CHAN YAM CHUN, ALBERT v. NG SHIU WAI, ANDREW AND OTHERS

HCCW 198/2025

[2025] HKCFI 4949

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO 198 OF 2025

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BETWEEN

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DECISION

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1.  There are 2 applications before the Court:

(1) the application of the 1^st and 2^nd respondents (respectively, “R1” and “R2”) by summons filed on 3 June 2025 (the “Strike Out Summons”) to strike out the winding up relief in §76 of the petition dated 7 April 2025 (the “Petition”) filed by the petitioner (“Petitioner”); and

(2) the application of the Petitioner and the intended 2^nd petitioner (“Mother”)’s application to join Mother as the 2^nd petitioner and to amend the Petition dated 28 August 2025 (the “Joinder and Amendment Summons”).

2.  Victory Trenchless Engineering Co Ltd (the “Company”) is the 3^rd respondent. For convenience and ease of reference, hereinafter R1 and R2 (collectively) are referred to as the “Respondents”.

3.  The Respondents are amenable to the Court hearing the Strike Out Summons on the basis that the Petitioner and Mother can rely on the proposed amendments to the Petition (the “Draft Amended Petition”) but not on the affirmation evidence filed in support of the Joinder and Amendment Summons. The hearing proceeded on that basis.

Factual background

4.  The Company, incorporated in 2001, is engaged in the business of trenchless works in the construction industry. In 2003, the shareholders were R1 and Chan Kam Chi (“Father”) who were business partners and directors of the Company, respectively holding a 30% and 70% interest in the Company.

5.  Thereafter,

(i) R2 was appointed a director in 2007;

(ii) by mid-2019, the shareholders were R1 (as to 30%), R2 (as to 20%) and Father (as to 50%);

(iii) in May 2019 the Petitioner was appointed an additional director and in June, Father transferred 15% of the shareholding in the Company to the Petitioner;

(iv) Father passed away 24 September 2020 and his shares were divided among Mother, and his 3 children being R2, the Petitioner and his daughter Chan Hong Yi (“Sister”). These distributions together with an allotment of shares by the Company in November 2023 (in which Sister did not participate), resulted in the current shareholding structure which is as follows:

	Petitioner and Mother: 38.58%
			Petitioner		20.97%
			Mother (intended P2)		17.61%
	Respondents: collectively, 56.19%
			R1		30.19%
			R2		26.00%
	Non-party – remaining 5.23%
			Chan Hong Yi (Sister)		5.23%

6.  It is the Petitioner and Mother’s case that the Company is a quasi-partnership. That mutual understanding appears to be accepted at least up to Father’s death. The Petitioner and Mother complain that thereafter, the Respondents have systematically acted contrary to that mutual understanding by excluding the Petitioner from management and the affairs of the Company by:

(i) deactivating his email account;

(ii) terminating his employment with the Company and restricting his access to certain accounting documents;

(iii) removing him from WhatsApp groups dealing with construction projects of the Company;

(iv) denying the Petitioner’s requests for accounting records; and

(v) attempting to remove the Petitioner as director without due process.

7.  The Petitioner was only given copies of the audited accounts for the Company for the years ending 31 March 2021, 2023 and 2024 on 22 January 2025. The Petitioner maintains that they disclose the following matters:

(i) failure to declare dividends despite substantial profits for the years 2019 to 2024;

(ii) excessive or improper directors’ remuneration;

(iii) false information in directors’ reports;

(iv) breaches of regulatory requirements under the Ordinance; and

(v) misappropriation of the Company’s assets and misuse of funds.

8.  Based on the matters in §§6-7 above, in the Petition, the Petitioner sought a winding up Order on just and equitable grounds or, alternatively, a buyout Order.

9.  By the Strike Out Summons, the Respondents seek to strike out the winding up relief in the Petition.

10.  In the Draft Amended Petition, the Petitioner and Mother seek the same relief as in the Petition.

Legal principles

11.  It is common ground that the applicable principles for applications to strike out winding up relief in petitions by contributories are well-established and may be found in judgment of Yuen J (as she then was) in Re Wong To Yick Wood Lock Ointment Limited [2001] 2 HKC 618, adopted and applied by Linda Chan J in Re Harsen (China) Limited [2022] HKCFI 3806 at §17:

“17. Further, in considering whether to strike out a winding up petition presented by a shareholder, the court will be guided by the following principles:

(1) Winding up on a contributory’s petition is a remedy of last resort and would not be granted if the petitioner was acting unreasonably in insisting upon it instead of pursuing an available alternative remedy (Re Wong To Yick Wood Lock Ointment Ltd [2001] 2 HKC 618, at 623D-E).

(2) It is only in a plain and obvious case that the court should exercise its discretion to strike out a claim before it has gone on to a full hearing (Wong To Yick, 623H-I).

(3) If it is clear that there is no real possibility or prospect of a winding-up order being made at trial, it cannot be just for a company to have the threat of a winding up order hanging over its head (Wong To Yick, 624A-B).

(4) Winding up a solvent and profitable company is not in the interests of any its members. It may result in the sale of assets at break up value, without regard to goodwill and the “know-how” of the company (Wong To Yick, 624G-I).

(5) There would be no real prejudice to the petitioner by striking out the claim for winding-up order if (a) there is no ground or basis which would entitle the petitioner to a winding-up order only, but not an order under s.724; and (b) no substantive benefit that a petitioner would gain from a winding-up order which he would not from a buy out order (Wong To Yick, 625C).

(6) The court is nevertheless concerned that the petitioner is not left with a personal remedy only (such as a buy out order) (Re Kinong Group Ltd [1999] 4 HKC 100 at 104F-105G, applied by the Court of Appeal in Re Prudential Enterprise Ltd [2002] 1 HKLRD 267 at §14).”

12.  In Re Overseas Associates Ltd [2022] 2 HKLRD 790 Chow JA recapitulated those principles in the following terms:

“24. To justify the striking-out of the winding-up relief, an applicant is required to show that it is plain and obvious that the petition for winding-up would fail on the ground that there is an alternative remedy available to the petitioner and the petitioner is acting unreasonably in seeking to have the company wound up instead of pursuing the alternative remedy (see Wong Tin Chee v Wong To Yick [2001] 2 HKLRD 683, at 687E–688D per Yuen J (as she then was); Re Wong To Yick Wood Lock Ointment Ltd [2003] 1 HKC 484, at [7]–[8] per Le Pichon JA; Re Four Twenty Co Ltd (HCCW 278/2004, [2005] HKEC 116, 6 January 2005), at [5(3)] per Kwan J (as she then was)). For this purpose, it is assumed that the particulars and allegations in the petition and the supporting affidavits of the petitioner would be established and the conflicts resolved in favour of the petitioner, save that the court is not bound to accept allegations which are plainly unsustainable or of no substance, or can demonstrably be shown to be false or incorrect.

25. Generally speaking, where the winding-up relief is sought, particularly in cases where it is put forward as an alternative to some other remedy, the petitioner ought to explain why it is the relief that he prefers or why it is, or may be, the only relief to which he is entitled (see Wong Tin Chee, ante, at 687G–I; Re Sun Light Elastic Ltd [2013] 5 HKLRD 1, at [9]–[10] per Harris J). Such explanation should be given in the Petition, or in an affidavit.”

13.  Where a prima facie case has been shown that the ability of the respondent to finance any buyout is “seriously in doubt”, it is hardly plain and obvious that winding up relief should be struck out, or that seeking winding up relief would be unreasonable. See Re T-Hero Industrial Co Ltd [2019] HKCFI 1374 at §§ 41-43.

This application

14.  It is not disputed that the Company is solvent, financially sound and operating a profitable business[1]. The following tables are compiled from the audited accounts of the Company for its financial years ended on 31 March for 2021-2024. They respectively show the Company’s balance sheet solvency as well as its liquidity/cash flow solvency:

2024 (HK$)	2023 (HK$)	2022 (HK$)	2021 (HK$)
139,780,390	131,302,257	116,938,564	109,906,014

2024 (HK$)	2023 (HK$)	2022 (HK$)	2021 (HK$)
39,457,707	27,572,619	24,491,593	25,277,730

15.  The balance sheet for 2024 shows that it has net assets of $39 million and net assets of $139 million. Its equity is made up of 3 components, namely, (i) its share capital of 5.8 million; (ii) revaluation of its reserves at $63 million and retained profits of $70 million.

16.  Mr William Wong SC and Mr Charlie Liu, counsel for the Respondents, submitted that it is well-established that where, as here, the Petitioner seeks a buyout order as an alternative relief, the Court is ‘unlikely in the extreme[2]’ to grant winding up relief: Re Harsen (at §17(5)[3]).

17.  In such circumstances, there is no reason why the Court would wind up the Company thereby putting an end to its profitable business. It would not be in the interests of any of the shareholders: see Re Ransom Motor Manufacturing Co Ltd [2007] 1 HKLRD 751 at §33(5) and Re Sang Kee Restaurant Ltd [2021] HKCFI 1817 at §36(1).

18.  On the basis that the Petitioner’s complaints are made out, he and Mother would be entitled to relief pursuant to ss.724-725 of the Ordinance. The Court would make a buyout order and the Company would be valued as a going concern so as to reflect its ability to generate profits in future. They would be better off as the price payable would be much higher than what would be received in the liquidation[4].

19.  Further, as Linda Chan J observed in Re Sang Kee at §22(3), proceeding on the basis that the Petitioner’s complaints are made out at trial, the value attributable to such wrongdoing would be added back to the value of the Company, which may result in the shares having a higher value. But the value of the Respondents’ shares in the Company will move hand-in-hand with the value of the shares of the Petitioner and Mother. It will be open to the Respondents to use the entire shareholding (which they will purchase from the Petitioner and Mother) as security to raise the finance for the purchase.

The valuation issue

20.  Ms Natalie So, counsel for the Petitioner and Mother, took issue with the Respondents’ valuation methodology put forward in R2’s affirmation at §41 adopting a net asset value (“NAV”) approach. In Chinaculture.com Ltd v Lam Ting Ball Paul [2022] HKCFI 1114 at §163, Harris J held that where the Company is a going concern, an asset value approach is not generally an appropriate valuation method, as it does not take into account the ability of the Company to generate profit from its tangible and intangible assets.

21.  To similar effect are the observations of Linda Chan J in Re Top-E Trading (HK) Co Ltd [2021] HKCFI 3572 at §§53-54:

“53. In my view, the [Market Approach] is the appropriate method to assess the value of the Company.

54. It is well settled that where, as here, the company is a going concern, the more appropriate basis of valuation will usually be the earnings basis, which is derived from an estimation of (1) the maintainable level of profits of the company and (2) the yield that a prospective purchaser would expect in making the investment (Hollington on Shareholders’ Rights, 9^th ed., §8-47; CVC v Demarco [2002] 2 BCLC 108 (PC) §38, per Lord Millett).”

22.  The Petitioner also took issue with the alternative income approach of the Respondents both as regards the P/E ratio adopted and the fact that it did not take into account what the Petitioner considers to be overpaid remuneration or disguised arrangements.

23.  The Petitioner’s stance is that the discounted cash flow (“DCF”) approach could be “even more appropriate for the valuation of solvent construction companies as going concerns[5]. But what the difference is with the Market Approach is unclear.

24.  Be that as it may, the Petitioner carried out a ‘rough’ valuation based on DCF methodology[6], arriving at valuations of the Company’s shares (in round terms) at $224, $339 and $100 each respectively, based on different scenarios. As the Petitioner is not an expert valuer, his ‘valuations’ carry little weight, if any. On the assumption of $224 per share, the Company would be worth $1.2 billion. That necessarily raises questions as to the validity of the methodology employed and assumptions made.

25.  In his affirmation dated 26 August 2025 (“R1 Aff”) at §31, R1 questioned various assumptions made in the Petitioner’s DCF calculations that one cannot ignore. For example, the Petitioner’s approach was to add back 4 years’ cumulative figure of alleged overpayment of directors’ remuneration of $36,480,409 to the profit and total comprehensive income attributable to the owners of Company for the financial year 2024. He arrived at what appears to be a grossly inflated figure of $44,358,542 and multiplied it by a P/E ratio of 7.79: P 3^rd at §§15(3) and 46(2). The Petitioner did not identify the basis of this valuation methodology to demonstrate its validity. Nor is it explained why a P/E ratio derived from data relating to listed companies is appropriate for a private company.

26.  What is clear from the above is that there are different approaches in valuing an ongoing enterprise. The parties agree[7] that is a matter that requires expert evidence and, in light of that evidence, a determination by the Court. There is an established procedure for that to happen. Re Top E is an example of a substantive valuation by the Court.

27.  Does the fact that the Court will have to undertake a valuation exercise at a later date preclude striking out winding up relief at this stage?

28.  As I understand it, the Petitioner and Mother’s stance is that because there are so many unknowns or variables (for example, the adjustments to be made if the complaints are made out), it would be invidious to preclude winding up relief. That approach appears to illustrate what Harris J described in Re Sun Light Elastic (at §9) as ‘well one never knows what will transpire’ which he held is “no criteria at all[8]”.

29.  In my view, the mere fact that there are disagreements as to the correct valuation approach does not, of itself, preclude striking out winding up relief in an appropriate case.

30.  Each case must be considered in the context of its particular facts. I do not consider that there is any general rule that precludes striking out winding up relief simply because the parties disagree on the valuation approach to be adopted, such that the Court may have to undertake a valuation exercise at a later date.

The adjustment issue

31.  There is no dispute that if the complaints are made out, appropriate adjustments will have to be made to the accounts and will be taken into account in the valuation exercise.

32.  In the present case, the complaints largely concern what are said to be excessive directors’ remuneration and “disguised arrangements” characterised as ‘misappropriations’. The amounts (if any) are quantifiable once findings are made at trial. If ultimately, the Respondents’ remuneration is held to be excessive, they will have to make a refund and that would have the effect of increasing the value of the Company: see Re a company (No 004415 of 1996) [1997] 1 BCLC 479 at 487g.

33.  The fact that adjustments may have to be made does not, of itself, be a bar to striking out winding up relief. It is one of the factors to be taken into account by the Court in the valuation exercise.

The Respondents’ ability to buy out

34.  Before considering the Respondents’ ability to buy out which the Petitioner and Mother challenge, it should not be overlooked that there is no plea by them in either the Petition or the Draft Amended Petition for a preference for a winding order.

35.  In OAL, Chow JA (at §25) endorsed the requirement expressed in both Wong To Yick at 1^st instance (per Yuen J at 689B-E) and Re Sun Light Elastic Ltd (per Harris J at §§9-10). In cases where winding up relief is sought or is put forward as an alternative to some other remedy, the petitioner must explain why it is the relief that he prefers or why it is, or may be, the only relief to which he is entitled. Such explanation should be given in the petition, or in an affidavit.

36.  There are sound reasons for this requirement as appears from the following passage from the judgment of Harris J:

“9. In my view what is clear from the authorities is that the court will only grant a winding-up order rather than relief under s 168A if there is good reason to do so. In my view if a winding-up order is to be sought, particularly in the alternative it should only be because the petitioner has a particular reason for doing so. It is not enough simply to say ‘well one never knows what will transpire’. This would be no criteria at all. The petitioner must be able to point to particular matters he is concerned might make a winding-up order the appropriate or only practical relief.

...

10. It seems to me that to require a petitioner to state in his Petition why he has sought in the alternative a winding-up order is not only sensible but consistent with the requirement that a petition must adequately set out the grounds on which relief is sought: Re Fildes Bros Ltd [1970] 1 All ER 923”.

37.  The Respondents submitted that as they are the majority shareholders, holding 60% of the shares, they would have no difficulty in funding the acquisition of the shares of the Petitioner and Mother given the land and buildings owned and significant cash in hand. They referred to the Court of Appeal’s Judgment in Wong To Yick, unrep., CACV 867/2001, 16 April 2002 at §§15-16. In that case, the petitioners (who together owned 20% of the company) sought to argue that the onus was on the 1^st respondent (who owned 45%) to show that he had the ability to pay the petitioners in the event of a buyout. Given the uncontradicted evidence that the company was a going concern, solvent and in a sound financial position the Court found the suggestion that the 1^st respondent would not be able to fund the purchase to be lacking in merit.

38.  Ms So, relying on the Court of Appeal’s judgment in OAL, submitted that it is incumbent on the Respondents to lay a proper evidential foundation of their ability to fund the buyout and the Respondents have not done so in the present case. In OAL, Chow JA observed (at §30) that:

“[w]hether the respondent (shareholder) to a petition for the winding-up of a company can rely upon his shares in the subject company to show that he has sufficient financial resources to satisfy a potential buy-out order depends on the facts of the case. If a respondent wishes to rely on such argument, it is incumbent on him to lay a proper evidential foundation, because the value of a block of shares in a private company (particularly a minority shareholding) may not be reflected by the net-asset value of the company, it is not necessarily self-evident that his shares in the company can be utilised to raise funds (eg the shares may have been pledged to a third party or may be subject to some other incumbrances), and shares in a private company may not be readily realisable, or accepted as security for raising funds.”

39.  As Chow JA acknowledged in that passage, whether a respondent shareholder could rely on his shareholding in the subject company to show that he had sufficient financial resources to satisfy a potential buyout order depended on the facts of the case. OAL was an asset/investment holding company, holding shares in various subsidiaries and associated companies.

40.  The Respondents’ block of shares is a majority holding in the Company that is solvent, financially sound and operating a profitable business. As earlier noted, the Petitioner and Mother do not contend otherwise[9].

41.  Their criticisms[10] concern assets (plant and machinery (inclusive of right-of-use assets)) that the Respondents do not rely on[11] and retention receivables that contain credit risks, respectively forming 18.2% and 17.8% of the Company’s total assets.

42.  Those matters do not impinge on Company’s main assets consisting of real estate valued (in round terms) at $70 million, $84 million being cash at bank and in hand (which do not include pledged bank deposits of $26 million).

43.  In addition to their shareholdings in the Company, the respondents have filed evidence to show that they have liquid assets (comprising bank deposits and investments) of $28 million as well as 2 properties with a combined net worth of approximately $22 million.

44.  While those properties are not assets that can readily be realised by the Respondents, the point is not about whether the Respondents can realise such assets quickly. Rather, it is whether the Respondents have sufficient assets within the jurisdiction such that a buyout order obtained by the Petitioner and Mother will not be left unanswered: see Re Sang Kee at §22.

45.  The Petitioner and Mother also took the point that significant assets of the Company, namely land and building with a carrying value of approximately $70 million and time deposits of $26 million are pledged to banks to secure banking facilities for the Company. As regards the latter, as earlier noted, it does not form part of the cash assets referred to in §42 above.

46.  That the land and buildings have been pledged to secure banking facilities is hardly surprising when the Company has an ongoing profitable business and requires financing. Note 16 of the 2024 financial statements analyses the bank loan totalling $23 million odd of which a substantial part (approximately 59%) had already been factored into the Company’s 2024 balance sheet, with the balance ($9 million) repayable in more than one year.

47.  The criticisms made do not undermine the financial soundness and solvency of the Company. In my view, the Petitioner and Mother have not made out a prima facie case that the ability of the Respondents to finance the buyout is “seriously in doubt”.

Miscellaneous

(1) Need for investigation

48.  The Petitioner and Mother raised the need for investigation based on their inability to access accounts, significant misappropriations and the disguised arrangements that fundamentally affect the transparency and the condition of the Company. They do not suggest that this is a stand-alone ground for retaining the winding up relief but as an additional factor to be taken into account and referred to the observations of Chow JA in OAL (at §32) that

“where substantial claims of impropriety are raised, it may be more straightforward to wind up the company and leave the matters to be thoroughly investigated by the liquidators.”

49.  Citing comments made in the context of a totally different set of facts is seldom a helpful exercise unless the facts of the 2 cases concerned are substantially identical. OAL is factually very different.

50.  The complaints of the Petitioner and Mother will be investigated at trial. Where the alleged matters for investigation will be tried at the trial of the unfair prejudice petition, the need for investigation cannot provide a basis to justify the petitioner seeking a winding up relief against the Company. There is no separate basis for winding up simply because there are reasons to investigate the same complaints or part thereof, which is a much lower standard: see Re Canadian Education Foundation (China) Limited [2024] HKCFI 3167 at §§55-56.

51.  Further, of themselves, the complaints do not justify the bringing in of the liquidators to investigate those matters when the Court will have to adjudicate the same in assessing liability for the unfair prejudice petition: see Re M Kirpalani (HK) Ltd, HCCW 618/2009, 23 June 2010 at §§ 29-30 and Re Sang Kee at §§ 15 and 35.

(2) Breakdown of trust and confidence

52.  Where, as here, the Petitioner and Mother rely on the same matters said to give rise to unfair prejudice as the basis for contending that there is a breakdown of trust and confidence, the allegation of such a breakdown cannot justify the Court granting a winding up order. It stands or falls with their pleas on unfair prejudice: see Re Sang Kee at §§29-31.

(3) Limited operational difficulty after validation order

53.  It is the contention of the Petitioner and Mother that as the validation order made on 19 May 2025 enabled the Company to make payments and incur expenses in the ordinary course of business, the operational difficulty (if any) caused by the prayer for winding up relief should be limited.

54.  That would not appear to be the case. R1 highlighted 6 respects[12] in which the Company is hampered or constrained in its operations. It suffices to mention the following: the Company's preclusion from submitting bids for new construction projects, especially government projects; its inability to raise new bank loans for further development of its business; and its exclusion from using automatic digital payment systems which is an obvious drag on the efficiency of its operations.

Disposition

(1) The Strike Out Summons

55.  Having regard to the particular circumstances of the present case and taking an overall view of the matter, the winding up relief must be struck out. Accordingly, I make an order in terms of paragraphs (1) and (2) of the Strike Out Summons.

56.  I also make an order nisi of costs in favour of the Respondents, with certificate for 2 counsel, such costs to be taxed if not agreed.

(2) The Joinder and Amendment Summons

57.  I make an order in terms of paragraphs (1) to (4) of the Joinder and Amendment Summons.

58.  I also make an order nisi of costs in terms of paragraph (6) of the Joinder and Amendment Summons.

59.  There be liberty to apply.