JOINT AND SEVERAL LIQUIDATORS OF HSIN CHONG CONSTRUCTION (ASIA) LTD (In Liquidation) v. THE BANK OF EAST ASIA LTD

HCCW 239/2018 and HCCW 316/2018

(HEARD TOGETHER)

[2025] HKCFI 2829

HCCW 239/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 239 OF 2018

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AND

HCCW 316/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 316 OF 2018

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(Heard Together)

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REASONS FOR DECISION

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1.  At the joint call over hearing on 25 June 2025, the issue that arose was whether the Court should allow the determination of a proposed question of law raised by the respondent, the Bank of East Asia Limited (the “Bank”) in section 182 proceedings to be tried as a preliminary issue. At the conclusion of the hearing, I dismissed the Bank’s application for the reasons below.

Relevant background

2.  Hsin Chong Construction Company Limited (“HCCC”) and Hsin Chong Construction (Asia) Ltd (“HCCA”) are both in liquidation following petitions presented against HCCC on 27 August 2018 (“HCCW 239/2018”) and HCCA on 5 November 2018 (“HCCW 316/2018”). The petitions were gazetted on 12 October 2018 and 23 November 2018 respectively.

3.  The applicants are the joint and several liquidators (“JLs”) of HCCC and HCCA. They seek declarations that payments of approximately $69 million made by the Bank out of HCCC and HCCA accounts maintained with the Bank after the respective dates of the HCCC and HCCA petitions be declared void and for repayment of the same to the JLs.

4.  The JLs identified a total of 406 payments by the Bank out of:

(a)  HCCC’s account(s) with the Bank after 27 August 2018, and

(b)  HCCA’s account(s) with the Bank after 5 November 2018 (collectively, the “Payments”).

5.  On 5 February 2025, the JLs issued summonses pursuant to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“CWUMPO”) against the Bank (the “s.182 Applications”).

6.  The Payments total approximately $69 million and comprise payments made out of HCCC’s account(s) of over $63 million and payments made out of HCCA’s account(s) of over $5 million.

7.  The Bank obtained several extensions of time but has yet to file its affirmation in opposition. Then, on 3 June 2025, some 4 months after the date of the s.182 Applications, the Bank applied by summonses that the following question of law be tried as a preliminary issue (the “Preliminary Issue”):

“After the presentation of the winding-up petition against [HCCC/HCCA] whether the pro tanto discharge of a debt owed by the [Bank] to [HCCC/HCCA], in the context of the [Bank] effecting a payment to a third party in accordance with [HCCC/HCCA]'s instructions without receiving the benefit of that payment, constitutes a "disposition" of [HCCC/HCCA]’s property within the meaning of section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)."

Discussion

8.  Ms Rachel Lam SC and Mr John Hui, counsel for the JLs, opposed the Bank’s Preliminary Issue Summonses and considered them to be a delaying tactic.

9.  As earlier noted, the Bank sought and the JLs granted it specific time extensions for filing its affirmations. One would have thought that each time request made was based on its assessment of the time it required to complete the relevant affirmation. Instead, the parties are back to square one in the sense that no affirmation has been forthcoming despite the time extensions. There is also no explanation as to why it has taken the Bank 4.5 months to raise the Preliminary Issue.

10.  Mr Justin Ho, counsel for the Bank, accepted that there is no evidence to explain the delay. Nevertheless, he submitted that the Bank has made preliminary enquiries which show that the 400 odd Payments in question were paid to 1000 odd recipients and that there are fair arguments that a proportion of the Payments would be validated[1] although further investigations will have to be conducted.

11.  These would involve interviewing various bank staff involved in the management of the Bank, and reviewing HCCC/HCCA’s bank account records over a few years prior to the payments in question to ascertain the transaction pattern between HCCC/HCCA and each of the payees[2]. Background and public searches on each of the payees that require the assistance of professional investigators[3] would also be necessary although quite why this is so is not readily apparent.

12.  In short, the Bank’s submissions is that the determination of s.182 Applications would involve considerable costs, not only for the Bank but also the JLs who would have to carry out their own investigations upon receipt of the Bank’s evidence.

13.  The Bank submitted that the determination of the Preliminary Issue if resolved in the Bank’s favour will be determinative of the s.182 Applications. The Bank relies on English and Australian authorities. Their equivalents to s.182 do not enable an insolvent company to recover against banks. They regards the banks as mere agents or intermediaries: when debiting the company’s bank account and making payments in favour of third party payees, the banks are only acting in accordance with the company’s instructions. See Hollicourt (Contracts) Ltd v Bank of Ireland [2001] Ch 555 (at §31); Re Mal Bower’s Macquarie Electrical Centre Pty Ltd [1974] 1 NSWLR 254, 258; and Re Loteka Pty Ltd (1989) 15 ACLR 620, 627.

14.  The Bank’s written submissions[4] state: “the proper resolution of the Preliminary Issue may require a determination at the appellate level” without explaining what that would entail.

15.  In fact, for the Bank to succeed, the Preliminary Issue will have to be resolved by the Court of Final Appeal and not simply by the Court of Appeal. Hong Kong Courts have previously considered but decided not to follow the British and Australian authorities. See The Bank of East Asia, Limited v Rogerio Sou Fung Lam and Ano [1988] 1 HKLR 181; Chevalier (HK) Ltd and Anor v The Joint Liquidators of Right Time Construction Company Limited (in liquidation) [1990] 2 HKLR 223 and more recently, Re AGI Logistics (Hong Kong) Limited [2016] 5 HKLRD 737.

16.  They are all Court of Appeal authorities which are binding not only on the Court of First Instance but also the Court of Appeal

“unless [the Court of Appeal] concludes, after an examination of legal developments, including subsequent comparative jurisprudence, that its earlier decision should now be regarded as plainly wrong”:

see per Li CJ in A Solicitor v The Law Society of Hong Kong [2008] 2 HKLRD 576 at §52.

17.  The consensus of the parties is that the process is likely to take 3 years. As earlier noted, any savings in costs would only arise should the Bank prevail and the CFA decides to follow the British and Australian authorities. Should the Bank not succeed, it will be another 3 years before it can continue to conduct its ‘extensive’ investigations into the Payments and “the Transactions”[5] as to the precise nature of each payment and payee in order to determine whether it ought to be validated.

18.  The Payments were made in the second half of 2018, almost 7 years ago. The difficulties the Bank is already encountering in its investigations are mentioned in §19.1 of Mr Watts’ affirmation. However, there is apparently a need to review HCCC/HCCA’s bank account records “for a few years or more” prior to “the Transactions”. That would involve records from a decade or more ago. To determine the Preliminary Issue first would delay that exercise by another few years.

19.  The Bank submitted that it has a highly respectable argument that the Preliminary Issue can be answered in its favour. However, the Court of Appeal has rejected its argument on 3 occasions. Moreover, the Bank’s criticism of the AGI case in its skeleton submissions appeared to be somewhat opaque.

Conclusion

20.  In the circumstances, I did not accept the Bank’s submission that it would be in the interests of good case management to have the Preliminary Issue determined separately before the s.182 Applications and I dismissed the Preliminary Issue Summonses.

21.  After discussion with the parties, I gave the following directions for the filing of evidence:

1.  Unless the Respondent do file and serve its affirmation(s) in opposition to the s.182 applications by 4:00 pm on 30 July 2025, the Respondent be debarred from doing so.

2.  The Liquidators do file and serve their affirmation(s) in reply (if any) within 28 days thereafter.

3.  The s.182 Summonses and the Preliminary Issue Summonses be fixed to be heard together for substantive argument before a Judge in consultation with Counsel’s diaries with one day reserved.

4.  Costs of the hearing today of the Respondent’s Preliminary Issue Summonses be to the Liquidators with certificate for 2 counsel.

5.  Costs of the s.182 Summonses be in the cause.