WEI QIANQIAN v. IBO TECHNOLOGY CO LTD

HCCW 324/2023

[2026] HKCFI 3700

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 324 OF 2023

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BETWEEN

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REASONS FOR DECISION

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1.  There were 2 summonses before the Court:

(i)  The Liquidators’ summons dated 6 January 2026 (the “Set-aside Summons”) for a declaration and consequential relief to set aside two share charges created over the shares of two of the Company’s wholly owned subsidiaries, respectively, Action First Investments Limited (the “Action First Share Charge”) and Upright Joy Limited (“Upright Joy Share Charge”) (collectively, the “Share Charges”); and

(ii)  Interland Associates Limited (the “Respondent”)’s summons dated 31 March 2026 for a retrospective validation order[1] in respect of the Action First Share Charge.

2.  At the conclusion of the hearing, I made an order in terms of the Set-aside Summons and dismissed the Respondent’s application for a retrospective validation order with indemnity costs. My reasons appear below.

Factual background

3.  On 15 June 2023, the Company issued a Profit Warning to the effect that for the year ended 31 March 2023, the Group expected to record a loss of RMB 250 million.

4.  With a view to resolving its liquidity problems, the Company placed new shares under the general mandate. As announced on 5 July 2023, the Placing was successful, raising a net sum of HK$9.03 million (the “July Placing”).

5.  On 19 July 2023, the Company appointed Mr Anthony Chow (“Mr Chow”), an officer of the Respondent as special assistant to the Company’s Chairman.

6.  On 24 July 2023, Ms Wei Qianqian (the “Petitioner”) presented the Petition pursuant to s 177(1)(d) of the Companies Winding Up and Miscellaneous Provisions Ordinance, Cap 32 (“CWUMPO”) for a winding up order. The claimed amount of the Petition of just over HK$5.5 million represented the net amount of the outstanding principal of non-convertible bonds issued by the Company to the Petitioner.

7.  On 27 July 2023, the Company published an announcement of the presentation of the Petition and acknowledged the legal implication under section 182 of the CWUMPO (“section 182”).

8.  On 17 August 2023, the Board of the Company resolved to seek loans and to prioritise any funds received for the purposes of the winding up petition and debt restructuring, including fees for legal and financial advisers.

9.  On 19 September 2023, the Company announced that the Petition triggered cross-defaults of the Company’s bank borrowings and other bonds, resulting in a credit squeeze. In view of that, the Board announced the establishment of the Restructuring Committee and disclosed its plan to have a debt restructuring by way of a rights issue and/or placing of new shares (“Rights Issue”) to raise funds in the region of HK$180 million-$200 million.

10.  The Company’s costs and expenses for the Rights Issue would be financed by the proposed placing of new shares announced on 12 September 2023[2] (the “September Placing”) said to facilitate the debt restructuring as part of the net proceeds would be used for settling the related expenses and to strengthen the liquidity position of the Group[3]. The September Placing was in relation to the placing of a maximum of 85 million new shares[4] under the general mandate.

11.  On 20 October 2023, the Company announced that the September Placing could not be completed and the September Placing lapsed on the same day.

12.  Also on 20 October 2023, the Company and the Respondent executed (i) a Loan Agreement whereby the Respondent made a HK$5 million loan (the “Loan”) to the Company to be repaid within 12 months at an interest rate of 12% per annum; (ii) the Share Charges in favour of the Respondent as security for the Loan; and (iii) a consultancy agreement with Shenzhen Haojun Co. Ltd[5] (“Shenzhen Haojun”).

13.  The Company did not make an announcement concerning the Share Charges. Nor did the Company obtain a validation order before or after the Share Charges were created despite applying for validation orders on other matters:

(i)  in September 2023, the Company had applied for a validation order relating to all sales and purchases of issued shares of the Company listed on the Hong Kong Stock Exchange and was granted a validation order on 3 November 2023; and

(ii)  the second validation order relates to the use of the net proceeds of the Company’s intended Rights Issue[6].

14.  The proposed Rights Issue was announced on 28 November 2023 to raise up to approximately $240 million before expenses with VC Brokerage Limited as the underwriter which, assuming full subscription would provide sufficient working for 12 months.

15.  Completion of the Rights Issue was conditional upon, inter alia,

(i)  the validation order under section 182 regarding, inter alia, the issuance and transfer of the Rights Shares and/or the Nil-paid Rights having been granted by the High Court; and

(ii)  the validation order under section 182 regarding, inter alia, the use or utilisation of the net proceeds of the Rights Issue having been granted by the High Court.

16.  At the hearing held on 29 January 2024 for the validation orders mentioned in the preceding paragraph, the Court dismissed the application relating to the use or utilisation of the net proceeds of the Rights Issue as such details including the exact amount of the net proceeds that could be raised could not be ascertained at that juncture.

17.  Despite the Parties to the Rights Issue mutually agreeing on 26 February 2024 to extend the deadline for fulfilling the conditions precedent from 26 February 2024 to a later date verbally[7], there were no follow-up announcements.

18.  On 1 March 2024, potential investors and the Underwriter were still in negotiations and banks were reluctant to open a bank account for the Rights Issue due to the Petition[8]. The proposed Rights Issue again failed.

19.  Notwithstanding those developments, on 15 March 2024, the Company increased the loan facility to HK$9 million under an amended supplemental agreement with the Respondent.

20.  The Company was wound up on 29 April 2024.

21.  Ling Aff states[9] that the Respondent contacted FTI Consulting (Hong Kong) Ltd (“FTI”) for advice on the enforcement of the Action First Share Charge but does not disclose the date.

22.  FTI then introduced the Respondent to a firm of solicitors for advice. On 24 May 2024, the Respondent retained Arthur Hong LLP (“AH”) who provided an opinion on 30 May 2024 which is irrelevant for present purposes. On that basis, the Respondent must have contacted FTI before 24 May 2024.

23.  On 14 June 2024, the Respondent via its legal adviser AH informed the Official Receiver (“OR”) that an event of default had occurred and the Share Charges had become enforceable.

24.  On 18 June 2024, R appointed Daniel Chow and Aaron Luke Gardner[10] receivers of Action First Shares (“FTI Receivers”) and informed the OR of their appointment.

25.  The Liquidators were appointed on 4 December 2024.

26.  Shortly thereafter, on 2 January 2025, the Liquidators wrote to the Respondent’s then solicitors AH indicating that the Share Charges may be void under section 182 and asked whether the Respondent had obtained the Court’s sanction before the creation of the Share Charges. Neither AH nor the Respondent replied to that letter or to subsequent follow-up letters sent in February 2025.

27.  On 30 March 2025, inter alia, (i) Ms Ling appointed herself and the Respondent as directors of Action First; and (ii) the Respondent terminated the appointment of the FTI Receivers.

28.  On 24 April 2025, the Liquidators wrote to the FTI Receivers[11] inviting attention to the fact that the Share Charges were post-petition dispositions, with follow-up letters in the ensuing months.

29.  Although a 2^nd receiver, Liew Swee Yean, was appointed on 31 March 2025, his appointment ceased on 31 August 2025.

30.  On 19 August 2025, the FTI Receivers lodged a notice of cessation of appointment[12] effective on 30 March 2025.

31.  Despite the Liquidators’ warning to Ms Ling and the Respondent who remained as directors of Action First that their powers as directors had ceased and demanded that they not deal with the assets of the Action First, they sought to enforce the Action First Share Charge, culminating in the Liquidators taking out the Set-aside Summons.

Applicable legal principles

32.  As the Share Charges were created after the presentation of the Petition, section 182 renders them presumptively void unless a retrospective validation order is granted for the Loan Agreement and the Share Charges.

33.  The general principles for a retrospective validation were considered by Barma J (as he then was) in Re Century Group Limited, unrep., HCCW 59/2004 18 March 2004 at §§ 6-8:

(1)  While generally assets of an insolvent company should be distributed amongst its unsecured creditors pari passu, there may be times when it will be for the benefit not only of the Company, but also of its unsecured creditors, that it should be able to dispose of some of its property after the petition has been presented but before the winding-up order is made (§6).

(2)  In the case of a trading company, that it might be beneficial for the Company and its creditors that the Company should be permitted to carry on its business in the ordinary course pending the making of a winding-up order against it. However, the desirability of the Company being able to carry on its business is often a matter of speculation and in each case the court must carry out a balancing exercise and consider where the interests of the unsecured creditors lie (§7).

(3)  Generally, the court will be more disposed to making of a validation order where it is satisfied that the carrying on of the business is likely to generate net cash or net assets for the benefit of the creditors, and thus to reduce any deficiency that might otherwise exist on the winding up of the Company (§8).

34.  As the CFA held in Hsin Chong Construction Co Ltd (In Liq) v Build King Construction Ltd [2021] 4 HKC 590 at §31:

“The interests of the general body of creditors are determinative in deciding whether a disposition of the company’s property after commencement of the winding up should be validated: the court must do its best to ensure that their interests are not prejudiced. Validation orders may be made where the applicant shows that the disposition is likely to be or actually has been for the benefit of the unsecured creditors. Conversely, an order is likely to be refused if such benefit cannot be shown. This would obviously a fortiori be the case where the disposition is seen to involve a misapplication of the company’s property with a view to preferring the rights of certain creditors at the expense of the others, or to reducing overall the assets available for distribution to the general body of creditors.”

35.  Where a retrospective validation order is sought, as distinct from a prospective order, the range of evidence is likely to be different. In the case where a retrospective order is sought it may have become clear whether a particular transaction carrying on of the company’s general business in fact turned out to be for the benefit of the general body of creditors or not, whereas in a case where a prospective order is sought the court will have to base an assessment on the basis of such evidence as is available of what is likely to transpire in the future: see per Sales LJ in Express Electrical Distributors Ltd v Beavis [2016] 1 WLR 4783 (at §25)[13].

36.  In Re Tung On Plumbing Company Limited, unrep., HCCW 818/2005, 24 May 2006 (at §14), Kwan J (as she then was), while allowing payment of staff salary to enable completion of the contract work to avoid the risk of a potential breach of contract and delay in the processing of payment for work done, refused to allow any of the expenses incurred in the winding up proceedings and the expenses related to restructuring. She held that there was no reason why such expenses should be paid out of the assets of the insolvent companies at the expense of unsecured creditors. Legal fees incurred in the application for a validation order should be in the cause of the winding up proceedings.

37.  Where the company is massively insolvent and the validation order was sought for professional fees to introduce a scheme of arrangement, the application was refused. Kwan J saw no basis of any entitlement that the company should be allowed to incur legal expenses in opposing the petition and thereby further depleting its assets to the prejudice of its unsecured creditors: see Re App (Hong Kong) Ltd unrep., HCCW 1130/2003 8 March 2004 at §16.

38.  In Re Gold-face Finance Limited unrep., HCCW 870/2004, 14 July 2005 (at §4), Kwan J again refused an application for a validation order for expenses to be incurred for a scheme of arrangement, noting that the Court “[has] been given no information as to what portion of the estimated expenditure had been incurred and from what source the expenses had been met”.

The Summonses

39.  Mr Avery Chan, counsel for the Liquidators, submitted that both Summonses before the Court hinges on the same question, namely, whether the Share Charges and the Loan Agreement (collectively, the “Transaction”) is for the benefit of the general body of creditors.

40.  The Liquidators’ case is that at the time of the Transaction (i) the Company was insolvent; (ii) the Share Charges constituted a disposition of the Company’s assets; and (iii) the Transaction does not benefit the creditors.

41.  The Respondent contends that the Transaction was made bona fide in the interests of the general body of creditors.

A.  Whether the Company was insolvent at the date of the Transaction

42.  Insolvency may be tested by either the cash flow or balance sheet test. In deciding whether a company could meet its liabilities when they fall due, the cash flow test is normally used: Re GW Electronics Co Ltd [2020] 5 HKC 352 at §29.2 per Yuen JA.

43.  It is clear from §§3-5 above that the Company has been facing serious liquidity issues since mid-2023. It was unable to pay the petitioning debt of $5.5 million despite having raised just over $9 million from the July Placing.

44.  2 months later, the Company attempted to raise further funds by the September Placing. However, that was unsuccessful and the September Placing lapsed on 20 October 2023.

45.  The Company attempted another Rights Issue in January 2024, which again failed.

46.  The refusal of the validation order sought on 29 January 2024 meant that the Rights Issue could not proceed as the condition precedent[14] could not be satisfied.

47.  Mr Tommy Cheung, counsel for the Respondent, did not agree that there was ‘key’ evidence that the Company was insolvent to the extent that there was no prospect of a successful restructuring. He referred to a snapshot[15] of the financial position of the Company in 2023 which shows the total equity or net assets of the Company to be approximately RMB 475 million.

48.  When asked why some of those assets could not be realised to meet the petitioning debt of only HK$5 million, he accepted that there was no evidence as to the extent to which those assets had already been used for other financing.

49.  The Respondent could not show that in the circumstances the cash flow test is inapplicable. Applying that test, the Company was clearly cash flow insolvent and unable to meet its liabilities (e.g. the petitioning debt) as they fell due.

B.  Whether the Share Charges constitute a disposition within s.182

50.  The meaning of “disposition” is broad. It encompasses any dealing in the tangible or intangible assets of the company that reduces or extinguishes a company’s rights in an asset and transfers value in it to another person: Re AGI Logistics (Hong Kong) Ltd (In Compulsory Liquidation) CACV 201/2015 at §10.

51.  The question of whether a disposition has taken place is one of substance and not form. The mischief against which section 182 is directed is clear. The destruction, or at least the reduction in value, of a property right belonging to the company, causing an immediate and equivalent accrual in value to another person, is well within that mischief: per Ribeiro and Fok PJJ in Re Hsin Chong at §36.

52.  Share Charges are encumbrances over property. The property in question consists of shares in 2 wholly owned subsidiaries of the Company. The creation of the Share Charges unquestionably had the effect of reducing or extinguishing the Company’s rights in those shares. In the event of the Company defaulting in repayment of the Loan, the Company stood to lose its shares in those 2 subsidiaries entirely.

53.  The Respondent sought to draw a distinction between the creation of a charge and its enforcement and submitted that at the time of creation of the Share Charges, there was no outflow of any asset from the Company to other third parties and the commercial impact at the time of its creation would not be as substantial as at the time of enforcement.

54.  But that is not the test. The Share Charges created encumbrances over the Company’s property and as such they had the effect (at the very least) of reducing the Company’s rights in the shares of its subsidiaries.

55.  The Respondent then submitted that if the Liquidators’ complaint is that a particular payment has been made by the Company to certain third parties which is objectionable, the Liquidators could focus on those particular transactions instead of adopting the approach of invalidating all the transactions entered into as a result of providing security to the Respondent.

56.  In my view, the Respondent’s suggestion is a nonstarter to be dismissed out of hand. Not only is it not based on authority, it would have the effect of reversing the burden of proof in the application of section 182 and, potentially, enmeshing the Liquidators in a plethora of litigation.

C.  Whether the Transaction is for the benefit of the creditors

57.  As stated in §32 above, the Share Charges are presumptively void under section 182 unless the Respondent who has the burden of proof demonstrates by cogent evidence that the Share Charges would benefit the general body of creditors.

58.  Ling Aff exhibited a “Summary of usage of funds by the Company of the loan from [the Respondent][16]”. It shows that the entirety of the Loan was spent on professional fees, service fees for the financial adviser for restructuring and the salary of personnel involved in the proposed restructuring.

59.  The 3 authorities cited by the Liquidators[17] show the tendency of the Court is to allow expenses only if they would generate net cash or value to reduce the overall liability of the Company. Professional fees incurred in resisting a winding up petition and expenses incurred for restructuring purposes have consistently been refused.

60.  Mr Cheung sought to draw a distinction between using the Company’s funds and the Loan which does not originate from the Company but from a third party. While using the Company’s assets for such purposes is objectionable, using funds which originate from a third party is not.

61.  His submission (unsupported by authority) is misconceived. The Loan, once granted, becomes an asset of the Company. The fact that the Loan Agreement contained restrictions[18] on the use of the Loan, (limited to payments related to the petition, legal fees, financial adviser fees, valuation fees and daily operation expenses of the Company) makes no difference. It is not as if the Loan was a gift to the Company.

62.  The Respondent maintained that the Transaction was beneficial to the Company because fresh capital was injected into the Company to fund its restructuring efforts:

“… to implement the Company’s rights issue, sustain its survival, maintain its listing status (including timely publication of interim results by the deadline of 30.11.2023, otherwise trading of its shares would be suspended), avoid breach of the Hong Kong Listing Rules (by paying premium of directors’ liability insurance) and contest the petition presented against the Company.[19]”

63.  Professional fees of HK$2.651 million were disbursed for restructuring purposes. Mr Cheung acknowledged that the restructuring plan meant the Rights Issue. According to the Summary, HK$1.5 million was paid to the “Shenzhen Haojun (Note A)”. Note A refers to Mr Chow of Shenzhen Haojun, and a member of American Institute of Certified Public Accountants. According to Ling Aff (at §4(c)), Mr Chow was an officer of the Respondent as well as of Shenzhen Haojun, with “substantial experience in a number of successful debt restructuring and fundraising exercises of a number of Hong Kong listed companies”. While Ms Ling professed to know that Mr Chow possessed such “expertise and experience”, no particulars were provided.

64.  What is striking is that there is no evidence or explanation of the work done (if any) by Shenzhen Haojun/Mr Chow when the Notes did provide information as to the work performed by each of the other financial advisers.

65.  Further, no engagement contracts have been produced, rendering it impossible to ascertain whether the terms of their engagement and their fees are justified.

66.  The Liquidators highlighted the connected nature of the Respondent and Shenzhen Haojun who have a common officer in Mr Chow. The Liquidators have serious misgivings regarding Mr Chow who, amongst other matters, was removed as a member of the Hong Kong Institute of Certified Public Accountants on 23 October 2015 after a disciplinary hearing.

67.  As Mr Chow played a central role in the restructuring exercise, the possibility of the Respondent and Shenzhen Haojun being connected parties and the HK$1.5 million which originated from the Loan paid to Shenzhen Haojun constitutes a circular financing arrangement originating from the Respondent to Shenzhen Haojun cannot be dismissed as fanciful. Shenzhen Haojun was paid $600,000 on 25 March 2024 (10 days after the Loan was increased to $9 million) at a time when the Respondent was well aware that the Rights Issue was not going to happen and a further $900,000 on 20 April 2024 (9 days before the winding up order was made)[20].

68.  Given that the scope of the restructuring plan was nothing more than the Rights Issue, by 29 January 2024 when the Court dismissed the Company’s application for a validation order under section 182 regarding “the use or utilisation of the net proceeds of the Rights Issue”, the restructuring plan was already virtually dead in the water.

69.  There is no evidence of any further effort being made to obtain the validation order required for the Rights Issue to proceed. In that regard, it is the Respondent’s own evidence that the restructuring efforts could not materialise, inter alia, because of the inability to open a bank account to receive the Rights Issue proceeds as announced by the Company on 1 March 2024. Despite this and the outcome of the 29 January 2024 hearing, the Company and the Respondent saw fit to increase the Loan to $9 million on 15 March 2024. And to what end? Seemingly, to pay professional fees when the contemplated restructuring could not proceed.

70.  The Respondent sought to rely on shareholder support[21] and creditor support. But where the Company is insolvent it is the interest of the creditors (and not that of shareholders) that is paramount: Re Carnival Group International Holdings Limited [2022] HKCFI 2668 at §13. As regards creditor support, the support letters only accounts for 5% of the total amount of the proof of the debts.

71.  The Liquidators noted that the Company paid HK$100,000 to the Petitioner on 23 January 2024. They rightly submitted that this was an example of unjustified spending since it meant that that sum would otherwise have been available to be distributed to the general body of creditors. More to the point, the entire $9 million loan was spent on resisting the Petition and the restructuring effort which came to nothing.

72.  The Respondent submitted that whether the Transaction was beneficial to the Company’s general body of creditors should be assessed at the material times instead of with hindsight. At the time of the Transaction, results had to be published by 30 November 2023 and the policy for directors’ liability insurance (due for renewal in December 2023) maintained. Failure to do so would trigger an immediate suspension of trading of the Company’s shares and result in a breach of the Listing Rules. The Loan enabled the Company to preserve its listing status, rendering it more valuable than as a private company and thus benefiting the general body of creditors.

73.  However, preserving the listing status of itself is not sufficient: in the absence of a viable restructuring plan already in place, the expenditure cannot be justified.

74.  On any view, the Transaction was not for the benefit of the general body of unsecured creditors.

D.  Delay

75.  The Respondent’s application for a retrospective validation order was taken out 2 years and 9 months after the date of the Petition. It was aware of the Petition before the date of the Transaction. The excuse given was that it was not experienced enough to know the need for a validation order and had to rely on legal advice.

76.  The Loan Agreement and the Share Charges were professionally drawn documents. The documents exhibited do not disclose the identity of the firm that had prepared them and on whose behalf. Presumably the Respondent did not enter into the Transaction without legal advice but there is no mention in Ling Aff of the Respondent seeking legal advice at that stage. Rather, it would appear that Respondent contacted FTI for advice on the enforcement of the Action First Share Charge and not the validity of the Loan.

77.  The Respondent appears to have been less than frank. It is difficult to believe that it saw fit to seek advice on the enforceability of the Share Charge and not the Loan or that FTI rendered advice on enforcement without alluding to the validity of the Loan itself.

78.  In any event, the Respondent’s delay in making the application is inexcusable, assuming (contrary to my view) that the application has any merit.

Disposition

79.  For the reasons set out above, I made an order in terms of the Set-aside Summons and dismissed the Respondent’s application for a retrospective validation order.

80.  Indemnity costs were awarded to the Liquidators.

81.  The Respondent’s application should never have been made. A retrospective validation order will only be made where the applicant demonstrates that it may have become clear whether the disposition in fact turned out to be/was likely to be, or actually has been, for the benefit of the unsecured general body of creditors or not.

82.  In the present case, through the Action First Share Charge, the Respondent obtained priority in respect of the entire shares in Action First over the general body of unsecured creditors. Therefore, the Share Charge cannot be said to be for the benefit of the unsecured creditors.

83.  As at the date of the Transaction,

(i)  the Company was already insolvent as I have found;

(ii)  its attempt to raise funds by the September Placing failed on 20 October 2023 immediately prior to the Transaction;

(iii)  the adjourned hearing of the Petition was scheduled for 1 November 2023 such that at the date of the Transaction (20 October 2023), the threat of an immediate winding up order was real;

(iv)  at that time, there was no restructuring proposal (much less a viable one) in place since the Company saw fit on the same day to engage Shenzhen Haojun to advise, inter alia, on restructuring; and

(v)  the purposes to which the proceeds of the Loan would be applied (evident from the restrictions on usage placed by clause 2.2 of the Loan Agreement)[22] are not those in respect of which validation orders would normally be granted.

84.  In those circumstances, had the Company itself applied for a validation order at the time of the Transaction, that application would have failed. The Respondent can be in no better position. It should never have applied for a retrospective validation order which has wasted judicial resources and time.

85.  The Transaction was clearly not entered into for the benefit of the general body of creditors at the time of its execution and, seemingly, its objective was to prefer the Respondent as a creditor.