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]).