JOINT AND SEVERAL LIQUIDATORS OF LEE SANG KEE ENGINEERING LTD (IN COMPULSORY LIQUIDATION) v. LI MAN SANG

HCCW 116/2023

[2026] HKCFI 5270

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 116 OF 2023

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REASONS FOR DECISION

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Introduction

1.  On 27 August 2026, I heard a summons issued by the Joint and Several Liquidators (“the JLs”) of the Company (“C”), against the Respondent Mr. Li Man Sang (“R”), who was sole shareholder and director of C at the material times.

2.  At that hearing, I made an order along the lines sought by the JLs.  I now provide my written reasons.

3.  The summons was issued under section 276 of the Companies Ordinance (Cap 622), and sought redress against R for alleged misfeasance in the conduct of C’s affairs in his office as a director.

4.  The matter came before Linda Chan J on 2 July 2026, at which hearing the learned Judge made an order that: (i) leave be granted to the JLs to amend the summons to rectify the requirements stated in Rule 58 of the Companies (Winding-up) Rules; and (ii) the hearing be adjourned for substantive hearing with 1 hour reserved.

5.  Having read the affidavits of service filed by the JLs, I was satisfied that the summons and supporting documents were properly served on R and that steps were taken to bring this hearing to his attention.

6.  R did not, however, file evidence nor enter an appearance.

Outline Facts

7.  The application related to a dividend which was declared by C on 28 August 2020, in the amount of HK$2,400,000 (the “Dividend”).

8.  According to C’s auditor, the Dividend was used to set off two debts owing to C: (i) a debt from R to the C in the sum of HK$1,483,652; and (ii) a debt from another company wholly owned by R (namely Lee Sang Kee Construction Limited (the “Related Company”)) to C in the sum of HK$916,348.

9.  The JLs alleged that by causing the Dividend to be declared, R acted in breach of fiduciary duties owed to the C, in that: (i) C was at the time insolvent; (ii) R was accordingly under a duty to take into account the interests of creditors, but failed to do so, instead preferring the interests of R and the Related Company; and further (iii) the Dividend was paid out of capital rather than retained profits available for distribution, which is impermissible.

Principles

10.  It is established that, when a company is insolvent or close to insolvent, a director is under a duty to consider the interest of creditors, and the failure to do so is a breach of fiduciary duty[1].

11.  The test of insolvency in this context is cash flow insolvency or balance sheet insolvency[2].

12.  In addition, under section 297 of the Companies Ordinance, a company may only make a distribution out of profits available for distribution.

Findings

13.  I considered the evidence contained in the affidavit filed by the JLs, and the Skeleton Submissions made on their behalf, which analyse the information contained in C’s audited financial statements.

14.  In short, I was satisfied for the reasons there stated that at the time of the Dividend, C was cash flow insolvent and balance sheet insolvent. Furthermore, by procuring payment of the Dividend, R was in breach of fiduciary duty by failing to consider the interests of C’s creditors ie placing his interests and those of the Related Company over the interests of C’s creditors.

15.  I was further satisfied that there were at the time insufficient retained profits from which the Dividend could be paid.

Relief

16.  In the circumstances, I granted the relief sought by the JLs, including an order that R pay and/or restore to C the sum of HK$2,400,000.