Introduction
In Re Grand Peace Group Holdings Ltd [2026] HKCA 795, the Court of Appeal clarified how the “second core requirement” under the Yung Kee framework is to be evaluated in the context of a winding-up petition against a foreign-incorporated holding company operating through offshore subsidiaries.
Factual Background
Grand Peace Group Holdings Ltd (the “Company”) was a Bermuda-incorporated, formerly Hong Kong-listed investment holding company operating in funeral services, loan financing and elderly care homes through 10 wholly owned subsidiaries (most BVI-incorporated), including Merit Vision Holdings Limited and Elite Finance Global Limited.
A winding-up petition was presented against the Company under section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), with Madam Chan Tsik Yan subsequently seeking to be substituted as petitioner. Following the cancelation of the Company’s listing and the failure of the envisaged restructuring plan, the live issue for the Court was whether the second core requirement under Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501 (“Yung Kee”), namely, that there be a reasonable possibility that the winding-up order would benefit those applying for it, was satisfied.
Delivering the reasons through Barma JA, the Court of Appeal clarified several important aspects of the second core requirement.
The Yung Kee Route Remains Viable
The CA clarified that, where directors are subject to the in personam jurisdiction of the Hong Kong court, the mechanism envisaged at [39] of Yung Kee remains available: liquidators may apply to the court for an order compelling directors to execute documents enabling them to take control of offshore subsidiaries. Such an order does not conflict with the principle that directors’ powers cease upon winding up – it represents the court giving effect to its own winding-up order.
Evidentiary Threshold is a Question of Fact
The CA emphasised, consistent with the approach in Re NewOcean Energy Holdings Limited [2022] HKCFI 2501 and Re Carnival Group International Holdings Limited [2022] HKCFI 2668, that whether Hong Kong liquidators can obtain control over assets held by foreign-incorporated subsidiaries is fundamentally a question of fact.
In this case, the majority of directors were Hong Kong-based; Great Mark Holdings Limited was Hong Kong-incorporated; and the directors of Merit Vision (holding substantial account receivables) were also in Hong Kong. There was no expert evidence on Bermuda or BVI law to suggest the Yung Kee route would be unworkable, and past experience had shown many instances where Hong Kong liquidators successfully realised assets of foreign-incorporated subsidiaries through this route without apparent difficulty.
Presence of Directors Alone is Insufficient
The CA was careful to state that the mere presence of directors within the jurisdiction does not, of itself, satisfy the second core requirement. It remains necessary to demonstrate that there are assets which might thereby become accessible to liquidators, or some other tangible benefit obtainable through the directors’ cooperation.
The Nature of the Required “Benefit”
The CA further held that while the benefit must be tangible and real, it need not be shown to be achievable with certainty. Consistent with Shandong Chenming Paper Holdings Limited v Arjowiggins HKK 2 Limited [2020] HKCA 670, there must be a “real possibility, rather than a merely theoretical one” of benefit. On the evidence, Merit Vision and Elite Finance held substantial account receivables and were not said to be balance sheet insolvent, while the Company’s 2019 interim financial report indicated current assets exceeding HK$327 million against current liabilities of around HK$164 million. The potential for meaningful recoveries through liquidators’ investigations itself constituted a tangible benefit sufficient to satisfy the second core requirement.
Key Takeaways
This decision provides important clarification for insolvency practitioners advising on creditor petitions against foreign-incorporated holding companies with Hong Kong-resident directors and offshore operating subsidiaries:
- The Yung Kee mechanism remains viable where appropriate factual underpinnings exist, enabling Hong Kong liquidators to obtain control of offshore subsidiaries through orders directed at Hong Kong-resident directors.
- The threshold is “reasonable possibility”, not certainty. The potential for investigation by liquidators – particularly where the company or its subsidiaries appear balance sheet solvent – may itself qualify as a tangible benefit.
Read the judgment here: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=179765&currpage=T
Mr Jose Maurellet SC and Mr Lai Chun Ho, instructed by Oldham, Li & Nie, for the appellant.
