Re China City Construction (International) Co, Ltd

Court of First Instance
Companies Winding-Up Proceedings No 166 of 2018
Harris J
10 May 2019

Company law — voluntary winding-up — whether should be converted to compulsory winding-up — if majority of creditors preferred voluntary liquidation, petitioner would have to show valid reason

An insolvent company, C, was in a creditor’s voluntary liquidation (“CVL”). The adjourned hearing of the petition by a creditor (the creditor) for the compulsory winding-up (“CWU”) of C was effectively an application to convert it into a CWU and for new liquidators to be appointed.

Held, staying the petition, that:

1) The principles of immediate relevance were first, that if a CVL was already in progress and the majority of the creditors in value preferred it to continue the petitioner would have to show some valid reason or special circumstance why the majority view should not prevail. Second, less weight was to be given to creditors who were related to the management of the company. Third, the liquidators must not only act impartially but be seen to act impartially. Fourth, the court was entitled to have regard to general principles of fairness and commercial morality and not leave substantial creditors with a legitimate sense of grievance. Fifth, questions of additional expense including ad valorem fees payable to the Official Receiver were best left to the majority of creditors (Chu Kong v Donald Edward Osborn (HCCW 1/2016, [2016] HKEC 2710) applied). (See para. 9.)

2) Here, the majority in value of creditors wished C to remain in CVL. This was in large part because of the size of a debt owed by C to a company whose management was related to C. Hence, the significance of the majority view was not as great as it would otherwise be. However, that did not mean that it was unnecessary for the creditor to identify a valid reason for converting the CVL into a CWU. (See para. 10.)

3) As for the concern about the independence of the liquidators, because they were originally appointed by the directors, there was no reason to doubt this. It was quite normal for large companies, with sizable financial debt owed to sophisticated creditors, for the creditors to require the appointment of independent insolvency specialists as independent financial advisers to report on the company. Given that the independent financial advisers acquired useful knowledge it was common for them to then be appointed liquidators (Bank of Scotland Plc v Targetfollow Property Holdings Ltd [2010] EWHC 3606 (Ch) applied). (See paras. 13-15.)

4) The concern about the lack of supervision by the Official Receiver (“OR”) was of little substance. The OR’s office did not closely monitor liquidations carried out by independent insolvency practitioners. (See para. 15.)

5) As for C not providing any explanation for going into a CVL, and that inviting concerns about C’s motives, a CVL was conventional advice from experienced insolvency practitioners in such circumstances. (See para. 18.)

6) There was no reason why the questionable transactions could not be checked and investigated by the liquidators. However, the petition could be stayed so that the possibility of an extended claw-back period was given. (See paras. 17, 20.)


This was the resumed hearing of a winding-up petition. The facts are set out in the judgment.



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