VPOWER GROUP INTERNATIONAL HOLDINGS LTD v. CRRC HONG KONG CAPITAL MANAGEMENT CO. LTD

CAMP 117/2025 & CAMP 118/2025

(Heard together)

[2025] HKCA 952

CAMP 117/2025

On Appeal From [2025] HKCFI 551

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS ACTION NO 117 OF 2025

(ON AN INTENDED APPEAL FROM HCMP NO 1551 OF 2024)

________________________

________________________

________________________

CAMP 118/2025

On Appeal From [2025] HKCFI 551

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS ACTION NO 118 OF 2025

(ON AN INTENDED APPEAL FROM HCMP NO 1552 OF 2024)

________________________

________________________

________________________

(Heard Together)

________________________

J U D G M E N T

________________________

Hon G Lam JA (giving the Judgment of the Court):

Background

1.  The plaintiff in each of the two actions below applied for an injunction to restrain the defendant from presenting or advertising any winding up petition against it based on the alleged debt in question.  Deputy High Court Judge Kent Yee dismissed their applications, and also refused leave to appeal.  The plaintiffs now apply to this court for leave to appeal.

2.  The plaintiff in CAMP 117/2025 (from HCMP 1551/2024)  is VPower Group Holdings Ltd (“VPG”), and the plaintiff in CAMP 118/2025 (from HCMP 1552/2024)  is VPower Group International Holdings Ltd (“VP ListCo”).  VPG is a wholly-owned subsidiary of VP ListCo, which has been a listed company on the Hong Kong Stock Exchange since 24 November 2016.  Mr Samson Lam (“Lam”)  was one of the founders of the VPower group and, in November 2016, he and his wife held over 70% of the shareholding in VP ListCo. 

3.  There was originally another subsidiary of VP ListCo called VPower Technology Co Ltd (“VPT”). It ceased to be a subsidiary of VP ListCo on 8 December 2015 when its entire shareholding was transferred to a company held principally by Lam and his wife.

4.  One of the key businesses of the VPower group is the operation of power plants and power generation and distribution.

5.  In 2015 to 2017, the defendant, CRRC Hongkong Capital Management Co Ltd (“CRRC”), entered into 2 finance lease agreements with VPG and 4 finance lease agreements with VPT.  These are essentially sale and lease back agreements whose terms are similar and included:[1]

(1)  VPG/VPT agreed to sell and transfer to CRRC some of its machinery and equipment in the power plants and facilities set out in the schedules to the agreements.

(2)  CRRC would lease the assets back to VPG/VPT for rent payable by instalments for a term of 3 years.

(3)  The rent payable was a fixed interest rate of 4.5% of the transfer price per annum.  The rent was payable every 6 months by 6 instalments.

(4)  In addition, VPG/VPT agreed to pay CRRC an annual handling fee of 0.7% per annum of the transfer price.

(5)  VPG/VPT had an option to repurchase some or all of the leased assets upon satisfaction of the following conditions, namely (1) upon expiry of the lease term and (2)  after VPG/VPT has repaid all payable sums under the finance lease agreements.

6.  The sale prices obtained by VPG under these arrangements totalled USD 34 million and those obtained by VPT totalled USD 41.39 million.

7.  Since around December 2017, VPG and VPT had defaulted on payment of the rent and other charges payable under the finance lease agreements.

8.  On around 19 February 2019, VP ListCo executed a guarantee (“Guarantee”)  (backdated to 31 December 2018)  in favour of CRRC in respect of all the liabilities of VP ListCo’s subsidiaries to CRRC including the sum of USD 54,462,000 for repurchasing the leased assets.  The Guarantee was expressed to cover all supplemental agreements as well as amendments, and also provided that the guarantor’s liability shall not be limited, impaired or invalidated by any modifications, schedules and enclosures to any agreement.

9.  Between 2019 and 2021, VPG and VPT executed certain documents undertaking to make repayment to CRRC by the end of 2022.  No repayment was made.

10.  On 31 December 2022, VPG and VPT together executed another payment undertaking (付款承諾函)  (“2022 Repayment Undertaking”)  in favour of CRRC, whereby VPG and VPT confirmed that as at 31 December 2022, they owed CRRC outstanding funds in the sum of USD 45,372,820 and outstanding interest and administrative fees in the sum of USD 4,489,847. VPG and VPT undertook to pay all outstanding sums owed to CRRC by the end of 2025 in instalments in accordance with two schedules set out under clause 2 thereof (one relating to principal and the other to interest).

11.  The instalments under the 2022 Repayment Undertaking were not paid.  On 5 August 2024, CRRC served a statutory demand on VPG claiming the aggregate sum of the instalments due as at that date, in the amount of USD 11,000,000 on account of principal and USD 1,634,870.95 in respect of interest.  On the same date, CRRC served a statutory demand on VP ListCo for the same amounts based on the Guarantee.

12.  In response, on 19 August 2024, VPG and VP ListCo commenced separate proceedings by originating summonses seeking an injunction to restrain CRRC from presenting or advertising any winding up petition against them based on the debts referred to in the statutory demands.  At the same time, they also took out summonses for interlocutory injunctions to the same effect.  The ground for seeking an injunction was that it would be an abuse of process for CRRC to present a winding up petition, because the plaintiffs had a bona fide defence to the claims described in the statutory demands.

13.  In his decision dated 3 February 2025 (“Decision”),[2] DHCJ Kent Yee dismissed the interlocutory summonses.  By a further decision dated 3 June 2025 (“Leave Decision”),[3] the judge refused leave to appeal.  By summonses filed on 16 June 2025, VPG and VP ListCo apply to this court for leave to appeal against the Decision.

14.  Under section 14AA(4)  of the High Court Ordinance (Cap 4), leave to appeal shall not be granted unless the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.

The intended grounds of appeal

15.  A number of arguments were raised before the judge, not all of which are relevant for present purposes.  There are three main grounds advanced by the plaintiffs in their draft notices of appeal.

The Money Lenders Ordinance point

16.  The first intended ground relates to the contention advanced by VPG and VP ListCo that the finance lease agreements were in substance or effect loans of money within the meaning of the Money Lenders Ordinance (Cap 163)  (“MLO”), and that since CRRC was not a licensed money lender before 22 November 2016 (when it first obtained a licence), by virtue of section 23 of the MLO[4] it cannot recover the money lent prior to that date except to the extent the court otherwise orders under the proviso to section 23.[5]  It is contended that the judge erred in various ways in rejecting this defence for the purpose of determining the applications for injunction.

17.  First, it is submitted that the judge was wrong to have found that the plaintiffs’ case must mean that the finance lease agreements were shams.  Their case can be one of collateral agreement.  Properly analysed, the mutual understanding they allege, that the principal sums were liable to be repaid and VPG (and perhaps VPT)  would repurchase all the leased assets from CRRC, does not negate the parties’ rights and obligations under the finance lease agreements but sets out the further understanding or agreement between the parties as to how such rights and obligations would be exercised.

18.  We do not see any prospect of success in this argument.  As explained by the judge in the Leave Decision at §§14-17, the proper approach in determining whether a transaction is a loan within the meaning of the MLO[6] is to look at its legal substance or effect: see Secretary for Justice v Global Merchants Funding Ltd (2016)  19 HKCFAR 192 at §21.  In other words, one examines the legal nature and character of the agreement, and the legal consequences to which it gives rise, not its object or overall economic consequences.  The plaintiffs have not shown how a sale and lease back agreement can be said to be in substance or effect a loan without it being suggested that it is a sham.  It is true that the overall economic result, examined at the end of the transaction where the asset sold is repurchased, would be similar to money having been lent and repaid with interest.  But as the Court of Final Appeal pointed out in the Global Merchants Funding Ltd case (at §21):

“ Methods of financing which may be economically indistinguishable from a loan repayable with interest may well be differently categorised in law.”

Likewise it was held by the Privy Council in Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 at 216-217:

“ Their Lordships are, of course, aware … that transactions of this sort can easily be used as a cloak for moneylending. The task of the court in such cases is clear. It must first look at the nature of the transaction which the parties have agreed. If in form it is not a loan, it is not to the point to say that its object was to raise money for one of them or that the parties could have produced the same result more conveniently by borrowing and lending money. But if the court comes to the conclusion that the form of the transaction is only a sham and that what the parties really agreed upon was a loan which they disguised, for example, as a discounting operation, then the court will call it by its real name and act accordingly.” (italics added)

19.  In Yorkshire Railway Wagon Co v Maclure (1882)  21 Ch D 309, a railway company sold 15 locomotive engines to a wagon company for a large sum, and the wagon company leased the assets back to the railway company at a yearly rent, with an option for the railway company to purchase them at the completion of the agreement at the price of only £1 each.  When the railway company defaulted, it argued that the contract was void because it was in truth a borrowing of money and as such beyond the powers of the railway company under the applicable statute.  The Court of Appeal rejected that defence.  Lindley LJ said (at p 318):

“ … another method was had recourse to, not for effecting the loan, but for effecting a different transaction, which would answer the purpose of the Railway Company just as well. All they wanted to do was to get the £30,000. That was the real transaction between the parties, and that transaction was one which was embodied in the deeds upon which this action is brought. If we look on that transaction as the real transaction, upon what ground can we treat it as illegal? If it were a mere cloak or screen for another transaction one could see through it, but once come to the conclusion that it was the bonâ fide real transaction between the parties, intended by both sides to operate according to its tenor, there is no mode that I know of of holding it illegal unless you find it prohibited by some Act of Parliament or void by reason of some principles of law. It is said to be an evasion of the Act of Parliament really to borrow the money. There is always an ambiguity about the expression ‘evading an Act of Parliament.’ In one sense you cannot evade an Act of Parliament; that is to say, the Court is bound so to construe every Act of Parliament as to take care that that which is really prohibited may be held void. On the other hand, you may avoid doing that which is prohibited by the Act of Parliament and you may do something else equally advantageous to you which is not prohibited by the Act of Parliament. It appears to me that the transaction falls under the last of these two classes, it is a transaction as useful for the Railway Company as the other, but it is a real transaction, and is not struck at by the Act of Parliament at all.”

20.  In the present case, the internal feasibility report prepared by CRRC dated 16 November 2015 stated:

“ As one of the world’s large-scale generator system integrators, VPower Group Holdings Limited is in a state of rapid development in response to the continuous growth in demand for clean energy in emerging market countries, and in order to expand its scale and achieve the financing purpose, VPower Group intends to transfer the equipment and facilities it owns to CRRC Hong Kong Capital Management Co., Ltd. and then lease them back from our company. The lease term is 3 years, and the expected annual yield from the sale and leaseback is 5.2% (4.7% annual interest and 0.5% processing fees).”[7]

21.  Further, the IPO prospectus of VP ListCo (for the listing in 2016)  stated:

“ We entered into finance lease agreements with CRRC Capital (the ‘Lessor’)  in the form of sale and lease back arrangements in December 2015 in respect of the assets of certain of our DPG stations in Indonesia and Bangladesh (the ‘Leased Assets’). … Pursuant to the leases, we sold the Leased Assets at negotiated purchase prices … and the Lessor then leased the Leased Assets to us in return for periodic lease payments. Upon expiry of the Lease, we will repurchase the Leased Assets from the Lessor at the Principal Amount. …

   During the lease terms, the Lessor has the full ownership of the Leased Assets.  Without prior written consent from the Lessor, we may not transfer, sub-lease, pledge or otherwise dispose of the Leased Assets to any third parties, relocate the Leased Assets to a location which is not specified in the agreements, allow any third parties to possess and use the Leased Assets, or do any other acts which affect or prejudice the ownership of the Leased Assets. …”

22.  If, as these documents strongly suggest, the transaction embodied in the finance lease agreements was not a sham, and was intended to operate according to their tenor, then it seems to us to follow that the true legal nature of the transaction remains a sale, lease back, and repurchase, in which money was intended to be paid as the price for transfer of ownership of the asset sold, and subsequently repaid in part as rent for leasing the asset and in part as the price for repurchasing the asset and regaining ownership at the end.  The fact that at the end of the transaction the economic consequence would be indistinguishable from that of a loan does not imply that it was “in substance or effect a loan”.

23.  The plaintiffs rely on Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858, 876D.  In our view this case does not assist them.  There it was said that an arrangement that was not a sham could nevertheless be an artificial device intended to circumvent a result that legislation would otherwise have brought about.  But the court immediately went on to say that despite the finding of such a device, there is no principle that entitles the court simply to ignore or override apparently effective transactions.

24.  In any event the judge did not accept there was any secret agreement that the option to repurchase would be exercised by VPG (and VPT).  In coming to this view he was entitled to place especial weight on the contemporaneous documents, particularly the IPO prospectus of VP ListCo, which did not mention any such binding obligation on the part of VPG to repurchase any of the leased assets, and the feasibility report prepared by CRRC on the sale and lease back arrangement.  The plaintiffs’ criticisms that the judge should not have said that the plaintiffs’ case on the alleged understanding lacks particulars, and that the judge speculated that there was no commercial reason for the alleged understanding, seem to us to be peripheral and insufficient (even if established)  to vitiate the judge’s conclusion. 

25.  We do not think that the judge was wrong to characterise clauses 19.1 and 19.3 of the finance lease agreements as “akin” to an entire agreement clause.  Even if they do not as a matter of law preclude a collateral agreement, they are part of the context which the judge was entitled to take into account in rejecting the alleged understanding for the purpose of deciding whether an injunction should be granted.

26.  The criticism that the judge failed to give proper weight to CRRC’s application for a money lender’s licence in August 2016 is in our view invalid, for such application is, in the circumstances of this case, not probative at all that a sale and lease back transaction entered into 8 months before was in fact a loan.

27.  As to the early repayments, they were clearly made after specific notices and correspondence issued subsequently between the parties.  They were consistent with the plaintiffs wishing to exercise the option to repurchase and do not contradict the view taken by the judge based on the contemporaneous documents.

28.  Overall, therefore, we do not think there is a reasonable prospect of success in the ground that the transaction was a loan caught by the MLO.

29.  In the Decision (at §§57-62)  the judge held that even if the finance lease agreements were loan agreements, the loans would be exempted loans under paragraphs 14 and 15 of Part 2 of Schedule 1 to the MLO,[8] since VPG was a subsidiary of VP ListCo which was a listed company, even though it only became listed in November 2016.  In the Leave Decision (at §§44-49)  the judge accepted it was reasonably arguable that his interpretation of the statute in this regard was wrong and that the relevant time to determine whether a loan is exempted is when the loan is made.  Given that we do not think it is reasonably arguable that the sale and lease back was a sham and the transaction was in fact a loan, whether the exemption applies is irrelevant.

The joint and several liability point

30.  The plaintiffs contend that the statutory demands were defective because the demands wrongly assumed that VPG and VPT were jointly and severally liable under the 2022 Repayment Undertaking.  It was submitted to the judge, relying on Re Leung Cherng Jiunn [2016] 1 HKLRD 850 at §§13-15 and Re Hongkong Bai Yuan International Business Co Ltd [2022] HKCFI 960 at §25, that any winding up petition issued on that basis would be an abuse of process.

31.  The first thing to note, though it was not mentioned in the Decision, is that the passages in Re Leung Cherng Jiunn and Re Hongkong Bai Yuan International Business Co Ltd relied upon by the plaintiffs concern statutory demands in the bankruptcy regime, where the courts have said that such demand is the “straight and narrow gateway” through which a creditor must pass in order to establish the debtor’s inability to pay.  In contrast, in the field of company law, a statutory demand merely provides one means of establishing a company’s inability to pay its debts; see Just Classic Ltd v Evershine Group Holdings Ltd [2023] 1 HKLRD 1386 (CA)  at §§21-23.  In Bozell Asia (Holdings)  Ltd v CAL International Ltd [1997] HKLRD 1 at 7, Rogers J said: “A company is insolvent if it is unable to pay its debts as they become due.  A statutory demand under section 178 is merely a means of proof of insolvency but is not a sine qua non for the success of a petition on the grounds of insolvency.  Moreover, the fact that the full amount of the statutory demand may not be proved to be owing does not invalidate a demand or render the company involved any less insolvent.” 

32.  Thus even if VPG is only liable on its own to CRRC for part of the amounts and rather than jointly liable with VPT for the full amounts stated in the 2022 Repayment Undertaking, it may still be said to be “unable to pay its debts” within the meaning of section 177(1)(d)  of the Companies (Winding Up an Miscellaneous Provisions)  Ordinance (Cap 32), which is of course one of the grounds for winding up a company, and CRRC may still be said to be a “creditor” with the standing to present a petition.

33.  Furthermore, the only point now made by the plaintiffs under this ground is that the judge was wrong to hold that clause 4 of the 2022 Repayment Undertaking[9] meant that all other payment obligations of VPG and VPT remained intact.  They have not answered the main point behind the judge’s construction of the document, which is that their promise to repay as expressed in the other clauses is unsevered and made in respect of combined sums of principal and interest, without making any division between VPG and VPT.  Nor have the plaintiffs disputed the proposition, accepted by the judge on the authority of The Argo Hellas [1984] 1 Lloyd’s Rep 296 at 300, that where persons join in making a promise and there are no words of severance, their obligation is joint.

34.  There is no reasonable prospect of success on this ground.

The scope of the Guarantee point

35.  The final ground concerns the scope of the Guarantee given by VP ListCo.  The plaintiffs contend that the Guarantee was expressed to be for sums payable by VP ListCo’s subsidiaries (其下屬子公司)  and that as VPT was no longer a subsidiary of VP ListCo at the time the Guarantee was given it did not cover VPT’s debts and obligations.

36.  On its own we can see some force in this contention.  However, as the judge pointed out (at §84 of the Decision), since VPG jointly promised the full amounts covered by the 2022 Repayment Undertaking, whether the Guarantee covers only VPG’s debts or both VPG’s and VPT’s debts does not affect the monetary extent of VP ListCo’s liability.

37.  In any event, as mentioned above, even if the Guarantee only covers VPG’s debts and VPG is only liable for part of the amounts promised under the 2022 Repayment Undertaking, VP ListCo may still be held to be unable to pay its debts, even though the full amount of the statutory demand may not be proved to be owing.

Conclusion

38.  For all these reasons we see no reasonable prospect of success in the intended appeal.  The application for leave to appeal is therefore dismissed.  The plaintiffs will have to pay CRRC’s costs, which we summarily assess in the amount of $300,000 to be borne by the two plaintiffs in equal shares.

39.  We also make an order under Order 59 rule 2A(8)  that no party may ask for a re-consideration of the application at an oral hearing.