SHANDONG CHENMING PAPER HOLDINGS LTD v. ARJOWIGGINS HKK 2 LTD

CACV 158/2017

[2020] HKCA 670

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 158 OF 2017

(ON APPEAL FROM HCMP 3060 OF 2016)

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J U D G M E N T

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Hon Chu JA:

1.  I agree with the judgment of and the orders proposed by Barma JA.

Hon Barma JA:

2.  This was an appeal against the decision of Harris J dated 14 June 2017 dismissing the plaintiff’s application for a declaration that, since the plaintiff is an unregistered company, the defendant would not be able to satisfy the three core requirements for the Hong Kong Court to exercise its jurisdiction to wind up the plaintiff in Hong Kong pursuant to section 327(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32). Harris J also ordered the plaintiff to pay the defendant’s costs of the application on an indemnity basis.

3.  The background to this matter can be very briefly summarised as follows:

(1)  The plaintiff is a company incorporated in the Mainland.  Its shares are listed on the Shenzhen Stock Exchange, in the form of both A and B shares.  It also has a primary listing of H shares on the Stock Exchange of Hong Kong Limited.  It is registered as a non-Hong Kong company under Part 16 of the Companies Ordinance (Cap 622).  Its main businesses include paper manufacturing, forestry, finance and real estate.  According to its audited financial statements for the year ended 2015, it had net assets in excess of RMB 16 billion, and operated profitably.

(2)  In October 2005, the plaintiff and the defendant entered into a joint venture agreement pursuant to which they established a joint venture company in the Mainland.  Disputes arose between the plaintiff and the defendant, and in October 2012, the defendant commenced an arbitration against the plaintiff pursuant to the joint venture agreement, alleging that the plaintiff was in breach of it.  The tribunal rendered its award in November 2015, ordering the plaintiff to pay damages of RMB 167,860,000 to the defendant.  Soon afterwards, the defendant obtained leave (in HCCT 53/2015) to enforce the award in Hong Kong.  The plaintiff then applied to set aside the award, but in October 2016, this application was dismissed by M Chan J, who described it as totally without merit, and ordered indemnity costs against the plaintiff.  The plaintiff did not appeal against this judgment.

(3)  On 18 October 2016, the defendant served a statutory demand on the plaintiff, for the following amounts:

(a) RMB 273,450,830.10 in respect of contractual damages (this seems to include interest on such damages);

(b) US$ 3,807,956.09 in respect of legal fees, costs and interest thereon; and

(c) HK$3,545,075.02 in respect of fees payable to the HKIAC and the arbitral tribunal, plus interest thereon.

(4)  The plaintiff did not pay any part of the amounts demanded.  Instead, on 7 November 2016, it applied to Harris J ex parte on notice to the defendant (which did not attend the hearing) for, and obtained, an injunction to prevent the defendant from presenting a petition to wind it up.  An originating summons seeking a final order to that effect was presented the next day.  On 11 November 2016, Harris J allowed the originating summons to be amended to seek the declaration mentioned in paragraph 2 above in place of an injunction, but continued the interim injunction granted on 7 November 2016 pending the determination of the originating summons.

4.  The three core requirements mentioned in the declaration sought are those identified in the judgment of Kwan J (as she then was) in Re Beauty China Holdings Ltd [2009] 6 HKC 351 at [23], approved by Ma CJ and Lord Millett NPJ in their joint judgment in the Court of Final Appeal’s decision in Kam Leung Siu Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501 at [20].  They are as follows:

“…

(1) there had to be a sufficient connection with Hong Kong, but this did not necessarily have to consist in the presence of assets within the jurisdiction;

(2) there must be 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 in the distribution of the company’s assets.”

5.  Both at the hearing below and before this court, the plaintiff accepted that the first and third of these requirements were met in the present case.  Before Harris J, the issue dividing the parties was whether the second requirement, of a reasonable possibility of benefit to the applicant of the winding up order was met.  As will be seen below, as a result of Harris J’s decision, the further issues of whether or not the second requirement was capable of moderated (or more accurately, dispensed with) in an appropriate case, and if so, whether this was such a case, also arose before us.

6.  At the hearing below, the plaintiff contended that its only connection with Hong Kong was the fact that it was listed here, but that it conducted no business in or from Hong Kong.  More importantly, it said that it had no assets here, so that there was nothing that a Hong Kong liquidator could realise for the benefit of the defendant.  While it had assets in the Mainland (as noted above, its net assets disclosed in its latest audited accounts ran to over RMB 16 billion), a Hong Kong liquidator would not be able to realise such assets, as he would not be recognised on the Mainland.  It therefore suggested that there was no reasonable prospect of the defendant deriving any benefit from the making of a winding up order in Hong Kong.

7.  The defendant, on the other hand, contended that there was a reasonable possibility that it would benefit from the making of a winding up order in Hong Kong because (1) the plaintiff’s H share listing was a valuable and realisable asset in Hong Kong; and (2) a liquidator would be able to investigate a restructuring which took place in the first half of 2015, by which Chenming HK Limited, a formerly directly held Hong Kong subsidiary of the plaintiff (and hence an asset in Hong Kong) which produced a significant part of its profits became an indirect subsidiary through the interposition of Mainland and BVI companies in the ownership chain between the plaintiff and the subsidiary, and might be able to recover assets held by Chenming HK Limited for the benefit of the defendant and other creditors.

8.  The judge did not consider that either of these could be regarded as matters which were reasonably likely to produce a benefit for the defendant in a Hong Kong winding up, for reasons explained in his judgment (at [16] to [19] in relation to the plaintiff’s listing, and [20] to [26] in relation to the restructuring involving Chenming HK Limited).

9.  However, the judge considered that there was a reasonable possibility of benefit to the defendant arising from the making of a winding up order against the plaintiff, which he explained as follows at [28] to [29] of his judgment:

“28. The consequence of a winding-up order would be immediate and severe. The control of the [plaintiff] in Hong Kong would be immediately taken out of the hands of its directors and placed in those of a liquidator. Section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance would apply. All shares transfers from the date of the presentation of the petition would be void unless otherwise ordered by the court. The [plaintiff]’s status as a Hong Kong listed company would cease to be viable. The damage done to the [plaintiff]’s reputation and the possible interference in its ability to carry on business overseas as a consequence of enforcement action by a liquidator would be immense. Unless the [plaintiff] was surprisingly indifferent to these adverse consequences one would expect its management at some point in time to decide that the [plaintiff] had no choice, but to pay the Award.

29. Although, generally the Companies Court frowns on the use of winding-up proceedings to pressure solvent companies to pay disputed debts, it is well established that a creditor owed an undisputed debt is entitled to a winding-up order ex debito justitiae. A company cannot contest a petition on the grounds that it is solvent and that a creditor must exhaust all means of enforcement and recovery before resorting to a winding-up petition.  A solvent company that fails to pay on a judgment or award out of intransigence is liable to be wound up.  It seems to me that the [defendant] can properly say that this is such a case and that the benefit to be derived from its proposed course of action is the leverage created by the prospect of a winding-up petition, or the appointment of a liquidator and the steps a liquidator may take to recover assets even if such steps are problematic.  In my view there is a reasonable prospect that the [defendant] would derive a benefit from a winding-up order. …”

10.  The judge went on to hold that even if he had not been of the view that there was a reasonable prospect of benefit to the defendant arising from the making of a winding-up order, this requirement was one that could be moderated (ie dispensed with) where this was justified by the circumstances of the case, and that the present was a case in which such moderation would have been justified, saying at [30] and [31] of the judgment:

“30. As the Court of Final Appeal explains in Yung Kee [i.e. Kam v Kam, supra], the three core requirements constitute self-imposed restraints on the making of a winding-up order against a foreign company. As I observe in [50] of China Medical Technologies Inc [[2014] 2 HKLRD 997] and [27] of Re Pioneer Iron and Steel Group Co Ltd [[2013] HKEC 317] the core requirements constitute guidance as to the circumstances in which the discretion should be exercised and their application can be moderated if the circumstances clearly call for it. Although, I have found that there is a reasonable prospect that the [defendant] will derive a benefit from the making of a winding-up order, in my view the circumstances of this case would also justify moderation of the requirement that a benefit to the [defendant] be shown. I say this for the following reason.

31.  The [plaintiff] has chosen to have a second primary listing in Hong Kong.  An arbitration Award has been made against it, which has now become enforceable as a judgment of this court.  The [plaintiff] does not suggest that it cannot pay the Award.  It simply refuses to do so and takes the position that there is nothing the [defendant] can do about it in Hong Kong.  This seems to me to be unacceptable.  The [plaintiff] wishes to take advantage of Hong Kong’s financial system and the legal system that underpins it.  Hong Kong’s legal system and courts provides investors both domestically and internationally with confidence in the reliability and integrity of the financial system.  The [plaintiff]’s refusal to honour the Award shows disregard for the integrity of our legal system and, in a non-technical sense at least, contempt for the High Court of Hong Kong.  If the [plaintiff] wishes to be listed in Hong Kong it should honour the Award and respect the decision of Mimmie Chan J.  There is a public interest in steps being taken to remedy this conduct and to disabuse other Mainland companies of the idea that they can take the benefits of access to Hong Kong’s financial system without the burden of complying with our laws.  In the circumstances of this case the obvious and appropriate step is the winding up of the Company in Hong Kong and the delisting of its H shares.”

11.  In the light of these conclusions, the judge refused to make the declaration sought, and dismissed the plaintiff’s originating summons application and discharged the interim injunction with an order for indemnity costs to reflect his view that the plaintiff’s conduct had been unethical.  After the judge gave his decision, the petition was presented and listed for hearing.  At the hearing of the petition on 28 August 2017, the petition was adjourned sine die pending this appeal, on the giving of an undertaking by the plaintiff to procure a payment into court by a third party of the sums of HK$355,141,100.06 (the Hong Kong dollar equivalent of the amounts claimed in the statutory demand) and HK$33,971,332.38 (interest on the amount of the statutory demand from 19 October 2016 until 27 August 2018).  Those sums were subsequently paid into court by a third party.  The order indicated that payment out could be made on the order of the Court of First Instance, the Court of Appeal or the Court of Final Appeal.

12.  Shortly before the hearing of the petition, the defendant issued a summons seeking payment out to it of the amounts that had been paid in, if it should be successful in resisting the appeal.

13.  Before us, the plaintiff (represented by Mr Joffe and Mr Tang, who did not appear below), contended that the judge had been wrong to conclude that the benefit identified by him, which the plaintiff described as “the leverage created by the prospect of a winding-up petition” could satisfy the second core requirement.  The plaintiff made a number of points in support of this contention, namely:

(1)  As the benefit consisted of the “leverage” arising out of the prospect of a winding-up order being made, it was not a benefit arising from the making of a winding-up order, but was quite opposite – it was an advantage to the defendant that, if it materialised, would have the effect of avoiding the making of a winding-up order at all, as its success would mean that the plaintiff had succumbed to the pressure and paid the defendant what it was owed, so that there would be no need for a winding up order (or, if one had by that time been made, it would likely be rescinded).

(2)  Having regard to the collective nature of a winding-up as a class remedy available to a company’s creditors, the benefits to be obtained from the making of a winding-up order should benefit the petitioner and other creditors.  This was said to be consistent with the purpose of the winding-up regime, which was to ensure the fair and orderly unwinding of a company’s affairs for the collective benefit of all its stakeholders.

(3)  By contrast, the end result of the leverage point would be that the defendant would potentially benefit by obtaining payment of the award, but all other creditors and stakeholders would suffer a detriment, as the adverse impact of a winding-up order on the plaintiff would bring its listing in Hong Kong into question and would be likely to affect its ability to carry on business, whether in Hong Kong or elsewhere.  The plaintiff’s ability to service its debts and the value of its shares would be reduced.

(4)  The fact that the plaintiff is solvent was said to be a further reason to reject the leverage point as a sufficient benefit, on the basis that the court should not wind up an obviously solvent company as this would result in substantial expenses being incurred which would not be of benefit to either its creditors or the company itself.

14.  The plaintiff also submitted that the judge was wrong to conclude that the second core requirement was capable of moderation and should be moderated in this case, because:

(1)  This requirement could not be moderated as a matter of law.

(2)  Even if it could be, the circumstances of this case did not call for moderation, as the plaintiff had not sought to flout the Hong Kong legal system, but had rather sought only to take advantages of arguments and steps that were open to it thereunder.

15.  The defendant (represented by Mr Yu SC, Mr Laurence Li (neither of whom appeared below) and Mr Chow Ho Kiu) sought to uphold the judge’s decisions on both the leverage point and the moderation point.

16.  It also argued that it was in any event inappropriate for the plaintiff to have sought the declaration at this stage, as the question of whether benefit was likely to accrue to the defendant from the making of a winding-up order was a matter which should properly be determined at the hearing of the petition, particularly as the plaintiff clearly had substantial connections with Hong Kong, and the position as to whether or not the defendant might benefit from a winding-up order might change from time to time.

17.  In addition, by a respondent’s notice, the defendant further argued that the judge should have found that there were other matters that gave rise to a reasonable possibility that the defendant would derive benefit from the making of a winding-up order, thus satisfying the second core requirement.  In the defendant’s written submissions, four such alleged benefits were emphasised, namely:

(1)  As the plaintiff and Chenming HK Limited were both subject to the court’s jurisdiction, and (notwithstanding the interposition of two intermediate subsidiaries) the plaintiff remained the 100% beneficial owner of Chenming HK Limited, the court could exercise its inherent powers to order Chenming HK Limited to recognise the liquidator or simply make Chenming HK Limited or its assets available to the liquidator of the plaintiff.

(2)  As the plaintiff’s H shares were maintained on a share register in Hong Kong, a liquidator would be able to raise funds for the purpose of paying the defendant by issuing new H shares in the plaintiff.

(3)  The restructuring might be voidable under section 60 of the Conveyancing and Property Ordinance Cap 219 (“CPO”), and even though this would be a matter that would have to be proved, a winding-up would facilitate investigation of the claim, which was itself a benefit.

(4)  There were receivables and payables arising between the plaintiff and Chenming HK Limited from time to time.  After the award, the plaintiff and Chenming HK Limited arranged for these to be netted off periodically.  The defendant suggested that this arrangement might involve an unfair preference, and a liquidation would be of benefit to it in that it would enable the arrangement to be investigated and recovery made if there had been an unfair preference.  The defendant also suggested that there will in future be amounts owing by Chenming HK Limited to the plaintiff, which will constitute assets located in Hong Kong, and therefore be available to a liquidator and hence a benefit to the defendant and other creditors of the plaintiff.

18.  The main issues in this appeal are the questions raised by the plaintiff’s Notice of Appeal, namely:

(1)  Whether the benefit of “leverage” identified by the judge can amount to a sufficient benefit to satisfy the second core requirement; and

(2)  Whether the second core requirement can, in an appropriate case, be “moderated” or dispensed with, and if so, whether this is an appropriate case for it.

19.  Before addressing these questions, it is helpful first to set out certain propositions stated in the joint judgment of Ma CJ and Lord Millett NPJ in Kam v Kam.  Although that case involved a shareholder’s petition to wind up on the just and equitable ground, and the focus in that case was on whether the first of the three core requirements was satisfied, the joint judgment considered the nature of the exercise with which the court was faced when confronted with a winding-up petition in Hong Kong against a foreign incorporated company, and discussed the position in some detail, in respect of both creditor and shareholder petitions. 

20.  Relevantly for present purposes, Ma CJ and Lord Millett NPJ said:

(1)  The jurisdiction to wind-up a foreign incorporated company under sections 327(1) and (3) is a discretionary jurisdiction (Kam v Kam at [19]).

(2)  However, there must be good reason to exercise what was described as an abnormal jurisdiction, even though the jurisdiction was expressly conferred on the court by statute (ibid.).

(3)  The courts have thus adopted self-imposed constraints, in the form of the three core requirements set out in [4] above (Kam v Kam at [20]).

(4)  The three core requirements should be treated as factors relevant to the exercise of the court’s discretion (Kam v Kam at [21]).

(5)  In the case of creditors’ petitions to wind up on grounds of insolvency, there is a substantial overlap between the different requirements (Kam v Kam at [22]).

(6)  While the presence of assets within the jurisdiction will often satisfy both the first and second requirements, such presence is not essential, and it suffices that the petition will derive sufficient benefit from a winding-up order (ibid.).

(7)  Such benefit need not necessarily derive from the company’s assets, or be channelled through the hands of a liquidator (citing, as an example of a situation where such a benefit would be derived despite there being no assets in the jurisdiction, Re Eloc Electro-Optieck and Communicatie BV [1982] Ch 43, where Nourse J found that a payment out to employees out of a redundancy fund which could only be made after the company that employed them had been wound up was a sufficient benefit to justify the making of a winding up order against a foreign company which had previously traded in England but had not established a place of business there and no longer had assets there) (Kam v Kam at [23]).

(8)  The question in the case of a creditor’s petition is whether there is a sufficient connection between the company and this jurisdiction to justify the court in ordering it to be wound up here despite the fact that it is incorporated elsewhere (Kam v Kam at [24]).

(9)  In deciding that question, the fact that there is a reasonable prospect that the petitioner will derive a sufficient benefit from the making of a winding-up order, whether by the distribution of the company’s assets or otherwise, will always be necessary and will often be sufficient (ibid.).

(10)  A creditor’s purpose in presenting a winding-up petition is to obtain payment of his debt, so that the existence of significant assets within the jurisdiction will usually suffice; and if the creditor thinks it worthwhile, he may seek winding-up orders in different jurisdictions until his debt is satisfied (Kam v Kam at [26]).

(11)  Even in the context of a shareholder’s winding-up petition, while the presence of assets within the jurisdiction is not essential, the likelihood that the petitioner will derive some benefit from a winding-up order clearly is (Kam v Kam at [35]).

21.  Dealing first with the question of whether or not the second core requirement is capable of moderation, Mr Joffe submitted that, in the light of the views expressed by Ma CJ and Lord Millett NPJ at [24] of Kam v Kam, where they described the second core requirement as one that would always be necessary (and often sufficient) in the case of a creditor’s petition, the answer must clearly be “no”.  Mr Yu, however, suggested that to read this statement as imposing a hard and fast rule would be to misunderstand the judgment in Kam v Kam.  He submitted that it was important to have regard to the statements (for example at [19] and [21] of the judgment in that case) stressing the discretionary nature of the jurisdiction, and explaining that the three core requirements should be regarded as factors relevant to the exercise of the discretion.  So understood, none of the so-called core requirements should be regarded as absolutely essential, but should be viewed as matters to be considered in an overall discretionary assessment.

22.  Although there is a certain attraction to the approach advocated for by Mr Yu, which would appear to provide the court with greater flexibility when considering how the discretion conferred on it by section 327 should be exercised, I have come to the conclusion that it is not one that is open to us to take.

23.  In Re China Medical Technologies [2018] HKCA 111, this court (differently constituted) concluded that the third core requirement was one that could be dispensed with in a suitable case.  In the judgment in that case, I said at [20]:

“[[24] of Kam v Kam] indicates that, when considering a creditor’s petition to wind up a foreign company, the court should approach the exercise of its discretion to do so by reference to a single overarching question – whether there is a sufficient connection between the company and Hong Kong that would justify the winding up of the company in Hong Kong, thereby putting into motion the full machinery of winding-up in respect of it, notwithstanding that the company was incorporated elsewhere. The three core requirements may thus … be best understood as aspects of the enquiry into the sufficiency of the connection between the company and this jurisdiction. In that context, it is notable that the second requirement, that of likelihood of benefit to the petitioner from the making of a winding up order in Hong Kong, is described as a condition that is always necessary, and often sufficient. This indicates … that there can … be cases in which the failure to satisfy the third condition will not be fatal to the making of a winding up order.”

24.  Although in that passage I described the exercise of the discretion as one to be approached by reference to a single overarching question, it does not follow that it is one that is free from constraints or the existence of essential conditions for exercise.  On the contrary, the conclusion that the third core requirement might sometimes be capable of being dispensed with was based on the view expressed by the Court of Final Appeal in Kam v Kam that the second core requirement was always essential, and often sufficient, thus implying that the other core requirements would not necessarily be essential.

25.  I would also note that the essential nature of the second core requirement was reiterated by Ma CJ and Lord Millett NPJ in Kam v Kam at [35].  This provides further support for thinking that it is not one that can be moderated or dispensed with.  Although Kam v Kam was, as I have noted, a case involving a shareholder’s petition, and as such, the views expressed by the Court of Final Appeal in relation to creditors’ petitioner are strictly obiter dicta, such views are nonetheless deserving of the greatest respect and deference.

26.  Further, it should be borne in mind that the adoption by the court of self-imposed constraints on the exercise of a discretion conferred upon it by statute is far from uncommon.  Such self-imposed constraints provide limits on the discretion, thus providing a degree of predictability as to how the discretion is likely to be exercised.

27.  Moreover, to insist on this requirement being met is clearly sensible, in that there would seldom be circumstances in which it would be justified to set in motion the court’s winding-up machinery where to do so could provide no reasonable prospect of benefit of any kind to the petitioner.  That said, the overarching nature of the enquiry, the purpose of which is to ascertain whether it would be appropriate to put into motion the winding-up machinery in respect of a particular overseas company, would, I think, allow for some flexibility as to the nature or extent of the likely benefit to the petitioner that should be shown in order to satisfy the second core requirement, as long as the benefit can be said to be a real possibility, rather than a merely theoretical one.

28.  In the light of this conclusion, it is neither necessary nor profitable to consider whether or not, had it been possible to dispense with the second core requirement, this would have been an appropriate case in which to do so.  This is particularly so as, for the reasons that follow, I am satisfied that the benefit to the petitioner identified by the judge was clearly sufficient to satisfy the second core requirement.

29.  Turning to the question of whether the benefit identified by the judge was sufficient to satisfy the second core requirement, the benefit to the defendant was described by the judge as being:

“… the leverage created by the prospect of a winding-up petition, or the appointment of a liquidator and the steps a liquidator may take to recover assets even if such steps are problematic …”.

30.  Mr Joffe’s first complaint was that this was logically an impermissible benefit, since its realisation was necessarily dependent on the failure or termination of the winding-up process.  As the leverage referred to by the judge was really no more than the pressure imposed on the plaintiff to pay the debt in order to avoid the seriously adverse consequences that would be visited upon it by the making of a winding-up order, it logically followed that if the defendant did obtain the benefit (of payment of the debt owed to it), the winding up petition would necessarily be dismissed (if a winding-up order had not yet been made) or the winding-up order (if it had been made) would be rescinded.  Mr Joffe submitted that this conclusion was fortified by the fact that the judge referred in his formulation to the leverage arising from the “prospect” of a petition, winding-up order or attempt by a liquidator seeking to exercise his powers, from which it was (he said) tolerably clear that it was the prospect of these things, rather than their actual occurrence that would be the real source of the leverage or pressure.

31.  With respect, I do not think the judge erred.  It seems clear that he had in mind that the making of a winding-up order (rather than the mere prospect of one) would be of benefit to the defendant – he said as much in [29] and [30] of his judgment.  While he was undoubtedly alive to the possibility that the plaintiff might choose to pay the debt under the Award before the making of a winding-up order, it seems to me that he did not limit his finding of a benefit in the way suggested by Mr Joffe.  Clearly, if the defendant were unpersuaded by the detrimental effects in prospect and suffered the making of a winding-up order against it before realising that its best interests might lie in making or procuring payment (which, on the basis of its latest financial statements, it would appear to have been well able to do), the making of the winding-up order would have produced a real and substantial benefit to the defendant, by resulting in the payment to it of the significant sums that it was owed.

32.  Insofar as it was suggested that the defendant did not really seek the making of a winding up order, and was merely attempting to put pressure on the plaintiff to pay the Award, I agree with Mr Yu that there is no evidence to suggest that this might have been the case, or that the defendant was other than genuine in its desire to obtain a winding-up order against the plaintiff.  And in fairness, when this was pointed out by Mr Yu, Mr Joffe did not press this submission.

33.  Additionally, insofar as it was suggested that it might be improper to place pressure on the plaintiff to pay, by presenting a winding-up petition against it, this is not the case.  As the judge rightly recognised, it is improper to seek to use a winding-up petition to pressure a company into payment of a disputed debt.  Indeed, that is a classic case in which it will be appropriate for the company to seek an injunction to restrain the presentation of a petition against it.  But where the debt is undisputed or indisputable, as it is in this case, the petitioner is entitled to present a winding-up petition ex debito justitiae (see eg Re Douglas Griggs Engineering Ltd [1963] 1 Ch 19) and thus cannot be said to be acting improperly,

34.  I therefore agree with the judge that there was a real possibility of benefit to the defendant in the making of a winding-up order against the plaintiff.  This is not, in my view, affected by the possibility that the defendant might obtain the benefit of payment of its Award at an earlier stage.

35.  Mr Joffe’s other arguments were effectively submissions that, for the various reasons advanced by him, the benefit which the judge found to exist was not a benefit that should be taken into account when considering whether the second core requirement was satisfied.  With respect, I do not agree.

36.  The first of these arguments was that as winding-up has the nature of a collective remedy for creditors as a class, it is necessary for the benefit available to a petitioner to be one that benefits not just himself, but all the other creditors as well.  With respect, this argument is not well-founded.  In Kam v Kam, Ma CJ and Lord Millett NPJ made it clear that what was needed was benefit to the petitioner.  They recognised that the petitioner’s purpose in presenting a creditor’s winding-up petition was to seek payment of his debt, if necessary by presenting petitions in different jurisdictions.  There was no suggestion that it was necessary for the benefit to be one that would enure to the creditors as a whole.  Moreover, the recognition and approval of the decision of Nourse J in Re Eloc Electro-Optieck (supra), is inconsistent with any such proposition, as the nature of the benefit recognised in that case (the payment out of a statutory wage protection fund, similar to Hong Kong’s Protection of Wages on Insolvency Fund) was not one which would be available to the general body of the company’s creditors, but only to qualifying employees.  Re Compania Merabello San Nicolas SA [1973] 1 Ch 75 is another illustration of such a situation, in a somewhat different context – there, it was held to be a sufficient benefit if the winding-up petition would enable the petitioner to be beneficially vested with a claim between the company being wound-up and its insurer.  Again, this would not appear to be a benefit necessarily available to the body of creditors as a whole.

37.  It seems to me that the points made in the previous paragraph also provide the answers to Mr Joffe’s next argument, which was that the making of a winding-up order in this case would not only not benefit the other creditors, but would be a detriment to them (and to other stakeholders in the company), as the plaintiff’s assets would be decreased by the costs associated with the winding up.  The same consequence would appear to follow in a situation such as that which obtained in the Eloc Electro-Optieck case, where the benefit to the petitioner would come from a source other than the company, leaving the company and its other creditors to suffer the detrimental effects of the winding-up.  Apart from this, I think it is relevant to note that the plaintiff is apparently possessed of very substantial net assets (some RMB 16 billion), which would suggest that there is no real likelihood of the other creditors suffering any reduction in their potential recoveries (since their debts will presumably have been offset before the net asset figure was reached).  To the extent that the plaintiff, or its shareholders, might suffer a dilapidation in its net assets, it seems to me that as has been pointed out in other cases (such as Cornhill Insurance plc v Improvement Service Ltd [1986] 1 WLR 114), the remedy for this lies in the plaintiff’s own hands, since it would seem to be well able to pay the indisputable debt it owes to the defendant and thus relieve itself from the consequences of the presentation or successful prosecution of a winding-up petition against it.

38.  As for Mr Joffe’s submission that the court should be very reluctant to wind up an evidently solvent company, it seems to me that the answer is again provided by the Cornhill case, which (unlike the Australian cases cited by Mr Joffe)[1] has been followed in Hong Kong.  But apart from this, whether or not a solvent company should be wound up for refusing to pay its indisputable debts is a matter which goes to a different discretion to that now under consideration.  This appeal concerns whether or not the court should exercise its section 327 jurisdiction over the plaintiff, whereas the argument that a solvent company should not be wound up goes to the later question, which arises only if the question before us now is answered in favour of the defendant, of whether a winding-up order ought to be made at the end of the day.

39.  For the foregoing reasons, I would agree with the judge that there is in the present case a sufficient likelihood of benefit to the defendant so as to justify the court in exercising its jurisdiction over the plaintiff under section 327.

40.  In the light of that conclusion, it is not necessary to consider the further suggested benefits that the defendant puts forward under its respondent’s notice (set out in [17] above).  Had it been necessary to do so, however, I would not have been inclined to accept these as sufficient benefits for the purpose of the second core requirement:

(1)  As to the first benefit identified (the realisation of value from its (now) sub-sub-subsidiary Chenming HK Ltd), I agree with Mr Joffe’s submission that the fact that Chenming HK Ltd is not a direct subsidiary, and has no directors subject to the Hong Kong court’s jurisdiction renders this a matter very unlikely to produce any benefit to the defendant.

(2)  The second suggested benefit (that a liquidator might be able to raise funds to pay off the defendant through the use of the general mandate to issue shares) also appears to be one which would be unlikely realistically to produce any useful outcome.  It is difficult to see any real possibility of investors being willing to subscribe for such shares in circumstances in which the plaintiff would be in liquidation.

(3)  As for the third suggested benefit (the possibility of setting aside the restructuring by which intermediate subsidiaries were interposed between the plaintiff and Chenming HK Ltd under section 60 of the CPO), this too is a benefit that seems very unlikely to have any real prospect of materialising, given that the plaintiff appears always to have been highly solvent, that Chenming HK Ltd has remained within the ultimate (if not direct) ownership of the plaintiff, and that proof of intent to defraud is required, which in these circumstances would seem difficult to establish. Additionally, as Mr Joffe pointed out, section 60 can be pursued by an affected party, and not only by a liquidator, so that the appointment of a liquidator is not necessary to enable the defendant to pursue this remedy if it thinks it appropriate to do so.

(4)  As to the set off arrangement, it is not easy to see how it could amount to an unfair preference when the plaintiff was not insolvent.  The prospect of future receivables arising would appear to be a matter of speculation.

41.  There was also before us a summons issued by the defendant seeking an order for payment out to it of a sum of some HK$359 million paid into court (by a third party) in HCCW 175/2017 pursuant to the order of Harris J, which was the condition on which he granted a stay of the winding up proceedings pending this appeal.  The order provided that the sum was to be paid out on the order of the Court of First Instance, this court or the Court of Final Appeal.  Mr Joffe objected to this application being dealt with at this stage.  We agree with him that it would be more appropriate for the matter to be considered by the judge when dealing with the petition which can now be relisted before him for consideration, at which time it will be known whether or not any application for leave to take this matter further has been made, and the question of whether or not the provider of the funds in court should be heard can be considered.

42.  I would therefore dismiss this appeal.  So far as costs are concerned, I would make an order nisi that the costs of this appeal (except for the costs of the respondent’s notice, as to which I would make no order as to costs) should be paid by the plaintiff to the defendant, to be taxed on the party and party basis if not agreed, with certificate for two counsel.  I would, however, leave the costs order below undisturbed.

Hon W Chan J:

43.  I also agree with the judgment of and the orders proposed by Barma JA.