Re Kwan on Construction Co Ltd

HCMP 171/2026

[2026] HKCFI 5843

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 171 OF 2026

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REASONS FOR DECISION

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Introduction

1.By order dated 20 August 2026 following the last hearing on that date, this Court granted leave to Kwan On Construction Company Limited (“Company”) to convene a Scheme Meeting of its Scheme Creditors in connection with the proposed Scheme[1].

2.The Scheme Meeting was convened on 18 September 2026, and the Scheme was duly approved.  Despite some irregularity in the convening of the Scheme Meeting, primarily through the Company’s failure to courier the Scheme Meeting notice (“Scheme Meeting Notice”) and composite Scheme document (“Scheme Document”) in the manner prescribed in the Convening Order, no prejudice was occasioned by these irregularities, for the reasons explained below at [37] and [39].

3.By a petition presented on 25 September 2026, the Company sought the Court’s sanction of the Scheme under section 673 of the Companies Ordinance (Cap. 622) (“Ordinance”).  At the hearing, I sanctioned the Scheme.  These are the reasons for my decision.

Background

4.The Company was incorporated in Hong Kong on 28 May 1991.  The Company is wholly owned by Win Vision Holdings Limited, a British Virgin Islands company principally engaged in investment holding.

5.The Company, alongside its subsidiaries (together the “Group”), is engaged in the business of providing construction and maintenance works on civil engineering contracts in respect of buildings, waterworks, site formation, road works, drainage and slope upgrading in Hong Kong, as well as trading of construction materials.  Additionally, the Company is a contractor registered on the list of public works contractors maintained by the Hong Kong government.

6.The Group has recently experienced financial difficulties arising from, inter alia, (i) project delays, leading to increases in project costs and overheads, (ii) heightened competition within the Hong Kong construction industry, and (iii) disruptions caused by the COVID-19 pandemic.

7.As at 31 March 2026, the Company had trade receivables and contract assets of approximately HK$21,570,000 (“331 Contract Receivables”).  Pursuant to Scheme projections, the estimated recoverable amount from the 331 Contract Receivables is approximately HK$16,180,000, subject to realisation, timing and other uncertainties.  This forms a part of the assets to be realised and distributed to Scheme Creditors under the Scheme.

8.On 11 April 2025, a winding up petition was presented against the Company by Kofrey Engineering Company Limited in HCCW 214/2025.  This petition has been adjourned, and no hearing date has been fixed as of yet.

9.The latest summary of the Company’s and the Group’s financial position is as follows:

(1)  The Group recorded a net loss of HK$29,100,000 for the financial year ending in 2025 (“FY25”, and hereafter for any given financial year “FY[#]”).

(2)  Excluding the New Creditors (see [9(3)] below), the Company has a total outstanding debt of HK$259,430,000 owed to 197 creditors (all governed by Hong Kong law) comprising the following: (i) HK$258,070,000 in unsecured debts, representing mostly trade and other payables, which are the subject matter of the compromise envisaged by the Scheme; and (ii) HK$1,360,000 of Preferential Claims (employee-related claims).

(3)  After the Convening Order, 18 new creditors were discovered by the Company (the “New Creditors”).  In addition to the abovementioned HK$258,070,000 in unsecured debts, the New Creditors’ aggregated claims amount to HK$9,342,057.45.

The Scheme

10.The key outcomes of the Scheme are twofold:

(1)  The discharge and release of all Claims of the Creditors against the Company as at the Effective Date; and

(2)  In exchange, Scheme Creditors with claims admitted by the Scheme Administrators or Adjudicator in accordance with the Scheme comprising the principal and any accrued interest up to the effective date (“Admitted Claims”) shall be entitled to the Cash Instalment Arrangement.

11.Based on the liquidation analysis included in the Scheme Document, the recovery rate in the liquidation scenario is 1.05%.  On the other hand, the recovery rate in the Scheme scenario stands at 24.47%, although said rate is capped at 20%.

12.Through the Scheme’s Cash Instalment Arrangement, Scheme Creditors will be entitled to receive from the SchemeCo (a special purpose vehicle to be established and controlled by the Scheme Administrators) up to 20% of their Admitted Claims by cash payments comprising (i) the First Interim Distribution and (ii) the Yearly Distributions.

13.The First Interim Distribution is to be made within three months after the Effective Date, and will be derived from the First Interim Payment.  The latter is to be paid by the Company to the SchemeCo within three months after the Effective Date and shall comprise (i) any amount realised from the 331 Contract Receivables up to that point, and (ii) 50% of the proceeds from the Proposed Subscription, subject to a cap of HK$20,000,000.  After having received the First Interim Payment, the SchemeCo will pay the same to the Scheme Creditors on a pari passu basis after (a) paying the Preferential Claims, estimated at HK$1,360,000; and (b) reserving HK$3,000,000 for Scheme Costs.

14.The Yearly Distributions are divided into the First Yearly Distribution and the subsequent Yearly Distributions:

(1)  The First Yearly Distribution will be made on the First Yearly Distribution Date, which is to be determined by the Scheme Administrators following review of the audited financial statements for FY2027, set to be sometime in July 2028.  Subject to settlement of the Preferential Claims and the Scheme Costs, it will comprise (i) 80% of the Free Cash (see [15] below) for FY2027, to be determined by the Company and subject to review by the Scheme Administrators; and (ii) the remaining proceeds realised from the 331 Contract Receivables after the First Interim Distribution.  It will be funded by the Yearly Payment, to be made by the Company to the SchemeCo no later than 20 business days before the First Yearly Distribution Date.

(2)  As for the Subsequent Yearly Distributions, they will be made on the Yearly Distribution Date, being the anniversary of the First Yearly Distribution Date, until the fourth anniversary.  They will comprise, subject to settlement of the Preferential Claims and the Scheme Costs, 80% of the Company’s Free Cash for the relevant financial year.  These will similarly be funded by the Yearly Payments, to be made by the Company to the SchemeCo no later than 20 business days prior to each relevant Yearly Distribution Date.

15.The Company’s Free Cash, in respect of any relevant financial year, is defined as the amount of cash available for payment under the Scheme.  This is initially assessed by the Company and subsequently reviewed and determined by the Scheme Administrators, by reference to the audited financial statements of the Group for that financial year, after deducting: (a) all unpaid Scheme Costs then due or reasonably expected to fall due; and (b) such amount as the Company considers necessary to be retained by the Group for its working capital, operational requirements and business needs for the following financial year.

16.Based on the latest cashflow forecast put forward in the ES, the 80% Free Cash over the relevant period (for FY2027–FY2031) is estimated to be HK$34,330,000. However, where for any relevant financial year the Scheme Administrators determine that there is no Free Cash available for distribution, the Company is not required to make a Yearly Payment, nor would a Yearly Distribution be payable.

17.The amount to be distributed to each Scheme Creditor for both the First Interim Payment and all Yearly Distributions will not exceed 20% of each Scheme Creditor’s Admitted Claim.  The Company’s obligation to make Yearly Distributions will cease upon the expiry of the fourth anniversary of the First Yearly Distribution Date, and any portion of an Admitted Claim which remains unpaid thereafter shall be fully and irrevocably discharged.

18.The “Scheme Administrators”—Lai Kar Yan (Derek), Kam Chung Hang (Forrest) and Chan Chi Chung (Adrian) of Ernst & Young Transactions Limited—will be jointly and severally appointed to administer the Scheme.  They will manage the SchemeCo and the Scheme Trust Account, though certain powers require the sanction of the Scheme Creditors’ Committee[2], comprised of (1) Regent Engineer Company Limited, (2) Sino Coronet Group Limited, and (3) G&K Consultancy Limited, all nominated and elected at the Scheme Meeting.

19.The Scheme Administrators will issue notices requiring Creditors to submit a Notice of Claim for Scheme Purpose.  The Scheme Administrators will then examine every Notice of Claim for Scheme Purpose and decide whether to admit or reject the Claim (in whole or in part).

20.If a Creditor is dissatisfied with the Scheme Administrators’ decision in respect of their Claim, they may apply within 21 days upon payment of HK$50,000 on account of the Adjudicator's costs in writing to the “Adjudicator”—being a person with experience in the adjudication of creditors’ claims in a liquidation as the Scheme Administrators shall nominate in their absolute discretion—for a review of the decision.  The Adjudicator’s decision will be final, conclusive and binding on the Creditor and the Scheme Administrators.

21.The Scheme will take effect and be legally binding on the “Effective Date”, which is the date on which all conditions precedent stipulated in Clause 3 of the Scheme are met.  Those conditions precedent are (i) the prescribed majority of the Creditors voting in favour of the Scheme, (ii) the Scheme having been sanctioned by the sanction order, (iii) the registration of an office copy of the sanction order by the Companies Registry, and (iv) the Initial Cash Payment of HK$2,000,000 being received by the SchemeCo within 60 days after the Scheme is sanctioned by the court (or such extended date as may be agreed by the Company with the Scheme Administrators)[3].

Scheme Costs

22.The total Scheme Costs are currently estimated at approximately HK$5,000,000.  They shall not exceed HK$7,000,000 unless otherwise approved by the Scheme Creditors’ Committee.

23.The Company is required to deposit an “Initial Cash Payment” of HK$2,000,000 with the SchemeCo.  Thereafter, the Company shall make provisions and/or payment to the SchemeCo in respect of the Scheme Costs within a reasonable time upon the demand of the Scheme Administrators[4].

24.The costs of preparing and making applications to this Court (e.g. professional fees in drafting the Scheme Document, costs of the Leave Hearing and this hearing) are borne by the Company separately and are not paid out of the Scheme Funds[5].

Legal Principles

25.In considering whether a Scheme should be sanctioned, the Court will consider the following factors, as explained in my decision in Re Sunac China Holdings Ltd[6] at [17]:

(1)  whether the scheme is for a permissible purpose;

(2)  whether creditors who were called on to vote as a single class had sufficiently similar legal rights such that they could consult together with a view to their common interest at a single meeting;

(3)  whether the meeting was duly convened in accordance with the Court’s directions;

(4)  whether creditors have been given sufficient information about the scheme to enable them to make an informed decision on whether or not to support it;

(5)  whether the necessary statutory majorities have been obtained;

(6)  whether the Court is satisfied in the exercise of its discretion that an intelligent and honest man acting in accordance with his interests as a member of the class within which he voted might reasonably approve the scheme; and

(7)  in an international case, whether there is sufficient connection between the scheme and Hong Kong, and whether the scheme is effective in other relevant jurisdictions.

26.In my view, each of the above factors are satisfied in the present case.

Permissible Purpose

27.The Scheme’s purpose, being to restructure the Claims so as to restore the Company’s financial position and maximise recovery for the Creditors, is a permissible one: Re Hong Kong Petrochemical Company Limited[7] at [14].

Class Composition

28.When considering whether creditors are properly classified, it is the rights of creditors, rather than their separate commercial or other interests, which determine whether they form a single class or separate classes.  The Court is to take a broad approach to the composition of class so as to avoid giving unjustified veto rights to a minority group of creditors: Re Sino-Ocean Land (Hong Kong) Ltd[8] at [29].

29.The question is whether the “rights in” (i.e. the Scheme Creditors’ rights as against the Company absent the scheme) and “rights out” (i.e. any new rights conferred on the Scheme Creditors by the Scheme) of those proposed to be included in a single class are so dissimilar as to make it impossible for them to consult with a view to their common interest: Re Sunac China Holdings[9].

30.Here, the Creditors can constitute one class for the purpose of the Scheme.  They have materially identical “rights in” since they are the Company’s entire body of general unsecured creditors, all holding Hong Kong law-governed debts representing “trade and retention payables”.  Their “rights out” are materially identical because the Scheme treats them equally, i.e. the right to receive cash distributions proportionate to and up to 20% of their Admitted Claims: Re Hong Kong Petrochemical Co Ltd[10].  They are all given the same Scheme consideration: Re Da Yu Financial Holdings Ltd[11] at [24].

Compliance with the Convening Order

31.The Convening Order has in large part been complied with, as the Company:

(1)  Advertised the Scheme Meeting Notice dated 27 August 2026 in “The Standard” and “Sing Tao Daily” on 27 August 2026—pursuant to section 2(a) of the Convening Order.

(2)  Sent the Scheme Document, together with the Scheme Meeting Notice, the Form of Proxy and the Notice of Claim for Voting Purpose, in English and in Chinese, by email to the Creditors’ valid email addresses appearing in the books and records of the Company (if any) on 27 August 2026—pursuant to sections 2(b) and 4(b) of the Convening Order.

(3)  Sent the same documents by ordinary post to the Creditors’ addresses last known to the Company (if any) on 27 August 2026—pursuant to sections 2(c) and 4(c) of the Convening Order.

(4)  Made the same documents available for collection free of charge from the Company’s information agent at CCTH CPA Limited situated at Unit 1510-1517, 15/F, Tower 2, Kowloon Commerce Centre, No. 51 Kwai Cheong Road, Kwai Chung, New Territories, Hong Kong since 27 August 2026—pursuant to section 4(a) of the Convening Order.

32.As per section 6 of the Convening Order and as stated in the Notice of Scheme Meeting, Creditors were able to attend the Scheme Meeting to vote in respect of the Scheme in person, by a duly authorised representative (if a corporation), by proxy, or by virtual meeting (Microsoft Teams call).

33.The Scheme Meeting was duly held on 18 August 2026 at Room 201, 2/F, Pico Tower, 66 Gloucester Road, Wan Chai, Hong Kong on 18 September 2026 at 2:30pm; and via a virtual meeting on Microsoft Teams.  44 Creditors attended the Scheme Meeting by the following means, of which 0 attended in person; 38 attended by proxy; and 6 attended virtually.

34.One corporate creditor—Toyo Greenland Company Limited (“Toyo Greenland”)—attended and sought to vote at the Scheme Meeting.  However, Toyo Greenland had not lodged any Notices of Claim for Voting Purpose (“NCVP”) or Form of Proxy by the prescribed deadline.  Toyo Greenland was therefore not counted as present and voting.

35.The Company has drawn my attention to the fact that contrary to sections 2(c) and 4(c) of the Convening Order, the Scheme Meeting Notice and Scheme Document were not couriered to those Creditors with their last known addresses outside Hong Kong:

(1)  It is understood that there were four overseas Creditors, all based in Mainland China (“Mainland Creditors”);

(2)  Pursuant to the Mainland Creditors’ request, the Scheme Meeting Notice and Scheme Documents were sent by ordinary posts to their accountants, ST Lo & Co. (譚盧潔妍會計師事務所) (“Accountant”), who in turn forwarded the documents to the Mainland Creditors;

(3)  All four Mainland Creditors had previously, for the purpose of Convening Summons, provided letters in support of implementing the Scheme; and

(4)  All four Mainland Creditors attended the Scheme Meeting and voted in favour of the Scheme.

36.A failure to comply with the Court’s direction for convening a meeting will not ipso facto invalidate the proceedings at the meeting.  The Court has a discretion to waive non-compliance: Re Kansa General Insurance Co Ltd[12]; Re Pa Shun International Holdings[13].

37.Although the 3^rd Affirmation of Wong Chun Hung (“Mr Wong”) inaccurately put forward that the Convening Order had been fully complied with, I waived these technical non-compliances as no substantive prejudice has been caused to the Mainland Creditors:

(1)  This method of service (via the Accountant) was a reliable way to draw the four Mainland Creditors’ attention to the Scheme Meeting.  All four Mainland Creditors duly submitted NCVPs and Forms of Proxy for the Scheme Meeting.

(2)  The four Mainland Creditors attended the Scheme Meeting by proxy and voted in favour of the Scheme.  All four Mainland Creditors had also previously submitted letters in support of the Scheme.

(3)  None of the Mainland Creditors complained about this method of service.  In any event, section 5 of the Convening Order foreshadowed the possibility of accidental omission of service and stipulated that the non-receipt by any Creditors of the same shall not invalidate the proceedings at the Scheme Meeting or any resolutions passed thereat.

38.The Company has also drawn my attention to the fact that, in late August 2026, a further 18 Creditors (i.e. the New Creditors) with contingent or potential claims against the Company were identified after the grant of the Convening Order.  In relation to these New Creditors:

(1)  Four of them voted at the Scheme Meeting, with three voting in favour and one voting against.

(2)  One submitted an NCVP and attended the Scheme Meeting, but did not vote.

(3)  One submitted an NCVP, but did not attend the Scheme Meeting or vote.

(4)  One of the New Creditors—Co-Make (Hong Kong) Limited (“Co-Make”)—was not provided with the Scheme Meeting Notice or Scheme Document, because their claim was being disputed by the Company at the time.  However, after the Scheme Meeting, the Company reached a consensus with Co-Make, and has since recognised and admitted their claim in the sum of HK$3,318,357.00.  That claim will, like all other unsecured debts, be compromised under the Scheme.  Even if Co-Make had voted against the Scheme, the Resolution would still have been comfortably passed by the requisite majorities (in number and value).

(5)  The remaining 11 New Creditors were all provided with the Scheme Document and Scheme Meeting Notice by ordinary post on 27 August 2026 (i.e. more than 21 days before the Scheme Meeting). However, none of them submitted any NCVPs or Form of Proxy, nor did any of them attend the Scheme Meeting.  Additionally, none of them have complained about being given insufficient time to consider the Scheme Document, or being given insufficient materials to take part in the Scheme Meeting.

39.Similarly, the fact that the Company sent a meeting ID and passcode by email to each Creditor who had indicated their intention to join the Scheme Meeting by Microsoft Teams approximately 40 minutes later than the time prescribed under the ES is purely technical, caused no prejudice, and therefore does not warrant convening another Scheme Meeting.

40.Further, in compliance with section 3 of the Convening Order, an affirmation has been filed by a solicitor of P. C. Woo & Co. who is fluent in both English and Chinese confirming the accuracy of the Chinese translation of the Notice.

41.Although Mr Yuan Gang, a Company director, was originally appointed to act as the Chairperson of the Scheme Meeting, he was unable to be in Hong Kong at the relevant time due to unforeseen reasons. Mr Wong, another director of the Company, took over as Chairman in accordance with section 11 of the ES, which none of the Scheme Creditors objected to.

Statutory Majorities

42.At the Scheme Meeting, claims in the sum of HK$249,376,520.75 were admitted for voting purposes.

43.During the Scheme Meeting, 85.37% in number and 90.13% in value of the Scheme Creditors voted in favour of the Scheme, thus satisfying the requirement under section 674(1) of the Ordinance.

44.Three Scheme Creditors, whose claims admitted for voting purposes totalled HK$4,617,947.05, attended the Scheme Meeting virtually via Microsoft Teams but did not vote on the Resolution, namely:

(1)  Wing Luen Engineering Ltd, whose claim was recorded for voting purposes at HK$943,608.19;

(2)  New Wealthy Engineering Limited, whose claim was recorded for voting purposes at HK$3,561,771.36; and

(3)  Feng Yuan (China) Company Limited, who was one of the New Creditors and whose claim was recorded for voting purposes at HK$112,567.50 (collectively “Non-Voting Creditors”).

45.However, for the purposes of section 674(1) of the Ordinance, these Non-Voting Creditors are immaterial vis-à-vis the voting result, which only accounts for creditors who were “present and voting”.

46.Counsel for the Company also correctly pointed out that, in any event, even if Toyo Greenland, the three Non-Voting Creditors, and Co-Make had all voted against the Resolution, the requirement under section 674(1) of the Ordinance would still have been satisfied.  In that hypothetical, there would still have been 35 votes in favour, representing HK$224,773,229.35 (76.09% in number and 87.13% in value), and 11 votes against, representing HK$33,205,487.06 (23.91% in number and 12.87% in value).  The result of the Resolution would not have changed.

Sufficiency of Information

47.The principles relating to the sufficiency of explanatory statements were recently discussed in my decision in Re CIFI Holdings[14] at [51], and can be summarised as follows:

(1)  An explanatory statement must be sufficient to enable creditors to form a reasonable judgment on whether the Scheme is in their best interests and to reach a sensible decision as to its benefits;

(2)  The information should be up to date; and

(3)  Creditors are assumed to be intelligent and can be expected to read the explanatory statement as a whole.

48.I am satisfied that sufficient explanation has been given to the Creditors:

(1)  The Scheme is fairly straightforward. Creditors’ understanding of the Scheme is assisted by an accessible Letter from the Board and the ES in the Scheme Document.

(2)  Section 3 of the ES summarises the terms of the Scheme.  Section 4 sets out the advantages and disadvantages of the Scheme.  Section 5 sets out the risk factors.  Section 8 sets out the procedure of the Scheme Meeting and implementation of the Scheme.

(3)  The explanation of the Scheme was further enhanced by my observations and comments, which have been implemented in the Scheme Document.

(4)  Opportunity was given at the Scheme Meeting to address Creditors’ queries or to allow Creditors to express their views.

“Intelligent and Honest Man” Test

49.I have recently restated the principles underpinning this test in Re Add Hero Holdings Ltd[15]:

“85. The Court is normally slow to differ from the majority of creditors’ views, as it normally acts on the basis that businessmen are much better judges of what is in their commercial interest than the Court. Whether a compromise of the sort contained in the Holdings’ Scheme is financially preferable to a compulsory winding up is a matter of commercial judgment. Opinions may differ on which course is likely to be most beneficial, but as the language in which the ‘intelligent and honest man’ test is framed indicates the Court will only override the views of the majority if their view seems sufficiently odd that it suggests it was arrived at as a consequence of either a failure properly to assess the terms of the compromise or considerations other than its merits. It is rare for the Court to interfere on this ground and I am only aware of one case in Hong Kong in which a judge considered this to be a ground (although only one amongst others) for declining to sanction a scheme; a privatisation for which the judge considered the offer price was too low. The company’s share price in subsequent years illustrates the danger of the Court straying into the area of commercial judgment.

86.  In practice an argument that the compromise is so unattractive it is not one a hypothetical intelligent and reasonable creditor would approve is likely to be unnecessary, because if it is satisfied it is likely to be because either creditors have not had the scheme properly explained to them (in which case it is likely that the explanatory statement will have been shown to be defective and sanction refused for that reason) or there is evidence to suggest that a statutory majority was only obtained because creditors with some collateral reason for supporting the scheme did so in which case it is likely that they would have had a special interest and their votes discounted. These are more straightforward issues to determine than the commercial merits of a scheme ...”

50.I am satisfied that the Scheme is one that an intelligent and honest man, as a member of the class concerned and acting in respect of his interest as a member, might reasonably approve.  The Scheme offers a genuine prospect of significantly greater future return (24.47%, though capped at 20%) when compared to the minimal recovery rate of 1.05% in the case where the Company is liquidated.  Even when taking into account the Claims of the 17 New Creditors, the maximum recovery under the Scheme would be lowered to 23.91%, which is immaterial in any event given the fact that recovery is capped at 20%.  Moreover, inclusion of the New Creditors’ claims would also reduce recovery rates in the liquidation scenario from 1.05% to 1.03%, which only increases the Scheme’s attractiveness. In any case, its commercial benefits are evinced by the Creditors’ resounding support of the Scheme.

Conclusion

51.The Scheme is a legitimate debt restructuring scheme which satisfies all relevant statutory requirements.  It has also received the requisite support from the Scheme Creditors, each exercising independent judgement.

52.As such, I sanctioned the Scheme and made an order in terms of the draft submitted to this Court.

Mr Thomas Wong and Mr Thomas Lam, instructed by P.C. Woo & Co., for the Company