RE CHRISTIAN ZHENG SHENG ASSOCIATION LTD

HCCW 595/2025

[2026] HKCFI 1048

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 595 OF 2025

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J U D G M E N T

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I. INTRODUCTION

1.  Before me is the Petition presented by the Secretary for Justice for and on behalf of the Government of the Hong Kong Special Administrative Region (the “Government”) on 22 September 2025 (the “Petition”) and amended subsequently on 15 December 2025.  The underlying debt, in the sum of HK$61,442,098.25, arises from an Agreement dated 5 July 2017 (the “Funding Agreement”) between Beat Drugs Fund Association (“BDFA”) as grantor and the Company as grantee in respect of a grant under the Beat Drugs Fund Special Funding Scheme (the “Scheme”) for Drug Dependent Persons Treatment and Rehabilitation Centres. 

II.    BACKGROUND

2.  BDFA is a company limited by guarantee incorporated in Hong Kong.

3.  The Company was incorporated also as a company limited by guarantee in Hong Kong in 1985.  It began operating a rehabilitation centre for adults in Kam Tin, New Territories.  In 1998, it founded Christian Zheng Sheng College as a private boarding school with a rehabilitative mission, offering structured secondary education and counselling to teenagers with histories of drug abuse and behavioural problems.  Over the years, the Company developed various centres and facilities at various locations in Hong Kong, including Ha Keng, Lantau Island.

4.  In the early 2010s, the Company decided to expand and improve the site at Ha Keng (the “Site”). In or around May 2014, the Company submitted a proposal of an improvement project (subsequently amended in July, August and September 2014) for its Drug Dependent Persons Treatment and Rehabilitation Centre (the “DTRC”) in the Site to BDFA for its application for a grant under the Scheme.  BDFA approved the proposal (the “Approved Project Proposal”).

5.  Following the approval, on or around 13 July 2015, BDFA and the Company entered into the Funding Agreement.  I shall refer to the terms of the Funding Agreement in more detail in the latter part of this Judgment, after I set out the remaining background.

6.  From 5 January 2018 until 30 June 2020, BDFA made available to the Company a total amount of HK$59,251,776 (the “Grant”) under the Funding Agreement.  There is no dispute that the Grant was public funds from the Government.

7.  To lawfully operate a DTRC, a licence or a certificate of exemption issued by the Director of Social Welfare was required under the Drug Dependent Persons Treatment and Rehabilitation Centres (Licensing) Ordinance (Cap. 566) (the “DTRO”).  The DTRC was operated under such a certificate of exemption (the “Certificate of Exemption”).

8.  In January 2024, upon suspicion of fraudulent misappropriation of donations to the Company, the then directors of the Company either were under arrest or had absconded.  Since then, there have been various changes to the composition of the board of the Company, eventually none of the directors at the time of the execution of the Funding Agreement remaining on the board. 

9.  By a letter issued on 17 September 2024 to the Company, the Director of Social Welfare informed the Company that the Social Welfare Department had inspected the DTRC on 18 July 2024 and 13 September 2024, and found that the DTRC had no resident and had been abandoned.  Therefore, the Director invited submissions from the Company as to why the Director should not cancel the Certificate of Exemption.

10.  The Company did not make any submissions as invited.  By a letter issued on 10 October 2024 issued to the Company, the Director decided to cancel the Certificate of Exemption with effect from 31 October 2024.

11.  On 20 February 2025, BDFA issued a written notice to terminate (the “Notice of Termination”) the Funding Agreement with immediate effect pursuant to Clause 11.1(f) of the Funding Agreement.  It also demanded, among other things, repayment of the Grant made available to the Company.  Since the Government refers to the Notice of Termination in the Petition and takes the position (which the Company opposed) that a mere reference to the Notice of Termination would be sufficient to put the Company on notice that the Government would rely on the particulars set out in the Notice of Termination, I have to set out the contents in detail below:-

“Event of Default

Clause 11.1(f) of the Agreement provides that the circumstance where, in the opinion of the BDFA, a material change occurs in the management or control of the Grantee (i.e. CZSA in the current case) [that is, the Company] or the Project save for those changes made in accordance with the provisions of the Agreement, constitutes an Event of Default.

In the suspected fraud case related to CZSA, four former directors of the board of CZSA were arrested by the Police on 18 January 2024, and three who absconded have been wanted by the Police. According to the record of the Companies Registry (CR) at Annex, since then, there have been a serious of changes to the membership of the board of directors of CZSA, and the key management personnel of CZSA… have absconded and left Hong Kong.

Following the material change in the management of CZSA, on 7 July 2024, CZSA abruptly suspended operation of the Christian Zheng Sheng College (CZSC), which is adjacent to the two drug treatment and rehabilitation centres (DTRCs) at Ha Keng for provision of education services to the residents staying there. On 4 September 2024, CZSC was de-registered as a school by the Permanent Secretary for Education. On the other hand, the BDFA wrote to CZSA on 18 July 2024 to enquire about the utilisation, management and maintenance of the structures built under the Project. No response was received from CZSA. It is also noted that the inspection of the Social Welfare Department (SWD) on 18 July 2024 found no resident in the two DTRCs at Ha Keng, and during the subsequent inspection by SWD on 13 September 2024, the two DTRCs were found abandoned. On 31 October 2024, the Certificates of Exemption (CoEs) of the two DTRCs at Ha Keng issued under the [DTRO] were cancelled by the Director of Social Welfare.

Notwithstanding the significant and frequent changes in directorship and management of CZSA since January 2024, no remedial actions had been taken by the board of CZSA to ensure the continual operation and functioning of CZSC and the DTRCs at Ha Keng, hence the de-registration by the Education Bureau and cancellation of CoEs by SWD. Given the current circumstances, the BDFA considers that the objective of the Project, which is to improve the safety and comfort of the residents and staff of the two DTRCs at Ha Keng operated by CZSA, can no longer be achieved.

In view of the foregoing, the BDFA opines that there have been material changes in the management of CZSA which constitutes an Event of Default under the Agreement, and therefore has decided to terminate the Agreement with immediate effect pursuant to Clause 11.3 of the Agreement.

Repayment of Grant

In accordance with Clause 11.5 of the Agreement, upon the termination of the Agreement pursuant to Clause 11.3, CZSA shall immediately repay all amounts made available to CZSA under the Agreement to the BDFA, i.e. HK$59,251,776 (Principal), plus interest (Interest).”

12.  There was neither any reply to the Notice of Termination or any allegation made there, nor was there any repayment of the Grant.  On 27 August 2025, the Government (not BDFA) served a statutory demand (the “Statutory Demand”) on the Company for the repayment of the Grant and the interest thereon (together, the “Debt”).  In the Statutory Petition, it was averred that “[t]he Company entered into the Funding Agreement with [BDFA], agent of the [Government] under authorization from the Permanent Secretary for Security”.

13.  There was no response.  On 22 September 2025, the Government (not BDFA), acting through the Secretary for Justice, presented the Petition.

III.    THE PETITION

14.  Since Mr Rimsky Yuen SC, leading Mr Martin Ho, counsel for the Company, relies on certain pleading points (as shall be discussed below), I should set out the material averments made in the Petition (prior to its amendment mentioned below):-

“5. The Company entered into [the Funding Agreement] with [BDFA], agent of the Government of the Hong Kong Special Administrative Region under authorisation from the Permanent Secretary for Security on 5 July 2017… pursuant to which BDFA agreed to provide to the Company a grant… (“Grant”).

6. Pursuant to Clause 11.3 of the Agreement, following the occurrence of an event of default (“EoD”), BDFA may by written notice to the Company terminate the agreement with immediate effect.

7. In view of the fact that an EoD occurred, i.e. that in the opinion of BDFA, a material change occurs in the management or control of the Company (pursuant to Clause 11.1(f) of the Agreement), by a letter to the Company dated 20 February 2025, BDFA informed the Company of its decision to terminate the Agreement with immediate effect pursuant to Clause 11.3 of the Agreement. BDFA further demanded for repayment of Grant plus interest pursuant to the Agreement. The Company failed to make any repayment of Grant since then.

…

9. On 27 August 2025, the Petitioner served on the Company a statutory demand dated 27 August 2025 (“Statutory Demand”) pursuant to section 178(1)(a) of the Ordinance…

10. Over 3 weeks have now elapsed since the Petitioner has serve the Statutory Demand, the Company has neglected and failed and still neglects and fails to settle the Sum in whole or in part…

11. In the circumstances, the Company is insolvent and unable to pay its debts.” (emphasis added)

15.  It is noted that the “agency” averment in §5 is the same as what was averred in the Statutory Demand.  Mr John Hui, leading Mr Tommy Cheung, counsel for the Government, confirmed to me at the substantive hearing now before me that the Government does not rely on the “agency” pleaded in §5.  This agency point, however, had been a point for debate at least until the hearing of 15 December 2025 as shall be explained below.

IV.    ASSIGNMENT OF DEBT TO THE GOVERNMENT

16.  At the first Companies Court hearing of the Petition on 1 December 2025 before me, the Company challenged the locus of the Government on the ground that the Government, not a party to the Funding Agreement, could not be the creditor.  At that hearing, the Government’s response was that BDFA was the Government’s agent as averred in §5 of the Petition and the Government would rely on the undisclosed agency principle, and so the Government had the locus.  However, the Government sought a short adjournment of 2 weeks until 15 December 2025 for taking further instructions.

17.  Prior to the adjourned Companies Court hearing of 15 December 2025 (the “15 December 2025 Hearing”), on 10 December 2025, BDFA executed a deed of assignment (the “Deed of Assignment”).  The Deed of Assignment contains the following terms:-

“Recital

(C) On 24 February 2025, pursuant to the terms and conditions of [the Funding Agreement], BDFA has terminated [the Funding Agreement] with immediate effect and has a legal and valid claim (“Claim”) against [the Company] for a sum of HK$59,251,776 (“Sum”) plus interest.

(E) In consideration of facilitating the enforcement of the Claim against [the Company] including its successor, agents and assigns, and the recovery of the public moneys, BDFA has agreed to absolutely assign, and the Government has agreed to accept the assignment of, all rights and claims of BDFA against [the Company] under or otherwise in connection with [the Funding Agreement] (“Cause of Action”) on the terms and conditions set out herein.

2. BDFA hereby absolutely assigns and transfers to the Government all right, title, benefit, interest and claim relating to the Cause of Action, including all rights to commence, take over and conduct any and all legal proceedings available for the enforcement of the Claim in the name of the Government, settle, compromise, discharge or abandon any legal proceedings or actions relating thereto, participate in any alternative mode of dispute resolution and give valid receipts and discharges.” (emphasis added)

18.  I pause to note that on the face of it, the definition “Cause of Action” in Recital (E) is quite confusing.  The expression “Cause of Action” gives an impression that it would cover only the rights to bring claims against the Company.  However, closely read, “Cause of Action” includes “all rights… in connection with the Funding Agreement”.  Further, understood in the context that the Deed of Assignment was executed during the adjournment clearly with an objective to allow the Government to address the argument that the Government was not a party to the Funding Agreement and so not a creditor, in my view, it is clear that both the assignor (BDFA) and the assignee (the Government) intended that the right to be repaid under the Funding Agreement was also covered.    While the Company is not a party to the Deed of Assignment, I would also say that it is also clear to the Company, knowing the context of the Deed of Assignment, that it was the intention.  Therefore, with respect, I disagree with Mr Yuen’s submissions that the Deed of Assignment only assigned the right to bring actions, but not the right to be repaid the Grant, if such right had arisen under the Funding Agreement.

V.    THE 15 DECEMBER 2025 HEARING

19.  After the execution of the Deed of Assignment, the Government then applied for leave to amend the Petition to include an averment in relation to the Deed of Assignment.

20.  The Petition and the application for amendment came before Linda Chan J at the 15 December 2025 Hearing.

21.  There were two matters at the 15 December 2025 Hearing that, as shall be seen below, turn out to be pertinent for the present purposes.  First, at that hearing, her Ladyship was determining whether the matter was ready for a substantive hearing, and so was trying to ascertain what was the scope of the issues necessary for substantive argument.  From the counsel’s submissions (Mr Cheung for the Government and Mr Ho for the Company on that occasion) and exchange between the bench and the bar table, it was clear that the grounds of opposition to the Petition would be:-

(1)     Whether the Government had the locus to present and/or pursue the Petition in the first place;

(2)     In relation to (1) above, the Government would like to amend the Petition by adding §5F about the Deed of Assignment and §10A that the Company was actually unable to pay under section 178(1)(c) upon the Government’s demands (not BDFA this time) for repayment of the Grant or the Debt;

(3)     Whether as a matter of construction of the Funding Agreement, Clause 11.5 would require full repayment of the Grant or only the unspent balance; and

(4)     Whether the Government could, to use the expression by Mr Ho, counsel for the Company on that occasion, “have the cake and eat it” when the Government, as an undisclosed agent as alleged, had regained the possession of the Site and at the same time was entitled to the full repayment of the Grant.

22.  It was on that basis, subject to the amendment by §10A mentioned below, that her Ladyship was satisfied that the matter was ready for a substantive hearing and did not allow the parties to file further evidence beyond the reply evidence to be filed by the Government.

23.  Second, as mentioned above, the Government sought leave to amend the Petition by adding §10A that the Company was unable to pay the debts under section 178(1)(c) despite the Government’s demand letter issued subsequent to the date of the presentation of the Petition (the demand not made by BDFA this time) for repayment of the Grant.  Arguments and exchange between counsel and Linda Chan J took place.  Mr Cheung’s arguments were in essence that to avoid the Company’s technical argument that as at the date of presenting the Petition, the Government had no locus, the Government would also like to rely on section 178(1)(c) that the Company was actually insolvent as at the date of the presentation of the Petition.  Mr Ho opposed §10A, saying that if there was bona fide dispute over the Debt, then §10A, relying on the same Debt, would not add anything and so was unnecessary.  Then, at about 9:53am, her Ladyship made the observation to Mr Ho that the Government would like to add §10A in order to avoid “a situation where at the substantive hearing…a technical point to say that at the time when the Statutory Demand was served, the Deed of Assignment had not been entered into.  I think what he is thinking that sort of argument…So it is really dealing with the technical point where [the Government] would be taken issue to the effect that at the time when the Statutory Demand was served, it was served by [the Government] rather than BDFA”.  In response, Mr Ho said, “The short point is that we would not be taking that point.”  Upon Mr Ho’s confirmation, the Government did not pursue adding §10A.  I note that at the 15 December 2025 Hearing, there was no point made that the Government was considering whether to serve a fresh statutory demand in its own name or apply for substitution as creditor.

VI.    THE FUNDING AGREEMENT

24.  As shall be seen, one of the central issues in the present dispute is the construction of the various terms of the Funding Agreement.  I therefore find it necessary to quote the Funding Agreement extensively:-

“RECITALS:

(2) … Under the Agreement, the BDFA has agreed to grant a maximum sum of… HK$47.11 million…to the Grantee for carrying out and completing the Approved Project Proposal by the Grantee, and the Grantee has agreed to accept such grant for the purpose of carrying out the Project.

(5)(b) the BDFA has approved the provision of a maximum sum of… HK$62.74 million… (“Grant”) to the Grantee for carrying out and completing the Approved Project Proposal by the Grantee…

1. DEFINITIONS

1.1.

“Completion of the Project” means completion by the Grantee of the Project to the satisfaction of the BDFA.

“DTRC” means a drug dependent persons treatment and rehabilitation centre in the Site [that is, Ha Keng] which shall be operated under a licence or certificate of exemption issued under the DTRCO.

“Event of Default” means any circumstance described as such in Clause 11.1.

“Finance Documents” means this Agreement and any other document designated in writing as such by the BDFA.

“Project” means the proposal in respect of the carrying out and completion of the Works; engagement of an Authorised Person/consultant/quantity surveyor; and procurement of the Furniture and Equipment, which are detailed in the Approved Proposal in relation to the Grantee’s application for the Grant.

“Works” means the works for redevelopment in or in connection with the Site, which are detailed in the Approved Project Proposal.

2. CONSIDERATION

In consideration of the BDFA agreeing to provide the Grant or any part thereof for the Project in accordance with this Agreement, the Grantee shall:

(a) carry out and complete the Project in accordance with this Agreement and comply with all instructions and directives relating to the Project…

(b) use the New Facilities and Furniture and Equipment, and make available the Project Materials to the BDFA, in accordance with this Agreement; and

(c) comply with other terms and conditions of this Agreement.

3. TERM OF THIS AGREEMENT

This Agreement governs the Project where funding approval is given on 19 May 2015 and 28 December 2016, and continues to have effect until it is terminated by mutual agreement in writing or terminated pursuant to other provisions of this Agreement.

4. PAYMENT OF GRANT

4.1… the BDFA shall make disbursement of the Grant to the Grantee by way of reimbursing the Grantee on a monthly basis…

Reimbursement Claims for the Works and the Furniture and Equipment

4.2 With respect to the reimbursement claims for the Works and the Furniture and Equipment…

(e) The BDFA shall not make the final reimbursement payment until the BDFA has examined and approved the final account submitted by the Grantee… If the final admissible project cost is less than such amount of the Grant originally designated for funding the Works and the Furniture and Equipment set out in the Approved Budget, the Grantee shall immediately return the excess amount to the BDFA. Any deficit exceeding the Grant will however be borne by the Grantee.

4.4 Notwithstanding anything provided in Clauses 4.1 to 4.3, where advance payment of the Grant is approved by the BDFA, the Grantee shall provide the BDFA with invoices, receipts and vouchers as soon as practicable, but in any event no later than one month after the Grantee’s receipt of the relevant payment from the BDFA.

6. COVENANTS – The Grantee hereby covenants and with continuing effect until the expiry or termination of this Agreement (whoever first occurs) that:

(e) use of New Facilities: it shall ensure that the New Facilities shall, throughout the period from the Completion of the Project to the expiry or termination of this Agreement, be used solely and exclusively for the purpose of operation of the DTRC and such ancillary purposes as may from time to time be approved in writing by the BDFA.

(f) DTRC licence: it shall obtain a licence or certificate of exemption under the DTRCO to operate, manage and exercise control over the DTRC… and maintain and renew upon expiry all requisite licences or certificates of exemption required for the operation, management and exercise of control over the DTRC until the expiry or termination of this Agreement.

(g) operation and management of the DTRC: it shall operate, manage and exercise control over the DTRC from the start date specified in Clause 6(f) until the expiry or termination of this Agreement…

7. FINANCIAL AND BUDGETARY CONTROL

7.4 The Grantee shall return all unspent balance of the Grant with Interest thereon to the BDFA immediately upon demand.

11. TERMINATION

Events of default

11.1 Each of the sub-clauses of this Clause describes circumstances which constitute an Even of Default for the purposes of this Agreement:

(a) the Grantee fails duly to perform or comply with any obligation under the Finance Documents… and such failure is either irremediable, or if capable of remedy, is not remedied within fourteen (14) days…

(f) in the opinion of the BDFA, a material change occurs in the management or control of the Grantee or Project save for those changes made in accordance with the provisions of this Agreement;

…

Consequences of expiry or termination of this Agreement

11.3 Following the occurrence of an Event of Default, the BDFA may by written notice to the Grantee terminate this Agreement with immediate effect.

11.4 Upon the expiry or termination of this Agreement, without prejudice to any of the BDFA’s other rights and remedies, the BDFA shall be under no obligation to advance any further monies to the Grantee and the Grantee shall:

(b) forthwith return all unspent balance of the Grant to the BDFA with Interest;

11.5 If this Agreement is terminated pursuant to Clause 11.3, without prejudice to any of the BDFA’s other rights and remedies, the Grantee shall immediately repay all amounts made available to the Grantee under this Agreement to the BDFA with Interest.

11.7 Notwithstanding anything provided in this Agreement to the contrary, if any Event of Default has occurred, the BDFA reserves the right not to terminate this Agreement, but to withhold the payment of the Grant and/or to require the Grantee to comply with Clauses 11.4(a) to (d) or 11.5.” (emphasis added)

VII.    GROUNDS OF OPPOSITION TO THE PETITION

25.  The bona fide disputes on substantial ground now relied upon in opposition to the Petition can be summarised as follows:-

(1)     Despite the Deed of Assignment, the Government was not a creditor as at the date of the presentation of the Petition, had no locus, and thus cannot continue the Petition which the Government had no locus to present in the first place;

(2)     There is a bona fide dispute that by a proper construction of Clause 11.5, the Funding Agreement did not require repayment of all the amounts made available under the Funding Agreement, but required only the unspent balance, because, among others, the parties would not have intended repayment of all the amounts which would be absurd;

(3)     There is a bona fide dispute on whether BDFA could hold an opinion that there was a “material change in the management or control” of the Company under Clause 11.1(f) so that BDFA could invoke Clause 11.5; and

(4)     There is a bona fide dispute that the Funding Agreement was frustrated by the cancellation of the Certificates of Exemption effective from 31 October 2024, and therefore, when BDFA issued the Notice of Termination on 20 February 2025, BDFA had nothing to terminate.

26.  Grounds (3) and (4) above were not raised at the 15 December 2025 Hearing.  Mr Hui, for the Government, submits that the Company should not be permitted to rely on these two grounds because the Government has not had any fair chance to file evidence to answer the matters raised in these two Grounds.  I shall deal with such submissions below when I deal with these two respective Grounds.

VIII.    GROUND 1 – LOCUS

A.    When a post-debt can be relied upon for continuing a petition?

27.  In reliance on Re Hin-Pro International Logistics Limited [2016] 5 HKLRD 282 at §§12-15 per Kwan JA (as she then was), Mr Hui, for the Government, submits that in a creditor’s petition, a petitioner may subsequently rely on a post-petition debt in substitution of the original petition debt which became no longer valid, and may amend the petition accordingly.  Given the public interest involved, the Court is unlikely to dismiss the original petition leaving the petitioner to issue a fresh petition on the post-petition debt. 

28.  To a similar effect, Mr Hui also relies on rule 33 of the Companies (Winding-up) Rules (Cap. 32H) which allows substitution by a creditor not entitled to present a petition at the time of the subsisting petition, which provides that:-

“When a petitioner is not entitled to present a petition or whether so entitled or not, where he (a) fails to advertise his petition within the time by these rules prescribed or such extended time as the Registrar may allow or (b) consents to withdraw his petition, or to allow it to be dismissed, or the hearing adjourned, or fails to appear in support of his petition when it is called on in court on the day originally fixed for the hearing thereof, or on any day to which the hearing has been adjourned, or (c) if appearing, does not apply for an order in the terms of the prayer of his petition, the court may, upon such terms as it may think just, substitute as petitioner any creditor or contributory who in the opinion of the court would have a right to present a petition, and who is desirous of prosecuting the petition. An order to substitute a petitioner may, where a petitioner fails to advertise his petition within the time prescribed by these rules or consents to withdraw his petition, be made in chambers at any time.” (emphasis added)

29.  As a general proposition, Mr Hui must be right.  However, in a situation where as at the date of the presentation of the petition, the company was solvent and was able to pay, but the petition was presented on a non-existent debt, and then subsequently, a true creditor relies on a post-petition debt and applies to substitute in the same petition, problem would arise if a winding up order is made on that original petition.  It seems to me that the authorities cited to me by both side have not really considered this issue and have not set out the test on when such a post-petition debt could be relied upon to sustain the original petition one way or the other.

30.  When a winding up order is pronounced, the winding up shall be “deemed to commence at the time of the presentation of the petition”: see section 184(2) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (the “CWUMPO”).  In turn, there are many serious implications not only for the company in question but also all its creditors and those dealing with the company provided in the CWUMPO with reference to the commencement of the winding up.  For example, section 182 provides any disposition of the property of the company “after the commencement of the winding up” shall be void except with the leave of the Court.  In fact, as a result, when a winding up petition is presented and gazetted, banks would be notified, whether by the gazette or the petitioner’s notification or otherwise, of the petition, and will immediately freeze the accounts held in the name of the company, without awaiting the outcome of the petition.

31.  Similarly, for unfair preference under section 266 of the CWUMPO, the relevant periods under section 266B all count from “the day on which the winding up of the company commences”.  Thus, once a petition is presented, all the creditors of the company should be alerted about any possibility of unfair preferences from the company. 

32.  Though the word “deem” is used in section 184(2) of the CWUMPO, there is no such a proviso as “unless specified by the Court otherwise”.  Further, it is fair to say that the public has operated on the premise that a winding up order relates back to the date of the presentation of the petition so much so that this is a given and a certainty.  Therefore, in my view, there is no room for the Court to make a winding up order specifying a commencement date of winding up other than the date of the presentation of the petition, as a matter of whether or not there exists such jurisdiction to do so, or as a matter of whether or not to exercise any such jurisdiction (if any). 

33.  While Re Hin-Pro International Logistics Limited, supra stands for the general proposition that the petitioner may rely on a post-petition debt, the context and the reasoning there should be properly understood.  The context in Re Hin-Pro International Logistics Limited, supra, is that when the petitioner presented the petition on the debt there, the costs order underlying the debt was still valid though the company was applying to set the costs order aside.  Subsequently, the costs order was set aside and so the debt was discharged.   The petitioner then applied to amend the petition by relying upon post-petition debts to sustain the petition.  The company opposed and submitted that the petitioner did not have any locus to present the petition in the first place, and so the petition should not be allowed to proceed at all, let alone the proposed amendments.  In my view, in that case, at least as at the date of the presentation of the petition, the petitioner had a prima facie case to present the petition for a winding up order, relying on a costs order that was still extant.  Thus, one can say that there is a prima facie case of insolvency for a winding up order as at the date of the presentation of the petition.

34.  The reasoning in Re Hin-Pro International Logistics Limited, supra should also be properly understood.  At §15, the Court of Appeal (Kwan (as she then was) and Au JJA) expressly approved Ng J’s reasoning at the first instance quoted in §14:-

“19. First, unlike a plaintiff in a writ action, a petitioner in a creditor’s winding-up petition is asserting a class remedy on behalf of all the company’s creditors. Further, public interest which is normally absent in a writ action is engaged in a creditor’s winding-up petition. The public interest involved is that an insolvent company should not be allowed to continue to trade – instead, there should be an orderly distribution of its assets, if any, among its creditors who has the same rights e.g. unsecured creditors, on the basis of the pari passu principle. The need to take into account public interest is reflected in the rule that even if both the company and petitioning creditor consent to the dismissal of the petition, the court is not compelled to give effect to that consent – it retains a discretion to wind up the company if satisfied it is insolvent: In Re Shop Clothing Ltd (t/a Theme) [1999] 2 HKLRD 280, Le Pichon J (as she then was).

20. Second, the need to take into account the public interest involved is also reflected in the much lower threshold for other creditors of a company to participate in a creditor’s winding up petition. In this regard, any creditor of a company can give notice of intention to appear in a creditor’s petition as a supporting or opposing creditor, whether it is relying on a pre-petition or a post-petition debt: Re Richbell Strategic Holdings Ltd at 455b-c; Rule 30 of the Companies (Winding-up) Rules, Cap.32H. There is no requirement that the creditor must have an interest in the matters in dispute between the petitioner and the company as such…

21. Third, if a petitioner fails to advertise his petition, consents to withdraw his petition, allows it to be dismissed, fails to appear in support of his petition or does not apply for an order in terms of the prayer in the petition at the hearing, the court may, upon such terms as it may think just, substitute as petitioner any creditor who in the opinion of the court would have a right to present a petition and who is desirous of prosecuting the petition. Again, such a creditor can seek leave to substitute the original petitioner whether it is relying on a pre-petition or a post-petition debt: Re Richbell Strategic Holdings Ltd at 455b-c; Rule 33 of the Companies (Winding-up) Rules, Cap 32H. The mechanism for substitution renders it unnecessary for the other creditor to issue a fresh petition to wind up the company after the withdrawal or dismissal of the original one, thereby preserving the commencing date of the winding up order in the event the court is satisfied the company is insolvent and should be wound up. This is yet another manifestation of the public interest involved in a creditor’s petition which is normally absent in a writ action.

22.   Fourth, provided that a petitioner can show a prima facie case to the court’s satisfaction that a company is insolvent and should be wound up, he can rely on a future debt in presenting a winding up petition as a prospective creditor: section 179(1)(c) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32…” (emphasis added)

35.  I should also quote the following passages from the Court of Appeal’s judgment:-

“15… [Counsel for the company] has no real answer to Re Richbell Strategic Holdings Ltd. He merely stressed that a petitioner who petitions to wind up a company on the basis of an alleged debt which the company disputes bona fide and on substantial grounds lacks the locus standi to invoke the winding-up jurisdiction, citing Buckley LJ in Stonegate Securities Ltd v Gregory [1980] Ch 576 at 579 to 580, and asserted that the locus standi of a petitioning creditor must continue throughout the proceedings for the winding-up jurisdiction to be invoked. So if the petition is liable to be struck out in this instance when the costs order on which the petition is founded is set aside, the petitioner would have no locus to present the petition and should not be given leave to amend to preserve an invalid petition by relying on post-petition debts.

16. In giving leave to amend the creditor’s petition to rely on a post-petition debt, at 454e to f, Neuberger J in [Re Richbell Strategic Holdings Ltd] had appreciated that with regard to the effect of his earlier conclusion that there was a sufficiently arguable case in relation to the existing petitioning debt, it could be said the petitioner was not a “creditor” of the company (within section 123(1)(a) of the Companies Act 1986; equivalent to section section178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32), in light of the observations of Buckley LJ in Stonegate Securities Ltd v Gregory. He did not think the locus of the petitioner should pose a problem, as the petition before him could not be said to be bad on its face and if the amendment was allowed, the petitioner would have a good prospect of establishing through proceedings, in due course, that it was in fact a “creditor” (at 454f to h).” (emphasis added)

36.  I add that:-

(1)     In context, the time reference for the petition that “could not be said to be bad on its face” must be the date of the presentation of the petition – first, in context, the issue was whether to allow amendment to the petition; and second, where the petition was bad on its face at the date, this only means that the petition could not even in itself be sustainable and there would be no reason why the company would and should be regarded as insolvent as at the date.

(2)     “Bad on its face” means “incurably bad”, a phrase used in Vax Appliances Ltd v Hoover Plc [1990] RPC 656 at 661 cited by Neuberger J at 453d-f in Re Richbell Strategic Holdings Limited, supra.  It means that “it is not capable of being made good by amendment”.

37.  From the above, I make the following observations:-

(1)     One of the public interests in allowing a substitution or amendment on post-petition debt is, as Ng J put it at §21 of his quoted decision, “preserving the commencing date of the winding up order in the event the court is satisfied the company is insolvent and should be wound up” (emphasis added).

(2)     Logically, to preserve the commencing date for a winding up order, it must mean that it is worth preserving that date because the company was indeed insolvent on that date. This is to protect all the creditors of the company.

(3)     This public interest to protect all the creditors of the company at the same time lowers the threshold for locus as at the date of the presentation of the petition when deciding whether to allow substitution or amendment.  Only a “prima facie case” of insolvency for a winding up order as at the date of the presentation of the petition, or a petition that “could not be said to be bad on its face” as at the date of the presentation of the petition would be sufficient for preserving the commencing date.

(4)     This is also fair to those dealing with the company in question.  If as at the date of the presentation of the petition, the company was clearly not insolvent, there is no reason why those dealing with the company as at that date will be subject to, for example, the risk of invalidation effect under section 182 or unfair preference accusation under section 266.  The interests of those dealing with the company are also public interests which the law bears in mind.

38.  Therefore, I take the view that the test for whether to allow substitution or to rely on a post-petition debt is whether as at the date of the presentation of the petition, there was a prima facie case of insolvency for a winding up order or the petition could be said to be bad on its face.  So long as, either (1) there was a prima facie case of insolvency for a winding up order as at the date of the presentation of the petition or (2) the petition could not be said to be “bad on its face” or “incurably bad” as at the date of the presentation of the petition, then one may rely on a post-petition debt for an application for substitution or continuing the petition.  I add that (2) above may be subsumed into (1) above in that if the petition could not be said to be bad on its face, then there was a prima facie case of insolvency for a winding up order.  However, it does not follow that in the absence of an incurably bad petition, there cannot be a prima facie case of insolvency for a winding up order as at the date of the presentation of the petition.  For example, one may still establish such a prima facie case of insolvency for a winding up order as at the date of the presentation of the petition by way of evidence in an application to substitute or amend, even though the original petition is incurably bad.

39.  The test I formulated above is entirely consistent with, and in fact explains, the opinion of the Privy Council (delivered by Lord Brightman) in Perak Pioneer Ltd. v Petroliam Nasional Bhd. [1986] 1 AC 849, an appeal from Hong Kong and thus binding on this Court.  In that case, a finance company advanced loans to the appellant companies, which defaulted on the loans.  The finance company assigned the debts to its parent company, and then they jointly presented a winding up petition against the appellant companies.  Subsequently, Petroliam Nasional Bhd. took over the debts, and an application to substitute Petroliam National Bhd. as the sole petitioner was made and allowed at the first instance and the first instance’s decision was upheld by the Court of Appeal.  The issue in that case was under rule 33, whether the substituting petitioner should have locus at the time of the application for substitution, or whether the substituting petitioner should have locus at the date of the presentation of the original petition. The appellant companies argued that the person seeking substitution must be a person who had locus as at the date of the presentation of the petition (215A-B).  The Privy Council dismissed such argument, opining that requiring the court to dismiss the original petition and requiring Petroliam to present a fresh petition would be a “pointless burden”.  The Privy Council held that the conditions under rule 33 were satisfied and dismissed the appeal.  That case, however, did not touch upon how the discretion conferred on the Court by the expression “may, upon such terms as it may think just” under rule 33 should be exercised upon the satisfaction of the conditions under rule 33.  If this issue would arise, the case clearly satisfied the test I formulated above, namely, as at the date of the presentation of the petition, the petition was not bad on its face and there was a prima facie case of insolvency for a winding up order, given that as at the date of the presentation of the petition, the petitioner was indeed the creditor of the appellant companies which had defaulted on the loans.

40.  In formulating this test, I have not overlooked Mr Yuen’s submissions, for the Company, that to make an application for a winding up petition, the applicant must be the company itself, creditors or members: see section 179(1) of the CWUMPO.  Mr Yuen submits that if the Government was not a creditor in the first place, the Government cannot present the Petition for a winding up order in the first place.  It is trite that parties cannot confer any jurisdiction on the Court by consent, concession or otherwise: see Hip Hing Timber Company Limited v Tang Man Kit and Another (2004) 7 HKCFAR 212 at §35, and therefore, Mr Yuen submits, given that the Petition was invalidly presented in the first place, the Court has no jurisdiction to entertain the Petition in the first place.  Forceful the submissions are, such submissions are, in my view, effectively the same as what Neuberger J (as he then was) considered as mentioned in §16 of Re Hin-Pro International Logistics Limited, supra.  His Lordship did realise that where there is a bona fide dispute, the petitioner cannot be regarded as a creditor for the purpose of a winding up petition, and thus the petitioner did not have locus. But despite this realisation, his Lordship “did not think the locus of the petitioner should pose a problem, as the petition before him could not be said to be bad on its face” (emphasis added).  This, in my view, is a pragmatic approach that was consciously adopted by his Lordship bearing in mind the public interest in winding up proceedings.  This pragmatic approach was endorsed by the Court of Appeal in Re Hin-Pro International Logistics Limited, supra, and of course I have to follow it.

B.    Petition bad on its face?

41.  I first deal with the question of whether the Petition bad on its face, or incurably bad, as at the date of the presentation of the Petition.

42.  In the present case, as at the date of presenting the Petition, BDFA was pleaded as “agent of the Government”.  While there may well be argument on whether sufficient particulars, in the Petition itself or in the supporting evidence, were given for such agency, and whether there is a bona fide dispute on the existence of the alleged agency, the elements requisite for a creditor were all averred: BDFA advanced the Grant, BDFA was the agent of the Government, and so, the Government was the creditor.  Lack of particulars for the agency did not make the averment of the Government being the creditor “bad on its face” or “incurably bad”.

43.  An averment that the petitioner is a creditor is not sufficient to sustain a petition.  Insolvency should also be averred.  For this, by §§9-10 of the Petition, the Government relied upon the failure to satisfy the Statutory Demand to invoke the presumption of insolvency (that is, the Company’s inability to pay its debts) under section 178(1)(a) of the CWUMPO.

44.  This is here that argument arises as to what Mr Ho’s confirmation at the 15 December 2025 Hearing really confirmed.  Mr Hui submits that Mr Ho’s confirmation, in the context, must mean that the presumption under section 178(1)(a) would apply.  Mr Hui’s submissions are in essence that Mr Ho’s confirmation was given to avoid a technical situation where the issue on the service of the Statutory Demand would be taken, and the only purpose to take issue on this point would be to say that section 178(1)(a) could not be invoked for the presumption.  Therefore, Mr Ho’s confirmation, subjectively or objectively, must be understood to be a confirmation that section 178(1)(a) would apply. 

45.  In my view, whatever the confirmation should be understood to mean is irrelevant.

(1)     When Mr Ho confirmed at the 15 December 2025 Hearing that he was not taking issue on the service of the Statutory Demand, if this could be understood to be related to the presumption, then logically and objectively, he only confirmed that he would not take issue on section 178(1)(a) presumption.  This is different from saying that he confirmed or agreed that section 178(1)(a) would apply.

(2)     In any event, whether or not Mr Ho so confirmed or so agreed, the Court has to apply the law as it is, but not the “law” as is confirmed by the parties.  As pointed out above, it is well established that no concession can be made on law by the parties.  An obvious example would be, the parties confirmed or conceded that as a matter of contract law, no consideration would be required for a binding contract.  No court of law can rely on such a confirmation or concession to find a binding contract even in the glaring fact that there was no consideration.  Similarly, where parties confirmed or conceded that winding up regime would apply to a natural person, no court of law can rely on such a confirmation or concession to make a winding up order, instead of a bankruptcy order, against a natural person.  Therefore, even assuming that Mr Ho’s confirmation would mean a confirmation that section 178 presumption would apply, as a court of law, I cannot simply take it as a given.  For this statutory presumption to apply, I have to be satisfied that the statutory requirements set out there are met. 

(3)     Mr Hui may well be justified to say that this would be unfair to the Government, when the Government relies on Mr Ho’s confirmation to decide how to proceed with the matter at and after the 15 December 2025 Hearing.  Mr Hui may or may not deserve sympathy.  However, even assuming that I would be very sympathetic, I would be sorry to say that sympathy does not confer any jurisdiction on me to ignore the law.  I go further to say that in the insolvency regime where the matter is ultimately not a matter between the petitioner and the debtor but among the debtor and his creditors, any confirmation on the status of certain statutory provisions should be scrutinised carefully.

46.  Section 178 of the CWUMPO provides that:-

“(1) A company shall be deemed to be unable to pay its debts –

(a) if –

(i) a creditor, by assignment or otherwise, to whom the company is indebted in a sum then due that equals or exceeds the specified amount, has served on the company a written demand (A) in the prescribed form…

(ii) the company has, for 3 weeks after the service of the demand, neglected to pay the sum…” (emphasis added)

47.  Section 178(1)(a)(i) clearly states that the server of the statutory demand is “a creditor, by assignment or otherwise, to whom the company is indebted” (emphasis added).  I emphaise the word “is”.  It is not “will be”.  The time of the existence of the debt must be referring to the time when the statutory demand is served, because if there is no debt due as at the date of the service of the statutory demand, the creditor simply cannot demand the company to pay anything within 3 weeks or at all.  In this regard, there is no provision to confer any discretion upon the Court to waive the requirement so that the “creditor” can be a subsequent creditor though the debt is the same debt.  In other words, the statutory condition that the statutory demand must be served by a creditor in relation to an existing debt owed to the creditor in section 178(1)(a) must be met before it can be invoked.

48.  In the present case, from the date of the service of the Statutory Demand, through the date of the presentation of the Petition, then at least up until the Companies Court hearing before me on 1 December 2025, the Government’s position, as reflected in §5 of the Petition, was that BDFA was the Government’s agent and so the Government was the creditor, to whom the Debt was owed.  Upon such position, the statutory requirement for section 178(1)(a) was met as at the date of the presentation of the Petition, and thus the presumption of insolvency arose as at the date of the presentation of the Petition. 

49.  Therefore, as at the date of the presentation of the Petition, the Petition could not be said to be “bad on its face” or “incurably bad”. 

50.  Applying the test I formulated above, the Government can carry on the Petition as amended.

51.  It remains for me to mention Mr Yuen’s submissions that it is inappropriate for the Government now to rely on the agency point to say that the Petition was not bad on its face or not incurably bad as at the date of the presentation of the Petition when the Government confirmed not to rely on this point at the 15 December 2025 Hearing and the hearing before me.  In footnote 4 to his second written supplemental submissions, Mr Yuen invites me to make a definitive ruling, if necessary, that the Government was not a creditor as at the date of the presentation of the Petition.  In my view, given the test is whether the Petition was bad on its face or incurably bad as at the date of the Petition, it is not necessary for me to make any such definitive ruling.  Further, the Government’s confirmation not to rely on the agency point was made because it would rely on the Deed of Assignment and so it would be unnecessary to make any substantive argument on the agency point.  The confirmation was not made in relation to whether the Petition was bad on its face or incurably bad as at the date of the presentation of the Petition.  Therefore, I think for this test of whether the Petition was bad on its face as at the date of the presentation of the Petition, the plea of agency should still be taken into account.

C.    Any prima facie case of insolvency for a winding up order as at the date of the presentation of the Petition?

52.  In relation to the question of whether there is any prima facie case of insolvency for a winding up order as at the date of the presentation of the Petition, given my finding that the presumption of insolvency applied as at the date of the presentation of the Petition, there is a prima facie case of insolvency for a winding up order as at the date of the presentation of the Petition.  Since detailed submissions were made on actual insolvency, I would like to say a few words.

53.  Mr Hui referred to the fact that upon the Notice of Termination, by which BDFA demanded the Company to pay the Debt, the Company did not respond at all.  Nor the Company has ever said that it would be able to pay.  Mr Hui in effect submits that this was actual insolvency.  However, in my view, as a matter of logic, the mere fact that a company does not satisfy a demand for payment of a certain debt and even remains silent as to whether it would pay that certain debt or not cannot be equated as any prima facie case of insolvency for a winding up order or inability to pay all its debts for the purpose of sections 177(1)(d) and 178(1)(c).  The Company may simply refuse to pay that specific debt, but it does not mean that it does not have the ability to pay all its debts.  If failure to pay a specific debt would be sufficient to sustain a prima facie case of insolvency for a winding up order, there would not be any need for section 178(1)(a) of the CWUMPO to provide a presumption of inability to pay its debts (as opposed to the debt in the demand): see Shangdong Chenming Paper Holdings Limited v Arjowiggins HKK 2 Limited (2022) 25 HKCFAR 98 at §§34-35 per Fok and Lam PJJ delivering the judgment of the Court of Final Appeal.  The one liner from §16 of DHCJ To’s judgment in Re First Dragon Fashion (Hong Kong) Limited, HCCW 41/2010, 14  February 2011 “Non payment of the debt in the absence of a bona fide dispute of the debt on substantial ground… is very strong evidence on which the inference of insolvency could be raised”, which Mr Hui emphasises, has to be understood in the context of that case.  In that case, the underlying debt was a judgment debt under a PRC judgment.  Further, in that case, first, the presumption of insolvency under section 178 (1)(a) was relied upon (§65), and second in finding actual insolvency (§73), DHCJ To did not rely only on the non-payment of debt, but also considered the other debts owed to the petitioner (§67) and the suspicious conduct of the company including disposal of the company’s substantial funds (§70) and inflating its inventories (§73).  Therefore, I do not think that one can take that one liner out of context as if it is a statutory provision, and insofar as it were really meant (but I do not think DHCJ To meant that) that a presumption of insolvency would arise from non-payment of an undisputed debt, this would be inconsistent with the Court of Final Appeal’s judgment in Shangdong Chenming Paper Holdings Limited v Arjowiggins HKK 2 Limited, supra, and should not be applied as such.

54.  Therefore, had the presumption of insolvency not applied, I would find that there is no prima facie case of insolvency for a winding up order as at the date of the presentation of the Petition on the evidence placed before me.

IX.    GROUND 2 - REPAYMET OF ALL OR RETURN OF UNSPENT BALANCE UNDER CLAUSE 11.5?

55.  Since Ground (1) fails, I now consider Ground (2), namely, whether under Clause 11.5 the Company should repay all the Grant or just return the unspent balance. 

56.  The legal principles in relation to contractual construction are well established.  The Court should look at the ordinary and natural meaning as a starting point, bearing in mind the context and purpose of the contract and the clauses in question and the facts known to the contractual parties.  Contractual construction is an iterative and unitary process to ascertain the parties’ intention objectively. If the parties’ intention is clear, the Court should give effect to it even if it would result in unreasonableness or absurdity.  If in the process of construction, the parties’ intention could not be readily ascertained, the Court, cautious against effectively rewriting a contract, would prefer a construction that would lead to a reasonable result to the one that would not. Mr Yuen also stresses, and I accept, that in the present context, reasonableness has to be assessed not against commercial sense but in the charity context.

57.  In the present case:-

(1)     Just within Clause 11, Clause 11.4(b) refers to “return all unspent balance” while Clause 11.5 refers to “all amounts made available to the Grantee”.  By their ordinary and natural meaning and in context, the two expressions meant two different things.

(2)     The purpose of the Funding Agreement, reading also Clause 6 as quoted above that required operation of the DTRC, was clear to me to ensure that the funds provided would be used to improve the DTRC and operate it properly.  If it could not be operated properly, the purpose would be defeated.  To achieve this purpose, it would not be sufficient that only unspent balance should be returned.  If this were the case, the Company could or would effectively be no more than a renovation contractor.  To achieve this purpose, something more would be required – some disincentive for the Company not to materially change the management or some incentive for it to remain materially the same, as it was with such a board which BDFA executed the Funding Agreement and it is fair to say that BDFA relied upon the board in relation to the operation of the DTRC.  Thus viewed, it was clear to me that the disincentive or incentive was the repayment of all funds made available.  Therefore, the purpose also supported the repayment of all rather than a mere return of the unspent balance.

(3)     Mr Yuen gives an example that an absurd result would obtain if the full Grant, having been applied to the works, would have to be returned, thus saying that the parties would not have intended a return of the full Grant.  He give two very vivid examples – one, in the light of the development of the technology nowadays, it may well be that the management would change materially to use much more AI and other advanced technology; and two, 50 years later, all or a large number of the directors became aged and would like to retire, and to have young and energetic directors to come onto the board.  For these examples, Mr Yuen posed these rhetorical questions: if the Company would be asked to make a full repayment of the Grant, would it have agreed at the time of entering into the Funding Agreement?  Would BDFA or the Government really intend to ask for a full return of the Grant when the Company mad material change for improvement?  To counter this, Mr Hui, likewise, posed a rhetorical question: if the Company, having obtained the Grant, could on the next day materially change the management, say, again, the directors would like to retire, would the Government have agreed to the Grant?

(4)     In my view, this is why the Court is always very cautious against considering the reasonableness or absurdity of an outcome under a contract as an aid to construe the contract. First, there is almost always absurdity when one takes extreme examples. Second, both parties could easily give examples in their favour in terms of reasonableness or absurdity.  Therefore, it has always been reminded that it is only in the situation where the terms are vague then the Court would think that the parties, being rational beings, would intend a meaning that would result in a reasonable rather than an absurd outcome.  However, in the present case, in the light of the clear wording, understood on its own or in context and purposively, it is clear that the return of the full Grant was intended.  I do not have to resort to the reasonableness or absurdity arguments.

(5)     It was the parties’ bargain, and further there is no argument that such repayment is unenforceable as penalty.  So, there was no unfairness or windfall to BDFA (or the Government) as submitted by Mr Yuen. 

(6)     The Company also raised that there was an implied term that Clause 11.5 did not require repayment of the amounts in monetary term but the repayment could be made in specie or in kind, and in the present case, it would mean the Projects and its Works.  It also raised that there was an implied term that only the unspent sum would have to be returned.  With respect, “amounts”, in its natural and ordinary meaning, refers to money.  Further, in the light of my view above that the text, and the context and the purpose all pointed to the repayment of the full Grant, I do not find any room for implying such terms as would appear contrary to the intention of the parties ascertained from the express terms of the Funding Agreement as explained above.

(7)     Relatedly, the Company’s argument that the Government has also regained possession of the site on which the DTRC was erected and so if full repayment would be required, the Government would gain a big windfall.  However, one must appreciate that it was the Government which regained the possession of the Site, and it would be BDFA who would be repaid in full.  They would be different entities; it just happened that in the present case, BDFA assigned the rights to the Government.  This should not affect how the Funding Agreement should be construed.

(8)     In any event, even if they were the same entity, the parties’ intention to me were clear and therefore, whether the result would be unfair or even a windfall would not be a reason for the Court to rewrite the contract.  Therefore, even if the Government was indeed the undisclosed principal and thus the Government could “have the cake and eat it” (to use the expression of Mr Ho at the 15 December 2025 Hearing: see §21(4) above), the parties must be held to their agreement.  The same is also true even if the parties’ agreement would mean that the Grant, applied to the works, would have to be returned in full.

58.  Insofar as the Company would rely on the alleged unfairness as a standalone ground that the Government would take both the Site including the DTRC and the Grant, on my view of the meaning of Clause 11.5 above, I see no legal basis for the Court to somehow hold that the Company could depart from what were agreed under the Funding Agreement.

59.  Having considered the above, in my judgment, there was no bona fide dispute on substantial ground over the meaning of Clause 11.5 – it clearly required the Company to make full repayment of the Grant.

X.    GROUND (3) - MATERIAL CHANGE OF MANAGEMENT AND CONTROL UNDER CLAUSE 11.1(f)?

60.  In Mr Yuen’s written and oral submissions, he raised an argument in relation to BDFA’s reliance on Clause 11.1(f) that in its opinion, there was material change of management or control of the Company. 

61.  Mr Hui complains that this argument was not raised at the 15 December 2025 Hearing, and not even thereafter until Mr Yuen’s Skeleton Submissions which was filed a few days prior to the substantive hearing before me.  Mr Hui complains that had this point been raised earlier, the Government would have adduced evidence to explain further why there was material change.  He further points out that although the contents of the Notice of Termination were not pleaded in the Petition, the Notice of Termination was pleaded and thus it would not be right to say, as Mr Yuen now submits, that the Company did not know what case to meet in relation to BDFA’s opinion about material change of management and control.

62.  It is for this dispute that I have had explained in Part V above what happened at the 15 December 2025 Hearing.  As I said, at that Hearing, Linda Chan J found it appropriate to adjourn the matter for substantive argument without leave for further evidence other than the Government’s reply, having considered submissions on the scope of issue for substantive argument.  I agree with Mr Hui that had this “material change” point been raised, the Government should have been afforded a chance to file evidence in answer to this point.  Therefore, I agree that I should not consider this “material change” point in my judgment.

63.  In any event, even if this point is considered, I would find that there is no bona fide dispute on substantial ground.

64.  First, Mr Yuen submits that because the evidence of change of the composition of the board and the abandonment of the Site and the DTRC was adduced only in the Government’s reply affirmation, the Company did not realise that now in the Petition, the Government (or BDFA at the time) relied on all these for invoking Clause 11.5 of the Funding Agreement.  Mr Yuen submits that whether the change was material or not is a question of fact to be tried, and that the evidence in relation to the change was only adduced in the Government’s reply evidence filed after the 15 December 2025 Hearing, while nothing was pleaded about the change, let alone material change, in the Petition.  He submits that the Government cannot rely on matters not pleaded in the Petition, and the Company did not have any chance to reply to such evidence about the change.  On the state of such evidence, he submits, there is bona fide dispute on substantial ground.  For this pleading point, Mr Yuen refers me to Re Hong Kong Auson Mining Group Limited [2021] HKCFI 788 at §§27-28, a case of an unfair prejudice and just and equitable petition, where Linda Chan J said:-

“27. It is well established that the petitioner is confined to the heads of complaint set forth in the petition and cannot rely on any new head not fairly covered in the petition…

28. The petition is a document which defines the issue and the scope of the proceedings just like a pleading…”

65.  This must be true as a general principle.  All the positive averments must be made in a petition to make good the “cause of action”.  For example, in an unfair prejudice petition, the elements in support of “unfairness” and “prejudice” must all be pleaded, and the Court will not travel beyond the averments in the petition to find “unfairness” and “prejudice”.  Similarly, in a petition relying on actual insolvency, all the particulars relied upon in support of the averment that the company was actually insolvent must be pleaded, so that the company would know what case to meet.

66.  In the present Amended Petition:-

(1)     As regards the element of creditor:-

(a)     In the opinion of BDFA, an event of default under Clause 11.1(f) had occurred, and thus, BDFA issued the Notice of Termination (§7 of the Amended Petition).

(b)     BDFA was the agent of the Government, or in any event has been assigned the debt by the Deed of Assignment is pleaded (§§5 and 5A of the Amended Petition).

(2)     The element of the presumption of insolvency as at the date of the presentation of the Petition is also pleaded, namely, the service of the Statutory Demand and the Company’s failure to satisfy the Statutory Demand (§§9-10 of the Amended Petition).

67.  Thus, a prima facie entitlement to a winding up order is established.  Just like when a plaintiff’s prima facie case for a summary judgment is established, the defendant could then (1) attack the plaintiff’s prima facie case in itself and/or (2) raise any defence it has to the plaintiff’s prima facie case.  In the present Amended Petition, the Company could attack the above elements in themselves and/or raise any defence it has.  For the latter, the Company could and should of course raise any bona fide defence even though the facts of such defence are not pleaded in the Amended Petition.  The Company cannot say that because those facts are in the first place not pleaded in the Amended Petition, the Court cannot travel beyond the averments in the Amended Petition to consider the Company’s defence.  After all, the burden lies upon the Company to raise a bona fide dispute on substantial ground.

68.  Thus, properly understood, Mr Yuen’s complaint on the pleading point can only be that no particulars are averred in support of the averment in §7 of the Amended Petition that “in the opinion of BDFA, a material change occurs in the management or control of the Company (pursuant to Clause 11.1(f) of the Agreement)”, and so the Company could not be expected to know that in the present court proceedings, the Government would rely on the contents of the Notice of Termination.  With respect, Mr Yuen’s complaint does not give the Company any mileage.

(1)     In the light of the averment, though general and not particularised, that “in the opinion of BDFA, a material change occurs in the management or control of the Company (pursuant to Clause 11.1(f) of the Agreement)”, the Company, in its opposing evidence, while citing Clause 11.1(f), does not even depose to a general allegation that there was no such change.  The burden lies upon the Company to raise any bona fide defence, and if the Company would like to raise bona fide that BDFA could not have formed such an opinion, it should have made an assertion that there was no such change, and condescended upon particulars in support of such an assertion.

(2)     Further, pleadings are not a game of words.  The function of pleadings is to enable the parties to know what case to meet.  In my view, the express reference to the Notice of Termination (the copy of which produced by the Company itself in its opposing evidence), the contents of which are quoted in §11 above and which invoked Clause 11.1(f), is sufficient to inform the Company of the reasons for BDFA’s opinion relied upon in the present court proceedings.  It would be taking the pleadings as a game of words if the Company would say that although it was well versed with the contents of the Notice of Termination and although the Notice of Termination was referred to in the Amended Petition also in the context of BDFA’s opinion pursuant to Clause 11.1(f), the Company does not realise that the same contents are relied upon in the Petition and the Amended Petition and thinks that some other grounds are relied upon.

(3)     In any event, the undisputed fact is, as set out in the Notice of Termination, that as at the time of the Notice of Termination, none of the directors holding the office as at the time of the Funding Agreement remained, and that the Certificate of Exemption had been cancelled and the DTRC could no longer lawfully operate.  Despite Mr Yuen’s forceful submissions (a) that BDFA had the Braganza duties (Braganza v BP Shipping Ltd [2015] 1 WLR 1661 at §§18, 22, 27 & 102-103) to form its opinion in good faith, not arbitrarily, not irrationally and not capriciously, (b) that whether the change in the management and control was material or not is a fact-sensitive, triable issue, and (c) that in the absence of any term requiring approval of BDFA for appointment of new directors, it would be unimaginable that all or most of the directors would have intended to remain on the board as long as the Funding Agreement was subsisting, in the light of such undisputed fact, whatever the reasons for the change in the management or control and/or howsoever the change was viewed in the factual matrix and in context, and even assuming that the suspicion of fraud on several directors as mentioned above proved to be false, I am of the view that this would still be consistent with the premise that BDFA formed the opinion as set out in the Notice of Termination in good faith, not arbitrarily, not irrationally and not capriciously, and that no bona fide dispute on substantial ground could be raised on such serious allegation that BDFA acted in bad faith, arbitrarily, irrationally and capriciously.

69.  In the premises, even assuming that the Company could take this point, despite Mr Yuen’s eloquent submissions, I would find that there is no bona fide dispute on substantial ground in Ground (3).

XI.    GROUND (4) - FUNDING AGREEMENT DISCHARGED UPON CANCELLATION OF CERTIFICATE OF EXEMPTION

70.  Ground (4) is on a point raised on my own motion at the outset of the hearing.  In my own reading of the papers, a point occurred to me as to whether upon the cancellation of the Certificate of Exemption and thus the cessation of the lawful operation of the DTRC effective from 31 October 2024, the Funding Agreement, apparently subsisting on the substratum or an assumption of an operating DTRC, was discharged on 31 October 2024 as a result of frustration: see Chitty on Contracts (35^th edition) §27-101, and therefore, there was nothing to terminate by the Notice of Termination in February 2025, and thus Clauses 11.1(f) and 11.5 could not be invoked.  I raised this point at the outset of the hearing, and asked the parties to consider it.  As a result, supplemental written submissions were made on this point (as well as on the points in relation to locus discussed above).

71.  First, for the same reasons given in §§61-62 above, I should not consider this point, though raised on my own motion.

72.  Second and in any event, having considered parties’ submissions, for the following reasons, I find that there is no bona fide dispute on substantial ground:-

(1)     Clause 6(f) required the Company to maintain certificate of exemption.  Clause 11.1(a) provided that if the Company failed to comply with its obligations under the Funding Agreement, such failure would constitute an event of default.

(2)     As mentioned in §§9 and 10 above, before the cancellation of the Certificate of Exemption by the letter issued by the Director of Social Welfare on 10 October 2024, the Director of Social Welfare had written to the Company on 17 September 2024 inviting submissions why the Certificate of Exemption should not be cancelled in the light of what the Director had observed in his inspections on 18 July 2024 and 13 September 2024, namely, absence of residents and abandonment of the Site.  There might well be good reasons to explain the status as observed by the Director. However, the Company did not give any response at all.  In such circumstances, even assuming that the reasons for the status as observed would be an “Act of God” completely outside the Company’s control that would usually be sufficient to frustrate a contract, it was the Company’s failure to explain the matter to the Director that caused the cancellation.  Therefore, it is clear that it was the Company’s failure to comply with Clause 6(f) by “maintaining” the Certificate of Exemption.

(3)     Given that the cause of cancellation was the Company’s failure to comply with Clause 6(f): see Chitty on Contracts, supra at §27-059, and in any event, the cancellation was self-induced: see Chitty on Contracts, supra at §27-091, there is no room for the doctrine of frustration to operate.

73.  In the circumstances, even assuming that the Company could take this point, I would find no bona fide dispute on substantial ground in it.

XII.    CONCLUSION

74.  For the above reasons, I make a usual winding up order against the Company.  I also order that the Company shall be liable to pay the Petitioner costs with certificate for two counsel, summarily assessed at HK$600,000.

75.  It remains for me to thank Mr Hui and Mr Cheung (counsel for the Government) and Mr Yuen and Mr Ho (counsel for the Company) for their able and thorough assistance.