Court of Appeal clarifies creditor benefit test for foreign-company winding up

The Hong Kong Court of Appeal has handed down its reasons in Re Grand Peace Group Holdings Ltd [2026] HKCA 795. The Court of Appeal allowed the appeals, set aside the lower court’s decisions, and ordered the winding-up of a Bermuda-incorporated company.

Background

Grand Peace Group Holdings Limited (the “Company”) was incorporated in Bermuda and previously listed in Hong Kong. It operated through ten wholly owned subsidiaries, most of which were incorporated in the BVI, with business operations in Hong Kong, the PRC and the BVI.

The original winding-up petition against the Company was presented in December 2019. A supporting creditor, Madam Chan, later applied to substitute herself as petitioner and amend the petition. At first instance, the judge dismissed that application and then ordered that the petition be dismissed (see our previous blogpost). 

The central issue was whether the second core requirement for winding-up a foreign company, as set out in the landmark case of Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501 (“Yung Kee”), was satisfied: namely, whether there was reasonable possibility that the winding-up will benefit creditors. 

The first instance judge held that this requirement was not met, and was of the view that the Hong Kong‑appointed liquidators would likely be unable to control the Company’s BVI subsidiaries and therefore could not realise assets effectively. Madam Chan appealed on three grounds: 

1. The judge failed to properly apply the second core requirement in Yung Kee and wrongly held that, after a winding-up order, the Company’s directors could not alter the shareholding of its BVI subsidiary to enable liquidators to obtain control of assets.
2. Even if the judge was right in not simply applying Yung Kee, he should still have found that a winding-up would benefit the applicants. The Company’s subsidiaries owed it approximately HK$327 million, which was likely recoverable and would provide a real benefit to the petitioner.
3. The judge should have drawn inference from the Company’s failure to respond to Madam Chan’s enquiries about its subsidiaries’ assets.

Decision

The Court of Appeal allowed the appeals. 

First, whether liquidators can access assets held through foreign subsidiaries is a fact‑sensitive question. Where directors are in Hong Kong and subject to the Court’s in personam jurisdiction, they may be compelled to assist liquidators. There was no evidence that the Company’s directors would refuse to cooperate (whether voluntarily or ordered by the Court), and no evidential basis for concluding that Hong Kong liquidators could not exercise shareholder rights under Bermuda or BVI law. In the absence of expert evidence, the judge’s conclusions on foreign law could not stand.

Second, the Court clarified that the second core requirement in Yung Kee does not require certainty. It is enough to show a reasonable possibility of a real and tangible benefit. Here, there was evidence that subsidiaries owed substantial sums, potentially more than HK$300 million, to the Company. Those receivables could be pursued by liquidators and represented a realistic source of recovery.

Third, the Court rejected the argument that the Company’s failure to respond to enquiries justified an inference that assets existed. There is no general obligation of discovery in winding‑up proceedings, and silence alone is insufficient. 

The Court concluded that the application should have succeeded at first instance. It allowed the substitution of the petitioner, reinstated the petition, made a winding‑up order, and ordered costs out of the Company’s assets.

Comments

This decision is a helpful reminder that the second Yung Kee requirement is not intended to impose an unduly high threshold. Creditors seeking to wind up a foreign company in Hong Kong need only show a reasonable possibility of real benefit, not certainty of recovery. 

The Court’s approach is also commercially pragmatic: assets held through offshore subsidiaries will not, without evidence, defeat jurisdiction or utility. Where directors are within Hong Kong’s reach, liquidators may be able to obtain assistance in accessing group assets, and that possibility is capable of satisfying the second core requirement in Yung Kee. 

It is quite common for a foreign company listed in Hong Kong to have directors in Hong Kong who may cooperate, whether voluntarily or pursuant to a court order, with liquidators in obtaining control over offshore subsidiaries. The decision should give creditors greater confidence in pursuing Hong Kong winding-up relief against offshore holding companies with meaningful Hong Kong connections.

For more information, please contact Jojo Fan, Managing Partner, Paul Quinn, Partner, Rachael Shek, Partner, Truman Mak, Partner, Sara Troughton, Knowledge Lawyer or your usual Herbert Smith Freehills Kramer contact.