THE JOINT AND SEVERAL LIQUIDATORS OF SHANGHAI HUAXIN GROUP (HONGKONG) LTD (IN LIQUIDATION) v. CSSC ENERGY (SINGAPORE) PTE. LTD

HCMP 248/2025

[2026] HKCFI 1780

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 248 OF 2025

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BETWEEN

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DECISION

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INTRODUCTION

1.  This case raises a number of interesting legal points.

2.  By an originating summons dated 14 February 2025 (the “Originating Summons”), the Applicants, being the joint and several liquidators of Shanghai Huaxin Group (Hongkong) Limited (In Liquidation) (the “Company”), seek, inter alia, an order pursuant to section 265D of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (the “Ordinance”) to set aside a tripartite offset agreement dated 16 March 2018 (the “Offset Agreement”) as a transaction at an undervalue.

3.  The Offset Agreement was entered into between the Company, the Respondent, and Shenzhi Energy (HK) Limited (“Shenzhi”). By that agreement, as will be explained below, a debt of approximately US$38 million owed by the Respondent to the Company (the “Outstanding Receivable”) was either extinguished outright or replaced with a claim against Shenzhi. The Company was wound up approximately five months later, in September 2018.

4.  The Respondent resists the application on four principal grounds:

(a) that the Offset Agreement was not a transaction at an undervalue;

(b) that the Applicants are precluded from challenging the Offset Agreement by reason of abuse of process, having previously relied upon it to petition for Shenzhi’s winding up;

(c) that the statutory defence under section 265D(4) of the Ordinance applies; and

(d) that the Court should decline to make any order as restoration of the status quo ante is impossible.

5.  Having carefully considered the parties’ submissions, I am satisfied that the Offset Agreement constitutes a transaction at an undervalue, that the Applicants are not precluded by any abuse of process from bringing this application, that the statutory defence has not been made out, and that the Court should exercise its discretion to restore the position to what it would have been had the Company not entered into the Offset Agreement.

MATERIAL FACTS

The parties and corporate structure

6.  The Company is a Hong Kong incorporated company and was, at all material times, a wholly owned subsidiary of CEFC Shanghai International Group Limited (“Shanghai CEFC”). The Company was principally engaged in the business of trading oil and chemical products internationally.

7.  The Respondent is a company incorporated in Singapore. It is an indirect wholly owned subsidiary of China State Shipbuilding Corporation Limited, a state-owned enterprise. The Respondent also carried on business in international oil commodity trading.

8.  Shenzhi is a Hong Kong incorporated company which carried on business in international crude oil trading. In July 2024, Shenzhi was wound up by order of this Court on a petition presented by the Company, acting through the Applicants.

The underlying oil transactions

9.  Between November 2017 and January 2018, the Company entered into four sale contracts with the Respondent for oil products totalling US$149,902,571.32 (the “Sale Contracts”). The arrangement was structured on a back-to-back basis: the Company sold oil products to the Respondent, and the Respondent on-sold those products to Shenzhi for US$152,564,272.98.

10.  Under this arrangement, Shenzhi was required to pay the contract price to the Respondent in full. Thereafter, the Respondent would pay the Company under the corresponding Sale Contract. Shenzhi’s payment obligations to the Respondent were said to be secured by undertakings given by Shanghai CEFC to the Respondent (the “Undertakings”).

11.  It is not in dispute that, as of March 2018, a balance of US$37,973,767.59 remained outstanding and owing from the Respondent to the Company under the Sale Contracts. This sum constitutes the Outstanding Receivable which is at the centre of this application.

The Offset Agreement

12.  On or around 16 March 2018, the Company, the Respondent, and Shenzhi entered into the Offset Agreement. The operative provision states:

“offset US$37,973,767.59 and all balance amount of US$114,590,505.39 remains outstanding and Shenzhi or its nominee (acceptable by [the Respondent]) should make payment to [the Respondent].”

13.  It is common ground that the word “offset” in the Offset Agreement is capable of two interpretations:

(a) First, that the Company’s claim against the Respondent for the Outstanding Receivable was cancelled outright, with no replacement or consideration (the “First Interpretation”); or

(b) Second, that the Company’s claim against the Respondent for the Outstanding Receivable was replaced with a direct claim against Shenzhi for the same amount (the “Second Interpretation”).

14.  I shall return to the significance of these two interpretations below. For present purposes, I note that the Offset Agreement was entered into on 16 March 2018, a mere two months before the winding up petition against the Company was presented on 17 May 2018.

The Company’s insolvency and liquidation

15.  By March 2018, the Company was in severe financial distress. The evidence before this Court shows that the Company had unpaid debts exceeding US$200 million and was manifestly unable to pay its debts as they fell due. It is not disputed that the Company was insolvent at the time of the Offset Agreement.

16.  I pause to note that the Company’s financial position was in fact significantly worse than the US$200 million figure suggests: the evidence discloses that the Company owed its parent, Shanghai CEFC, approximately HK$7.2 billion as at this time. The significance of this intercompany indebtedness will become apparent when I address the statutory defence below.

17.  On 17 May 2018, a winding up petition was presented against the Company.

18.  On 3 September 2018, the Company was wound up by order of Harris J.

19.  On 25 March 2019, the Applicants were appointed as the joint and several liquidators of the Company.

Subsequent events

20.  What happened after the Offset Agreement is material to the issues before this Court. I note the following facts:

(a) In April 2018, merely one month after the Offset Agreement, Shenzhi defaulted on its payment obligations to the Respondent.

(b) In April 2019, the Respondent assigned to its parent company approximately US$67 million of the remaining debts owed by Shenzhi for immediate enforcement against Shanghai CEFC as guarantor. Judgment was obtained against Shanghai CEFC in Shanghai in May 2019.

(c) In March 2020, Shanghai CEFC was declared bankrupt. Its liquidation proceedings concluded in March 2023.

(d) In May 2024, the Company, acting through the Applicants, petitioned for the winding up of Shenzhi on the basis that Shenzhi owed the Company US$37,973,767.59 pursuant to the Offset Agreement. Shenzhi was wound up by order of this Court in July 2024.

(e) In October 2024, Shenzhi’s liquidators confirmed that Shenzhi has no assets available for distribution to creditors.

21.  I pause to observe that the Respondent’s conduct in April 2019, in pursuing Shanghai CEFC for US$67 million just one year after the Offset Agreement, sits uncomfortably with its present contention that the Offset Agreement was designed to rescue the group from insolvency. I shall return to this point when addressing the statutory defence.

The Applicants’ recovery efforts

22.  The Applicants have been actively pursuing the Outstanding Receivable since their appointment. In November 2018, the Applicants wrote to the Respondent demanding payment. Between 2019 and 2020, the Applicants’ solicitors made repeated requests for information regarding the Respondent’s denial of liability. These requests were met with holding responses before communication ceased. It was only in July 2020, nearly two years after the initial demand, that the Respondent produced the Offset Agreement as its reason for non-payment.

23.  In March 2024, the Applicants commenced a Singapore-seated arbitration against the Respondent to recover the Outstanding Receivable. The arbitration is presently stayed pending the determination of this application.

Evidence

24.  The Applicants rely principally on the first and third affirmations of Mr So Man Chun, one of the Applicants. The Respondent relies on the affirmation of Mr Zhang Hui, the affirmation of Mr Zhu Jinyi, and two affirmations which purport to provide expert evidence on Singapore and Mainland law respectively. The admissibility of those expert affirmations is addressed below in the context of the issues to which they are said to be relevant.

TRANSACTION AT UNDERVALUE

The legal framework

25.  Section 265D(3) of the Ordinance provides that the Court may, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into the transaction, provided that the company has entered into a “transaction at an undervalue” at a relevant time.

26.  Section 265E of the Ordinance defines a “transaction at an undervalue” as follows:

“A company enters into a transaction at an undervalue with a person if the company — (a) makes a gift to that person, or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration; or (b) enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the company.”

27.  As I explained in Ho Man Kit v Sure Lead Ltd [2019] HKCFI 2914 at §34, the burden rests on the applicants to establish:

(a) that there is a transaction at an undervalue within the meaning of section 265E of the Ordinance;

(b) that the transaction was entered into within five years prior to the commencement of the company’s winding up; and

(c) that the company was insolvent at the time of the transaction, or became insolvent in consequence of it.

28.  It is not in dispute that the Offset Agreement was entered into within five years of the winding up petition, and that the Company was insolvent at the time. The sole question is whether the Offset Agreement constitutes a transaction at an undervalue within section 265E of the Ordinance.

29.  The approach to determining undervalue was explained by Singh LJ in Invest Bank PSC v El-Husseini [2023] EWCA Civ 555 at §83:

“[T]he transaction must be (1) entered into by the company; (2) for a consideration; (3) the value of which measured in money or money’s worth; (4) is significantly less than the value; (5) also measured in money or money’s worth; (6) of the consideration provided by the company … [I]t requires a comparison to be made between the value obtained by the company for the transaction and the value of consideration provided by the company. Both values must be measurable in money or money’s worth and both must be considered from the company’s point of view.”

30.  The requirement that value must be assessed “from the company’s point of view” is of particular importance in this case. A benefit conferred upon a third party does not constitute consideration received by the company unless, and to the extent that, such benefit enures to the company itself: see Re Whitestar Management Ltd [2018] EWHC 743 (Ch) at §79.

The Respondent’s admissions

31.  I turn first to the evidence of Mr Zhang Hui, the Respondent’s Chairman. His affirmation contains admissions which, in my view, are highly material to the determination of this application:

(a) At §33, Mr Zhang states that the Offset Agreement cancelled the Company’s claim against the Respondent for the Outstanding Receivable.

(b) At §36, Mr Zhang acknowledges that the Company derived no immediate benefit from the arrangement.

(c) At §§34 and 37, Mr Zhang accepts that the purported benefits of the Offset Agreement accrued solely to Shanghai CEFC, the Company’s parent.

32.  These are admissions from the Respondent’s own principal witness. They establish, from the Respondent’s own evidence, that:

(a) the Company’s claim of US$38 million against the Respondent was extinguished;

(b) the Company received no immediate benefit in return; and

(c) any benefit which may have arisen went to Shanghai CEFC, not to the Company.

33.  On any view, this evidence strongly supports the conclusion that the Offset Agreement was a transaction at an undervalue.

Analysis under both interpretations

34.  In my judgment, it is not necessary to determine definitively whether the First Interpretation or the Second Interpretation is correct. On either interpretation, the Offset Agreement constitutes a transaction at an undervalue.

35.  Under the First Interpretation, the Company’s claim of US$38 million was simply cancelled. The Company received nothing in return. This falls squarely within section 265E(a) of the Ordinance: a transaction on terms that provide for the company to receive no consideration.

36.  Under the Second Interpretation, the Company exchanged its claim of US$38 million against the Respondent for a replacement claim against Shenzhi. The question then becomes: what was the value of that replacement claim (the “Shenzhi Receivable”) as at March 2018?

37.  The Respondent contends that because the face value of the Shenzhi Receivable was equal to the Outstanding Receivable, there was no undervalue. I reject this submission. The statutory test requires value to be measured “in money or money’s worth”. A claim against a debtor which has no realistic prospect of being paid is not worth its face value.

38.  The burden of establishing undervalue rests on the Applicants. In my judgment, that burden is amply discharged by the evidence, and in particular by the subsequent events to which I refer below.

39.  That said, it is the Respondent who relies on the Shenzhi Receivable as constituting adequate consideration. As Lord Scott held in Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143 at §27, where the value of the consideration for which a company enters a transaction is speculative, it is for the party who relies on that consideration to establish its value. The Respondent bears this burden. It relies on a due diligence report dated 19 June 2017 which assessed Shenzhi’s probability of financial distress over the following 12 months at 0.37%, and on Shenzhi’s audited accounts as of 31 March 2017 showing net assets of HK$50,182,473. I have considered this evidence and find it does not assist the Respondent, for the following reasons.

40.  First, the due diligence report and the audited accounts are dated June 2017 and March 2017 respectively, approximately nine to twelve months before the Offset Agreement. They do not reflect Shenzhi’s financial position as of March 2018. By that time, Shenzhi owed the Respondent alone in excess of US$152 million under the Shenzhi Contracts, with payment deadlines falling in March and April 2018.

41.  Secondly, the Respondent adduced no evidence of Shenzhi’s actual financial position as at the date of the Offset Agreement. No updated accounts, no balance sheet, no cash flow analysis. The 2017 due diligence report predicted a 0.37% probability of financial distress over the next 12 months. Events proved that prediction spectacularly wrong: Shenzhi defaulted within one month of the Offset Agreement. A report whose central prediction was falsified by events cannot bear the weight the Respondent seeks to place upon it.

42.  Indeed, and in any event, the Court is entitled to have regard to subsequent events in determining value. As Lord Scott held in Phillips at §26, for the purposes of section 238(4) and the valuation of consideration, “reality should, in my opinion, be given precedence over speculation.”

43.  Where the events on which valuation uncertainties depend have actually happened, “it seems to me unsatisfactory and unnecessary for the court to wear blinkers and pretend that it does not know what has happened.” Richard Smith J applied this approach in Henderson & Jones Ltd v Ross [2023] EWHC 1276 (Ch) at §395.

44.  The subsequent events in this case are stark and uncontroverted:

(a) Shenzhi defaulted on its obligations to the Respondent in April 2018, one month after the Offset Agreement.

(b) By May 2019, the Shanghai court recorded that Shenzhi’s remaining debt to the Respondent of US$114,590,505.39 remained outstanding and unpaid.

(c) Shenzhi was wound up in July 2024.

(d) Shenzhi’s liquidators have confirmed that Shenzhi has no assets available for distribution.

45.  On these facts, I have no difficulty in finding that the Shenzhi Receivable was, at best, of highly speculative value as of March 2018, and was in practical terms worthless. The Company exchanged a claim of US$38 million against the Respondent, an indirect subsidiary of a major state-owned enterprise, for a claim against Shenzhi which proved to be worth nothing. Even if the Second Interpretation is correct, the Offset Agreement falls within section 265E(b) of the Ordinance: a transaction for a consideration significantly less than the value of the consideration provided by the Company.

46.  For the above reasons, I am satisfied that the Offset Agreement was a transaction at an undervalue within section 265E of the Ordinance.

The Respondent’s arguments on consideration

47.  The Respondent advances a number of arguments in opposition. I have considered each of them and find them unpersuasive.

48.  First, the Respondent contends that the Offset Agreement achieved “concurrent satisfaction” of the debts owed to the Company and the Respondent, and that this constitutes valid consideration in a tripartite arrangement. With respect, this argument conflates the consideration provided by the Company with the consideration received by the Company. The extinguishment of the Outstanding Receivable is the very consideration provided by the Company; it cannot simultaneously constitute consideration received. The Company gave up an asset worth US$38 million. What did it receive in return? On the Respondent’s own case, nothing that accrued to the Company itself.

49.  Secondly, the Respondent argues that the Offset Agreement benefited Shanghai CEFC by relieving it of potential liability under the Undertakings. This argument fails for a simple reason: the Company is not Shanghai CEFC. A benefit to a parent company is not a benefit to the subsidiary, particularly where, as here, the subsidiary was insolvent and its directors’ duties had shifted to its creditors. The Company was not a party to the Undertakings and derived no benefit from any reduction in Shanghai CEFC’s liabilities. I address below, in the context of the statutory defence, the distinct question of whether any derivative benefit to the Company arising from the reduction of Shanghai CEFC’s liabilities could satisfy the requirements of section 265D(4) of the Ordinance.

50.  In this connection, the Respondent relies on the decision of the Singapore High Court in Affert Resources Pte Ltd v Industries Chimiques du Senegal [2024] SGHC 57for the proposition that practical benefits to the broader corporate group can constitute consideration within the meaning of the equivalent statutory provision. I do not find that authority assists the Respondent.

(a) The facts of Affert Resources were materially different: there, the debt waiver was part of a broader commercial arrangement in which an outside investor injected substantial funds into the group, and the court found that the waiver could not be viewed in isolation from that broader arrangement.

(b) Here, there is no outside investor, no injection of fresh funds, and no genuine rescue arrangement. The Offset Agreement was an intra-group reshuffling of liabilities with no new value entering the picture.

(c) Moreover, I note that on appeal the Singapore Court of Appeal in Affert Resources [2025] 1 SLR 649 at §74 held that a debt of questionable recovery is effectively a bad debt, a proposition which supports the Applicants, not the Respondent.

(d) At §83, the Singapore Court of Appeal expressly excludes general group-level benefits from the value comparison exercise as “intangible benefit[s], which could not be quantified in monetary terms.” (citing Rothstar at [34])

51.  Thirdly, Mr Zhang suggests that the Company could simply “re-book” the cancelled Outstanding Receivable as a receivable from Shanghai CEFC. This proposition misunderstands basic principles of accounting and contract law. A company cannot unilaterally create a claim against another entity by making accounting entries. There is no evidence that Shanghai CEFC agreed to assume any such debt, no documentation of any novation or assumption agreement, and the Company’s books continued to record the Respondent as debtor.

52.  Fourthly, the Respondent asserts that the Offset Agreement achieved “savings in bank charges and simplify capital flow”. This contention borders on the fanciful. The notion that an insolvent company would forfeit a US$38 million asset to achieve unquantified savings on bank charges, which would not even have been payable by the Company, defies commercial sense. No rational commercial party would act in such a manner.

53.  I am accordingly satisfied that the Applicants have discharged the burden of proving that the Offset Agreement was a transaction at an undervalue.

ABUSE OF PROCESS

The Respondent’s argument

54.  The Respondent advances an argument based on approbation and reprobation. The argument, in essence, is as follows: in May 2024, the Applicants petitioned for the winding up of Shenzhi on the basis that Shenzhi owed the Company US$37.9 million pursuant to the Offset Agreement. Having relied upon the Offset Agreement to secure a winding up order against Shenzhi, the Applicants now seek to set aside that same agreement. The Respondent contends that this constitutes abuse of process.

55.  I have considered this argument with care. It is, on its face, attractively simple. However, upon closer analysis, I am satisfied that it does not withstand scrutiny. There are several independent reasons for this conclusion, any one of which is sufficient to dispose of the objection.

The applicable doctrine

56.  The doctrine of approbation and reprobation precludes a party who has exercised a right from exercising another right which is alternative to and inconsistent with the right already exercised. As explained in State Bank of India v Mallya [2025] EWHC 858 (Ch) at §79:

“a party cannot adopt two inconsistent attitudes towards another … [I]t is not sufficient that inconsistent positions be adopted … [I]t is a relevant factor to consider whether the party adopting an inconsistent position would derive an unfair advantage or impose an unfair detriment on the other party if not prevented from doing so.”

57.  Two requirements emerge from this formulation. First, there must be genuinely inconsistent positions adopted by the same party. Secondly, there must be an unfair advantage obtained or unfair detriment imposed. As Morritt LJ (in the Court of Appeal) emphasised in Phillips v Brewin Dolphin Bell Lawrie Ltd [1999] 1 WLR 2052 at 2061, “at the root of the doctrines adverted to in the expressions I have referred to is the requirement that the two rights or courses of action sought to be maintained are truly alternative and inconsistent.” I shall address each requirement in turn.

No genuine inconsistency

58.  In my view, there is no genuine inconsistency in the Applicants’ conduct. Their position has been consistent throughout: the Offset Agreement either provided no consideration (on the First Interpretation) or inadequate consideration (on the Second Interpretation), and in either case, it is liable to be set aside under section 265D of the Ordinance.

59.  If the Second Interpretation is correct, then the Company, as a result of the Offset Agreement, acquired a claim against Shenzhi. It was entirely proper for the Applicants to pursue that claim by petitioning for Shenzhi’s winding up. If the claim had any value, the Applicants were obliged to realise it for the benefit of creditors. As it transpired, the claim proved worthless because Shenzhi has no assets.

60.  Having discovered that the consideration received under the Offset Agreement (if any) was worthless, the Applicants now seek to reverse the transaction. This is a sequential and principled process of asset recovery, not a case of blowing hot and cold.

61.  Morritt LJ’s analysis in Phillips v Brewin Dolphin Bell Lawrie Ltd [1999] 1 WLR 2052 provides direct support for this conclusion.

(a) In that case, a company sold its stockbroking business to a purchaser through a structure involving two linked agreements: a share sale agreement (between the company and the purchaser) and a computer equipment lease (between the company and the purchaser’s parent). The lease payments were in substance the purchase price for the business but were structured as rent for tax purposes. When the lease was terminated due to the company’s breach, the purchaser’s parent made one out of four payments.

(b) The trial judge held that the purchaser was “approbating and reprobating” by treating the lease as part of the consideration for the share sale (to defeat the undervalue claim) while simultaneously treating it as a separate contract (to justify its termination). Morritt LJ rejected this reasoning at 2061:

“In my view the case for Brewin Dolphin does not involve the pursuit of two alternative and inconsistent rights or remedies.”

62.  Morritt LJ explained that the question of what constitutes “consideration” for the purposes of section 238 and the question of whether a contract has been validly terminated by acceptance of a repudiatory breach are different legal questions governed by different rules. As Morritt LJ put it at 2060, “it is theoretically possible for a separate contract to be both liable to discharge by acceptance of a breach going to its root and an integral part of a transaction at an undervalue within the meaning of those words in s.238. The issues being different each has to be decided on its merits.” (emphasis added)

63.  The same logic applies here, a fortiori. The question of whether the Company has a contractual claim against Shenzhi under the Offset Agreement (which underpinned the winding up petition) and the question of whether the Offset Agreement should be reversed as a transaction at an undervalue (which underpins this application) are different legal questions governed by different rules. Taking different positions on different legal questions in relation to the same agreement is not approbation and reprobation.

64.  The established authorities confirm the point more broadly. In Health and Home Ltd v Elite Property Holdings Ltd [2025] EWHC 839 (Ch), the company completed a sale, received payment, and subsequently challenged the transaction as undervalue. The Court ordered the purchasers to make up the shortfall, whilst leaving the underlying sale undisturbed. If the actual receipt of benefits is no bar to a challenge, it follows a fortiori that the mere pursuit of a potential benefit (such as a winding up petition) cannot be a bar either.

The class remedy point: no unfair detriment

65.  There is a further and independent reason why the abuse argument fails, and it is in my judgment the most compelling one. The Respondent’s case rests on the proposition that the Applicants, by petitioning for Shenzhi’s winding up, somehow obtained an advantage or caused a detriment which they now seek to exploit unfairly. I do not accept this.

66.  It is trite that a winding up petition is, in substance, a class remedy. Unlike ordinary adversarial litigation, it is brought not for the exclusive benefit of the petitioning creditor but for the benefit of all creditors of the debtor company. The public interest character of such a petition has several consequences, for example:

(a) Any creditor may give notice to appear as a supporting or opposing creditor, and any creditor may be substituted as petitioner under rule 33 of the Companies (Winding-up) Rules (Cap. 32H). The petitioner also cannot discontinue without the court’s leave.

(b) The winding up order, once made, operates for the benefit of the general body of creditors. The identity of the petitioning creditor is, in substance, immaterial to the outcome.

(c) The rule in Eshelby v Federated European Bank Ltd [1932] 1 KB 254, which restricts amendments to introduce post-writ causes of action in ordinary litigation, has no application to a creditor’s winding up petition: Re Hin-Pro International Logistics Ltd [2016] 1 HKLRD 1367 at §§19–22 (Ng J), approved by the Court of Appeal in [2016] 5 HKLRD 282at §15 (Kwan JA).

67.  The relevant counterfactual is this: suppose the Company had not petitioned for Shenzhi’s winding up. Would the Respondent’s position be any different? The answer is plainly no.

(a) If the Second Interpretation of the Offset Agreement is correct, then the Company had a claim against Shenzhi. That claim existed whether or not the Company chose to enforce it. Any other creditor of Shenzhi could have petitioned for its winding up.

(b) The Respondent itself, as a creditor of Shenzhi for US$114 million (a fact established on the Respondent’s own evidence), could have petitioned for Shenzhi’s winding up at any time.

(c) Shenzhi defaulted on its obligations to the Respondent in April 2018. The remaining US$114,590,505.39 owed by Shenzhi to the Respondent remained unpaid as of May 2019. Shenzhi was, on any view, unable to pay its debts.

(d) Shenzhi’s liquidators have confirmed that Shenzhi has no assets available for distribution. It follows that the identity of the petitioning creditor made no difference whatsoever to the outcome.

68.  In these circumstances, I am unable to identify any unfair advantage gained by the Applicants or any unfair detriment suffered by the Respondent as a result of the Shenzhi winding up. The Respondent can point to no counterfactual universe in which it would have been better off had the Company not petitioned.

The nature of the remedy under section 265D of the Ordinance

69.  The Respondent frames its argument as if the Applicants are simultaneously asserting that the Offset Agreement is “valid” (in petitioning for Shenzhi’s winding up) and “invalid” (in this application). This characterisation misconstrues the nature of the remedy under section 265D of the Ordinance.

70.  The statutory regime for transactions at an undervalue does not render transactions void ab initio. The underlying transaction remains valid. What the Court is empowered to do is to adjust or reverse its prejudicial consequences. As explained in Goode on Principles of Corporate Insolvency Law (5th Ed) at §13-43: “The underlying concept is that the original transaction was and remains valid but that its adverse effects are to be reversed.” This analysis was adcopted by the Singapore Court of Appeal in Rothstar Group Ltd v Leow Quek Shiong [2022] SGCA 25 at §§60–61.

71.  There is accordingly no inconsistency in saying:

(a) the Offset Agreement was a valid transaction that gave the Company a claim against Shenzhi;

(b) the Company pursued that claim;

(c) the claim proved worthless; and

(d) the Court now exercises its power to reverse the prejudicial effects of the transaction.

72.  I note that the Respondent relies on the fact that the Originating Summons seeks a declaration that the Offset Agreement is “void” and “unenforceable”. The form of the relief sought does not alter the nature of the Court’s power under section 265D of the Ordinance. The form of the order I propose to make gives effect to that statutory purpose without declaring the Offset Agreement void ab initio.

Counter-restitution as the complete answer

73.  The principle of counter-restitution provides the complete answer to any suggestion of inconsistency. When a transaction at an undervalue is reversed, the company must return any consideration it received. As explained in Goode at §§13-62 to 13-63, “the justice of the case will usually require a condition of repayment by the company … of any sum received in exchange for property ordered to be restored to the company.”

74.  Applied to this case: upon reversal of the Offset Agreement, the Company would be obliged to return any benefit it received, namely the Shenzhi Receivable. Since that receivable has proved worthless, the counter-restitution credit is nil. There is no windfall to the Company; there is merely restoration of the US$38 million that was removed from the insolvent estate.

The liquidators’ statutory duties

75.  The Respondent invites the Court to find that the Applicants made an “election” by petitioning for Shenzhi’s winding up, and are now bound by that election. With respect, this approach fails to appreciate the statutory duties imposed on liquidators.

76.  The winding up petition against Shenzhi was brought in the Company’s name. The Applicants acted as agents of the Company in causing it to enforce its contractual rights. This is distinct from the present application, which the Applicants bring in their own names exercising a personal statutory power vested in them as liquidators under section 265D of the Ordinance. As the English Court of Appeal explained in Re Oasis Merchandising Services Ltd [1998] Ch 170 at 180–181, there is a “quite separate” category of powers available to liquidators beyond the duty to get in the company’s assets: see also Re Cyberworks Audio Video Technology Ltd [2010] HKCLC 221 at §§6–7 per Harris J.

77.  Section 197 of the Ordinance provides that a liquidator “shall take into his custody, or under his control, all the property and things in action to which the company is or appears to be entitled”. If the Offset Agreement gave the Company a claim against Shenzhi, the Applicants were duty-bound to pursue it. Separately, section 265D of the Ordinance confers upon liquidators the power to challenge transactions at an undervalue. These are complementary duties directed towards the same statutory purpose: maximising recoveries for creditors.

78.  I pause to consider what would truly bring the administration of justice into disrepute. Would it be liquidators diligently pursuing all available remedies to maximise creditor recoveries, as the legislature intended? Or would it be liquidators being disabled from exercising their statutory powers because they previously sought to recover the company’s assets in discharge of their duties? The answer, in my view, is plain.

79.  For these reasons, I reject the Respondent’s abuse of process argument.

STATUTORY DEFENCE

80.  Section 265D(4) of the Ordinance provides that the Court must not make an order if it is satisfied that:

(a) the company entered the transaction in good faith and for the purpose of carrying on its business; and

(b) at the time, there were reasonable grounds for believing that the transaction would benefit the company.

81.  The burden lies on the Respondent to establish this defence: Re Whitestar Management Ltd [2018] EWHC 743 (Ch) at §82.

82.  The Respondent’s case is that the Offset Agreement was designed to avoid “group insolvency” by relieving Shanghai CEFC of liability under the Undertakings. In addressing this argument, I bear in mind that the statutory defence poses a different question from the undervalue analysis above. The undervalue analysis asks what consideration the Company received as a matter of fact and law. The statutory defence asks a forward-looking question: whether there were reasonable grounds, at the time of the transaction, for believing it would benefit the Company.

83.  First, the defence requires benefit to the Company, not to the group. In Re Whitestar at §79, the Court held that benefit to a third party is to be disregarded, save to the extent that it enures to the benefit of the company itself. At §83, the Court continued:

“At that time the company was insolvent and therefore benefit has to be judged by reference to the interests of the company’s creditors. By diverting a substantial part of the purchase consideration away from the company, the company’s creditors were disadvantaged, and therefore there could be no reasonable grounds for believing that the transaction would benefit the company.”

84.  This passage applies directly to the present case. The Company was insolvent. US$38 million was diverted away from its creditors by the Offset Agreement. Any benefit to Shanghai CEFC was irrelevant unless it enured to the benefit of the Company itself.

85.  The Respondent seeks to meet this objection by pointing to the fact, disclosed in the evidence, that the Company owed Shanghai CEFC approximately HK$7.2 billion. The argument is that the Company had a direct financial interest in Shanghai CEFC’s solvency: if Shanghai CEFC went into liquidation, its liquidators would pursue the Company for HK$7.2 billion, making the Company’s position even worse.

86.  I have considered this argument, yet it does not withstand analysis:

(a) The Company was already hopelessly insolvent. It owed external creditors in excess of US$200 million and was manifestly unable to pay its debts as they fell due. Whether the Company also faced a claim of HK$7.2 billion from Shanghai CEFC’s liquidators would make the Company’s insolvency deeper, but it would not make the Company any more or less insolvent.

(b) The Offset Agreement reduced Shanghai CEFC’s contingent liability by approximately US$38 million (roughly HK$300 million). Shanghai CEFC’s total debts were reported to be nearly RMB 190 billion, equivalent to approximately US$26 billion. The notion that reducing its contingent exposure by US$38 million, a fraction of one percent of its total liabilities, could have prevented Shanghai CEFC from going into liquidation is fanciful.

(c) In any event, Shanghai CEFC’s insolvency was caused by systemic financial distress affecting the entire CEFC group, not by its contingent liability under the Undertakings. The chairman of Shanghai CEFC had been detained by the relevant authorities. The group was in financial freefall. There is no credible basis for believing that the elimination of US$38 million of contingent liability could have altered this trajectory.

87.  Secondly, and most tellingly, the Respondent’s own subsequent conduct contradicts its case. If the Respondent genuinely believed that the Offset Agreement would rescue Shanghai CEFC and the group, why did it, in April 2019, assign to its parent approximately US$67 million of Shenzhi’s debts for immediate enforcement against Shanghai CEFC as guarantor? This conduct is irreconcilable with the “group rescue” narrative.

88.  Thirdly, the defence requires that the transaction was entered “in good faith and for the purpose of carrying on its business.” A transaction which gives away a company’s significant liquid asset cannot, in my view, be said to be for the purpose of carrying on its business. As held in Re Whitestar at §82, a transaction that disables a company from continuing its business does not satisfy this limb of the defence. Forfeiting US$38 million crippled the Company’s already failing cash flow and hastened its demise.

89.  For these reasons, I find that the Respondent has not discharged the burden of establishing the statutory defence under section 265D(4) of the Ordinance.

REMEDY

The Court’s discretion

90.  Section 265D(3) of the Ordinance provides that the Court may “make an order that it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction”. The Court’s remedial powers are broad and flexible: see Sayers v Dixon [2025] EWHC 1886 (Ch) at §62.

91.  The Respondent contends that restoration is impossible because Shenzhi has been wound up, Shanghai CEFC has been declared bankrupt, and the Respondent cannot now pursue either entity. In support of this contention, the Respondent relies on two affirmations of expert evidence on Singapore and Mainland law respectively. Even if I were to admit those affirmations, their substance would not alter my conclusion. It is common ground that Shenzhi has been wound up with no assets and that Shanghai CEFC’s bankruptcy proceedings concluded in March 2023. The expert evidence adds nothing to what is already established by the non-expert evidence before this Court.

92.  Ultimately, I do not accept the Respondent’s submission. As Hart J explained in Lord v Sinai Securities Ltd [2004] EWHC 1764 (Ch) at §15, the Court will not necessarily be deterred from making an order by the fact that the counterparty cannot be restored to the precise position it occupied prior to the transaction. The Court’s primary concern is the restoration of the company’s position.

93.  In Johnson v Arden [2018] EWHC 1624 (Ch) at §106, Judge Kyriakides held that, as a matter of its discretion, the Court would give primacy to restoring the company’s position and would make an order effecting this even if this was at the expense of a counterparty, if it was not possible to restore the counterparty to exactly the same position as before.

The appropriate order

94.  In my judgment, it is appropriate to make an order restoring the position to what it would have been had the Company not entered into the Offset Agreement. Specifically, I shall order that the extinguishment of the Outstanding Receivable effected by the Offset Agreement is reversed, such that the Company’s claim against the Respondent for US$37,973,767.59 is revived. The Respondent shall be entitled to credit for any value attributable to the Shenzhi Receivable. As Shenzhi has been wound up with no assets, that credit is nil.

JURISDICTION

95.  For completeness., the Respondent raises a jurisdictional objection on the basis that it is a Singapore company with insufficient connection to Hong Kong. This objection is without merit for two reasons.

96.  First, the Respondent has submitted a proof of debt in the Company’s liquidation. By doing so, it has submitted to the jurisdiction of the Hong Kong Court for all purposes relating to the liquidation: see Re Lehman Brothers International (Europe) [2018] EWHC 1980 (Ch).

97.  Secondly, this is not an ordinary action against a foreign defendant. It is an application by Hong Kong liquidators to set aside a transaction entered by a Hong Kong company in liquidation. The jurisdiction derives from the Hong Kong Court’s supervision of the liquidation of a Hong Kong company. As I noted in Re Shanghai Huaxin Group (Hongkong) Ltd [2024] HKCFI 2542, the proper forum for challenging a transaction entered by a Hong Kong company in liquidation is self-evidently Hong Kong. I also refer to Patrick Cowley and Wong Wing Sze Tiffany v All Powerful Investment Ltd [2020] HKCFI 3173, where this Court set aside mortgages over properties in London and Australia governed by English and Australian law respectively.

98.  The jurisdictional objection is dismissed.

DISPOSITION

99.  For all the reasons stated above, I make the following orders:

(a) An order in terms of the Originating Summons dated 14 February 2025.

(b) A Declaration that, for the purposes of restoring the position under section 265D(3) of the Ordinance, the extinguishment of the Outstanding Receivable effected by the Offset Agreement is reversed, such that the Company’s claim against the Respondent for US$37,973,767.59 is revived.

(c) The Respondent is entitled to credit for any value attributable to any claim acquired by the Company against Shenzhi pursuant to the Offset Agreement. As Shenzhi has been wound up with no assets available for distribution, the value of this credit is nil.

(d) I make a costs order nisi that the Respondent is to pay to the Applicants the costs of and incidental to this application, to be taxed on a party and party basis if not agreed. The costs order nisi will be made absolute within 14 days from the date hereof unless the parties take out an application to vary the same within that period.

(e) A general liberty to apply.

100.  Finally, it remains for me to thank Mr Look Chan Ho for the Applicants and Ms Frances Lok SC, Mr David Fong and Mr Jason Wong for the Respondent for their helpful assistance to this Court.