RE PIONEER IRON AND STEEL GROUP CO LTD

HCCW 322/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 322 OF 2010

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D E C I S I O N

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Introduction

1.  Pioneer Iron and Steel Group Company Limited (“Company”) was incorporated in the British Virgin Islands (“BVI”) on 16 October 2003.  As its name suggests it traded iron and steel and was, prior to 2008, very successful.  The Company was able to declare a dividend of US$1,208,814,200 for its 2007 financial year.  The Company has one shareholder, Chen Ningning (“Ms Chen”).  She had been the Company’s sole director from 12 November 2003 until 20 December 2009.  Although relatively young, she is a well known businesswoman and is originally from the Mainland in which she is well connected.  I understand from her evidence that she resides in Hong Kong and that her office is here.

2.  Ms Chen says that as a result of the economic disruption caused by the financial crisis in 2008 the Company’s business declined very substantially leaving it with significant claims from a number of its suppliers.  On 8 June 2010 judgment was entered in London in favour of BHP BILLITON Marketing AG against the Company for US$37,655,884.50 plus interest of US$2,551,079.53.  On 25 June 2010, faced with the imminent prospect of a similarly substantial arbitration against in favour of Mount Gibson Mining Limited (“Mount Gibson Mining”), resolutions were passed by Ms Chen and Mr Wang, in their capacities as shareholder and director respectively, to place the Company into liquidation and for Roderick Sutton and William Tacon appointed liquidators (“BVI liquidators”).  Ms Chen acknowledges in her evidence that the voluntary liquidation was instigated on the basis of legal advice, which she was subsequently informed was wrong[1], to avoid an arbitration award in favour of Mount Gibson Mining.  The presently available information suggests that the Company has a deficit of US$521,316,128.  The Company has thus undergone an extreme change of fortunes in a relatively short period of time and owes its creditors very large sums.

3.  The BVI liquidators quickly formed the view that Ms Chen and Mr Wang were not cooperating in providing them with documents and information about the Company’s affairs and assets.  On 3 August 2010 they presented a Petition to this Court for the winding up of the Company in Hong Kong in order to be able to avail themselves of the investigatory powers of a Hong Kong liquidator.  Ms Chen lives in Hong Kong and has an office here and the Company had a bank account with Standard Chartered Bank in Hong Kong.  The BVI liquidators’ attempts to carry out their duties energetically seem to have come as an unwelcome surprise to Ms Chen.  On 3 September 2010, 6 creditors[2] with connections with Ms Chen indicated that they would oppose the Petition and on the following day Ms Chen filed an application to the BVI Court to terminate the liquidation.  The Petition came on before me on 6 September 2010 and I made directions for filing of evidence as to the background to the winding up and adjourned the Petition to 10 September 2010.  On 10 September 2010 I was informed by counsel for Ms Chen that she had filed an interim application for a stay of the liquidation in the BVI, which was to be heard before Mr Justice Bannister on 15 September 2010, pending determination of the application on 10 October 2010.  I adjourned the Petition pending determination of the interim application and gave leave for the Petition to be relisted before me on an urgent basis having indicated that if the BVI Court did not grant an interim stay I would probably wind up the Company.

4.  Ms Chen’s application for an interim stay in the BVI failed.  Bannister J indicated that the affairs of the Company cried out for investigation and that the presentation of the Petition in Hong Kong was clearly a proper course for the BVI liquidators to take.  He refused leave to appeal and applications by Ms Chen and the opposing creditors for a stay pending appeal.

5.  The Petition came on for a 3^rd time before me on 21 September 2010.  Given my previous indication my initial view was to order that the Company be wound up.  However, I was told by counsel for the opposing creditors that they had just filed a summons to strike out the Petition in Hong Kong and were themselves making various applications in the BVI including challenging the appointment of the BVI liquidators and their authority to instigate proceedings in Hong Kong.  It also transpired that Ms Chen had issued on 16 September 2010, but not served, a summons to strike out the Petition.  It was submitted that I could not properly wind up the Company until such time as the strike out applications had been heard.  I made it clear that I felt that to wait until the hearing of the Petition before informing the Petitioners and the Court of the strike-out applications smacked of an ambush and that I was unhappy with this tactic.

6.  Counsel for the opposing creditors then proposed that as an interim measure provisional liquidators could be appointed.  Counsel for Ms Chen told me that his client was “neutral” on this proposal.  My impression, as I have already stated in my judgment of 11 November 2010, is that the proposal was made to deflect the annoyance of the Court by giving the impression of cooperation but in the expectation that the provisional liquidators would be unable to achieve very much before either one of the applications being made in the BVI or Hong Kong proved to be successful and bring the liquidation to an end or at least remove the current liquidators.  The BVI liquidators, although initially unhappy at this compromise, accepted that faced with the strike out applications and evidence in support of it to which they needed to reply the Petition could not be determined immediately, agreed.  The BVI liquidators were appointed provisional liquidators and given, without objection by the opposing creditors or Ms Chen, extensive powers to investigate the affairs of the Company.

7.  On 11 November 2010 I ordered, for reasons explained in my decision of that date, that the strike out summons should be heard after the determination of what, at that time, was the contested BVI liquidation.  The opposition to the BVI liquidation by Ms Chen and the opposing creditors was subsequently withdrawn, but no steps were taken by the BVI liquidators or the opposing creditors or Ms Chen to restore either the Petition or the strike out applications.  This came to my attention in March 2012 and I ordered that the Petition be restored for hearing before me on 23 April 2012 in order that the inactivity could be explained.  As a consequence the Petition and the strike out applications were listed for hearing before me in January 2013, which was the first date all Parties’ counsel were available.  It is relevant that at the hearing on 23 April Counsel for the opposing creditors and Ms Chen mentioned a new ground for striking out the Petition, namely, that the BVI liquidators did not have locus to present the Petition as they did not come within section 179 of the Companies Ordinance.  Until that time the objection had been that the Petition did not satisfy the criteria by reference to which the Court assesses whether or not to exercise its discretionary jurisdiction under section 327 of the Companies Ordinance to wind up a foreign incorporated company, which is referred to in the Ordinance as an “unregistered company”: see section 326.

8.  On 21 May 2012 the BVI liquidators issued a summons to re‑amend the Petition[3]. The proposed re-amendments are to the 2^nd introductory paragraph to the Petition and read as follows:

“The Humble Petition of Pioneer Iron and Steel Group Company Limited (the “Company”) by its joint and several liquidators William Tacon of Zolfo Cooper, whose registered office is addressed at P O Box 4571, Palm Grove House, 2^nd Floor, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands, VG 1110, and Roderick John Sutton of FS Asia Advisory Limited (“FSAA”), whose registered office is at 14^th Floor, The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong (together, the “LiquidatorsPetitioners”), show as follows:-

1.  The Company Pioneer Iron & Steel Group Company Limited (the “Company’) was incorporated in the British Virgin Islands, under the British Virgin Islands International Business Companies Act, on 16 October 2003.”

Consequential re-amendments are proposed to the subsequent paragraphs of the Amended-Petition to change the references to “Petitioners” to “Liquidators”.  At the commencement of the hearing before me Mr Charles Manzoni SC, who appeared for the BVI liquidators, handed up an alternative draft, which he thought was more appropriate.  The 2^nd introductory paragraph of the Petition read as follows:

“The Humble Petition of William Tacon of Zolfo Cooper, whose registered office is addressed at P.O. Box 4571, Palm Grove House, 2^nd Floor, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands, VG 1110, and Roderick John Sutton of FS Asia Advisory Limited (“FSAA”), whose registered office is at 14^th Floor, The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong (together, the “Petitioners”), acting for and on behalf of Pioneer Iron & Steel Group Company Limited (the “Company”) show as follows:-

1.  Pioneer Iron & Steel Group Company Limited (the “Company”)The Company was incorporated in the British Virgin Islands, under the British Virgin Islands International Business Companies Act, on 16 October 2003.”

Consequential amendments to this revised draft were not necessary.

9.  On 21 December 2012 a further creditor, Clever Advance Limited (“CAL”)[4], issued a strike out application on the same grounds as the other opposing creditors with whom it is aligned.

The strike-out applications

10.  Ms Chen was represented at the hearing by Mr Winston Poon SC.  The opposing creditors were represented by Mr Wong Yan Lung SC. They challenge the Petition largely on the same grounds.  The grounds for applying to strike-out can be summarised as follows:

(1)  The BVI liquidators have no locus standi under section 179(1) of the Companies Ordinance.

(2)  The defect in locus standi cannot be cured by the proposed re-amendments of the Petition or by substitution of the Company for the current Petitioners under Rule 33 of the Companies (Winding-up) Rules.

(3)  The Petitioners have failed to demonstrate that there is sufficient connection between the Company and Hong Kong to justify the Court exercising its discretionary jurisdiction under section 327 of the Companies Ordinance to wind up the Company

(4)  Mr Wong also argued that if jurisdiction could not be demonstrated under section 327 there was no independent basis for asking the Court to proceed with an ancillary liquidation of the Company.

11.  I shall deal with these issues in the above order.

Locus

12.  Section 179(1) provides:

“(1) An application to the court for the winding up of a company shall be by petition, presented subject to the provisions of this section either by the company, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories or the trustee in bankruptcy or the personal representative of a contributory, or by all or any of those parties, together or separately: (Amended 6 of 1984 s 131)

Provided that‑

(a) a contributory shall not be entitled to present a winding-up petition unless‑

(i) the company has no members; or  (Replaced 28 of 2003 s 78)

(ii) the share in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least 6 months during the 18 months before the commencement of the winding up, or have devolved on him through the death of a former holder;”

13.  I accept, and I do not understand it to be in dispute, that this is an exhaustive list of those persons who may present a petition for the winding up of a company whether that company be incorporated in Hong Kong or an unregistered company[5]. The description of the Petitioners in the Petition, which I have quoted above is in my view not of a person who comes within section 179(1).  It seems to me quite clear that the Petition should, and could have been, issued naming “the Company (in liquidation)" as the Petitioner[6].

14.  Mr Poon argued[7] that this must have been a conscious, albeit erroneous, decision for the following reasons.  First, on the final page of the Petition it is stated that it is proposed to serve the Petition on the Company, which would not have been necessary if it was thought by the drafter that the Petitioner was the Company or its agent.  Secondly, the body of the Petition talks in terms of the purpose of the Petition being to assist the BVI liquidators obtain information about the Company’s affairs, see for example paragraph 19, not the Company seeking an order that it be wound up in Hong Kong in order that its assets can be collected in and distributed to creditors.  Thirdly, this is repeated in the evidence filed by Mr Sutton including his 8^th affidavit filed after the BVI liquidators were notified of the locus point in which he states in paragraph 12 “…Mr Tacon and I presented the Amended Petition in our capacity as liquidators of the Company, on behalf of the Company…”.  Fourthly, in counsel’s submissions filed at the hearing of the Petition on 23 April 2012 and after the locus issue had been raised it says this:

“(2) S 327, Cap 32 does not place any express limitation on who may present winding up proceedings of unregistered companies; and

(3) The Courts will have regard to the comity of nations whereby it is desirable that the court should assist the liquidator in another jurisdiction to carry out his duties.  The liquidator in foreign proceedings thus does have locus to present a petition in Hong Kong. (Re Irish Shipping Ltd [1985] HKLR 437 at 445F-G).”

This, submitted Mr Poon, is not an acceptance that a mistake was made in the drafting of the Petition, but rather suggests that persons described as the Petitioners do have locus.

15.  Mr Manzoni argued that it cannot possibly have been Clifford Chance’s intention in drafting the Petition that the Petitioners were the BVI liquidators rather than the Company by its liquidators.  It must, he said, always have been understood by all involved what was intended otherwise it would not have taken almost 2 years for one of the many experienced counsel who have been involved in this case on behalf of Ms Chen and the opposing creditors to have taken the point.  Whilst there is an immediate common sense force to this point it is rather damaged by the way in which the BVI liquidators’ own lawyers initially responded when the issue was first raised.  When it was drawn to Clifford Chance’s attention that the persons identified as the Petitioners in the Petition did not have locus I would have expected them, if they had intended the Company to be the Petitioner rather than liquidators, to have appreciated that a mistake had been made been made and responded that they had intended, of course, that the Company, acting through its liquidators, was the Petitioner.  They did not.  Instead, as I have already mentioned, in the skeleton filed on behalf of the BVI liquidators for the hearing before me on 23 April 2012 it is expressly asserted in paragraph 9 that the liquidators had locus to present the Petition.

16.  On 21 May 2012 the BVI liquidators’ stance changed.  A summons was issued for leave to re-amend the Petition in the form I have quoted in paragraph 8 above.  These proposed re-amendments sought to change the identity of the Petitioner.  Mr Manzoni’s proposed alternative re-amendment does not do so.  Whilst the first proposed re‑amendment would, if allowed, cure the locus problem by making the Company (which has locus under section 179) the Petitioner, it does not seem to me that Mr Manzoni’s revised version does do so.  Rather in an attempt to avoid explicitly conceding that a mistake was made in the original version of the Petition it continues to cast doubt on whom at the outset was intended to be the Petitioner.  The relevance of this is as follows.  If, as in my view is the case, the BVI liquidators did not have locus to present the Petition in order for the Petition to be saved a person who does have locus has by some means to be introduced.  This cannot be done by substitution under Rule 33 of the Companies (Winding‑up) Rules as this only provides for substitution of a creditor or contributory.  Mr Manzoni argued that such mistake as may have been made came within Rule 209 of the Companies (Winding-up) Rules:

“209. Formal defect not to invalidate proceedings

(1) No proceedings under the Ordinance or the rules shall be invalidated by any formal defect or by any irregularity, unless the court is of opinion that substantial injustice has been caused by the defect or irregularity, and that the injustice cannot be remedied by any order of the court. (L.N. 235 of 1996)

(2) No defect or irregularity in the appointment or election of an Official Receiver, liquidator, or member of a committee of inspection shall vitiate any act done by him in good faith.”

The Companies (Winding-up) Rules do not themselves deal with amendment to a Petition to remedy a formal defect or irregularity but this can be done, argued Mr Manzoni, under the provisions of the Rules of the High Court, namely, O20 rr5, 7 and 8 and O15 r6.

17.  It seems to me that whether or not this is correct depends on, amongst other things, the nature of the mistake, which it is sought to remedy by the re-amendment and whether it can be properly be characterised as a formal defect or irregularity.  In order to understand how these terms are to be understood in the present context it is necessary to consider in some detail the provisions of the Companies (Winding‑up) Rules and the Rules of the High Court, which deal with amendments to originating process.

18.  RHC O1 r2(2) provides that the Rules of the High Court do not apply to winding-up proceedings.  The procedural regime governing winding-up proceedings is to be found in the Companies Ordinance and the Companies (Winding-up) Rules.  A qualification to this general rule is to be found in the Companies (Winding-up) Rule 210:

“210. Application of existing procedure

 In all proceedings in or before the court, or any Registrar or officer thereof, or over which the court has jurisdiction under the Ordinance and rules, where no other provision is made by the Ordinance or rules, the practice, procedure and regulations shall, unless the court otherwise in any special case directs, be in accordance with the rules and practice of the court.”

Mr Poon argues that Rule 210 does not justify applying the Rules of the High Court in the present case, because the Companies (Winding‑up) Rules provide a procedure for dealing with cases in which a petitioner is not entitled to present a petition, namely, Rule 33.  He referred me to the judgment of Fuad JA in Re Perak Pioneer Ltd[8] in which he held in paragraphs 21 and 22:

“21. I now turn to consider r.33 of the Companies (Winding-up) Rules ("the Rules"), the terms of which my Lord Kempster, J.A. has just read.

22. In my view that rule is intended to be a complete statement as to the circumstances in which the substitution of a petitioner can be ordered so that there is no need to resort to the R.S.C., via r.210 of the Rules. Unlike the position in actions, there is no necessity for provision to allow a person to be added as a petitioner, for his presence will not be necessary to enable the questions at issue to be determined. The original petitioner will be enough, and anyone who wishes to support the petition may do so if he follows the prescribed procedure, without the necessity of becoming a co-petitioner.”

19.  Thus, says Mr Poon, the circumstances in which a new petitioner can be introduced because the original petitioner did not have locus are limited to the circumstances and parties referred to in Rule 33.  As the Company is not a party, which can be substituted pursuant to Rule 33 the lack of locus cannot be resolved by the BVI liquidators in these proceedings.  I accept that the Company cannot be substituted pursuant to Rule 33, but it does not follow that if the need to make the Company the Petitioner arises as a result of, to use the language of Rule 209, a technical defect or irregularity, such defect or irregularity cannot be resolved unless Rule 33 is applicable.  Rather it seems to me that in these circumstances reference should be made to the Rules of the High Court to see if those Rules provide a means to remedy the defect or irregularity.

20.  RHC O20 r5(1)[9] provides that subject to O15 r6, 7 and 8 a petition may be amended.  Rule 5(3) allows an amendment to correct the name of a party notwithstanding that it is alleged the effect will be to substitute a new party “if the Court is satisfied that the mistake sought to be corrected was a genuine mistake …”.  Rule 5(4) allows an amendment to be made under Rule 5(2) to alter the capacity in which a party sues if he had that capacity at the time proceedings were commenced.  Order 15 r6 deals with misjoinder and nonjoinder of parties.  The rule allows, amongst other things, a party to apply to be joined as a party on the grounds that he should have been a party and whose presence before the Court is necessary in order that matter before the Court may be completely determined.

21.  The BVI liquidators argue that these Rules give the Court power to order the amendment of the Petition to introduce the Company as the Petitioner if it is necessary.  Mr Poon disputed this.  He accepted that Rule 209 can be used to correct formal defects such as an inaccuracy in the description of a company’s name[10]. I did not understand him to dispute that O20 r5(2) and(4) allowed a change in the capacity in which a party sued, for example, where a plaintiff has erroneously been identified as a firm as opposed to a sole proprietor[11].  However, he argued that the mistake that had been made was not a formal defect.  The wrong party had been chosen as the Petitioner and for that reason an application to amend could not properly be characterised an application to change the capacity in which the Petitioner presented the Petition, because the BVI liquidators themselves do not come within section 179 and adding the words “on behalf of the Company” after their names does not alter the position. 

22.  The correct approach to determining whether or not a mistake has been made that is remediable under O20 r5 is considered in International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corp of India[12]. Evan LJ explains at page 1026b:

“These authorities have established that a distinction must be made, in accordance with the wording of the rule, between ‘the identity of the person intending to sue’ and the name of that party. A mistake as to the latter can be corrected, but as to the former not. In The Sardinia Sulcis and Al Tawwab [1991] l Lloyd’s Rep 201 at 207 Lloyd LJ, with whom Stocker LJ (at 209) expressly agreed, suggested that the test is , ‘can the intending plaintiff or defendant be identified by reference to a description which is specific to the particular case – e g landlord, employer, owners or shipowners?’ If the answer is Yes, then an amendment can be allowed even where the correction ‘involves substituting a different name altogether, and the name of a separate legal entity’ even though this may be equivalent to substituting a new party.

It was also established in The Aiolos that, as the judge put it, ‘Where there is no mistake either as to the name of the plaintiff or as to the identity of the party intending to sue but only an error as to the rights of the correctly identified party’, the rule does not apply (citing Oliver LJ in that case ([1983] 2 Lloyd’s Rep 25 at 30)). Then, having referred to the evidence, the judge concluded:

‘In the present case it has not been established to my satisfaction that the intention of either Mr Kruger or Mr Pople [the trustee’s English solicitor] was to sue in the name of the bankruptcy estate of Himoff.  It is true that their intention was to sue for the benefit of that estate but that is an entirely different matter.  To sue for the benefit of the Himoff estate, it was still necessary to decide who were the proper parties to sue to enforce the awards.  The decision was taken to sue in the names of the disponent owners, contracting parties and parties to the awards.  As those parties were correctly named, I cannot find that Mr Kruger and Mr Pople intended to sue in any other names.  No doubt had Mr Kruger and Mr Pople known that IBSSL and Himoff had ceased to exist, then some other decision would have been taken.  But, whatever that decision would have been, it would have been a decision as to the proper party or parties to sue to enforce the awards and not a case where A was named instead of B as plaintiff to the actions.’ ”

23.  It is not disputed that the BVI liquidators issued the Petition in order to advance the liquidation of the Company and the interests of its creditors.  What is being said, to paraphrase from the above quote from the judgment of Judge Diamond QC, is that it was still necessary for the BVI liquidators, or probably in practice their legal advisers, to decide who was the proper party to issue the Petition.  They decided that it should be Mr Tacon and Mr Sutton and they were correctly named.  This was a mistake, which cannot be remedied under O20 r5(3).  I agree.  I also accept that the mistake cannot be remedied under r5(4) because the proposed re-amendment (in its original form, not that proposed by Mr Manzoni, which in my view does not address the problem) is not to change the capacity in which the person identified as the petitioner brings the proceedings, it is to change the identity of the Petitioner.

24.  There remains the application under O15 r6, the relevant parts of which provide:

“6. Misjoinder and nonjoinder of parties (O. 15, r. 6)

(1)  No cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party; and the Court may in any cause or matter determine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties to the cause or matter. (L.N. 167 of 1994)

(2)  Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application-

       …

(b)  order any of the following persons to be added as a party, namely-

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

25.  Mr Manzoni argued that if the Court takes the view, as I do, that the wrong person was made the Petitioner this Rule allows the Court to remedy the problem and substitute the Company for the BVI liquidators.  There are, however, two difficulties with this argument.  First, the decision of Fuad JA in Re Perak Pioneer Ltd states that insofar as substitution of a petitioner is concerned, and it is substitution rather than addition that we are here concerned with, Rule 33 of the Companies (Winding- up) Rules provides “a complete statement of the circumstances in which the substitution of a petitioner can be ordered so that there is no need to resort to the RSC, via r210 of the Rules”.  Rule 33 expressly applies to circumstances in which a petitioner is not entitled to present a petition.  Accepting that Fuad JA’s judgment is correct, as I do, it follows that the BVI liquidators’ application to substitute the Company falls to be determined solely by reference to Rule 33.  As I have explained above Rule 33 only allows substitution by a creditor and contributory in circumstances in which a petitioner is not entitled to present a petition.  Secondly, the Petition will not be defeated by a finding that the Petitioners’ did not have locus to present it and a dismissal of the application to amend.  On 28 January 2013, Mount Gibson Mining, issued a summons to be substituted for the Petitioner.  The intention is that in the event that I find that the Petitioners did not have locus to present the Petition (as I do), dismiss the application to amend (as I do) but find that but for the lack of locus the Court should exercise its power to wind up the Company in Hong Kong, the summons will be brought on and Mount Gibson substituted for the Petitioner. 

26.  I, therefore, turn to the issue of jurisdiction.

Jurisdiction

27.  Section 327(1) and (3) give the Court a discretionary jurisdiction to wind up an unregistered company.  As I explain in my judgment in Re Yung Kee Holdings Ltd[13]this jurisdiction is exercised if the following three core requirements are satisfied:

(1)  There is sufficient connection with Hong Kong. In the context of insolvency there is commonly the presence of assets, but this is not essential;

(2)  There is a reasonable possibility that the winding-up order would benefit those applying for it; and

(3)  The Court must be able to exercise jurisdiction over one or more persons interested in the distribution of the company’s assets[14].

28.  The significance of each requirement will vary from case to case.  An exceptional case may arise in which the connection with Hong Kong is so strong and the benefits of a winding-up order for the creditors of a company so substantial that the Court will be willing to exercise its jurisdiction despite the third criteria not being satisfied, but that is not a matter of principle that I need to decide here.

29.  Understanding how these requirements are to be applied involves understanding the legal framework within which the Court’s discretionary jurisdiction under section 327 arises.  As a general principle the domiciliary law of a company, namely that of its State of incorporation, governs its status[15] and would be the appropriate law and system under which to liquidate a foreign company.  Section 327 provides a statutory exception to this principle.  As Morritt LJ observes in paragraph 22 of his judgment in Stocznia Gdanska SA v Latreefers Inc (No 2) [2001] 2 BCLC 116 this jurisdiction is “exorbitant” and the connection relied on by a petitioner must be “sufficient to justify the court setting in motion its winding-up procedures over a body which prima facie is beyond the limits of territoriality”.  A petition to wind up an unregistered company if successful engages the same statutory regime for winding up as that which applies to a Hong Kong incorporated company.  The Companies Ordinance contains no qualification or limitation to the application of that regime in the case of an unregistered company.  As in the present case an unregistered company can be ordered to be wound up by a court in its State of incorporation and, potentially, Hong Kong.  This can lead to possible conflicts between two different insolvency regimes.  Lord Hoffman explains in Re HIH Casualty and General Insurance Ltd[16], how the English courts deal with this problem:

“6. Despite the absence of statutory provision, some degree of international co-operation in corporate insolvency had been achieved by judicial practice. This was based upon what English judges have for many years regarded as a general principle of private international law, namely that bankruptcy (whether personal or corporate) should be unitary and universal. There should be a unitary bankruptcy proceeding in the court of the bankrupt's domicile which receives worldwide recognition and it should apply universally to all the bankrupt's assets.

7. This was very much a principle rather than a rule. It is heavily qualified by exceptions on pragmatic grounds; elsewhere I have described it as an aspiration: see Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plc [2006] UKPC 26 at [17], [2007] 3 All ER 829 at [17], [2007] 1 AC 508, 517, para 17. Professor Jay Westbrook, a distinguished American writer on international insolvency has called it a principle of 'modified universalism': see also Fletcher, Insolvency in Private International Law, 2^nd ed (2005), pp 15–17. Full universalism can be attained only by international treaty. Nevertheless, even in its modified and pragmatic form, the principle is a potent one.

8. In the late 19^th century there developed a judicial practice, based upon the principle of universalism, by which the English winding up of a foreign company was treated as ancillary to a winding up by the court of its domicile. There is no doubt that an English court has jurisdiction to wind up such a company if it has assets here or some other sufficient connection with this country: In re Drax Holdings Ltd [2004] 1 WLR 1049. And in theory, such an order operates universally, applies to all the foreign company's assets and brings into play the full panoply of powers and duties under the Insolvency Act 1986 like any other winding up order: see Millett J in Re International Tin Council [1987] Ch 419, 447: 'The statutory trusts extend to [foreign] assets, and so does the statutory obligation to collect and realise them and to deal with their proceeds in accordance with the statutory scheme.'

9. But the judicial practice which developed in such a case was to limit the powers and duties of the liquidator to collecting the English assets and settling a list of the creditors who sent in proofs. The court, so to speak, 'disapplied' the statutory trusts and duties in relation to the foreign assets of foreign companies. This practice was based partly upon the pragmatic consideration that any foreign country which applied our own rules of private international law would not recognise the title of an English ancillary liquidator to the company's assets. But it was also based upon the principle of universalism. In Re Matheson Brothers Ltd (1884) 27 Ch D 225 Kay J appointed a provisional liquidator, as in this case, to protect the English assets of a New Zealand company which was being wound up in New Zealand. He said, at pp 230 and 231:

‘What is the effect of the winding up order which it is said has been made in New Zealand? This court upon principles of international comity, would no doubt have great regard to that winding up order and would be influenced thereby’ - but there was nevertheless jurisdiction to make a winding up order, and therefore to appoint a provisional liquidator, to protect the English assets.

‘I consider that I am justified in taking steps to secure the English assets until I see that proceedings are taken in the New Zealand liquidation to make the English assets available for the English creditors pari passu with the creditors in New Zealand.’

….

14.     In my opinion there is force in both of these reasons but the judge carried them too far. There is no doubt that, at least until the passing of section 426, an English court and an English liquidator had no option but to apply English law to whatever they actually did in the course of an ancillary winding up. As Wynn-Parry J said of an ancillary winding up in Re Suidair International Airways Ltd [1951] Ch 165, 173: ‘this court sits to administer the assets of the South African company which are within its jurisdiction, and for that purpose administers, and administers only, the relevant English law …’ ”

30.  We have no equivalent of section 426(4) of the Insolvency Act 1986 in Hong Kong.  The position in Hong Kong is that a liquidator appointed pursuant to the Companies Ordinance to wind up an insolvent unregistered company is required, whatever the practical position may be, to collect in its assets in Hong Kong and overseas and settle a list of creditors worldwide who submit proofs of debt in accordance with Hong Kong law[17].  If an unregistered company is already in liquidation in its State of incorporation, a liquidation in Hong Kong will generally be treated as ancillary to it in the sense that the functions of the liquidator would be framed by Court order to provide that he is to collect in the Hong Kong assets, to settle a list of Hong Kong creditors and to transmit the assets and the list to the principal liquidators to enable a dividend to be declared and paid.  Mr Wong submitted that a petition to wind up an unregistered company is an application to put in motion this process and that whether or not sufficient connection to Hong Kong has been demonstrated involves the Court asking whether it has been established that it is worthwhile setting in motion this process.  I accept that in considering whether or not to exercise its discretionary jurisdiction to wind up an unregistered company the Court should be satisfied that setting in motion this process is justified and that the consequences of making a winding-up order informs a consideration of whether or not sufficient connection with Hong Kong had been demonstrated. With this framework in mind I turn to consider whether the core requirements referred to above have been satisfied.

31.  Mr Poon submitted that in assessing whether sufficient connection has been demonstrated regard can only be had to the matters stated in the Petition.  An order will not be made if a sufficient case is not stated on the petition, even if such a case is proved in evidence[18].  If a petitioner wishes to rely on matters not stated in his petition he must first amend his petition[19]. I accept that these are correct statements of principle and they were not disputed by Mr Manzoni.  The grounds on which sufficient connection is asserted are contained in paragraph 22 of the Petition:

“22. In the circumstances there is a sufficient nexus with Hong Kong for the Hong Kong court to exercise its discretion to wind up the Company as follows:

a. There are assets of the Company in Hong Kong. The Petitioners also have reason to believe that the Company has offices at Rooms 606, 3405 and 3508, Tower 2, Lippo Centre, 89 Queensway, Admiralty, Hong Kong. These offices are the registered address of one of the Company’s Hong Kong subsidiaries, Pioneer Metals Resources Company Limited.

b. There are clear indications that a winding-up order against the Company in Hong Kong will be of benefit to the Petitioners in carrying out their duties as Liquidators of the Company, which will in turn be of benefit to all creditors of the Company, whether local or foreign.

c.  There is at least one creditor of the Company situate within Hong Kong, namely Standard Chartered Bank.”

32.  The assets referred to are detailed in paragraph 17(a) to (c) of the Petition:

“(a) two motor vehicles (both Nissan Elgrande manufactured in 2007) registered in Hong Kong with a total estimated realisable value of HKD 600,000;

(b) cash in the sum of HKD 8,000 kept in a bank account with the Hongkong and Shanghai Banking Corporation (Hong Kong branch);

(c) a bank account with Standard Chartered Bank (Hong Kong branch)(balance currently unknown);”

33.  As a result of the delay in the Petition being brought on for hearing and the appointment of provisional liquidators the position is not as it was at the time the Petition was presented.  The provisional liquidators have taken control of the assets referred to and, in the case of the cars, realised them.  Standard Chartered Bank has abandoned its claim apparently because of an arrangement made between it and Ms Chen.  It does not seem to me that this of itself is necessarily fatal to the Petition although it has a bearing on how the Court should now exercise its discretion.

34.  I did not understand Mr Poon or Mr Wong to dispute the accuracy of the facts asserted in paragraph 17(a) to (c) at the time the Petition was presented.  What they argue is that they do not demonstrate sufficient connection with Hong Kong.  They submit that the value of assets that have been identified are so small that they do not justify putting in motion the costly process of liquidation to realise them.  The other assets referred to in paragraphs 17 and 18 of the Petition are not assets in Hong Kong and are not, therefore, relevant.  Mr Sutton refers in paragraph 11 of his 9^th affidavit to further interests in Hong Kong, which are not referred to in the Petition, but putting to one side that difficulty, Mr Poon submits that in the case of two of the companies these are indirect interests and therefore do not constitute assets in Hong Kong, which I accept[20].  In the case of the third, Pioneer Metals Company Limited, Mr Sutton explains that a beneficial interest in the company “as the result of a series of share transfers which took place between August 2008 and May 2010 appears to have been transferred to Chen and her mother for nil consideration – transactions which clearly require investigation”.  Mr Poon argued that this may suggest a matter that needs, viewed from the perspective of the BVI liquidators, further investigation, but it does not demonstrate the presence of an asset in Hong Kong.  I agree.

35.  I accept that if the matter relied on by the Petitioners was the presence of assets in Hong Kong alone a sufficient connection would not have been demonstrated, but they are not.  Paragraph 13 of the Petition states that Ms Chen “is a well known public figure both in Hong and China, and considered to be the key person in respect of the operations of the Company”.  Paragraph 22(a) of the Petition states that the Company has offices in Hong Kong in the Lippo Centre.  In their submissions the Petitioners develop these simple assertions into the following argument on connection:

(1)   Ms Chen, the sole shareholder and key director of the Company from 2003 to 2009, is resident in Hong Kong.  She had an office in Lippo Centre.  She is a central figure to the Company, and her roots in Hong Kong are well-established.  This is not disputed in her evidence.

(2)   As far as the provisional liquidators have been able to ascertain, the Company did, in fact operate from Lippo Centre offices.

(3)   The Company’s books and records have proven elusive, but to the best of the provisional liquidators’ knowledge, at least some of these were retained in Hong Kong prior to being removed.

(4)   At least two former employees (allegedly not always directly of the Company, but of Ms Chen or companies associated with Chen) were held out as representing the Company – namely, Ms Fiona Li, the General Counsel of the “Pioneer Group” (of which the Company was the primary holding entity), and Ms Angie Ng.  Ms Li previously met with the provisional liquidators in Hong Kong in order to inform them of the status of inter alia the proposed liquidation and the details of various creditors and their claims against the Company.

(5)   The Company’s former auditors, Messrs Deloitte Touche Tomatsu, were engaged in Hong Kong for 2005 to 2007.  They were able to provide information regarding various Hong Kong bank accounts.

(6)   Hong Kong solicitors firms had previously been retained by the Company in Hong Kong to conduct litigation.

(7)   Standard Chartered Bank has provided statements and other documents demonstrating that there was a lot of activity in the Hong Kong bank accounts prior to the Company’s liquidation.

(8)   Tricor Hong Kong previously provided corporate secretarial services to the Company. The provisional liquidators successfully sought a section 221 order against Tricor Hong Kong and obtained a large number of documents pertaining to the Company’s affairs.

36.  Mr Poon argued that it is not correct that the Company had an office or place of business in Hong Kong.  It is Ms Chen’s evidence that the Company operated from an office in Beijing and that Mr Wang, who replaced her as a director on 20 December 2009, assisted her prior to that date in running the Company.  At all times he was resident in Beijing.  The offices in the Lippo Centre were the offices of Pioneer Metals Resources Company Ltd, which ceased operations by at least August 2010.  However, prior to 20 December 2009, by which time the Company was experiencing the financial problems that eventuality led to its insolvency, Ms Chen was not only its sole shareholder, but also its sole director.  Prior to the global economic problems of 2008 and 2009 the Company was active and profitable.  Ms Chen lived in Hong Kong.  She had through companies she owned and controlled an office in Hong Kong, which had staff, which it is reasonable to assume assisted her with her business interests.  Ms Chen does not suggest in her evidence that she had any other significant business interests other than the Company and other companies in which it either had an interest, direct or otherwise, or which carried out associated business activities.  As I mentioned at the beginning of this judgment the Company’s operations were sufficiently large and profitable that it was able to declare a dividend of US$1,208,814,200 for its 2007 financial year.  The only sensible inference that can be drawn is that Ms Chen made major business decisions concerning the Company’s affairs from her base in Hong Kong; probably at the office in the Lippo Centre or her house in Deep Water Bay Road.

37.  Mr Poon submitted that even if this is so such matters are not capable of constituting sufficient connection and referred me to paragraphs 47 to 57 of Yung Kee Holdings supra.  The issue discussed in those passages concerned a different issue, namely, whether or not the company had established a place of business in Hong Kong.  It does not follow that because a company has not established a place of business here that it does not have a substantial connection with Hong Kong.  The considerations are different as illustrated by paragraphs 24 to 42 of the judgment. 

38.  In my view the fact that the controlling mind of a commercially active company, which as is clear from the judgment Yung Kee Holdings was not, is based in Hong Kong and makes business decisions here about the company constitutes a substantial, and relevant for the purposes of section 326, connection with Hong Kong.  The fact that the Company carried out some of its activities in Beijing does not dilute the substance of that connection.  In my view the Company did have a substantial connection with Hong Kong.

39.  The second core requirement is that a winding-up order will benefit those applying for it.  Mr Poon takes a preliminary point that if the Court finds, as I have, that the Petitioners do not have locus to present the Petition it must follow that this requirement cannot be satisfied.  This, however, is an unusual case.  The lack of locus arises from a mistake by the drafter of the Petition.  The Petition could quite properly have been issued by the Company and the same grounds advanced for satisfying the second requirement, namely, that it will be to the benefit of the Company in liquidating itself and the creditors who will benefit from a properly conducted investigation of its affairs; which is in substance what paragraph 22(b) of the Amended Petition says.  Mount Gibson would no doubt argue, if it were the Petitioner, the same thing.  The material question is whether or not there are any further benefits to be gained from a winding-up order.  Mr Poon argues that there is not for the following reasons:

(1) The liquidation has since 25 June 2010 been conducted in the BVI.  All creditors have duly lodged their claims in the BVI liquidation, and creditors’ meetings were conducted in that liquidation via teleconferences.  The Petitioners have not been able to identify any matters which cannot be administered in the BVI liquidation or otherwise need to be administered in Hong Kong.

(2) Other than the nominal assets already realised, the Petitioners have not been able to identify any significant assets within the jurisdiction.

(3) Even if (which is not accepted) the Petitioners have identified some basis for suggesting that the Company has certain causes of action against Ms Chen or her companies, such causes of action can be pursued without the need for a winding-up order in Hong Kong at all.

(4) The Petitioners rely on the need to conduct private examinations against various individuals identified in paragraph 19 of Amended Petition.  However, Ms Chen has already been examined for 5 days in July 2012. 

(5) If a winding-up order were made against the Company in Hong Kong, considerable additional expenses would be incurred by the Company, all of which would be payable out of the assets of the Company and in priority to the claims of the creditors pursuant to rule 179 of the Companies (Winding-up) Rules  First, all the assets realised and brought to credit, irrespective of their location, will be subject to at least the following fees which are mandatory and payable by the Company to the Official Receiver.  This effectively depletes the assets available for distribution to a large extent:

(a) the ad valorem fee prescribed in Companies (Fees and Percentages) Order (Cap 32C) (“CFPO”), Schedule 3, Table B, Item 1 which are payable on all assets realised and brought to credit by a liquidator at the rate from 10% (on the first $500,000) to 1% (on the amount in excess of $50 million); and

(b) the release fee at 0.5% of the gross amount of assets realised and brought to credit under Schedule 2 to CFPO, Item 2: Stocznia Gdanska SA v Latreefers Inc (No 2), supra at 122d-e.

(6) The Company will have to comply with all the provisions applicable to winding up under the Companies Ordinance, for example, submission of reports (section 191); audit of liquidator’s accounts (section 203); repeating procedures already undertaken in the BVI, such as convening and holding creditors’ meetings (section 194), appointment of liquidators (section 195), appointment of committee of inspection (section 206), and calling for proofs of debts, all these at considerable expenses but with no benefit to the creditors.

40.  I accept that these are all reason why a winding-up order should not be made unless the Court is satisfied that the benefits to be obtained from winding up the Company outweigh these additional costs; and I note that Mr Manzoni did not dispute that the duplication and additional costs identified by Mr Poon would probably be caused.  This is an unusual case because if the Petition had come on earlier as it should have done, it would have been clearer that there were investigations that needed to be undertaken.  As it is there remains the examination of Ms Chen to be completed.  It commenced before a Master and lasted 5 days, but I was persuaded to extend the length of the examination and have it take place before me because I was satisfied Ms Chen was not being sufficiently cooperative and there remained matters on which to examine her.  Apart from this the Petitioners are only able to point to the possibility that they may be able to bring claims for fraudulent trading or unfair preferences against her, although Mr Manzoni did not identify any particular transactions in respect of which it was anticipated this would occur. 

41.  It seems to me that if the Petition had come on for hearing within a normal time frame it would have been clear that there was a benefit to be obtained by granting a winding-up order, namely, the investigation through the use of the procedures provided for in the Companies Ordinance, such as examinations under section 221, of the affairs of the Company and in particular transfers through which it was divested of its beneficial interests in apparently valuable assets.  The fact that the force of this argument is diluted as a result of the delay in bringing on the Petition and the unusual fact that the Provisional Liquidators have been able to use those procedures to a considerable degree already is not a reason to refuse an order that might otherwise have been made if some of the procedures are not yet completed.  I am satisfied that it is in the interests of the liquidation that the examination of Ms Chen is completed and liquidators have the opportunity to consider whether any action should be taken pursuant to the Companies Ordinance for remedies that might not otherwise be available to the Company.

42.  As for the third core requirement, Mr Poon submitted that the persons interested in the Company’s assets, namely the creditors whose claims have been admitted by the Petitioners, are all outside the jurisdiction:

(1)   The opposing creditors who have appeared in these proceedings are all BVI companies. 

(2)   Standard Chartered Bank has since at least 8 October 2010 withdrawn its claim and ceased to be a creditor.

(3)   The other creditors, namely, BHP Billiton Marketing AG, Mount Gibson and Azure Parcel Lines Corporation, which the Petitioners regard as independent creditors, are all outside the jurisdiction.  Of these creditors only Mount Gibson has entered an appearance, or indicated their support to the Amended Petition.

(4)   The other independent creditor mentioned by the Petitioners, Sojitz (Tianjin) Co Ltd (“Sojitz”), cannot be regarded as a creditor at all, as it was a debtor of the Company against which the Company has a claim for US$5 million.  Even if Sojitz has a valid counterclaim for US$250,277.35 against the Company, the amount claimed is fully secured by escrow money held by DLA Piper.

(5)   Although Ms Chen has lodged a claim of approximately US$25,000,000 in the Company’s liquidation in the BVI, to-date, the Petitioners have notadmitted or rejected her claim.

43.  The Petitioners dispute this.  Mr Sutton says in his evidence that there are 6 local creditors with claims totaling US$50,600,000 including Ms Chen.  Mr Sutton has included Mount Gibson on, I assume, the basis that having registered its arbitration award in Hong Kong it has submitted to the jurisdiction and is, therefore, capable technically of satisfying the third core requirement.  Although Mount Gibson’s position was not addressed before me, I have reservations about the submission that by registering an arbitration award here a creditor becomes a person over whom the Court can exercise jurisdiction in the distribution of a company’s assets.  As I have already discussed above once a winding‑up order is made in Hong Kong against an unregistered company its liquidator should, absent direction from the court, proceed to liquidate its assets for the benefit of all its creditors wherever located.  In this sense any creditor of a company becomes subject to the jurisdiction of the Hong Kong Courts in relation to the distribution of a company’s assets, and in my view it must follow that something more than this is required.  In the large majority of insolvency cases the requirement will be satisfied by a creditor who is an individual resident here or a foreign company which is registered under Part XI of the Companies Ordinance or which has a place of business here.  In my view what the authorities from which this requirement emerge[21] intended is more accurately described as a person who is concerned with the proper distribution of assets and over whom the Court can exercise jurisdiction other than by virtue of him being a creditor of the company.  It is not, however, necessary for me to decide this issue for the purposes of this case, because it seems to me that as Ms Chen asserts that she has a significant claim against the Company this is sufficient to satisfy it.

44.  As I explain in paragraph 10 Mr Wong also submitted that in the event that I did not find, as I have, that the three core requirements had been satisfied there was no independent basis for the Court to proceed to order an ancillary liquidation.  This argument was advanced in response to the Petitioner’s submission that the requirements did not apply with the same stringency in a case such as the present where the Petition had been issued by the liquidators of a company in liquidation in its State of incorporation. Although it is not necessary for me to address this issue I think that it is desirable that I say something about it.  As I understand the argument Mr Manzoni suggested the Court should take into account the desirability of this Court assisting the liquidation in the Company’s State of incorporation.  I was referred to a number of authorities, which it was suggested support this approach.  First, the decision of Re Irish Shipping Limited^[22] in which Jones J was influenced in favour of exercising the Court’s discretionary jurisdiction by judicial comity^[23]. It does not seem to me that the fact that in a particular case it is demonstrated that viewed objectively a liquidation in Hong Kong of an unregistered company will assist a foreign liquidator in carrying out his duties is a reason for making a winding-up order if the three core requirements have not been established.  In my view it would be inconsistent with the principles discussed earlier in the judgment to make an order which commenced the statutory regime for the liquidation of companies in order to enable a foreign liquidator to use that regime’s investigatory procedures to obtain information about the affairs of a company, which had little connection with Hong Kong other than the presence here of one of its officers.  It seems to me relevant that Hong Kong has not enacted an equivalent to section 426 of the Insolvency Act 1986 and is not a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, which would have enabled orders to be made for the purpose of assisting liquidators of unregistered companies investigate in Hong Kong matters concerning their affairs despite the fact that the three core requirements referred to in paragraph 27 cannot be satisfied.

45.  The second was Re Information Security One Limited[24]. In that case a petition had been presented by a company in liquidation in the Cayman Islands, where it was incorporated.  The petition was commenced in order to recover assets within the jurisdiction and to invoke the procedure under section 221 to examine directors.  It is clear, however, from the short judgment (the petition was unopposed) that Kwan J, who heard the petition, proceeded to making a winding-up order on the basis that that three core requirements were satisfied.  The case is not authority for a proposition that those requirements are applied less stringently where the petitioner is the company itself.  The third case was Re Zhu Kuan Group Company Limited[25]. Barma J discusses in some detail the application of the three requirements to the facts of that case in his judgment, but I do not read the judgment as suggesting that they applied with any less force because the company was already in liquidation in its State of incorporation.

46.  In conclusion, it seems to me that there is no basis for adopting a less stringent approach in assessing whether sufficient connection with Hong Kong has been demonstrated in cases in which a petition is presented by an unregistered company which is in liquidation in the State of its incorporation.

47.  As a parting shot the opposing creditors submit that if the Court orders a winding up of the Company it should appoint different liquidators in order to avoid any conflict in determining how any inconsistency in the statutory regimes in the 2 jurisdictions, or in the interest of creditors in the different jurisdictions, should be addressed. This is a surprising submission for the opposing creditors to advance at this stage given the fact that it was they who proposed that the BVI liquidators be appointed provisional liquidators.  Given their obvious siding with Ms Chen in circumstances in which one would expect a bona fide creditor to be troubled both by the insolvency of the Company and Ms Chen’s reluctance to assist the BVI Liquidators it sounds very much as if this is an attempt simply to place another barrier in the way of the efficient progress of the liquidation by increasing costs and delay.  In any event even if conflicts arose this can be dealt with simply by appointing an additional liquidator in one or both of the jurisdictions, as is commonly done, who can deal with any contentious matters.  In the present case I can see no substantive reason for thinking that if a conflict between the two regimes arises it cannot sensibly and fairly dealt with in this manner.

Conclusion

48.  I will adjourn the Petition to a date to be fixed in consultation with Counsel’s diaries in order that the application for substitution can be heard and the necessary consequential orders can be made.