CHEUNG WING HONG, SHANNON (in his capacity as an executor of the estate of CHEUNG KA KUI KENNETH alias CHEUNG KA KUI alias CHEUNG KA KU, deceased) v. TSUI MEI YUK, JANICE and WONG SUN KEUNG, Joint and Several Provisional Liquidators of Kin Shing Construction Company Limited (In liquidation) AND ANOTHER

HCCW 551/2023

[2026] HKCFI 4278

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 551 OF 2023

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REASONS FOR DECISION

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1.  By summons issued on 23 January 2026, the joint and several provisional liquidators of Kin Shing Construction Company Limited (建成建築有限公司)(in liquidation) (“PLs”) apply for leave to adduce “expert evidence in Forensic Accounting and Accounting in relation to the issues set out in the Schedule to the Summons” (“Expert Summons”). The issues are:

(1)     Whether in the opinion of the expert, the findings contained in the “Final Report” (as defined below) and the “Preliminary Report” (as defined below) given the disclaimers set out therein, are reliable for “World Link” (as defined below) to restate the “2010 AFS” (as defined below), when there were audit confirmations signed by Cheung Senior and Chow Senior (as defined below) in previous audited reports for the years  ended 31 March 1999 to 31 March 2009 prepared by EY[1]?

(2)     In the opinion of the expert, if taking $14,542,082.18[2] as the opening balance in theshareholders’ current account, and the next entry being a debit balance indicating payment ofmoney to a shareholder (i.e. under K638 entry)[3], in the absence of any conclusive evidenceprior to the opening balance, whether it is reasonable and appropriate to treat K638 as moneylent by the Company to Cheung Senior?

(3)     How will the opinion of the expert in Question 2 above affect the final determination of the amount due to or from Cheung Senior?

(4)     Given the specific disclaimers set out in the Final Report, in the opinion of the expert, whether the 2010 AFS had complied with the relevant accounting standards and/or auditing requirements, having regard in particular to:

(a)     the treatment of the “Effect of Accounting Errors”; and

(b)     the disclosure obligation for the accounting errors.

2.  The Expert Summons is made in the context of an appeal against a proof of debt submitted by the Applicant based on the Debt (as defined in §23 below) (“POD”).  In the bizarre turn of event, the PLs, who only came to office a few months and would not be familiar with the affairs of the Company, made a decision on 20 January 2025 rejecting the POD.  This left the Applicant with no alternative but to pursue an appeal against the PLs’ decision on 10 February 2025 (“Appeal”). 

3.  For reasons which remain unclear, the parties including the PLs considered that it was appropriate to join Mr Chau Kwok Wing (“Chau”) who is the executor of the estate of Chow Senior (as defined in §6 below) as the 2^nd respondent to the Appeal[4]. It seems to me that the joinder of the 2^nd respondent is based on a misapprehension on the nature of the Appeal. 

4.  Unfortunately, fueled by that misconception and an erroneous assumption that they can turn the Appeal into a substantive litigation between the 2 camps, the parties filed a total of 11 affirmations to advance their respective cases, effectively asking the Companies Court to determine and make factual findings on their dispute.  The dispute between the 2 camps arose from their disagreements on the management of the Company and all the audited financial statements (“AFS”) going back to as early as 2010:

(1)     The Applicant’s camp, representing Cheung Senior’s estate, contends that Cheung Senior was entitled to claim the Debt against the Company.  It is said that the Debt can be traced back to the “2010 AFS” (as defined in §19 below) which, in turn, was based on the reconstructed shareholders’ account contained in the “Final Report” (as defined in §17 below). 

(2)     Chau’s camp, representing Chow Senior’s estate, with the support of the PLs, contends that the Company did not owe any amount to Cheung Senior.  Instead, Cheung Senior was indebted to the Company in the amount of HK$8,526,903.  Such dispute is premised on its assertion that the 2010 AFS (and all the subsequent AFS which incorporated the amount recorded in 2010 AFS) and the Final Report were inaccurate. 

5.  For reasons not explained, the dispute was raised by Chau’s camp back in 2011 (i.e. 13 years before the Company was wound up) but has not been pursued until the PLs took on the dispute by rejecting the POD. 

Background

6.  Before its demise, the Company carried on construction business.  It was co-founded and operated by the late Mr Cheung Ka Kui (“Cheung Senior”) and the late Mr Chow You (“Chow Senior”) respectively holding 51% and 49% of its issued shares.

7.  The Company was dormant until 1 April 1997 when Cheung Senior and Chow Senior transferred the assets and liabilities of their then partnership into the Company, and the 2 of them became its only directors.

8.  Chow Senior passed away in 2003 and his wife, Ms Wong Kan Kiu (“Mrs Chow”), qua administratrix of his estate became a shareholder and director of the Company.  Mrs Chow in turn authorized his son (i.e. Chau) to handle matters pertaining to the Company.[5]

9.  Cheung Senior passed away in February 2010.  His shares were transferred to his wife and 3 children including the Applicant.[6]

10.  The auditors of the Company were Ernst & Young (“EY”).  In the first AFS of the Company for the year ended 31 March 1998, it recorded that the Company owed HK$13,818,066 (under current liabilities) to its directors but without any breakdown on the amount owed by each director. 

11.  In the AFS of the Company for the year ended 31 March 2009, the amount owed by the Company to its directors was HK$14,292,419. Again, there was no breakdown on the amount owed by the Company to Cheung Senior and Chow Senior.

12.  Prior to completion of the AFS for the year ended 31 March 2010, Cheung Senior passed away.  In the draft AFS for the year ended 31 March 2010 issued on 23 February 2021, which was not signed by EY (“Draft 2010 AFS”), there was significant change to the Company’s position in respect of the amount owed to the directors in that:

(1)     There was a breakdown in the amounts due to Cheung Senior (HK$9,388,537) and Chow Senior (HK$4,903,882) as of 31 March 2009.

(2)     As at 31 March 2010, the Company no longer owed Cheung Senior any amount.  Instead, Cheung Senior owed the Company HK$13,932,903.  The Applicant contends that there was no evidence or record of Cheung Senior drawing any money from the Company during that year that can account for the change.

13.  EY issued a disclaimer of opinion on the bases that it had not been able to verify the amount due to/from Cheung Senior and the Company:

“As described in note 13 to the financial statements, as at 3l March 2010, the Company recorded a net amount due from a director of HK$8.5 million. The director deceased during the year ended 31 March 2010 and no direct confirmation can be obtained by us for the above balance. There were no other practical alternative audit procedures that we could perform to determine whether the net carrying amount of the balance due from this director is fairly stated as at 31 March 2010 and is recoverable. Any adjustment to the carrying amount of the balance due from the director found to be necessary would affect the Company’s net assets and net current assets as at 31 March 2010 and the Company’s profit for the year then ended and related disclosures to the financial statements.”

14.  Mrs Chow, who was then a shareholder and director of the Company at the time, signed the Draft 2010 AFS but put on record that she signed the same “solely for the purpose of fulfilling and complying with the statutory tax filing requirements” and she reserved her right “to challenge the veracity and accuracy of the contents and/or figures therein and to take any legal actions to rectify the same as deems appropriate”.

15.  In view of Mrs Chow’s challenge, on 12 May 2011, FTI Consulting (Hong Kong) Ltd (“FTI”) was engaged by the Company to reconstruct the shareholders’ current account based on a review of the financial records provided by the Company including general ledgers, AFS, time deposit slips and audit confirmation letters for the years ended 31 March 1998 (“FY1998”), 31 March 2004 (“FY2004”) and 31 March 2009 (“FY2009”). 

16.  On 12 September 2011, FTI produced a preliminary report on the findings of its review for each of FY1998, FY2004 and FY2009.  In particular, FTI confirmed, inter alia, that the shareholders’ current account had not correctly accounted for due to the practice of mixing the Company’s funds with personal funds, and they had verified the contributions from Cheung Senior (and his related parties) by reference to bank transfer slips (“Preliminary Report”).  FTI recommended to proceed with reconstructing the shareholders’ current account for the period from 1 April 1997 to 31 March 2010 and identify the balance due to/from each shareholder.

17.  On 16 April 2014, FTI produced a final report (“Final Report”).  As stated in the Final Report:

(1)     During the 3-year period from May 2021 to April 2014, FTI was involved in (a) producing the Preliminary Report, (b) meeting with the directors to discuss the preliminary findings and methodology of the reconstruction exercise, (c) identifying and reviewing source documents of the transactions recorded in the shareholders’ current account from 1997 to 31 March 2009, (d) requesting for and reviewing additional documents provided by the Company, (e) attending progress meeting with the directors to present the shareholders’ account balances as at 31 March 2009, and (f) extending the review and reconstruction of the shareholders account to 30 November 2012 (pp.8, 13-14).

(2)     The “reconstructed balance due to shareholders” for each financial year from 1998 to 2011 was listed (p.22).  In particular, as at 31 March, the amounts owed to Chow Senior and Cheung Senior were as follows:

Financial Year	Chow Senior	Cheung Senior
2009	15,389,989	43,247,760
2010	14,168,170	18,869,779
2011	14,168,170	18,869,779

(3)     The “reconstructed shareholders’ current account” for each financial year from 1988 to 2011 was also listed (pp.23-36).  As at 31 March, the closing balance of the current account of Chow Senior and Cheung Senior were as follows:

Financial Year	Amount due to/(from) Chow Senior	Amount due to/(from) Cheung Senior
2009	15,389,989	43,247,760
2010	14,168,170	18,869,779
2011	14,168,170	18,869,779

(4)     FTI also identified and reviewed the treatment of the loans advanced to Asia Construction Co Ltd (“Asia”), a sub-contractor of the Company whose director and shareholder was the son of Chow Senior, of which HK$800,000 and HK$14 million had been advanced by the Company and Cheung Senior respectively (pp.37-39).

(5)     FTI stated that the Company in the past recorded and reversed the entire balance of the time deposits held in the Company’s name.  The balance included funds provided by the Company, Cheung Senior (and his related parties) and Yin Chong Rental Account.  After reviewing the source documents, the funds flow and the general ledgers, FTI stated its observations that (a) the fund flow of the time deposits contributed by Cheung Senior and his related parties were largely complete; and (b) the time deposits funded by the Company were paid to Cheung Senior and almost the entire amounts were advanced by Cheung Senior to Asia and recorded as amounts due from Cheung Senior, when they should have been recorded as amounts due from Asia (pp.  40-47). 

18.  At the board meeting of the Company held on 7 May 2014, which was attended by 5 directors, including Chau and another son of Chow Senior, the Final Report was discussed.  Chau commented that the Final Report was not prepared in accordance with auditing standards, some of his comments remained unanswered, the report should not be affected by documents which did not belong to the Company, and a mistake had been found in the Final Report.  The board by a majority (with Chau’s camp voted against) resolved to accept and adopt the findings of the Final Report. 

19.  It was only until 2017 that the AFS for the years ended 31 March 2010 to 2016 (“2010 AFS” to “2016 AFS”) were audited by World Link Ltd.  The 2010-2016 AFS were approved by the board. At the annual general meeting held on 30 August 2017, Chau’s camp asked the reason for change of auditors[7] and voted against the approval of the 2010-2016 AFS. 

20.  On 3 July 2023, the the AFS for the year ended 31 March 2023 (“2023 AFS”) was approved by the board of directors.  In the 2023 AFS, it recorded that as at 31 March 2023, the Company owed Cheung Senior HK$18,870,779 (i.e. the Debt) and Chow Senior HK$14,168,170 (note 16).

21.  On 22 November 2023, Mrs Cheung (qua executor of Cheung Senior’s estate) served a statutory demand on the Company requiring it to pay the Debt (“SD”).  The Company did not comply with the SD. 

22.  On 15 December 2023, Mrs Cheung presented a winding up petition against the Company in these proceedings.  The petition went unopposed.  On 27 March 2024, the Company was ordered to be wound up whereupon the Official Receiver became its provisional liquidator.  The Official Receiver exercised her power under s.194(1A) of Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and appointed the PLs pending the first meetings of creditors and contributories to be held for the purpose of determining whether the PLs or other persons should be appointed as liquidators of the Company. 

23.  On 3 June 2024, the Applicant (qua executor of Cheung Senior’s estate) lodged the POD claiming that the Company owed Cheung Senior the sum of HK$18,870,779 (“Debt”).  In the POD, reliance was placed on the amount recorded as owed to Cheung Senior in the 2023 AFS, being the last AFS of the Company before it was wound up by the court. 

24.  The POD described how and when the Debt was incurred and was supported by copies of (1) the 2023 AFS, (2) the SD, and (3) the winding up petition. 

25.  According to the PLs, the only other creditor who has lodged a proof of debt is Chau[8].

26.  On 26 June 2024, the first meeting of creditors and first meeting of contributories were held at which resolution was passed by (1) a majority of the creditors (being the Applicant’s camp) to appoint Ms Chan Wai Hing, Annie as liquidator, and (2) a majority of shareholders (being Chau’s camp)[9] to appoint the PLs as liquidators.

27.  On 9 August 2024, the PLs applied to the court for a determination on the difference in the resolutions passed at the first meetings (“Appointment Summons”).  The hearing of the Appointment Summons was scheduled to be heard on 13 February 2025. 

Rejection of POD

28.  Shortly before the hearing, the PLs decided to reject the POD in entirety for the reasons stated in the Notice of Rejection of Proof of Debt dated 20 January 2025 (“Notice”), which are reproduced as follows:

“Take notice, that, as the Joint and Several Provisional Liquidators of the Company (“Provisional Liquidators”), I have this day rejected your client’s claim against the Company on the following grounds-

(i)     the figure in the proof of debt set out therein is based on the audited report of McMillan Woods(Hong Kong) CPA Limited (“McMillan”) for the year ending 31 March 2023 and the statutory demand dated 22 November 2023 (which in turn relied on Note 17 to the latest audited accounts of the Company ending 31 March 2020, which is alsoprepared by McMillan) (collectively, the “McMillan Reports”);

(ii)     the McMillan Reports all trace back to the World Link 2010 re-audited accounts for the year ending 31 March 2023, apart from the fact that those McMillan Reports also disclaim the opinion, inter alia, saying that McMillan were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements;

(iii)   the World Link 2010 re-audited accounts was prepared based on the FTI Report (which turns out to be heavily disclaimed), and upon which future audited reports up to 31 March 2023 were prepared; and

(iv)    On the audited account prepared by EY for the year ending 31 March 2010 which was signed by two directors, there was amount due from estate of estate of Cheung Ka Kui Kenneth of $8,526,903 ($13,932,903 - $5,406,000).

And further take notice that subject to the power of the Court to extend the time, no application to reverse or vary my decision in adjudicating your proof will be entertained after the expiration of twenty-one days from this date.”

29.  The decision was most unusual in circumstances where:

(1)     The PLs were only recently appointed to office. As complete strangers to the Company, it would not be possible for them to properly adjudicate and reject the POD.  This was particularly so when the POD was, on its face, supported by the documents appended to the POD including the 2023 AFS.

(2)     The responsible thing which any impartial and competent liquidator should do would be to investigate the claim, and if he considered that there were any aspects which required further investigation, withhold adjudicating the POD until the investigation was completed.  The PLs did not do that and no explanation has been provided as to why they did not do so. 

(3)     In the Notice, other than saying that the PLs did not accept the figures stated in the 2023 AFS and the 2010 AFS which, in turn, were based on the Final Report, no reason was provided as to why the figures in the 2023 AFS, the 2010 AFS and the Final Report should not be accepted. 

(4)     The only reason stated as to why the PLs accepted the figures in the Draft 2010 AFS was because it had been signed by 2 directors.  This was not a valid reason as Mrs Chow expressly stated that she did not accept the veracity or accuracy of the Draft 2010 AFS. 

30.  For the reasons explained in the preceding paragraph, I am unable to see any proper basis for the court to uphold the decision of the PLs in rejecting the POD.

31.  If and insofar as it is contended by any party that the court should in the course of determining the Appeal consider the conflicting evidence filed by the parties and make findings on the issues raised by them, I do not think that it is the right approach:

(1)     The decision in rejecting the POD was plainly wrong as the PLs had not carried on any proper investigation before deciding to reject the POD. 

(2)     None of the reasons given by the PLs could explain or justify their decision in rejecting the POD, as I so find (see §29(3)-(4) above). 

(3)     It is the basic duty of a liquidator to properly investigate the claims made by the creditors and make a proper adjudication of the claims.  It is not open to the liquidator to abdicate his duty by rejecting a proof of debt on spurious or invalid grounds, thereby forcing the creditor to appeal against the decision, and then ask the court to trawl through voluminous affirmations and documents subsequently adduced by the parties and make a decision for the liquidator.  This is particularly so when most, if not all, of the affirmations (and the contents thereof) and the documents exhibited thereto have not been considered by the liquidator. 

(4)     Nor is it the function of the court in hearing an appeal against rejection of proof of debt to make findings on any other claim which the liquidator considers can be brought against the creditor.  This is a misuse of the procedure for appeal against proof of debt. 

32.  Mr Sik Chee Ching, counsel for the Applicant, submits that the timing of the PLs’ decision is very telling.  The decision was made about 3 weeks before the hearing scheduled for determination of the difference in the resolutions passed at the first meetings of creditors and contributories so as to bolster the case of Chau’s camp that Chow Senior was the only creditor of the Company. 

33.  On 10 February 2025, the Applicant filed the Appeal. 

34.  Faced with the competing contentions made by the PLs and the Applicant, at the hearing on 13 February 2025, Master adjourned the Appointment Summons pending determination of the Appeal or any order of the court. 

35.  It seems that in deciding to adjourn the Appointment Summons, the learned Master must have been labouring under the impression that the Appeal was one which would be determined by the court within a short time.  It transpires that more than 17 months after the adjournment, the Appeal still cannot be heard owing to the manner in which the parties chose to deal with the Appeal. 

36.  In my judgment, the Appointment Summons should be determined as soon as possible. It is generally undesirable to delay the appointment of liquidators as it would be in the interests of the creditors to know at the early stage of liquidation who should be appointed as liquidators.

Dismissal of Expert Summons 

37.  At the hearing, I dismissed the Expert Summons and gave oral reasons for my decision, which I set out below.   

38.  At the heart of the Appeal is whether the decision of the PLs in rejecting the POD was wrong and should be set aside.  As I observe during the course of the hearing, it was unusual, if not extraordinary, for the PLs to have rejected the POD submitted by the Applicant when they had only been appointed to office on 27 March 2024.  The usual course which any responsible liquidator should do would be to mark the POD as disputed and held over the decision until further investigation could be carried out.  This has not been done and no explanation has been provided by the PLs.

39.  Be that as it may, if as Mr Kurt Ng, counsel for the PLs, submits, at the time the PLs decided to reject the POD, there were already enough materials for them to form a firm view that the Final Report was erroneous, it is difficult to see how the PLs can now say that it is necessary for proper determination of the Appeal to engage an expert to explain to the court why the Final Report was wrong. 

40.  As regards the contention that the PLs cannot give evidence to the effect that Final Report was wrong as they cannot give expert evidence, I am unable to agree.  The PLs are qualified accountants and professed to have extensive experience in accounting and forensic accounting matters, it is difficult to see why at the hearing of the Appeal, they cannot be heard to state their view and the reasons in support of their decision.  Indeed, the contention files in the face of the fact that the PLs have already gone to great length and filed an affirmation which runs to 30 pages in their attempt to explain and justify their decision in rejecting the POD.  No one has suggested that such affirmation is inadmissible or that it cannot be considered by the court at the hearing of the Appeal.

41.  The test for appointment of expert is clear and have been stated in China Minsheng Banking Corp Ltd v Top Power Enterprises Ltd [2023] HKCFI 2469 §§21-23.  The important consideration is that expert evidence should not be allowed for the purpose of answering the ultimate question which the court has to decide.  That question, as Mr Ng puts it, is whether the Final Report insofar as it dealt with the treatment of the current accounts of Cheung Senior and the adjustments thereof for the year 2010 was correct.  This is a question which the PLs contend should be decided by the court in the Appeal.  It is neither necessary nor appropriate for the court to appoint an expert to answer that question.

42.  Further, I agree with Mr Sik’s submissions that the proposed appointment of an expert to answer the 4 issues identified in the Schedule to the Expert Summons would not work.  As can be seen from the Preliminary Report and the Final Report completed in 2014, the reconstruction exercise which FTI was tasked to do was not just about one or 2 entries or the specific entries which the PLs seek to impugn.  Rather, the exercise involved a review of a large number of accounting entries and adjustments which arose as a result of the fact that Chow Senior and Cheung Senior had in the past mixed their personal funds with the funds of the Company.  This was compounded by the fact that in the past, the amounts paid by or to Cheung Senior and Chow Senior had been recorded under a single shareholders’ account. 

43.  Unless the expert proposed to be appointed is going to conduct a comprehensive review of all the books and records which had been reviewed by FTI back in 2011 to 2014 and assess whether the reconstruction and the adjustments made by FTI were done correctly, it would be impossible for the expert to state his view as to whether FTI was right in its reconstruction and conclusion set out in the Final Report.  As submitted by Mr Sik, which is not disputed by Mr Ng, it is difficult to see how the expert proposed to be appointed can carry out such review in circumstances where back in 2011 – 2014, FTI already found the exercise to be a difficult one in light of the state of the books and records of the Company. 

44.  I reserved the costs of the Expert Summons to be determined together with the costs of the Appeal as I consider that this is not a case where the PLs have acted in good faith or that the costs of and occasioned by the Summons should be paid out of the estate of the Company. 

45.  For proper conduct of the Appeal and the Appointment Summons, I give the following directions:

(1)     Leave to the parties to fix a date for the hearing of the Appointment Summons before Master Jack Wong on an early date and with 1 hour reserved.

(2)     Leave to the parties to set down the Appeal to be heard before this Court with 3 hours reserved.