.Logically, if I dismiss the Liquidators’ Summons, the Respondents’ Summons would become unnecessary.

3.In the course of the arguments, an issue also arose as to whether the further Provisional Liquidators’ reports filed with the Court could be inspected and relied upon by the Respondents in these proceedings. I shall deal with this issue at the end of this decision.

II.  BACKGROUND

4.The general background has been summarised by DHCJ Maria Yuen in §§4-19 of her decision handed down on 17 March 2025 ([2025] HKCFI 1020) (the “17.03.2025 Decision”) on the Liquidators’ application for a declaration that the payments to the respondents in that decision (not the same Respondents before me) were void. Although they are not the same entities, all of the respondents in that decision and the Respondents were nominated sub-contractors (“NSCs”) in respect of the project under the Main Contract as defined in §7.1 of the 17.03.2025 Decision (the “Project”). For the general background here, I gratefully adopt §§4-19 of the 17.03.2025 Decision and shall not repeat the same. I add that like the payments in question in the 17.03.2025 Decision, the Relevant Payments in the present proceedings were all made after the presentation of the winding up petition on 5 November 2018.

III.  THE RESPONDENTS’ PRIMARY POSITION – THE COMPANY HAD NO RIGHT TO RECEIVE THE RELEVANT SUMS AND NO PROPERTY IN THE RELEVANT SUMS

5.The Respondents’ primary position, being the same as the only position taken by the respondents in the 17.03.2025 Decision as summarised in §3 of the 17.03.2025 Decision, is that the Company had no right to receive the Relevant Sums and the Relevant Sums were not the Company’s property. Therefore, the Respondents contend, section 182 is not applicable to make the Relevant Payments void.

6.This question is a matter of construction of the relevant contractual clauses. On 20 March 2026, the Court of Appeal (Barama, G Lam and Chow JJA) heard the appeal (CACV 191/2025) against the 17.03.2025 Decision. Both Ms Audrey Eu SC, leading Mr John Hui, counsel for the Liquidators, and Ms Eva Sit SC, leading Ms Astina Au, counsel for the Respondents, agreed that the better course of case management was for me to wait for the Court of Appeal’s judgment, and allow them to make short written submissions if necessary, and only after that should I hand down my decision.

7.On 21 September 2026, the Court of Appeal handed down its judgment ([2026] HKCA 1656) (the “CA Judgment”) allowing the appeal, holding that as a matter of contractual construction, the payments in questions were no longer the property of the Company by the time of the commencement winding up proceedings (§78). Ms Eu, in her subsequent written submissions, fairly accepts that the CA Judgment is binding upon me, but suggests that as a matter of case management, I shall defer my decision until after the disposal of the Liquidators’ intended appeal to the Court of Final Appeal.

8.In my view, the better way is to dismiss the Liquidators’ Summons (and for the avoidance of doubt, following the Court of Appeal, I would not make any retention monies payment order in respect of the 4^th Respondent). I take this course primarily because the Respondents’ Summons raises an important question of law, on which most of the submissions were spent before me, and I should deal with this important question so that in the event there would be another turn on appeal in the Court of Final Appeal, the disposal of the Respondents’ Summons would become a live issue, and so that the question of law may be taken to the appellate levels where necessary.

IV.  LEGAL PRINCIPLES IN RELATION TO RETROSPECTIVE VALIDATION

9.The question of law is how the Court should approach an application for retrospective validation, which is the issue under the Respondents’ Summons. In particular, how hindsight should be used in considering such an application. In dealing with the Respondents’ Summons, of course I assume that the Relevant Payments were the Company’s property at the time of the commencement of the winding up proceedings.

A.  General propositions not in dispute

10.It is useful to start with the general propositions which are not disputed before me:-

(1)  The burden lies on the applicant for a validation order to convince the Court that the valid order should be made: see Re Hsin Chong Construction Co Ltd (2021) 24 HKCFAR 98 (“Re Hsin Chong (CFA)”) at §18 per Riberio and Fok PJJ.

(2)  For any validation, prospective or retrospective, in respect of past debt or future debts, “the interests of the general body of creditors are determinative”: see Re Hsin Chong (CFA) at §31.

(3)  “[T]he court must do its best to ensure that [the creditors’] interests are not prejudiced”: see Re Hsin Chong (CFA) at §31.

(4)  “Validation orders may be made where the applicant shows that the disposition is likely to be or actually has been for the benefit of the unsecured creditors. Conversely, an order is likely to be refused if such benefit cannot be shown”: see Re Hsin Chong (CFA) at §31.

(5)  There must be a causal relationship between the disposition in question and the alleged benefit to the general body of creditors: see Re Hsin Chong Construction Co Ltd (No 3) [2021] 1 HKLRD 582 (“Re Hsin Chong (No 3)”) at §56 per G Lam J (as he then was).

(6)  Applications based on the likelihood of benefit arising from continuation of business or prejudice arising from cessation of business may not be straightforward and the Court is “entitled not to demand a massive investigation, with hindsight, into what the creditors’ situation would have been”: see Re Hsin Chong (No 3) at §52.

(7)  “The desirability of the company being enabled to carry on its business was often speculative. In each case the court must carry out a balancing exercise”: see Re Luen Cheong Tai Construction Co Ltd [2004] 1 HKLRD 735 at §6(5) per A Cheung J (as Cheung CJ then was) citing, with endorsement, Re SA & D Wright Ltd [1992] BCLC 901 at 904D-905B.

(8)  “[W]hile the policy of the law is to ensure the rateable distribution of the assets among the creditors, its application should not be approached in such a way that the very fact of a winding up petition being presented would inevitably bring about the collapse of the company as a viable concern”: see Re Hsin Chong (No 3) at §53.

(9)  “Where a large construction firm such as the Company [being the same Company in the present proceedings] is to cease business abruptly, there are likely to be a myriad of adverse consequences. Employers may terminate the construction contracts and re-enter the sites, possibly forfeiting the materials and partial buildings there, and withhold the release of the retention monies. Motor vehicles, plant and machinery may disappear. Claims will pour in from employers, suppliers and sub-contractors… [T]he continuation of trading, at least to such an extent as to permit an orderly winding down of the business, was likely to have been of benefit to the Company and therefore to its general creditors”: see Re Hsin Chong (No 3) at §55. I point out the obvious: his Lordship’s observation quoted here was specific to “a large construction firm such as the Company”. This observation may or may not be applicable to other companies, depending on the facts and context of each case. Here before me, I do not see Ms Eu disputes his Lordship’s observation.

B.  Hindsight in application for retrospective validation

11.As G Lam J said in Re Hsin Chong (No 3) at §26, referring to Re Tramway Building & Construction Co Ltd [1988] Ch 293 at 303D and Re Leric International Ltd [2009] 2 HKLRD 238 at §38 per Kwan J (as she then was), for a retrospective validation:-

“…it would not be a correct approach merely to compare the position of the unsecured creditors if a validation order is made with their position if it is not made. Instead the court should ask itself: (1) If a prior validation order had been sought, would it have been granted? (2) Has the disposition had the result, in the events which have happened, of reducing the assets available in the winding up for the unsecured creditors?”

12.Both Ms Eu and Ms Sit agree that the Court should ask the first question posed in Re Hsin Chong (No 3) at §26, namely, “(1) If a prior validation order had been sought, would it have been granted?”

13.Two main issues arise from the question “(2) Has the disposition had the result, in the events which have happened, of reducing the assets available in the winding up for the unsecured creditors?”  The first main issue is whether in a retrospective application, the Court may at all use hindsight in the sense of what have actually happened. Ms Eu’s answer is unequivocally in the affirmative. Ms Sit’s answer is that the Court cannot shut its eyes to what have actually happened, but Ms Sit also refers me to various cases (notably, Advanced EPI Technology Corporation v Vitelic (Hong Kong) Limited and Others, HCCW 130/2006, 2 August 2007 at §14 and Re Clifton Place Garage Ltd. [1970] 1 Ch. 477 at 493B-C) to advance a proposition that hindsight is irrelevant.

14.In my view, the most relevant case is the Court of Final Appeal’s judgment in Re Hsin Chong (CFA). In §31, Ribeiro and Fok PJJ said:-

“The interests of the general body of creditors are determinative in deciding whether a disposition of the company’s property after commencement of the winding up should be validated: the court must do its best to ensure that their interests are not prejudiced. Validation orders may be made where the applicant shows that the disposition is likely to be or actually has been for the benefit of the unsecured creditors. [footnote 26]” (emphasis added)

15.Ms Sit places some emphasis on the word “or” to support her proposition that for a retrospective validation order, either “likelihood of benefit” viewed at the time of the disposition, or “actual benefit”, would be sufficient. With respect, I disagree. This passage is a passage on the general legal principles on any application for validation order, without making any distinction between a prospective application and a retrospective application. When one reads footnote 26 to this passage:-

“As Sales LJ pointed out in Express Electrical Distributors Ltd v Beavis [2016] 1 WLR 4783 at §25: ‘In a case where a retrospective validation order is sought, as distinct from a prospective order, the range of evidence available is likely to be different. In a case where a retrospective order is sought it may have become clear whether a particular transaction or the carrying on of the company’s general business in fact turned out to be for the benefit of the general body of creditors or not, whereas in a case where a prospective order is sought the court will have to make an assessment on the basis of such evidence as is available of what is likely to transpire in the future’” (emphasis added)

it is clear that for a retrospective application, one has to consider actual benefit. It is perhaps more appropriate to read §31 together with footnote 26 to mean that the Court has to consider likelihood of benefit, or actual benefit, as the case may be.

16.From §31 and its footnote 26, the Court of Final Appeal clearly endorses the approach that hindsight, or what have actually happened, may be used to assess whether the disposition should be retrospectively validated. The top court’s endorsement aside, this approach makes sense. In a prospective validation application, the Court has no choice but to a certain extent make speculation. In a retrospective validation application, when the evidence of what has actually happened is available, the Court could minimise the extent of speculation. What has actually happened is the best evidence. For example, howsoever optimistic the projection of the business resulting from a disposition is, if the disposition not only did not result in the business as optimistically projected, but even in substantial loss to the company such that it could no longer be regarded as a going concern. Faced with what actually happened, it would, in my view, be absurd to still just look at the optimistic projection without regard to the reality. The example I just gave is a straightforward illustration, similar to the one given by Harris J in Paul Y. Construction Company, Limited [2025] HKCFI 1271 at §16. Commercial life is seldom so straightforward, but rather carries a degree of risk and speculation inherent in the commercial decision itself and extraneous to the commercial decision like the macro-economic situation.

17.A variation of my example can be that the disposition was thought to yield to three benefits, (1) a profit of HK$X; (2) a continuation of the business which has been making profit generally; and (3) avoidance of any potential claim of HK$Y should the underlying transaction of the disposition did not go ahead. In this varied example, what has actually happened is that not only no profit has been made at all, be it the estimated HK$X or any dollar and cent, but loss of HK$X has been caused by the disposition. Now with the benefit of hindsight, clearly the benefit of a profit has not been actualised, or has been actualised in the opposite way. However, the other two benefits, namely, continuation of business which has still and actually been profit, and avoidance of potential claim, can only still be speculative. For the continuation of business, it is still speculative in the sense that with or without the disposition, the business may still have continued. For the avoidance of potential claim, it is still speculative in the sense that without the disposition, a potential claim would be made against the business, and also speculative in the sense that the potential claim would be allowed.

18.A further varied example is that the disposition was HK$A, and it was thought to yield to three benefits, (1) a profit of HK$X; (2) a continuation of the business which would make a profit of HK$Z with 80% probability; and (3) avoidance of any potential claim of HK$Y which has been assessed to be 70% meritorious. It would be very tempting, with all these numbers, to consider the validation application mathematically, that is, if X + (Z x 80%) – (Y x 70%) ≥ A, then the application should be granted, and if X + (Z x 80%) – (Y x 70%) < A, then the application should be refused. However, rarely in reality can a commercial decision be converted into such a mechanical equation for determining whether the disposition would not prejudice the general body of creditors at the very least, and even if it can be, I would say that it is still inappropriate to approach such a question in such a mathematical way. No doubt, all these figures (the profit being actual and the others remaining estimates) would be relevant. However, as in all the other evaluative assessments and balancing exercises carried out by the Court, the assessment and the balancing exercise of whether the disposition is or was for the interests of the general body of creditors is both qualitative and to an extent quantitative.

19.Another varied example is that for the profit of HK$X expected to be made from the disposition turned out to be a loss of HK$X, not because of the disposition or anything done by the parties involved, but purely because of, for example, a black swan. The total net outcome for the company is indeed a loss of HK$X arising from the disposition. However, can one say that there was any causal link required between the disposition and the loss? This would still carry some degree of speculation even after the event.

20.I go through the above examples to demonstrate two points. In determining whether the applicant has discharged its burden, while Court should consider what have actually happened:- 

(1)  The Court has to be careful not to fall into an impression that what have actually happened is the only thing that has happened, because what have actually happened may only be one of the many benefits of the disposition, and what have actually not happened or not yet happened may be some other benefits to the general body of creditors; and

(2)  What have actually happened upon the disposition in question are not necessarily caused by the disposition.  

21.The second issue arising from question (2) posed by G Lam J in Re Hsin Chong (No 3) as quoted above seems to be whether question (1) (that is, what would likely happen) and question (2) (what have actually happened) are relevant considerations among others, in the balancing exercise under section 182, or whether questions (1) and (2) should be answered in an open-and-shut question-by-question manner, that is, if the answer to question (1) is in the affirmative, then ask question (2), and if the answer to question (2) is in the affirmative, then the application should be refused, or if the answer to question (2) is in the negative, then the application should be granted.

22.In my view, the answer is the former, that is, questions (1) and (2) are among relevant considerations. I take this view for the following reasons:-

(1)  For example, for a disposition which would at the time of the entering into the disposition have been estimated to cause a big loss to the company but which has actually turned out to be a big success to the company, the answer to question (1) would be negative and the answer to question (2) would be positive. Even Ms Sit, whose primary position is that hindsight is irrelevant or of little relevance, has to accept, sensibly, that in such a situation, the Court is very likely to grant a validation order. This example shows that questions (1) and (2) are not to be considered in an open-and-shut question-by-question manner.

(2)  Another example is that a disposition which would at the time of the entering into the disposition have been estimated to yield a big gain to the company but which has actually turned out to be a HK$10 loss to the company of a total net asset value of HK$100 million. Everything being equal, in such a situation, G Lam J’s observation at §53 of Re Hsin Chong (No 3) is most pertinent, and worth me quoting here again:-

“[W]hile the policy of the law is to ensure the rateable distribution of the assets among the creditors, its application should not be approached in such a way that the very fact of a winding up petition being presented would inevitably bring about the collapse of the company as a viable concern”.

In other words, one cannot take too strict an approach that would cripple the business of the subject company. Question (1) would still be relevant for a balanced approach.

23.I add that in such an approach as not to bring a viable concern inevitably to collapse, lack of a prospective application despite the applicant’s knowledge of the existence of the winding up petition is a relevant consideration, but generally not fatal, to a validation application: see Re Vitelic (Hong Kong), supra at §13 per Barma J. It is a matter of degree, bearing in mind the interests of the general body of creditors.

24.There is a subsidiary point raised by Ms Sit in relation to hindsight which is worth some discussion. In arguing for a proposition that hindsight should carry little weight, if any, Ms Sit points out that section 182 does not make distinction between a prospective application and a retrospective application, and therefore, the same test should apply. She submits that in a prospective application, where what would actually happen could not be considered, there is no reason why for a retrospective application, what have actually happened should be considered. My view is that in these two types of application, the litmus test is still the interests of the general body of creditors. It is how this test is applied or manifested that is different because of the different natures of a prospective application and a retrospective application. This happens almost to any kind of proceedings where the Court is asked to consider evidence of estimates or valuations. The most prominent example is damages in tort. An application for a validation order is another. What the Court would actually like to do is to know what would actually happen, rather than what would likely happen. It is just that for a prospective application, the Court has no way to know what would actually happen, then it tries its best to form a view as to what would likely happen. For a retrospective application, what would actually happen have happened, and thus the Court should consider this. One may say that there is random, unequal treatment between a situation where the third party or the company itself did not know that a winding up petition has been presented, rendering an application for validation order necessarily retrospective, and a situation where the third party and the company know soon enough that there is a petition presented to halt the transaction, to render the application for the validation order prospective. Unequal it may seem, such randomness is part of everyday life every person and every business have been living with.

25.From the above on hindsight, I venture to summarise the legal principles as follows:-

(1)  What have actually happened are a relevant consideration;

(2)  This relevant consideration has to be considered together with, among others, the likelihood of benefit at the time of the disposition under question (1) posed by G Lam J in Re Hsin Chong (No 3);

(3)  The exercise is an evaluative assessment and a balancing exercise, but not a massive investigation into details especially when continuation of business is one of the benefits;

(4)  The Court has to be careful in considering whether what actually happened are or are not wholly or partly caused by the disposition in question; and

(5)  In complicated commercial reality, in this evaluative assessment and a balancing exercise, no one consideration can be said to be decisive, and different context warrants different weights accorded to different considerations.

26.On the above principles, both Re Vitelic (Hong Kong), supra, and Re Clifton Place Garage Ltd, supra, relied upon by Ms Sit for her proposition that hindsight is irrelevant, can be explained consistently with hindsight being relevant:-

(1)  In Re Vitelic (Hong Kong), supra, the retrospective application was made in relation to the fee of the solicitors’ services rendered in relation to a proposed disposal of a long-term lease of the company to obtain a HK$7 million to pay the debt. A prospective application for a validation order of the proposed disposal of the long-term lease was made and obtained. The proposed disposal eventually did not go through. The solicitors applied retrospectively for a validation for paying their fees in relation to the proposed disposal, including the fees for the prospective application for the proposed disposal. Despite the dicta in the decision appearing to suggest that a retrospective application cannot be determined with the benefit of hindsight, this case can be explained by the fact that the solicitors’ fees were incidental to the proposed disposal which had already been prospectively validated. It is not necessary to arrive at the same decision on the dicta that hindsight is not relevant (§14).

(2)  In Re Clifton Place Garage Ltd, supra, a winding up petition had been presented against the subject company. The receiver of the parent company of the subject company was misled by the director of the subject company (also the director of the parent company) to believe that the subject company would be a valuable asset for the parent company and so the subject company should continue to trade as a going concern. To enable the continuation of the trading of the subject company, the receiver (on behalf of the parent company) advanced moneys out of the parent company’s pocket to the subject company, in return for the latter’s daily receipts to reimburse those advances. The total advances from the parent company were approximately GBP4,800, and the total daily receipts paid by the subject company to the parent company were approximately GBP4,000. The liquidator of the subject company sought the return of the GBP4,000, and the receiver of the parent company applied for a retrospective validation order. The court granted the validation order. This case can readily be explained by the fact that in this arrangement, the subject company received a total of GBP4,800 and paid out a total of GBP4,000 only, making a gain of GBP800. But for this arrangement, the parent company would not have made the GBP4,800 advancements in the first place, and thus viewed as a one single transaction, the gain of GBP800 obviously was to the benefit of the creditors of the subject company. One does not have to arrive at the conclusion in favour of the validating order by resorting to the dicta apparently suggesting that hindsight is irrelevant (493B-C).   

(3)  In any event, these two cases were decided well before Re Hsin Chong (CFA), which, as I mentioned above, endorsed the approach of considering what have actually happened as a relevant consideration.

V.  ANALYSIS

27.In the analysis, I bear in mind the following dates and events:-

(1)  On 12 May 2017, the 2^nd Supplementary Agreement (the “2^nd SA”) was entered into between the Company and the Employer.

(2)  In May 2017, the Respondents signed a letter issued by the Company informing that of the direct payment arrangement under the 2^nd SA.

(3)  On 2 October 2018, the certificate (the “Certificate of Practical Completion”) for practical completion (the “Practical Completion”) of the Project was issued.

(4)  From 2 October 2018 to 2 October 2020 was the defects liability period.

(5)  On 5 November 2018, the winding up petition herein was presented.

(6)  From 7 November 2018 to 17 August 2020, the Relevant Payments were made.

(7)  On 1 June 2020, Harris J made a winding up order against the Company.

28.Ms Sit’s submissions, can be summarised as follows:-

(1)  The Relevant Payments were part of the direct payment arrangement under the 2^nd SA. The 2^nd SA enabled the NSCs to continue the work under the Project, thereby keeping the Project afloat and allowing the Main Contract to continue to be performed pre-petition and post-petition.

(2)  That the Project was kept afloat yielded certain actual positive benefits to the Company, namely: (a) HK$11,295,350 paid to the Company under Interim Certificates 31, 32 and 33; and (b) the 1% profit on the direct payments made to NSCs (that is, HK$49,162,000 x 1% = HK$491,620).

(3)  That the Project was kept afloat also had negative benefits in the sense that the Company’s exposure to real and substantial damages claims by the Employer and others had been reduced. In this regard, Ms Sit specifically refers me to the estimated “potential counter claims and contra charges” under the “Liquidation Scenario” in the amount of HK$239,000,000 in the Annex to the 3^rd Provisional Liquidators’ Report dated 22 March 2019 and the Annex to the 4^th Provisional Liquidators’ Report dated 14 August 2019.

(4)  These reports and all the other Provisional Reports (the “PL Reports”) essentially took the view that the projects (including the Project) of the Company should continue for the benefit of some restructuring or scheme then under contemplation and to avoid liquidation.

(5)  As regards the Practical Completion on 2 October 2018, the Court should be aware that substantial amounts of variation orders were issued to the Respondents after the Practical Completion, meaning either that it was effectively no practical completion, or that even if it was real practical completion, there were still substantial amount of works to be carried out to keep the Project afloat for the Company to receive profits and/or to reduce the risk and amount of potential claim.

29.I shall analyse the above one by one first, and then also consider them together cumulatively.

30.For (1), while the direct payment arrangement as a whole under the 2^nd SA could be said to allow the Project to continue, I do not think that there is any evidence or basis to say that the Relevant Payments, all made after the Practical Completion, were necessary to keep the Project afloat. The reasons for my view are as follows:-

(a)  As Ms Eu points out, the Certificate of Practical Completion was issued by architects upon their professional judgment. There is no evidence to say that their professional judgment is flaws. The Respondents’ evidence that while the Project was certified to have been practically completed, the works were not completed in practical terms is mere allegation without much explanation. Insofar as Ms Sit would rely on the substantial amounts of variation orders of substantial value of work issued after the Practical Completion, forceful her submissions are, the difficulty in such submissions is that there is no evidence to explain what kinds of such work were, for example, remedial during the 2-year defect liability period? Touch-up work? Substantial work without which there should not have been Practical Completion despite the architects’ certification? 

(b)  Absent any satisfactory evidence to explain away the Practical Completion, the Project had already been practically completed before the Relevant Payments were made, or in any event, the Project had been completed to the extent that any further work could not be said to be necessary to keep the Project afloat. In such circumstances, I do not accept that the Relevant Payments were necessary to keep afloat the Project which had already been completed to such an extent.

31.For (2), even if I assume that the Relevant Payments did keep the Project afloat or regardless and did yield to the actual positive benefits, such benefits were disproportional. The amount of the Relevant Payments were much larger than the amount of such benefits. Of course, I bear in mind what I have said above – this exercise is not a purely mathematical exercise, and I should also look at other potential benefits like continuation of the business and avoidance of potential loss. These are in the other points made by Ms Sit. For this (2) alone, I focus on the mathematics only.

32.For (3), assuming that the Respondents can rely on the PL Reports (an issue I would deal with towards the end of this decision), the potential loss estimated in the PL Reports was estimate made for the liquidation scenario. In other words, to say that the Relevant Payments would avoid such the estimated amount of loss stated in the PL Reports, there has to be some evidence to say that the Relevant Payments were not only necessary to keep the Project afloat, but also to avoid liquidation of the Company. In my view, first, as explained above, I am not satisfied that the Relevant Payments were even necessary to keep the Project afloat. Second, the estimate was estimate only. Third and in any event, as a matter of fact, the liquidation scenario was not avoided but eventually realised by the winding up order made on 1 June 2020. In other words, the Relevant Payments had not avoided the liquidation scenario, something that has actually happened and that I cannot ignore. That said, I am aware that there might well be loss or potential loss that has been avoided as a result of the Relevant Payments. This likelihood is something I should take into account.

33.For (4), while the PL Reports took the view that the projects of the Company should continue, in my view, first, it is not clear at all whether the Project out of 11 projects would make much different; second, even so (on the basis that the Project was a very substantial project yielding substantial income for the Company), the context of the PL Reports was a comparison between restructuring or a scheme and a liquidation; and third and in any event, liquidation did take place despite the Relevant Payments.

34.For (5), in relation to the significance of the Practical Completion and the substantial work under the variation orders, I have expressed my view above when dealing with (1) above.

35.I should also bear in mind what G Lam J warned about in Re Hsin Chong (No 3), supra at §53, that is, to avoid approaching a validation order application in a way “that the very fact of a winding up petition being presented would inevitably bring about the collapse of the company as a viable concern”. For this, viewing the Relevant Payments as if they were prospective dispositions, I would not be able to see evidence for any suggestion that the Relevant Payments would prevent the collapse of the company as a viable concern for similar reasons, or the Relevant Payments could enable the continuation of the business of the Company: the Relevant Payments were made after the Practical Completion of the Project being only one of the many projects the Company had and the amount of the potential loss as a result of refusing the Relevant Payments, though the potential could exist, was not entirely clear.

36.Having considered all the above, the likelihood of benefits (positive and negative) and the actual benefits (positive and negative) are, I am not satisfied that the Relevant Payments would be in the interests of the general body of creditors. So, I would refuse to grant the validation order sought, if the Relevant Payments were the Company’s property at the time of the commencement of the winding up proceedings.

VI.  CONCLUSION

37.In the circumstances, I dismiss the Liquidators’ Summons, and make no order on the Respondents’ Summons. I make a costs order nisi that there shall be no order as to costs, because a substantial time was incurred on the Respondents’ Summons which I would have dismissed but for the Court of Appeal’s judgment dismissing the summons similar to the Liquidators’ Summons before me.

VII.  THE RESPONDENTS’ INSPECTION OF THE PROVISIONAL LIQUIDATORS’ REPORTS

38.As mentioned at the outset, an issue has arisen from the Respondents’ inspection, taking copies and use of the PL Reports. The Liquidators’ position is that the Respondents are not entitled to inspect the PL Reports.

39.The PL Reports in questions were prepared and filed before the winding up order was made, and all of them are stated to be “Strictly Private and Confidential”. Unlike reports prepared and filed after a winding up order pursuant to section 191 of the CWUMPO or rule 45 or rule 45 of the Companies (Winding-up) Rules (Cap. 32H), the PL Reports, being reports prepared and filed before the winding up order was made, are not governed by any statutory provisions. The confidentiality, if any, of the PL Reports will then have to considered on their own.

40.The PL Reports were all prepared to provide the Court with an update on the status of the Companies in respect of a possibility of restructuring or a winding up. They were prepared for the Court and the creditors to consider what option between a winding up or a restructuring should serve the creditors’ interests. They were not prepared for the purpose of analysing whether the Relevant Payments would serve the creditors’ interests for the purpose of a validation order, retrospective or prospective. In my view, the probative value of such reports as the PL Reports, if any, is little, and given the confidentiality nature (impressed upon by “Strictly Private and Confidential”), the starting point is that only parties to the petition and the creditors can inspect such reports.

41.Who are the creditors? Not anyone who claim to be. They have to go through the usual procedure for the liquidators to determine whether to admit them as creditors. In general, only admitted creditors count. That said, if an applicant for a retrospective validation order fails to obtain such an order, then he may become an admitted creditor. Like the present case, the Respondents would have to repay the Liquidators the Relevant Sums, and as a result, their works become unpaid, and they become creditors, and in all likelihood, the Liquidators would have to admit them as creditors. In such circumstances, in my view, to avoid any duplication or multiplicity of proceedings, the Respondents should be granted access and inspection to the PL Reports.

42.However, in the present case, the way the Respondents obtained access and inspection of the PL Reports is less than satisfactory. It was the 3^rd Respondent who wrote to the Registry on the purported basis that it was a creditor and requested for inspection. Inspection was granted on paper, the 3^rd Respondent took copies, and the 3^rd Respondent shared the copies with the other Respondents in the present case. Further, the Respondents did not make any indication that they would rely on the PL Reports until after the exchange of affirmation evidence. This would leave the Liquidators no proper chance to answer, for example, by providing proper context to understand the PL Reports.

43.To avoid any such less-than-satisfactory way of using such reports as the PL Reports, in the future:-

(1)  A party in the position of the Respondents should write to the liquidators or provisional liquidators for the reports on the basis that if that party’s application for a validation order would fail, that party would or would likely become a creditor;

(2)  Unless there is any good reason, the liquidators or provisional liquidators should allow that party access and inspection of the reports; and

(3)  The party’s use of the reports in support of its application for a validation order should be made in its supporting affirmation (or in the context of the present case, opposing affirmation) so that the liquidators or provisional liquidators would have a chance properly to answer the reports. Otherwise, the liquidators or provisional liquidators, if they see fit, should apply for leave to file further evidence to answer the reports.

44.Lastly, I thank Ms Eu and Mr Hui, counsel for the Liquidators, and Ms Sit and Ms Au, counsel for the Respondents, for their able and thorough assistance.

Ms Audrey Eu SC and Mr John Hui, instructed by DeHang Law Offices (Hong Kong) LLP, for the Applicants

Ms Eva Sit SC and Ms Astina Au, instructed by Hogan Lovells Cadwalader, for the 1^st, 3^rd and 4^th Respondents

The Official Receiver is absent