The Companies Court determines stay of winding-up order where there are no other creditors other than petitioner who is secured creditor
Company and Insolvency
Silver Base (Holdings) Limited (“the Company”) having been wound up by the Court of First Instance on a debt of around HK$506 million ([2023] HKCFI 2916; see also our earlier case note), its 50% shareholder and director Liang Guoxing (“Mr Liang”) applied to stay the winding-up order. On 7 February 2024, the Court refused to stay the winding-up order ([2024] HKCFI 586). Mr Liang further applied for leave to appeal against the refusal of stay.
On 20 March 2024, the Court refused leave to appeal ([2024] HKCFI 855). Anson Wong Yu Yat acted for the Petitioner in successfully resisting both the stay application and the leave to appeal application.
In seeking leave to appeal against the refusal of stay, Mr Liang argued that the Court adopted a wrong approach because this is a case where there are no other creditors other than the Petitioner who is a secured creditor, citing new authorities including Re Progetto Jewellery Co Ltd [2022] HKCFI 364 at §40 where the Court observed that:
“It is well established that where a petitioner asserts that the company is insolvent, secured creditors stand apart from the collective process of liquidation and do not have any real interest in the company’s assets except those on which they have security. It is only the unsecured creditors who have any real interest in the company. This is because a secured creditor has the right to realise the security provided by the company for the purpose of repaying the debt owed to it …”
Deputy High Court Judge Le Pichon accepted the Petitioner’s submission that the citation relied on by Mr Liang is taken wholly out of context:
(1) First, the heading for §§37-45 (which appears immediately above §37) reads: “Whether the Petitioner was a creditor”. That was the question before the court in Progetto. In that case the court concluded that the petitioner was not a creditor. In the present case the Petitioner is unquestionably a creditor of the Company when this Court rejected its defence based on the debt being bona fide disputed.
(2) Second, the court in Progettowas not concerned with the position of secured creditors but “a creditor who owes a debt to the company which remains unpaid” (40).
(3) Third, the background to that case shows that prior to issuing the statutory demand, the petitioner had in effect obtained full payment or the benefit of a full security in respect of the debt by withholding payment of the judgment debt to the company (42). Given that context, the reference to “secured creditors” must mean those creditors whose debts have been fullysecured.
The learned Judge further noted that:
(1) Counsel for the Petitioner invited attention to the fact that the phrase “stand apart from the collective process of liquidation” (in §40 of Progetto) is apparently taken from Fletcher, The Law of Insolvency(5th edn), §24-018. However, in Fletcher, the relevant passage reads:
“In effect, to the extent of the realisable value of the property comprised in the security, such a creditor enjoys the advantage of being able to stand apart from the collective process of the liquidation and to proceed to realise the charge in order to recoup the amount outstanding from the company.” (emphasis added)
(2) Company Law in Hong Kong: Insolvency 2021, §7.035 (which concerns the order of payment to creditors laid down in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32) is the other authority cited in §40 of Progetto. The relevant passage reads “secured creditors can look to their security for the realisation of their claims to the extent of such security” (emphasis added).
Thus, the Court held that only fully secured creditors stand apart from the collective process of liquidation.
Anson Wong Yu Yat
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This article was first published on 28 March 2024.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.