JOINT AND SEVERAL LIQUIDATORS OF HSIN CHONG CONSTRUCTION (ASIA) LTD v. WONG PO KEE LTD AND OTHERS

HCCW 316/2018

[2025] HKCFI 2696

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMI NISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 316 OF 2018

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DECISION

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1.  On 17 March 2025, I gave a decision (“Decision”) on the application of the Joint and Several Liquidators (“the liquidators”) of Hsin Chong Construction (Asia) Ltd (“the Company”), the main contractor of a development project, for:

-  a declaration that certain payments made by the employer to the Respondents (nominated sub-contractors) after the commencement of the Company’s winding-up were void under s.182 Companies (Winding Up and Miscellaneous Proceedings) Ordinance, and

-  an order that each of the Respondents do return that part of the payments that it has received (“Order”).

2.  The sums which the Respondents have been ordered to return are respectively:

-  R1: HKD8,047,000

-  R2: HKD17,604,000

-  R3: HKD17,779,000.

3.  On 14 April 2025, R1 and R2 lodged an appeal in CACV190/2025 and R3, in CACV191/2025.

4.  This is their application for a stay of execution pending appeal.

5.  I would respectfully adopt the principles set out by Chow J (as he then was) in Astro Nusantara International BV v PT Ayunda Prima Mitra (No.2)[1] which I shall not reproduce here.

6.  First, having read the grounds of appeal in both appeals and the relevant arguments thereon in counsels’ submissions, my preliminary view[2] is that they are arguable but have not reached the threshold of a strong likelihood of success, as:

-  the grounds do not challenge the focus on “relevant property” and “relevant disposition” (which followed the CFA judgment in Hsin Chong CFA[3]);

-  the arguments on construction of the Supplementary Agreement and Direct Payment letters have been rejected for reasons given in the Decision, and there do not appear to be any new insights;

-  the argument on estoppel by convention was rejected applying the public policy underpinning s.182 as stated in Hsin Chong CFA and following Goode on Principles of Corporate Insolvency Law that the section applied even if the liability to make the payment was incurred before the commencement of the winding-up[4];

-  the Respondents had not sought a validation order at the hearing before me[5];

-  the new ground on want of jurisdiction was not taken at the hearing before me, and has been rejected by DHCJ Le Pichon in another case[6].

7.1  I have then considered whether, without a stay, the appeals would be rendered nugatory. The Company is in insolvent liquidation. The Respondents understandably are concerned that if they have to pay the Company now but succeed on appeal, they would then recoup only a pro rata dividend together with other unsecured creditors. Ordinarily that would have been enough for the court to order a stay.

7.2  To answer this concern, the liquidators say that (a) they could ring-fence the sums by earmarking the separate sums received from the Respondents, and refrain from disposing of them until the disposal of the appeals; alternatively, (b) they would be content with payment of the sums into court.

8.1  I note however that no date has yet been fixed for the hearing of the appeals, and the Respondents have adduced evidence that during this uncertain time frame, the payment of the sums now (even if ring-fenced by earmarking or payment into court) would have a serious deleterious effect on their finances[7].

8.2  I have taken into account the points made by counsel for the liquidators that R1 and R2 have, despite the wealth of evidence supplied, not provided their audited accounts, and that R3 has net assets which would be sufficient to pay the sum ordered.

9.1  However, I am satisfied from an overview of the Respondents’ evidence that serious cash flow problems may well ensue if they are required to make payment now of the sums ordered in the current time frame, be it to earmarked accounts, or into court. R1 and R2 are currently involved in respectively 21 and 36 building projects where some of their main contractors are in provisional or voluntary liquidation, meaning that the respondents would have to look to their own resources in the first instance to pay employees, suppliers and sub-subcontractors, resulting in difficulties with cash flow. As for R3, which has provided audited accounts, I note that a substantial part of its net assets comprise of property and plant. I am satisfied that a refusal to grant a stay would have a serious deleterious effect on the Respondents.

9.2  On the other hand, the liquidators have not indicated that they would suffer any prejudice from delayed payment of the sums, apart of course from the fear of not being able to obtain the sums ordered. The fact that they are prepared to ring-fence the sums or accept payment into court shows that they do not need the sums to fund their response to the appeals.

10.1  Doing the best I can in the current circumstances, and in light of the Respondents’ offer to pay $2 million each into court as a “sign of sincerity”, I would order in respect of each respondent that:

(1)  execution of the Order be stayed pending the determination of its appeal on condition of payment into court of $2 million within 28 days from the date of this Decision;

(2)  during the said 28 days, there be an interim stay of the Order;

(3)  by consent, the costs of the application for stay be costs in the cause of the appeal.

10.2  I would also direct that the Respondents proceed expeditiously towards fixing a date for the hearing of the appeals, and in this respect, there be liberty to apply to the court.