Court clarifies approach to multiple substitution applications in a winding-up petition and applications based on enforcement of arbitral awards: Re China First Capital Group Ltd [2025] HKCFI 1441

There has been a flurry of disputes arising from unpaid bonds issued by listed companies. For example, see Re China Zenith Chemical Group Ltd (formerly known as Xinyang Maojian Group Ltd)[2024] HKCFI 2769, Re Leading Holdings Ltd [2023] 4 HKLRD 71 and Re China Oceanwide Group Limited [2023] HKCFI 455.

In this case, the Court was faced with two applications to substitute the original petitioner. Interestingly, while both applicants were unpaid bond holders, the basis of their applications was different.

Madam Yin relied on the underlying bond itself and Madam Wu (who was represented by our members, Ronald and Linda) relied on an enforcement order whereby Madam Wu was granted leave by the Court to enforce a PRC arbitral award. The PRC arbitral award itself was based on an agreement entered between Madam Wu and the Company after the Company initially defaulted on the bond subscribed by Madam Wu. After dealing with Madam Yin’s application, Recorder Jenkin Suen SC took the opportunity to clarify the Companies Court approach to petitioners who rely on an enforcement order based on a PRC arbitral award.

In this respect, the Company advanced two defences:- (1) the enforcement order granted leave for Madam Wu to enforce the PRC arbitral award but does not itself confer locus on Madam Wu to present a winding-up petition; and (2) that the Company applied to the supervisory court to set aside the PRC arbitral award.

The Court held, agreeing with the submissions of Madam Wu, that the cumulative effect of sections 84 and 92 of the Arbitration Ordinance (Cap. 609) was to convert the mainland arbitral award into a judgment debt, which in turn was sufficient to confer locus on Madam Wu. The Court also rejected the argument that by relying on the enforcement order to present a winding-up petition, Madam Wu was effectively seeking the enforcement of the PRC arbitral award which the Company argued went against the principle that a winding-up petition was a class remedy and does not constitute an enforcement of a judgment/arbitral award.

As for the Company’s second limb of defence, regarding improper service and a void dispute resolution clause were found by the Court to be without merit. The Court placed emphasis on the fact that the Company did not either apply to set aside the enforcement order in Hong Kong or the award in the supervisory court for a period of over 6 months tends to suggest that the setting aside application was belatedly pursued as a tactical move. The Court also took into account the fact that the Company only made brief submissions on the merits of the set aside application in the PRC Courts.

The Court found that the Company has not discharged the burden of showing that there are bona fide disputes on substantial grounds in respect of the debts.

At the end, notwithstanding the fact that the Court accepted Madam Wu’s submissions and ordered costs to be paid by the Company, it allowed Madam Yin to substitute as petitioner due to the fact that her application was made first in time.

Key Takeaways:-

- The Companies Court will not hesitate to deal with, at the same time, multiple applications to substitute a petitioner but will substitute the petitioner with the applicant who took out the application earlier in time

- In order to determine whether an applicant for a substitution has the right to present a petition pursuant to Rule 33 of the Companies (Winding-Up) Rules ( Cap. 32H ), the winding-up Court will determine whether the company can demonstrate a bona fide dispute on substantial grounds.

- The burden is on the company to show that there is a bona fide dispute on substantial grounds and the Companies Court will expect the Company to demonstrate this both by way of evidence and submissions.

- While a winding-up petition itself is a class relief and not intended for the purpose of enforcement of individual rights, an arbitral award, which was allowed to be enforced in Hong Kong by the Courts, will be treated as a judgment debt and therefore can confer locus.

Full judgment is available here.

Ronald and Linda both have strong experience with disputes involving both personal and corporate insolvency, having acted for both for and against petitioners. On the other end of the spectrum, Ronald and Linda successfully resisted a winding-up petition on the basis of lack of locus in another case involving bond holders in Re China Oceanwide Group Limited [2023] HKCFI 455.

For details about Ronald and Linda, please see here.