In another blow to the concept of "soft touch" provisional liquidation, the Court of First Instance has granted an ancillary winding up order against a Hong Kong listed company that had already been wound up in its place of incorporation. The court also refused to allow the joint liquidators to recover their costs from the company's assets. The decision confirms the recent trend towards more direct supervision and control by the Hong Kong court over foreign incorporated companies.

In Re Guoan International Limited (in liquidation) [2023] HKCFI 666, the Honourable Madam Justice Linda Chan J granted an ancillary winding up order against Guoan International Limited (company), incorporated in the Cayman Islands and listed on the Hong Kong Stock Exchange, having satisfied herself that the three core requirements for winding up a foreign company under section 327 of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO) had been met. This was despite the fact that the company had already been wound up in the Cayman Islands.

The company, through its subsidiaries in Hong Kong, engaged in trading and provision of telecommunications products and services, investments in financial assets, money lending business, and provision of securities brokerage services.

On 28 February 2022, the company was wound up by the Cayman Islands court on the grounds of the company's failure to pay a judgment debt, and liquidators were appointed. On 30 March 2022, the liquidators obtained an order from the Honourable Mr. Justice Harris in the Hong Kong court recognizing the liquidation and the appointment of the liquidators (the recognition order).

Subsequently on 2 December 2022, a creditor presented a petition in Hong Kong court seeking an ancillary winding up order against the company.

Winding up foreign companies – general principles

Linda Chan J considered the general principles governing the exercise of the Hong Kong court's discretionary jurisdiction to wind up a foreign company, namely the three core requirements as outlined in the Court of Final Appeal decision in Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK2 Ltd (2022) HKCFAR 98:

  • The company has a sufficient connection with Hong Kong.
  • There is a reasonable possibility that the winding up order will benefit those applying for it.
  • The court has jurisdiction over one or more persons in the distribution of the company's assets.

In respect of a foreign company which had already been wound up in its place of incorporation and the only business it was carrying on was "for the purpose of winding up its affairs", the court confirmed that it had the jurisdiction to make an ancillary winding up order in Hong Kong, following Linda Chan J's earlier decision in Re Up Energy Development Group Ltd [2022] 2 HKLRD 993 (see Hogan Lovells alert Deja vu? Hong Kong court orders winding-up of Bermuda-based listco despite PLs' objections).

The court also noted that such order was now common in Hong Kong as many of its listed companies are foreign incorporated companies.

Second core requirement

There was no dispute that the first and third core requirements were satisfied. The dispute between the petitioner and opposing creditors was whether the making of the order would confer a reasonable benefit upon the petitioner.

The petitioner contended there was a reasonable possibility an ancillary winding up order would benefit the petitioner and other creditors of the company as it would allow the liquidators to sell a property owned by the company and apply to set aside an antecedent transaction.

The opposing creditors argued otherwise, arguing the pleaded benefit did not amount to a legitimate benefit which would make it appropriate to wind up the company in Hong Kong, and that an ancillary winding up would lead to substantial costs, time and resources being incurred.

They also contended the sale of the company's property had already been sanctioned by the Cayman court and the issue as to whether the company's antecedent transactions could be set aside had already been determined by the Hong Kong court. In these circumstances, they argued it was inappropriate for the matter to be reopened.

However, in assessing the possible benefit to the petitioner, the court adopts a "pragmatic approach". The leverage or benefit derived from the presentation of the winding up petition over a foreign company may constitute a benefit for the purpose of the second core requirement provided that the benefit can be said to be a real possibility (see Hogan Lovells alert Hong Kong Court of Final Appeal confirms mere threat of winding-up is enough to confer jurisdiction).

In view of the "substantial connections between the Company and Hong Kong", Linda Chan J said it was "difficult to see why any creditor acting in the interest of the class would object to the court making an ancillary winding up order against the Company".

The court's findings

The court ruled in favour of the petitioner as it was satisfied that there would be a substantial benefit to the petitioner by the making of a winding up order because:

  • The making of a winding up order against the company would be the only way to bring into operation the statutory scheme of winding up under the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32).
  • It would be in the interests of the creditors for the company to be wound up so that the liquidators could take steps to deal with and dispose the assets of the company, the power of which was not conferred on the liquidators by the recognition order.
  • Given that most of the business and affairs of the company were conducted in Hong Kong, the Hong Kong court would be best placed to consider what steps should be taken by the liquidators when dealing with the affairs and assets of the company in Hong Kong, and it would be in the interest of the creditors for liquidators to be appointed in Hong Kong and conduct the liquidation under the supervision of the Hong Kong court.

The opposing creditors were ordered to pay the costs occasioned by their opposition to the petition. Linda Chan J also refused to allow the joint liquidators to have their costs paid out of the company's assets.

Ancillary winding up order

This decision adds to the recent line of cases where the court grants an ancillary winding up order against a foreign company in circumstances where the company has already been wound up in its place of incorporation and acts as another blow to "soft-touch" provisional liquidation.

The ancillary winding up order enables liquidators, equipped with a wide range of statutory powers to deal with assets of the company more efficiently, and under the direct supervision of the Hong Kong Companies Court.