In Re China Evergrande Group (in liquidation) [2025] HKCFI 1638, the Court clarified that the ultimate holder of a note or a bond in the global form cannot be appointed as a member of a committee of inspection (“COI”) under section 206 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32).
Factual Background
The present matter arises from the conduct of one of the largest liquidations in Hong Kong’s history. On 29 January 2024, China Evergrande Group (the “Company”) was wound up and a regulating order was made, the terms of which required the liquidators to seek directions from the Court under section 200(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32, “CWUMPO”) on the appointment and composition of the COI. On 10 October 2024, the Company’s Liquidators accordingly applied for directions on the appointment and composition of the COI.
While the stakeholders agree on most issues, one controversial issue dividing the parties is whether a person holding an economic interest (and not a legal right) in a note or bond in the global form may be appointed as a member of the COI in these circumstances (the “Eligibility Issue”).
In this regard, (1) a very substantial amount of debts provable in the Company’s liquidation arose out of notes held by trustees on behalf of ultimate holders, and (2) there is an expectation in the market that ultimate holders, who have been the most active community involved in attempts to restructure the Company’s indebtedness and in the petition which led to the winding up of the Company, should be eligible for appointment as members of the COI.
As the Liquidators acknowledged, the Eligibility Issue has never been considered or decided by the Hong Kong courts, and the legal position in other common law jurisdictions is also far from clear. As such, leave was given to the Official Receiver and the ultimate holders (if they so desire) to argue on the Liquidators’ application.
The Judgment
The Court eventually decided that the ultimate holders are not eligible to be appointed as members of the COI, which aligns with the stance taken by the Official Receiver.
The parties agree that the regulating order regime, as set out in CWUMPO sections 227A to 227E, was unique to Hong Kong, the purpose of which was to prescribe an alternative procedure in liquidation involving a large number of creditors where it would be difficult to follow the normal procedure. Building upon this, the Court reasoned that:-
- Looking at the legislative history, by the creation of the regulating order regime, the legislature did not intend to modify or disapply the general requirement applicable to other companies that the COI shall only consist of “creditors and contributories”. The only provisions which the regulating order regime could displace are procedural, as opposed to substantive, requirements.
- “Creditor” in this context in turn refers to a person holding a legal right over a debt or liability owed by the company at the commencement of winding up. A person holding a mere beneficial or economic interest in a debt/obligation cannot take action against the company and can only do so through the person holding the legal right in that debt/obligation, and as such is not the Company’s creditor. It follows from this that ultimate holders of notes and bonds issued by the Company are not eligible to be appointed as members of the COI.
- Further, considering specifically the rules in the Companies (Winding Up) Rules (Cap 32H) governing the creditors’ entitlement to attend and vote at creditors’ meetings, “creditor” in this context refers only to creditors whose debts are quantified, ascertained and not subject to contingency. As such, contingent creditors are not “creditors” for the purpose of determining eligibility to serve on the COI. However, even if “creditors” included contingent creditors, the ultimate holders were still not contingent creditors, adopting the reasoning of DHCJ Jenkin Suen SC (now Recorder Jenkin Suen SC) in Re Leading Holdings Group Limited [2023] HKCFI 1770.
Key Takeaways
The present decision thus provided much needed clarification as to who is eligible to be appointed as a member of the COI in a liquidation. Importantly, given the Court decided that the regulating order regime did not supersede the general rules as to the constitution of a COI, the decision in Re China Evergrande Group (in liq) will likely be of general application to companies wound up under CWUMPO. The detailed description of who a “creditor” in the judgment is will also be beneficial to insolvency practitioners generally, especially since a company’s debts and obligations are held through increasingly complex structures.
The full judgment can be found at this link.
Dr William Wong SC, JP leading Ms Regina Yip, instructed by the Official Receiver’s Office, acted for the Official Receiver.
