Update on the liquidation of China Properties Group Limited (“CPG“):  Further to our previous article where the former director of CPG, Mr Wong, was ordered by the Hong Kong court to pass written resolutions to facilitate the winding up of CPG, the Hong Kong court once again stood fast in lending its assistance to the liquidators in face of the extensive obstructions by Mr Wong and his associates (“Former Director’s Camp“).

In Summit Prestige Enterprises Ltd v Peak No 1 Holdings Ltd [2024] HKCFI 999, the Honourable Madam Justice Linda Chan dismissed the discharge summonses issued by the Former Director’s Camp (to discharge / set aside the appointment of the holdco’s (CPG) liquidators as provisional liquidators of its Hong Kong subsidiaries (“Appointment Order“) and ordered that the Appointment Order to continue pending determination of the appeal of the CPG winding-up order (“Appeal“).

The Court summarised the events since the making of the CPG winding-up order and the obstructive acts conducted by the Former Director’s Camp:

• Mr Wong caused legal proceedings to be commenced in the name of CPG to enjoin the liquidators from accessing or inspecting documents of CPG and its subsidiaries ([25]);
• Mr Wong caused the BVI subsidiaries to commence BVI proceedings in restraining the liquidators from taking control of the BVI subsidiaries until an order for recognition and assistance had been obtained from the BVI court[1] ([37]);
• Despite the Hong Kong court’s order for Mr Wong to pass the relevant written resolutions, the Former Director’s Camp purportedly approved the removal of Mr Wong as director of the BVI subsidiaries, and under this pretence, passed further resolutions to purportedly resolve that the written resolutions were invalid ([43]-[45], [70(1)]);
• The Former Director’s Camp took steps to change the legal representatives of the 4 wholly owned subsidiaries of the Hong Kong subsidiaries (which hold the Group’s main real estate project in Chongqing) from persons who are subject to the in personam jurisdiction of the Hong Kong court, to persons residing outside of the jurisdiction ([59]); and
• After persuading the Court (through his counsel) that it was not “impracticable” for the Hong Kong subsidiaries to hold EGMs as requisitioned by the BVI subsidiaries (i.e. the Petitioners in these actions), Mr Wong procured his associates to frustrate / vote against the resolutions in appointing the holdco’s liquidators as additional directors of the Hong Kong subsidiaries ([55], [70(3)].

Against these obstructions posed by the Former Director’s Camp to prevent the liquidators from taking over the Hong Kong subsidiaries, the liquidators considered that there was an “overwhelming need” to immediately appoint themselves as provisional liquidators over the Hong Kong subsidiaries. For the following reasons, Chan J was satisfied that there were good grounds to make / continue the Appointment Order.

First, upon the making of the CPG winding-up order, the former directors (including Mr Wong) ceased to have any power to act in the name or on behalf of CPG (e.g. to commence proceedings, to pass resolutions) other than for the limited purpose of pursuing the Appeal, or to seek a discharge of the appointment of the liquidators ([9]). Vice versa the liquidators were the only persons entitled to take control over the BVI and Hong Kong subsidiaries ([69]).

However, the Hong Kong subsidiaries remained under the control of the Former Director’s Camp as a result of their abovementioned actions ([69]). In particular, “it was abusive for Mr Wong to flout the 15 Sept Order by signing the Resolutions on one hand and procuring his associates to pass… Resolutions for the purpose of invaliding the very Resolutions he signed” ([70(1)]). Unless and until the Former Director’s Camp is displaced, the liquidators had no means to ensure that the assets of the Hong Kong subsidiaries were being safeguarded ([69]).

Secondly, although there was no basis for the Former Director’s Camp to deny the liquidators to represent the BVI subsidiaries (i.e. the Petitioners in these actions), or to change the constitution of the board of the Hong Kong subsidiaries, the constant change of the boards of the Hong Kong subsidiaries would only leave much uncertainty in their states. If this is allowed to continue, it would only result in more disputes and litigations between the Former Director’s Camp and the liquidators – the Appointment Order thus put such uncertainty to an end. ([70]-[72])

Thirdly, in response to the allegation of material non-disclosure on part of the BVI subsidiaries (i.e. the Petitioners in these actions) that the Appointment Order was “unprecedented”, Chan J emphasised that the Court can and will appoint liquidators of the holding company as provisional liquidators of the subsidiaries, where the circumstances warranted the appointment ([79(1)]).

Takeaways

The Hong Kong Court once again made clear that the making of a winding-up order brings into operation a statutory scheme for dealing with the assets of the company that is ordered to be wound up, and all powers of dealing with the company’s assets, including the power to carry on its business, are exercisable by the liquidator for the benefit for those persons who are entitled to share in the proceeds of realisation of assets under the statutory scheme. Thus, the former directors ceased to have any power to act in the name of the company other than for the limited purposes of pursuing the appeal against the winding up order, or to seek a discharge of the appointment of the liquidators.

In that vein, the Court would be prepared to lend assistance to liquidators to carry out their duties, which, in this case, includes appointing them as provisional liquidators of the subsidiaries, if it is appropriate to do so.

See full judgement here.

[1] This culminated into the subject matter of our previous article where Mr Wong was ordered by the Hong Kong court to pass written resolutions to ratify the appointment of one of the holdco liquidators as sole director of the BVI subsidiaries. It also appears to be in line with BVI court’s position as Wallbank J observed that the liquidators were entitled to procure CPG to exercise its right as shareholder of the BVI subsidiaries without first seeking an order for recognition or assistance ([48]).

The Hong Kong market has in recent years seen a number of listed companies having to go through the painful process of prolonged suspension of trading as a result of failure to publish their financial statements to the public in accordance with the timeframe prescribed in the Listing Rules.  A portion of these suspensions arose as a result of whistleblowing or anonymous complaints pertaining to potential irregularities in the listed companies’ financial statements, misconduct of senior management or other corporate misfeasance.  As a result of such complaints, the affected listed companies may be required to conduct internal investigations to address the issues arising from the complaints and undertake remedial measures before trading of the shares can be resumed.

How one handles whistleblowing or anonymous complaints will potentially have significant implications on the listed companies.  While it is debatable whether a prolonged suspension is a proportionate result of whistleblowing which may or may not be substantiated after an internal investigation, it is clear that potential misconduct or irregularities which affect the interests of public shareholders are often uncovered by whistleblowing.

Looking at things from a broader angle, whistleblowing is also one of the key ways for management to find out about potential wrongdoing or misconduct within an organisation, so that appropriate measures can taken to manage the risks arising before it is too late.

It goes without saying that in order to encourage a whistleblower who intends to make a report of suspected wrongdoing, one may need to give sufficient assurances and protection to a whistleblower (most notably, confidentiality and safeguards against retaliation).

An organisation may have its own whistleblowing policy offering protection to whistleblowers and establishing a process to handle whistleblowing or anonymous complaints.  In addition to such internal policies and procedures, one may also see if a whistleblower is offered any statutory protection, especially when whistleblowing takes place outside a specific organisation.

Compared to other jurisdictions, Hong Kong does not currently have a composite piece of legislation which is designed to provide a comprehensive scheme for whistleblower protection. Instead, the whistleblower protection in Hong Kong is scattered around various ordinances.

It can be foreseen that a reform to introduce a composite piece of legislation for whistleblower protection (whether or not this will happen) will not be an easy task, as any such legislation should balance between protecting whistleblowers from retaliation and blindly offering wide protection such that it invites frivolous and plainly unsubstantiated complaints. In addition to that, the legislation will have to take into account all the other existing protections that are offered to whistleblowers under various legislations.

Please see our article that sets out some examples that are relevant to Hong Kong’s regime on whistleblowing for more details.

MinterEllison has collaborated with the Fresh Fish Traders’ School’s (FFTS) once again by sponsoring the Chinese New Year Card Design Competition. The winning design was chosen as our official Chinese New Year greeting card for our clients. As a token of our appreciation, participating students received vouchers. This initiative is one of the many ways that MinterEllison contributes to the community.

Our Partner Katherine U, associate Thomas Sham, and other members of our Community Investment Committee attended the awards ceremony at FFTS on 22 March 2024 and presented the awards to all the winners.

On 2 November 2023, the Securities and Futures Commission (the “SFC“) issued two highly anticipated circulars on tokenisation (i.e. the Circular on intermediaries engaging in tokenised securities-related activities (the “Tokenised Securities Circular“), and the Circular on tokenisation of SFC-authorised investment products (the “Tokenised Investment Products Circular“)). The Tokenised Securities Circular aims to provide conduct-related guidance to intermediaries engaging in tokenised securities-related activities, while the Tokenised Investment Products Circular sets out the requirements and additional safeguards under which the SFC would consider in allowing tokenisation of investment products authorised by the SFC under Part IV of the Securities and Futures Ordinance (Cap. 571) for offering to the public in Hong Kong.

Notably, the Tokenised Securities Circular now allows retail access to the distribution and marketing of “Tokenised Securities”, a concept defined in the circular itself. This represents the SFC’s shift in attitude since its Statement on Security Token Offerings dated 28 March 2019, where security tokens were previously considered as “complex products” requiring additional investment protection measures which should only be offered to professional investors.

Please see our article for more details.

The Hong Kong International Arbitration Centre (“HKIAC“) has proposed amendments to the 2018 version of its Administered Arbitration Rules (the “2018 Rules“) through consultation. A copy of the amended draft Rules is available here.

The key proposed amendments to the 2018 Rules are summarised as follows:

1. Diversity in arbitral appointments (see proposed Art. 10): parties and co-arbitrators are encouraged to consider “diversity” when selecting arbitrators, but the HKIAC offers no definition or guiding principles regarding the concept of “diversity“.
2. Clarifications of the arbitral tribunal’s powers (see proposed Art. 14.6, 14.9 and 14.10): the proposed amendments clarify that the tribunal has power to determine preliminary issues and enhance the HKIAC’s role in matters that impact the integrity of the arbitral process, such as the appointment of arbitrators and revocation of an arbitrator’s mandate.
3. Enhancements to the mechanism for a single arbitration to proceed under multiple contracts (see proposed Art. 30.2): the proposed amendments allow the HKIAC to appoint the arbitral tribunal if it determines that the arbitration is properly commenced under Article 30, with parties deemed to have waived their rights to designate an arbitrator.
4. Considerations for cost apportionment (see proposed Art. 35.3): factors such as the scale and complexity of the dispute, parties’ conduct, outcome related fee structure agreements, and adverse environmental impact are proposed to be taken into account when deciding how to apportion arbitration costs.
5. Enhanced information security provisions (see proposed Art. 47): Data protection and cybersecurity are critical in international arbitration, as demonstrated by the hacking incident of the Permanent Court of Arbitration website during the China-Philippines maritime border dispute in July 2015. In light of this background, the HKIAC has taken steps to address the risk of cyberattacks such as recognising secure online repositories as valid means of communication and is now proposing amendments empowering the arbitral tribunal to make decisions, orders, or awards in respect of any breaches of information security measures agreed upon by the parties or directed by the tribunal.
6. Determination of fees payable to arbitrators (see proposed §5.1 of Schedule 2 and §5 of Schedule 3): the proposed amendments grant the HKIAC the authority to review and adjust the fees and expenses of the arbitral tribunal if parties have chosen to pay based on an hourly rate. Similarly, if parties have elected to pay by reference to an ad valorem fee scale, the HKIAC is empowered to determine the amount of fees and expenses to be paid to any arbitrator.
7. Clarifications of the powers of the emergency arbitrator (“EA“) (see proposed §10 of Schedule 4): the 2018 Rules include an emergency arbitration mechanism which enables parties to seek urgent interim relief from an emergency arbitrator prior to the establishment of the arbitral tribunal. Typically, the HKIAC appoints an EA within 24 hours of receiving an application, and the EA will make an emergency decision within 14 days. The proposed amendments clarify that the EA has the power to issue any order during this 14-day timeframe.

The consultation period concluded on the 23^rd of this month. We shall await further updates from the HKIAC regarding the finalisation of the timing and form of the amendments.