FU QIKE v. CHINA FIRST CAPITAL GROUP LTD

HCCW 559/2023

[2025] HKCFI 1441

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 559 OF 2023

________________________

________________

BETWEEN

________________

________________

JUDGMENT

________________

A. Introduction

1.  This is the hearing of two substitution summonses issued by Madam Yin Meng Ting (“Yin”) and Madam Wu Guixia (“Wu”) on 9 April 2024 and 23 November 2024 (respectively “Yin Summons” and “Wu Summons”) for their substitution as petitioner and amendment of the Petition issued against the Company (“Petition”) as per the drafts attached to the Summonses, ordered to be heard together at this hearing.

2.  The Petition was originally presented by Fu Qike (“Fu”) against the Company on 20 December 2023. Fu has not advertised the Petition as prescribed. On 9 April 2024, Fu filed a consent summons to withdraw the Petition. On the same day, Yin applied to substitute Fu as petitioner and carry on the Petition. A few months later, Wu also applied to substitute as petitioner.

3.  In a nutshell, Yin’s application arises out of the Company’s failure to repay Yin the principal and interests due under (i) a Bond Instrument titled “Instrument constituting HK$10,000,000 6 per cent. bonds due 2020” dated 21 November 2016 (“Bond Instrument” and, for the bonds themselves, “Bonds”) and (ii) a Supplemental Deed Poll dated 20 July 2020 entered into by Yin and the Company, supplemental to the Bond Instrument (“Supplemental Deed Poll”). The Company’s main defence is that Yin has no locus standi since the Bonds were issued, not to Yin, but a subsidiary of the Company, China Sunrise Securities (International) Limited (formerly known as First Capital Securities Limited) (“FCSL”), as a centralized intermediary to hold all the bonds issued by the Company. The Company suggests that FCSL holds all such bonds on trust for beneficiaries such as Yin.

4.  For the sake of completeness, initially the Company also opposed the Yin Summons based on a HKIAC arbitration in relation to an agreement entitled “《有关债务清偿的协议》” dated 4 July 2022 (“DRA”) entered into between Yin and the Company. In such arbitration, the Company contends that the DRA was entered into under a common mistake, and seeks rectification. Upon Yin clarifying that she only relies on the Bond Instrument and the Supplemental Deed Poll but not the DRA, the Company agrees that the DRA “defence” becomes academic (subject to the issue of costs, as Yin had in correspondence attempted to rely on the DRA as conferring standing on her).

5.  On the other hand, whilst Wu similarly claims to be a bondholder, she does not rely on the underlying debt of the bonds for present purposes. Instead, Wu applies for substitution on the basis that she is a judgment creditor by virtue of the Order of the Hon Mimmie Chan J on 6 June 2024 under HCCT 58/2024 (“Enforcement Order”) enforcing an arbitral award granted by Hefei Arbitration Commission on 14 May 2024 (“Award”). The Company’s main defence is twofold: (i) the Enforcement Order grants leave for Wu to enforce the Award but does not itself confer locus on Wu to present a winding-up petition, which is not a method of enforcement; and (ii) in any event the Company on 12 December 2024 made an application to the supervisory Hefei Court to set aside the Award (“Setting Aside Application”).

6.  It is not in dispute that, if both Yin and Wu succeed, (i) Yin should be substituted as petitioner since the Yin Summons was issued first and (ii) the Petition should be returnable before Master as it has not been advertised as prescribed. It is also accepted that, if Yin succeeds in her application, it is not strictly necessary to deal with Wu’s application. Nevertheless, I agree that the Court should deal with the merits of both applications in this hearing: see this Court’s decision in Re China Zenith Chemical Group Ltd (formerly known as Xinyang Maojian Group Ltd) [2024] HKCFI 2769 at §13; see also the Court of Appeal’s decision in [2025] HKCA 253 at §11.

B. Principles on Substitution

7.  Both Yin and Wu apply for substitution pursuant to Rule 33 of the Companies (Winding-Up) Rules (Cap. 32H) which provides as follows:

“33. Substitution of creditor or contributory for withdrawing petitioner

When a petitioner is not entitled to present a petition or whether so entitled or not, where he (a) fails to advertise his petition within the time by these rules prescribed or such extended time as the Registrar may allow or (b) consents to withdraw his petition, or to allow it to be dismissed, or the hearing adjourned, or fails to appear in support of his petition when it is called on in court on the day originally fixed for the hearing thereof, or on any day to which the hearing has been adjourned, or (c) if appearing, does not apply for an order in the terms of the prayer of his petition, the court may, upon such terms as it may think just, substitute as petitioner any creditor or contributory who in the opinion of the court would have a right to present a petition, and who is desirous of prosecuting the petition. An order to substitute a petitioner may, where a petitioner fails to advertise his petition within the time prescribed by these rules or consents to withdraw his petition, be made in chambers at any time.”

8.  In the present case, both conditions (a) and (b) are satisfied since (i) Fu has not advertised the Petition as prescribed and (ii) Fu consents to withdraw the Petition. There is also no dispute that Yin and Wu are desirous of prosecuting the Petition. The real issue, therefore, is whether Yin and Wu “have a right to present a petition” or, in other words, whether the Company can demonstrate a bona fide dispute on substantial grounds.

9.  In this regard, it is trite that a company is required “to adduce sufficiently precise evidence which is believable”: Re CA Cultural Technology Group Ltd [2022] HKCFI 3790 at §27. A company must adduce sufficiently precise factual evidence to substantiate its allegations and cannot merely raise a cloud of objections on affidavits. Bare allegations, uncorroborated by documentary evidence or contrary to common and commercial sense are not sufficient. This Court is not precluded from examining the evidence and taking a view on whether the debt is disputed on substantial grounds: Re China Cultural City Ltd [2020] 4 HKLRD 1 at §§9-12.

10.  Whilst the Company’s main defence to the Yin Summons is that Yin does not have locus standi, the Company has not suggested that a materially different test or threshold should apply. In any event, given that the issue is one of construction, it really boils down to whether the question of construction can be summarily resolved. As observed by Linda Chan J in Re CA Cultural Technology Group Ltd (supra) at §27, if a question of construction “is not one which can be summarily decided in the companies court, it constitutes a bona fide dispute on substantial ground and the petition should be dismissed”. In my view, the reverse should also be true, i.e. if a question of construction can be summarily resolved, there is no reason why the Companies Court cannot deal with it immediately.

11.  I will now move on to examine the claims of Yin and Wu in turn.

C. Yin’s claim

12.  There is no dispute that the Company has defaulted in making repayment under the Bonds. The real issue is a question of construction, i.e. who is the bondholder – Yin or FCSL?

13.  The principles of contractual interpretation are well-established. They have been summarised in Eminent Investments (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFAR 487 at §§42-46, which need not be repeated here.

14.  On behalf of the Company, Ms Frances Lok SC (leading Mr Kevin Lau) further submits that pre-contractual negotiations are irrelevant and inadmissible for the purposes of construction, citing Yen Wing Choi & Ors v March Power Investment Ltd (unrep., FAMV 2/2011, 16 June 2011), §§16-17. However, it must be borne in mind that the Court may have regard to pre-contractual negotiations to ascertain the general object of a contract (see e.g. Lewison, The Interpretation of Contracts (8^th ed) at pp.133-134, §§3.56-3.59). Depending on circumstances, contemporaneous announcements, contracts and letters (as distinct from mere drafts) may also form part of the relevant factual matrix or context.

15.  Whilst Yin and the Company have relied upon various arguments in their written and oral submissions on the question of construction, I would focus on the pertinent ones. On the one hand, both of them rely on the register of bondholders (“Register”). On the other hand, Yin also relies on other contemporaneous documents, whilst the Company places great weight on the certificate of bondholders (“Certificate”). During oral submissions, Ms Lok SC repeatedly hammered on the point about the Certificate. Whilst I can see the force of her argument, I have eventually reached the view that Yin’s construction should prevail. I will now explain my key reasoning although, for the avoidance of doubt, I have considered all arguments raised by both sides.

16.  First of all, it is important to consider the factual matrix, including contemporaneous agreements and documents, to ascertain general object of the Bond Instrument dated 21 November 2016 executed by the Company.

17.  Firstly, on 24 May 2016, the Company made a public announcement at the Hong Kong Stock Exchange announcing its intention to issue bonds (“2016 Announcement”) which stated inter alia that:

(1) The Company intended to issue bonds to independent third-party investors (“本公司…有意向身為獨立第三方的投資者發行債券”);

(2) The bonds would constitute direct, unconditional, unsubordinated and unsecured liability of the Company;

(3) The placing agent was FCSL, being a wholly-owned subsidiary of the Company.

18.  On behalf of the Company, Ms Lok SC stresses that this is not inconsistent with the Company issuing the Bonds to FCSL to hold it on trust for others. Nevertheless, at least on the face of it, the 2016 Announcement did state that the Company intended to issue the Bonds to independent third-party investors (“向身為獨立第三方的投資者發行債券”). The reference to the act of issuance (“發行”) suggests that the Bonds would be issued to such investors. This is fortified by the reference to the role of FCSL as placing agent only.

19.  Secondly, a Placing Agreement was entered into between FCSL and the Company on 8 July 2016 (“Placing Agreement”). It is not right for Ms Lok SC to suggest that the Placing Agreement is irrelevant simply because investors (such as Yin) are not a party to it. This overlooks the fact that the Placing Agreement is the contractual framework under which FCSL procured investors (such as Yin) to subscribe for the Bonds to be issued by the Company. Indeed, the Placing Agreement was expressly referred to in the placing letter subsequently issued by FCSL to Yin on 21 November 2016 (“Placing Letter”). Without being exhaustive, the Placing Agreement provided as follows:

(1) Recital (B): The Company wishes to appoint FCSL (defined as Placing Agent) to act as placing agent for the purpose of procuring, as agent of the Company, Placees to subscribe for the Bonds – hence FCSL’s role is to act as placing agent of the Company, as distinct from placees who subscribe for the Bonds;

(2) Clause 1.1: “Placees” means the subscribers of the Bonds (who are Professional Investors independent of the Company and its connected persons and who are not connected persons of the Company) to be procured by FCSL and the expression “Placee” means any of those subscribers – hence the Bonds are to be subscribed for by numerous independent placees to be procured by FCSL which, being connected to the Company (as its subsidiary), cannot act as placee itself to subscribe for the Bonds;

(3) Clause 2.4: Any transaction carried out by FCSL under and in accordance with the Placing Agreement on behalf of the Company (and not as principal) shall constitute a transaction carried out at the request of the Company and as its agent and not in respect of FCSL’s own account – this militates against the Company’s case that FCSL acted as principal to subscribe for the Bonds vis-à-vis the Company on the one hand, and to hold the Bonds on trust vis-à-vis third-party investors on the other hand;

(4) Clause 2.5.1: The Bonds shall not be offered to or placed with any person, firm, or company which to the knowledge of FCSL (i) is not a Professional Investor; or (ii) is not independent of the Company or any connected person of the Company; or (iii) is a connected person of the Company etc – plainly the Bonds shall not be offered to or placed with FCSL, being a wholly-owned subsidiary of the Company;

(5) Clause 2.7: Upon countersigning and returning the Confirmation to FCSL in accordance with Clause 2.6, the Company agrees that it will issue the Bonds to the relevant Placees in accordance with the terms of the Confirmation and this Agreement – hence the Bonds will be issued to the placees, not FCSL as placing agent;

(6) Clause 4.1: the Company shall deliver to FCSL (a) a certified copy of the Instrument duly executed by the Company; (b) Certificate(s) duly executed by the Company and authenticated by the Registrar (as defined in the Instrument) and registered in the name(s) of the Placees as specified in the Confirmation with respect to the principal amount of Bonds subscribed by each Placee; and (c) the Company shall enter the names and details of the Placees in the register of bondholders in accordance with the Instrument and the Conditions – the plain intention is for the placees (not FCSL) to be bondholders, such that the Certificates should be in the name of the placees and the Company shall enter the names and details of the placees in the register of bondholders;

(7) Clause 6: At the time of delivery of, and payment for, any Bonds issued by the Company pursuant to Clause 2, the Company agrees to pay FCSL a commission of 0.5 per cent. of the aggregate principal amount of Bonds for which FCSL has procured the Placees to subscribe from the Company. Such commission will be deducted by FCSL from the subscription monies payable to the Company in respect of the relevant Bonds or as otherwise agreed by the Parties – again the plain intention is for FCSL to act as placing agent only for which FCSL would receive commission of 0.5 per cent, as opposed to FCSL subscribing for the Bonds itself.

(8) Clause 7.11.4: The Company acknowledges and agrees that FCSL has no obligation to the Company with respect to any issue of Bonds except the obligations expressly set forth in the Placing Agreement – hence FCSL is to act as placing agent only without assuming further obligation to the Company with respect to any issue of Bonds (such as subscription for the Bonds on its own).

20.  All in all, the Placing Agreement evinces a clear intention of the Company to issue the Bonds to independent third-party placees, rather than its wholly-owned subsidiary FCSL which acted as placing agent only.

21.  Thirdly, Yin subscribed for the Bonds for meeting her investment requirements under the Capital Investment Entrance Scheme (“CIES”). For such purpose, Yin signed an agreement entitled “《客戶協議》” and dated 11 November 2016 with FCSL (“Customer Agreement”). Under the Customer Agreement, Yin (as an applicant under the CIES) is envisaged as an investor making investment for the purpose of meeting the requirements of the CIES. The Customer Agreement provided inter alia as follows:

(1) Clause 5(6): If Yin is no longer the sole beneficial owner of the assets in the designated account (i.e. the Bonds), FCSL is required to notify the Director of Immigration within 7 days of such event occurring;

(2) Clause 12: Yin has declared the funds she would be investing is beneficially owned by herself;

(3) Clause 13: Each investment made is solely Yin’s decision and responsibility and FCSL would not assume any responsibility for any matters arising from a transaction or ancillary matters.

22.  Whilst one may say that, unlike the Placing Agreement, the Customer Agreement has not explicitly stated that the Bonds are to be issued to Yin, the provisions therein make clear that Yin is the sole beneficial owner and FCSL would not assume any responsibility for any matters arising from a transaction or ancillary matters. In particular, there is no contractual provision stating that FCSL nevertheless assumes the role and responsibility of a trustee.

23.  Fourthly, the Placing Letter was issued by FCSL to Yin on 21 November 2016. It provided inter alia as follows:

(1) Preamble: It refers to (i) the Placing Agreement under which FCSL agreed to procure placees to subscribe for the Bonds and (ii) an oral contract concluded between FCSL (acting on behalf of the Company) and Yin whereby Yin agreed to subscribe for 20 Bonds at HK$500,000 each (total being HK$10,000,000) – this points to an agreement to subscribe for the Bonds between the Company and Yin (who may sue the Company), as opposed to an indirect investment via FCSL as trustee (where only FCSL may sue);

(2) Clause 5: Yin’s agreement to subscribe for the Bonds constitutes Yin’s instruction and authority for FCSL on her behalf to execute any registration or other forms or documents and generally to do all such other things as FCSL may consider necessary or desirable to give effect to Yin’s subscription for the Bond(s) and related arrangements. Yin undertakes to sign all documents and to do all such other acts and things necessary to enable Yin to be registered as the holder of the Bond(s) – this points to an agreement by Yin (not FCSL) to subscribe for the Bonds and to be registered as the holder of the Bonds;

(3) Form of Acknowledgment: This was signed by Yin whereby she confirms that FCSL’s letter dated 21 November 2016 to her correctly records the terms of the contract between FCSL as agent for the Company and Yin relating to Yin’s purchase of Bonds in the principal amount of HK$10,000,000 – this again points to an agreement between the Company (via FCSL as agent) and Yin, rather than an agreement between the Company and FCSL (as trustee for Yin).

24.  Whilst Ms Lok SC is at pains to emphasise that Clause 5 is merely facilitative and it also empowers FCSL to execute documents on Yin’s behalf, such argument cannot get around the aim and general object of the contract, namely it is for Yin (not FCSL) to subscribe for the Bonds and to be registered as holder of the Bonds, and FCSL is only given power to execute documents on behalf of Yin to give effect to Yin’s (not FCSL’s) subscription for the Bonds.

25.  All in all, the above documents point overwhelmingly to the Company’s intention and agreement to issue the Bonds to independent third-party placees (such as Yin) as distinct from FCSL, which acted as placing agent.

26.  On behalf of the Company, Ms Lok SC argues that there is simply nothing in the documents to prevent FCSL from further assuming the role of registered Bondholder afterwards. With respect, this is incorrect. For instance, offering the Bonds to and placing them with FCSL (the Company’s wholly-owned subsidiary) would seem to fall foul of Clause 2.5.1 of the Placing Agreement. Indeed, the assertion that FCSL is a single registered holder of all bonds goes contrary to the tenor and terms of these documents, and the general object and aim of the transaction. Importantly, the Company has produced no contemporaneous agreement or document whereby FCSL agreed to act as trustee for Yin and to hold the Bonds on trust for Yin. The most that the Company can produce is a document by FCSL confirming that it acted as agent (as opposed to trustee) on behalf of Yin. If there were indeed a trust, one would have expected a trust agreement to be prepared, containing provisions which would govern the rights and obligations of FCSL and Yin as trustee and beneficiary, including FCSL’s duty to act in accordance with the instructions of Yin to sue the Company on her behalf. Plainly, as the parent company of FCSL, the Company must be in a position to produce the same (if it exists), but there is none. The stark absence of all these tends to suggest that the defence of locus standi is an artificial one, and is put forth by the Company to forestall the claims of investors such as Yin, when the apparent reality is that the Bonds are overdue and the Company is simply unable to repay the same.

27.  Second, as mentioned above, both Yin and the Company rely on the Register.

28.  Under Clause 1(A) of the Bond Instrument, “Bondholder” means a person in whose name a Bond is registered in the register of Bondholders, and “holder” in relation to a Bond has a corresponding meaning. Clause 7(G) of the Bond Instrument further provides that the Company shall at all times cause to be kept a register of holders of the Bonds in accordance with Condition 2(A) which provides as follows:

“ The Company will cause to be kept a register outside of Hong Kong on which shall be entered the names and addresses of the holders and the particulars of the Bonds held by them and all transfers of the Bonds. Each holder shall be entitled to receive only one Certificate in respect of its entire holding of Bonds. The Registrar shall ensure that the register of Bondholders is promptly updated following each transfer and redemption of Bonds.”

29.  Under Clause 1(A) of the Bond Instrument, “Registrar” means (i) the Company, in the case where the Company is acting as the registrar; or (ii) such other person, firm or company as may, from time to time, be appointed by the Company pursuant to the Conditions or any successor registrar appointed. In the present case, there is no suggestion that anyone other than the Company is acting as the Registrar.

30.  The Company has provided an excerpt of the Register dated 26 July 2024. The entries pertaining to inter alia Yin and Wu are as follows:

		Name	Interest rate	Period	Issue Date	Currency	Principal Amount	Note
03	China Sunrise Securities (International) Limited – Client’s A/C (formerly known as “First Capital Securities Limited – Client’s A/C”)	尹夢葶 [i.e. Yin]	6.0%	8-years	23/11/2016	HKD	10,000,000.00	The original bond matured on 22/11/2020 and was extended to 24/11/2024
25	China Sunrise Securities (International) Limited – Client’s A/C (formerly known as “First Capital Securities Limited – Client’s A/C”)	吳桂霞 [i.e. Wu]	6.0%	4-years	7/11/2017	HKD	8,100,000.00

31.  On behalf of Yin, Mr Thomas Yeon complains that the Company has produced a different version of the Register in the case of Wu in which the names of investors (such as Yin and Wu) no longer appear. He invites the Court to draw adverse inference against the Company as it fails to provide any explanation to account for the difference between the two versions. Whilst I can see the force of Mr Yeon’s criticism, it seems to me that the Court should simply proceed on the basis of the version produced by the Company in Yin’s case, at least for the purpose of the Yin Summons (which is accepted by Ms Lok SC). As regards the Wu Summons, the Register is of little relevance given that Wu is relying on the Enforcement Order (and the Award) as opposed to the debt under the Bonds. In any case, without resorting to adverse inference, one may say that any change effected by a subsequent version of the Register would be self-serving, and the Court should be slow to attach any weight to it.

32.  In my view, the Register is another strong factor which militates against the Company’s case.

33.  Firstly, the fact that the Register states the name of Yin (and the names of other investors such as Wu) is a strong indicator that Yin is the Bondholder, being a person in whose name a Bond is registered in the register of Bondholders (i.e. the Register). This is reinforced by the fact that, in the excerpt of the Register produced by the Company, the names of the investors (including Yin and Wu) appear in the column with the heading “Name”.

34.  In response, it is suggested in the Company’s written submissions that the Company has explained that FCSL is the registered Bondholder and that the “name” column merely records for administrative convenience the identity of the individual who ultimately subscribed for the bonds. However, as rightly pointed out by Mr Yeon, the so-called explanation of administrative convenience is a new assertion, not otherwise deposed to in the Affirmation evidence filed on behalf of the Company. In any case, the Company’s point on administrative convenience is a lame one.

(1) On the Company’s case, it would be the responsibility of FCSL rather than the Company to deal with investors. As far as the Company is concerned, there is simply no need to state the names of the (ultimate) investors in the Register.

(2) As placing agent, FCSL must be in possession of the particulars of the investors (including Yin). Again, there is simply no need to state the names of the investors on the Register.

(3) It is thus fanciful to suggest that a customer service officer of the Company has to resort to such information to reach out to investors, if the only registered Bondholder is FCSL. There is no good reason to state such information in the Register anyway.

(4) Far from being convenient, if Yin is not the Bondholder, it would be confusing and misleading to state her name on the Register.

35.  Secondly, although the Register also states the name of FCSL – Client’s A/C, this does not really assist the Company. I note that on behalf of Yin, Mr Yeon seems to concede that due to both names being stated on the Register, a pure textual analysis is of limited assistance. However, this is not really the end of the exercise and one must go further to consider such text, both on its own and against the context of other provisions and circumstances:

(1) To begin with, if the intention were for FCSL to be registered in the Register, there is no sound reason why (i) FCSL’s name is not set out under the “Name” column; and (ii) the Register does not state “FCSL” alone, as opposed to “FCSL – Client’s A/C” (which is not a legal person and does not have legal personality to sue).

(2) The words “Client’s A/C” seem to convey the message that whilst the funds for subscription of the Bonds were advanced by FCSL, they were in fact client’s funds kept in FCSL’s client account. If anything, this undermines the suggestion that FCSL is subscribing for the Bonds itself (as principal). Instead, like other professional services providers (e.g. accounting firms and solicitors’ firms), FCSL is holding client’s funds in client account (as agent).

(3) Conditions 5(A) and 5(B) of the Bond Instrument require that payment be made to the “registered account of the Bondholder … details of which appear on the register of Bondholders”. Thus, it appears that FCSL – Client’s A/C is stated in the Register, not for the purpose of naming FCSL as bondholder, but to make clear that payment be made to such client account held by FCSL for Yin.

(4) Accordingly, stating FCSL Client’s A/C on the Register could be reconciled given that FCSL is the placing agent and it also holds client’s funds in client accounts for investors such as Yin.

36.  Thirdly, the Company relies on the principle against surplusage and argues that (i) if Yin is right and she is the registered Bondholder, then FCSL’s name in the Register is wholly superfluous; and on the other hand (ii) even if FCSL is the registered Bondholder, it is convenient to have Yin’s name also appear on the Register (as a reminder to users thereof). However:

(1) Contrary to the Company’s first proposition, stating FCSL’s name in the Register is not wholly superfluous: see §34 above.

(2) Contrary to the Company’s second proposition, the argument on administrative convenience is without merits: see §33 above.

37.  Indeed, if the principle is to apply, it works against the Company:

(1) If FCSL is the registered Bondholder, then the name of Yin (and other investors) in the Register is wholly superfluous. It is wholly unnecessary to state such names, as the Company need only deal with FCSL as registered Bondholder, and it is for FCSL (as trustee) to deal with the investors in turn. There is also no need for the Company to differentiate between the Bonds, as the identity of the Bondholder is the same. Nor is it necessary to state the names of the investors for the purpose of payment by the Company, as such payment will be made to FCSL’s client account anyway.

(2) In any case, as submitted by Mr Yeon, even if there were a need to differentiate between the Bonds, the identification of “03” (being the Bonds/certificate number) should suffice, as each certificate number is unique. It is simply unnecessary to list Yin’s name on the Register (let alone under the “Name” column).

(3) Further, on the Company’s case, if FCSL is the registered Bondholder, then the Register need only state the name of FCSL and the words “Client’s A/C” would be superfluous.

(4) In contrast, on Yin’s case, Yin’s name is already stated as the registered Bondholder, and the words “Client’s A/C” are not superfluous. This is because, without such words, the Register might be confusing as it states two different names (i.e. Yin and FCSL). Yet, with the additional words “Client’s A/C”, they help clarify that the reference to FCSL Client’s A/C is not really to state the name of FCSL as registered Bondholder (since “Client’s A/C” is not a legal person) but to make clear that payment be made to such client account (rather than Yin’s personal account).

(5) Whilst Ms Lok SC also prays in aid the point on payment (to explain why the Register refers to FCSL Client’s A/C rather than FCSL alone), it is inexplicable why the Register would not state (i) FCSL (as name of bondholder) and (ii) FCSL Client’s A/C (as payment method) separately: cf the above analysis of the Register which states (i) the names of investors including Yin (as names of bondholders) and (ii) FCSL Client’s A/C (as payment method).

38.  Third, the Supplemental Deed Poll was made by the Company on 20 July 2020 to extend the maturity date of the Bond Instrument to 23 November 2024 and, on the same day, Yin passed and signed an Ordinary Resolution approving this extension (“Yin’s Ordinary Resolution”). In Yin’s Ordinary Resolution, it expressly states that it is an Ordinary Resolution of the Bondholder, and further states the following in the signature block: “Name of the Bondholder: YIN MENG TING”. This seems to corroborate Yin’s case that she is the registered Bondholder.

39.  Nevertheless, the Company has produced another Ordinary Resolution passed and signed by FCSL (“FCSL’s Ordinary Resolution”), also signed on 20 July 2020. It states the following under the signature block: “Name of the Bondholder: First Capital Securities Limited – Client’s A/C”. It is not in dispute that Yin did not have sight of the FCSL’s Ordinary Resolution in 2020. The Company’s case is that both versions were signed respectively by FCSL as bondholder and by Yin as ultimate investor. However, it is difficult to understand why, if Yin is to sign as ultimate investor only, Yin’s Ordinary Resolution nevertheless refers to the name of Yin as the “Name of the Bondholder”. Moreover, FCSL’s Ordinary Resolution is far from clear as it states FCSL – Client’s A/C rather than FCSL alone. This may suggest that FCSL merely signed as agent as the transaction was effected via FCSL’s client account for Yin.

40.  On the whole, the documents pertaining to the Supplemental Deed Poll tend to corroborate Yin’s case. Whilst the documents only came into existence in 2020, one must bear in mind that the Register is to be maintained and updated by the Company. The fact that Yin is named as the bondholder in Yin’s Ordinary Resolution lends support to Yin’s case that she is named as bondholder in the Register (at least up to 2020).

41.  Fourth, as mentioned at the outset, the Company places great emphasis on the Certificate.

42.  The Certificate can be found at Schedule 1 to the Bond Instrument. It expressly certifies “First Capital Securities Limited – Client’s A/C” as the registered holder of the Bonds. On behalf of the Company, Ms Lok SC argues that the bondholder named in the Certificate is plainly not Yin but FCSL, and yet Yin never objected to the Certificate. She further argues that it is neither here nor there for Yin to argue that the Certificate should have been issued in Yin’s name, as the Companies Court is not concerned with any claim for rectification based on mistake.

43.  As mentioned, whilst there is force in the submissions of Ms Lok SC, I have eventually reached the conclusion that Yin’s construction should prevail. Aside from other factors mentioned herein (which militate against the Company’s case), I wish to make further observations on the Certificate.

44.  Firstly, it is not the case that the Certificate expressly certifies FCSL as the registered holder of the Bonds. Instead, it refers to “First Capital Securities Limited – Client’s A/C” as the registered holder. Coupled with other factors examined above, this tends to suggest that the registered holder of the Bonds is the client who owns the client’s funds in the client account of FCSL, as opposed to FCSL in its own right.

45.  Secondly, Condition 1(A) of the Bond Instrument provides that “each Certificate shall represent the entire holding of Bonds by the same holder” and “Each Certificate will be numbered serially with an identifying number which will be recorded on the relevant Certificate and in the register of Bondholders”. In the excerpt of the Register produced by the Company, there are eleven entries of the Bonds with eleven different serial numbers (e.g. “03” and “25” corresponding to the Bonds in respect of Yin and Wu). On the Company’s case, the holder of all these Bonds is the same (being FCSL) and hence only one Certificate should be issued to represent FCSL’s entire holding – yet it is apparent that eleven Certificates (each with different serial number) have been issued. This reinforces the above point that the Certificate is not issued to FCSL in its own right (as otherwise a single Certificate will suffice).

46.  Thirdly, Clause 4(A) of the Bond Instrument provides that, on issue of the Bonds, every Bondholder will be entitled to a Certificate registered in the name of such Bondholder, in or substantially in the form set out in Schedule 1 and endorsed with the Conditions. It would appear that Schedule 1 should only be the form of the Certificate (rather than the Certificate itself). If so, it may be said that although Schedule 1 was signed, it does not constitute the Certificate itself – rather Yin is entitled to have a separate Certificate issued in or substantially in the form as set out in Schedule 1, in which case Yin’s name should be stated in the Certificate.

47.  Fourthly and in any event, the retention of a certificate is not a pre-requisite before a person qualify as a “bondholder”, and a bondholder’s right to bring a claim against the Company is not conditional upon the bondholder being named in a certificate and/or owning a certificate. Among others:

(1) Under Clause 1(A) of the Bond Instrument, “Bondholder” is defined as a person in whose name a Bond is registered in the register of Bondholders. It is not dependent on the person retaining a certificate issued in the person’s name.

(2) Clause 1(A) further defines “Certificate” as a certificate in or substantially in the form set out in Schedule 1, issued in the name of the Bondholder. Whilst the definition of “Certificate” envisages that it is issued in the name of the Bondholder, the point seems to be that the Certificate should be issued to the Bondholder, as opposed to saying that the identity of the Bondholder is to be determined by reference to the Certificate exclusively. In other words, the Certificate constitutes evidence as to the identity of the bondholder, but it does not prevail over the Register.

(3) Such construction finds support from (i) Clause 4(A) which provides that, on issue of the Bonds, every Bondholder will be entitled to a Certificate registered in the name of such Bondholder, and (ii) Condition 2(A) which provides that the Company will cause to be kept a register on which shall be entered the names and addresses of the holders and the particulars of the Bonds held by them, and each holder shall be entitled to receive only one Certificate in respect of its entire holding of Bonds. These provisions seem to presuppose that the identity of the Bondholder can be ascertained independently and, based on such identity, every Bondholder will be entitled to receive the Certificate.

(4) Another provision in support is Clause 4(E) which provides that the Bondholder will be treated as absolute owner for all purposes regardless of inter alia the theft or loss of the Certificate. This underscores the point that the Certificate functions as evidence of identity as bondholder. It is not a pre-requisite or pre-condition to define and determine who is the bondholder.

48.  Fifth, on behalf of the Company, Ms Lok SC argues that it makes ample commercial sense for a bond issuing entity not to contract directly with ultimate investors. She relies on this Court’s observations on the features of a global note in Re Leading Holdings Ltd [2023] 4 HKLRD 71 at §§57-58:

“ 57. Turning to the English authorities relied on by the company, I would start with Elektrim SA v Vivendi Holdings 1 Corp [2008] EWCA Civ 1178, [2009] 2 All ER (Comm) 213, where the English Court of Appeal explained in a similar vein that only the holder of a note has the right to take enforcement action against the issuer, with particular reference to the “No Action Clause”, at [1]–[3] and [91]:

[1] The principal question on this appeal relates to the construction of a ‘no-action’ clause in a bond issue, whereby only the trustee of the issue is entitled to take enforcement action against the issuer, and bondholders cannot proceed directly against the issuer unless the trustee fails to take action in accordance with the bond documentation. Such clauses have been common in bond issues governed by English law since the nineteenth century, and in bond issues in other common law countries.

[2] The use of a trustee is an effective way of centralising the administration and enforcement of bonds. Bondholders act through the trustee, and share pari passu in the fortunes of the investment, and do not compete with each other. The trustee represents and protects the bondholders, who are treated as forming a class, and who give instructions to the trustee through a specified percentage of bondholders. Such a scheme promotes liquidity. Individual bondholders rely on the trustee as the exclusive channel of enforcement and can be confident that on enforcement principal and interest will be distributed pari passu.

[3] No-action clauses are the subject of many decisions in the United States and Canada. They include the recent decision of the Ontario Court of Appeal in Casurina Ltd Partnership v Rio Algom Ltd (2004) 40 BLR (3d) 112, in which it upheld the lower court’s approval of the approach in the United States (citing Feldbaum v McCrory Corp 1992 Del Ch LEXIS 113) that in consenting to no-action clauses by purchasing bonds, bondholders waive their rights to bring claims that are common to all bondholders, and thus can be prosecuted by the trustee, unless they first comply with the procedures in the instrument constituting the bonds. As I said in Highberry Ltd v Colt Telecom Group plc [2002] EWHC 2503 (Ch) at [12], [2003] 1 BCLC 290 at [12], no-action clauses have even been the subject of discussion in the International Court of Justice (although not the subject of decision) in relation to insolvency proceedings brought directly by bondholders: see Re Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) (second phase) [1970] ICJ Rep 3 at 104–105 per Judge Sir Gerald Fitzmaurice QC.

[91] The purpose of the regime was to ensure that the class of bondholders all acted through the Trustee. That ensured that they all shared equally in the fortunes of the investment and that there was no competition between the bondholders. If an individual bondholder were free to pursue a claim based on a loss caused to the bondholders as a class, then either there was the potential for multiplicity of actions or for duplication of actions brought by the Trustee on the one hand and individual bondholders on the other. [Emphasis added.]

58. As explained in the above passage, in a typical structure of a global note with a “No Action Clause”, the trustee represents and protects the bondholders, who are treated as forming a class, and the bondholders rely on the trustee as the exclusive channel of enforcement because, in consenting to the “No Action Clause” by purchasing bonds, bondholders waive their rights to bring claims that are common to all bondholders, and thus can be prosecuted by the trustee. The purpose of the regime was to ensure that the class of bondholders all acted through the trustee, such that there was neither competition between the bondholders, nor the potential for multiplicity of actions or for duplication of actions brought by the trustee on the one hand and individual bondholders on the other.”

49.  Therefore, Ms Lok SC contends that there are commercial reasons why bond issuers would want to put in place such centralized holding structure with a single, centralized Bondholder in turn responsible for dealing with ultimate investors. She also relies on Goode & Gullifer, Legal Problems of Credit and Security (7^th Ed) §6-10 to suggest that the advantages include the issuer dealing with a relatively small number of parties, so as to reduce the volume and movement of paper involved and thus reduce the risk of loss / theft, and facilitating in-house transactions by simple book-entry transfers.

50.  With respect, the structure of the Bonds in the present case is a far cry from that of a global note examined in Re Leading Holdings Ltd (supra).

51.  Firstly, I accept Mr Yeon’s submissions that the global note structure is entirely different from the structure of the Bonds here:

(1) In a typical global note as examined in Re Leading Holdings Ltd (supra) at §§56-57, there are 2 types of clauses which are critical, namely the “No Action Clause” and the “Right to Payment Clause”. Both types of clauses provide that only a holder has a right to institute proceedings under the Indenture, and the investors rely on an intermediary trustee as exclusive channel. Yet, the Bond Instrument here contains neither the “No Action Clause” nor the “Right to Payment Clause”.

(2) The global note structure seeks to avoid multiplicity or duplicity of actions. There is only one Indenture governing the rights and obligations of all bondholders. Yet, in the present case, investors such as Yin and Wu were given different bond instruments, the value of their bond subscription is different, and the due dates are different. The question of alleged duplicity simply does not arise.

(3) In a typical global note, the direct interest of bondholders would only arise in the event of issuance of definitive notes or certificated notes in their favour. Yet, in the present case, there is no such mechanism of issuing definitive notes or certificated notes in favour of investors such as Yin and Wu.

(4) In a global note system, it is only if the trustee or intermediary defaults that definitive notes or certificated notes will be issued to enable individual bondholders to sue. This is not the case here. Nothing in the Bond Instrument suggests that FCSL is the exclusive channel of enforcement. Nor does the Bond Instrument operate on the “no look through” system.

(5) The typical features of a global note include intermediation and dematerialized security, under which investors only have indirect beneficial interest: Re Leading Holdings Ltd (supra) at §51. In contrast, the bondholders under the Bond Instrument are absolute owners: see e.g. Clause 4(E) of the Bond Instrument.

(6) The commercial sense of a typical global note does not apply here. FCSL does not function as a central depository. Nor do investors such as Yin and Wu trade in book-entry interests.

52.  Secondly, in a typical global note, there is only one registered holder and trustee. However, the documentation here points to the contrary:

(1) Recital (A) of the Placing Agreement provides that the Company proposes to issue bonds denominated in HKD in an aggregate principal amount not exceeding HK$500,000,000. Clause 1.1 further defines “Bondholders” as the holders of the Bonds and “Placees” as the subscribers of the Bonds to be procured by FCSL. Clause 2.7 provides that the Company agrees to issue the Bonds to the relevant Placees. Clause 4.1(c) further provides that the Company shall enter the names and details of the Placees in the register of bondholders. The clear intention is for the Bonds to be issued to multiple bondholders or placees.

(2) In a similar vein, Clause 1(A) of the Bond Instrument defines “Bondholder” as a person in whose name a Bond is registered in the register of Bondholders. Again, it envisages multiple rather than a single registered holder of bonds.

(3) All these provisions contemplate the issuance of multiple bonds in different denominations to multiple bondholders or placees, whose names are to be registered in the Register with multiple bondholders. For instance, the Bonds in respect of Yin are for the principal amount of HK$10,000,000, whereas the Bonds in respect of Wu are for the principal amount of HK$8,100,000. This is in turn reflected by the multiple entries of bonds and bondholders in the Register.

(4) Further, unlike a global note, there is no “trustee” provision at all.

53.  Thirdly, in a typical global note, only collective enforcement is envisaged, as stipulated by the “No Action Clause” and the “Right to Payment Clause”. However, quite apart from the complete absence of such clauses, the documentation here provides explicitly to the contrary that each bondholder shall be entitled severally to take enforcement action against the Company:

(1) Clause 7(F) of the Bond Instrument provides that “each Bondholder shall be entitled to enforce the obligations of the Company under the Bonds and the Conditions”.

(2) Clause 9(A) of the Bond Instrument provides that “the benefit of the covenants, obligations and conditions on the part of or binding upon [the Company] contained in this Instrument and the Conditions shall enure to each and every Bondholder”.

(3) Clause 9(B) of the Bond Instrument provides that “Each Bondholder shall be entitled severally to enforce the said covenants, obligations and conditions against the Company insofar as each such Bondholder’s holding of Bonds is concerned, without the need to join any other Bondholder in the proceedings for such enforcement”.

(4) Condition 10 of the Bond Instrument provides that “At any time after the Bonds have become due and repayable in accordance with Condition 8, any Bondholder may, at its discretion and without further notice, take such proceedings against the Company as it may think fit to enforce repayment of the Bonds and to enforce the provisions of the Instrument”.

54.  Ms Lok SC argues that it is immaterial that the Bonds do not exhibit the typical features of a global note, as there can be different forms of intermediary within a spectrum of the intermediated system. However, this overlooks the fact that the structure and the terms of the Bonds here go squarely against the notion of a centralized Bondholder. In particular, the fact that the Bond Instrument and the Conditions provide explicitly that each bondholder shall be entitled severally to take enforcement action against the Company, strongly militates against the Company’s case that all bonds are held by FCSL as a single, centralized Bondholder. Indeed, given these provisions which envisage enforcement by each bondholder severally (rather than collective enforcement), it begs the question as to why an intermediary is needed in the present case.

55.  For all these reasons, the Court is satisfied that Yin has locus standi to pursue her claims and petition for winding-up against the Company as the registered Bondholder of the Bonds. It follows that the Company is unable to demonstrate a bona fide dispute on substantial grounds.

D. Wu’s claim

56.  As mentioned at the outset, if Yin succeeds in her application, it is not strictly necessary to deal with Wu’s application. Nevertheless, for the sake of completeness, I will briefly deal with the merits of Wu’s claim here.

57.  As mentioned above, the Company has advanced two defences:

(1) The Enforcement Order grants leave for Wu to enforce the Award but does not itself confer locus on Wu to present a winding-up petition, which is not a method of enforcement; and

(2) The Company made the Setting Aside Application to the supervisory Hefei Court on 12 December 2024.

58.  On the first defence, the Company argues that the Wu Summons is based on the Enforcement Order but the presentation of a winding up petition is the exercise of a class right and does not constitute enforcement of either a judgment or an arbitral award (citing Re Sun Fung Timber Co Ltd [2021] HKCA 1660 at §25), and hence the Enforcement Order does not confer any locus on Wu to present a petition.

59.  In my view, there are no merits in the first defence.

(1) Section 84 of the Arbitration Ordinance (Cap. 609) (“AO”) provides that, “Subject to section 26(2), an award, whether made in or outside Hong Kong, in arbitral proceedings by an arbitral tribunal is enforceable in the same manner as a judgment of the Court that has the same effect, but only with the leave of the Court.”

(2) Section 92(1)(b) of the AO further provides that, “A Mainland award is, subject to this Division, enforceable in Hong Kong … (b) in the same manner as an award to which section 84 applies, and that section applies to a Mainland award accordingly as if a reference in that section to an award were a Mainland award.”

(3) The above is borne out by the terms of the Enforcement Order. Paragraph 1 thereof provides that, pursuant to sections 84 and 92 of the AO, Wu is granted leave to enforce the Award in the same manner as a judgment of the Court of First Instance that has the same effect.

(4) In the statutory demand issued by Wu on 24 July 2024 (produced to the Court during the hearing), the description of the debt is the “Judgment Debt” due to the Enforcement Order.

(5) In view of the foregoing, I agree with the submissions by Mr Ronald Pang (leading Ms Linda Cho) on behalf of Wu that the Enforcement Order has the effect of converting the Award into a judgment debt and Wu is petitioning for winding-up based on such judgment debt, which confers locus on Wu.

(6) I also agree that it is thus unnecessary for Wu to establish locus by reference to the Bonds or other subsequent contracts, as Wu is relying on a judgment debt arising from the Award.

(7) It is neither here nor there whether a winding-up petition constitutes enforcement of a judgment or an arbitral award. The point is that, by virtue of the Enforcement Order, Wu could seek recovery of the amount due under the Award in the same manner as a judgment of the Court of First Instance, i.e. as if it is a judgment debt, which confers locus on Wu.

60.  On the second defence, in the Setting Aside Application, the Company took inter alia points on: (1) failure by the Hefei Arbitration Commission to properly serve arbitration documents, and (2) the dispute resolution clause in the Alleged Repayment Agreement of 24 March 2022 (“Repayment Agreement”) being void under Mainland Chinese law for being a “both suit and arbitration” clause.

61.  In my view, there are little merits in such defence.

(1) The approach adopted by the bankruptcy court where debtor challenges judgment debt was explained by Yuen JA in Re Tam Mei Kam (unreported, CACV 87/2012, 8 May 2013) at §§22-27. These principles are equally applicable to winding-up cases: Re Sun Fung Timber Co Ltd (supra) at §33.

(2) Where the judgment debtor has lodged either an application to set aside the judgment or an appeal, the Court may stay the hearing of the petition to await the result of the application or appeal, but the Court may refuse to stay the petition and may proceed to make a bankruptcy order (or winding-up order) if the judgment debtor fails to satisfy the Court that he has a reasonable prospect of succeeding in the application to set aside or the appeal: Re Tam Mei Kam (supra) at §§25.1-25.2.

(3) The Court will consider the circumstances in which the judgment was obtained. At one end of the spectrum, the Court may decide to dismiss the petition even if a regular judgment had been obtained in default, e.g. if service of a writ had been effected on the judgment debtor’s previous address and he can clearly establish a substantial defence. At the other side of the spectrum is a petition based on a judgment obtained after a full trial on the merits. In the latter situation, the general principle is that the Court would inquire into such a judgment only if the judgment debtor can show fraud, collusion or miscarriage of justice: Re Tam Mei Kam (supra) at §26.2.

(4) As submitted by Mr Pang for Wu, although the Company did not take part in the arbitration proceedings, the Award is not a default judgment. To the contrary, the Award was obtained in a manner similar to a trial proceeding in the absence of a defendant. Therefore, it is closer to the side of the spectrum based on a judgment obtained after a full trial, rather than a default judgment.

(5) Even though the Enforcement Order was made on 6 June 2024, the Company did not apply to set it aside within 14 days upon receipt of the same. In the absence of such application, the Award is enforceable as a judgment debt.

(6) Whilst it is true that, as submitted by Ms Lok SC, there is no obligation on the Company to both set aside the Award (in the Hefei Court) and challenge the enforcement thereof (in the Hong Kong Court) due to the “choice of remedies” doctrine in the arbitration context (citing Astro Nusantara International BV v PT Ayunda Prima Mitra (2018) 21 HKCFAR 118 at §75), the fact remains that, for a period of over 6 months from 6 June 2024 to 12 December 2024, the Company neither applied to set aside the Enforcement Order in Hong Kong nor the Award in the Hefei Court. This is so notwithstanding the issuance of statutory demand by Wu on 24 July 2024. This casts doubts on the merits of the Company’s challenge, and tends to suggest that the Setting Aside Application was belatedly pursued as a tactical move to “defend” the Wu Summons. The fact that the Company proffers no explanation for such delay further reinforces the point.

(7) In relation to the first challenge on service, Mr Pang has submitted that the Company has not provided any explanation as to why the arbitration documents were signed upon delivery if, as alleged, they were not properly served. There is also force in Mr Pang’s submissions that the Company was able to receive the letter sent by Wu’s solicitors dated 13 June 2024 at the same address that the arbitration documents were served.

(8) As regards the second challenge on the arbitration clause in the Repayment Agreement, Mr Pang emphasised that it was drafted by the Company and executed for the Company’s own benefit. Importantly, the Company has not adduced any expert opinion on Mainland Chinese law to demonstrate a reasonable prospect of success.

(9) Despite the foregoing, the Company’s written submissions (at §§12-14 thereof) have not addressed the merits of the Company’s Setting Aside Application. Instead, the Company emphasises that the decision is not for the Hong Kong Court, the Setting Aside Application has already been heard, and the decision of the Hefei Court will be rendered soon. Whilst the Company’s written submissions also include an “Annex A”, it has only dealt with the merits of both challenges in a brief manner. On the whole, the Company has not provided sufficient assistance to enable the Hong Kong Court to appraise if the Company has a reasonable prospect of succeeding in the Setting Aside Application.

(10) On balance and having considered all factors, I would accede to the Wu Summons, and I am not minded to stay the Wu Summons.

(11) Alternatively, even if I were wrong, in view of the circumstances examined above, I would only be minded to grant an interim stay of the Wu Summons for a short period of say 3 months (with liberty to apply for further stay), and would also consider imposing conditions for the interim stay such as payment of part of the amount of the Award into Court.

(12) I should also mention that, in its written submissions, the Company only asks the Court to dismiss the Wu Summons. It has not made any submissions in the alternative that the Wu Summons be stayed pending the result of the Setting Aside Application. It is only during her oral submissions that Ms Lok SC has put forth such option for consideration by the Court.

62.  For all these reasons, the Court is satisfied that Wu has locus standi to pursue her claims and petition for winding-up against the Company based on the Enforcement Order and the Award. It follows that the Company is unable to demonstrate a bona fide dispute on substantial grounds.

E. Conclusion

63.  For the above reasons, I hold that the Company has not discharged the burden of showing that there are bona fide disputes on substantial grounds in respect of the debts of Yin and Wu.

64.  Since the Yin Summons was taken out first, I would accede to the Yin Summons.

65.  Further, since the Petition has not been advertised as prescribed, I order that the Petition be relisted for hearing before Master.

66.  As for costs, I order that the costs of and occasioned by the applications for substitution by Yin and Wu (including the costs of the hearing on 19 March 2025, with certificate for two Counsel) be paid by the Company to Yin, Wu and the Official Receiver, to be assessed by way of gross sum assessment on paper and be paid forthwith. I further direct that skeleton bills of costs be lodged by them within 7 days, and the Company be given leave to lodge a list of objections within 7 days thereafter. For the sake of completeness, whilst the issue of the DRA has become academic for the Yin Summons, I consider that Yin has not acted unreasonably and a just and fair order is for the Company to pay the costs of the Yin Summons overall.

67.  Last but not least, it remains for me to thank all Counsels for the helpful assistance given to the court.