Unpaid Wages as a Special Legislative Creature: Relationship between s.32 of the Employment Ordinance, Cross-Claims, and Winding-Up

In Re Greater Bay Area Dynamic Growth Holding Limited [2025] HKCFI 3316, the Court offered guidance on a novel area of the winding-up regime, i.e. whether a petition debt based on unpaid wages constitutes “special circumstances” justifying the Court’s discretion to wind-up a company, even where there are genuine and serious cross-claims.

The Court answered in the affirmative, in light of the heightened protection offered to unpaid wages under the Employment Ordinance (Cap.57) ( “EO”). Such practice is also found to be consistent with the binding authority of Shandong Chenming (CA) [2024] 2 HKLRD 1040.

The Petition debt is based on a Labour Tribunal award of around HK$1.2 million plus interest (“LT Award”) against the Company, representing unpaid wages to the Petitioner (the Company’s former employee). The LT Award was neither challenged nor appealed against.

The Company then raised two cross-claims against the Petitioner, in an attempt to suggest that these are bona fide crossclaims which far exceeds the Petition debt, and thus the Company should not be wound up.

It was common ground that where a petition is met with a genuine and serious cross-claim, the rule of practice is to dismiss the petition save in special circumstances where the court may exercise its discretion to wind up the company (§14).

The question before the Court therefore boiled down to whether unpaid wages constituted “special circumstances” warranting the Court’s exercise of discretion (§16).

Question 1: Are the Company’s cross-claims against the Petitioner impermissible “deductions” from his wages under Section 32(1) EO? If so, does this amount to “special circumstances”?

Question 2: Is the autonomous nature of an unpaid wages claim analogous to that of dishonoured cheques or freight claims, the latter two of which would not amount to “special circumstances” justifying a discretionary winding up order?

The Court held that there were special circumstances in the present case which justified the exercise of its discretion to make a winding up order against the Company (§47). In particular:

The answer to Question 1 is “yes”:

1. Wages claims are given special standing by EO, as the failure to pay might attract criminal sanctions (s.63C of the EO). The fact that no payment entitlement outside the EO is protected by criminal sanctionshows a clear legislative to afford maximum protection to the payment of wages (§§40, 43).
2. Following Xu Yi Jun(CA) [2021] 1 HKC 191, any attempt by the Company to “offset” the unpaid wages (i.e. petition debt) by way of cross-claims amount to tactical “deductions” which are expressly disallowed by s.32(1) of EO (§39). The word “deduction” in s.32(1) EO was intended to have an extended (not confined) area of application (§28).
3. Insofar as the doctrine of merger (rooted in finality of litigation) is concerned,¹ this does not bar the Petitioner from relying on s.32 EO in this Petition. Importantly, the issue before the court is one of exercise of discretion, and the court is entitled to take into account the relevant circumstances of the case, namely, the LT Award is based on claims which were subject to s.32 EO (§23).
4. In the present case, to allow the Company to pursue their cross-claims would mean that the unpaid wages would be held off until judgments for those cross-claims were handed down. This would frustrate the purpose and effect of s.32 EO. In exercising judicial discretion, the Court would strive to uphold the law rather than frustrating it (§43)

The answer to Question 2 is “no”:

1. The Company argued that the principle of autonomy (i.e. a court hearing a claim for payment of a negotiable instrument, such as bills of exchange and freight, should not consider a cross-claim or defence) should not apply to winding-up petitions based on non-payment of the instrument (§18).
2. The Court rejected this argument. This is because dishonoured cheque or freight claims derive their autonomous nature from common law rule or practice, while unpaid wages claims are autonomous by reason of statute, i.e. s.32 of EO (§41). They are not analogous.
3. As such, even if petitions based on dishonoured cheque and freight claims might not amount to “special circumstances”, unpaid wages claims can still amount to “special circumstances” (§42).

1. The Court has a discretion to make a winding-up order even when there is a genuine and serious cross-claim (§§9-11, 47). Such discretion is based on the rule of practice explained in Shandong Chenming(CA) (as opposed to a rule of law) which may be displaced under “special circumstances” (§14).
2. This is the first case in Hong Kong recognising a petition debt based on unpaid wages as one of these “special circumstances” (§47). The specialness of unpaid wages is derived from the heavy protection and robust safeguard offered by the statute (EO), which includes criminal sanction (§§24-25). The Court in exercising its discretion to wind-up the Company would not frustrate such clear legislative intention (§43).
3. As such, employers faced with a petition based on unpaid wages should not take advantage of cross-claims against the petitioner, even if such cross claims are genuine and serious.

Link to the Judgment: https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=170974&QS=%28%7Bphoebe+lee%7D+%25representation%29&TP=JU

Kwan Ping Kan with Phoebe Lee (pupil barrister) appeared for the Petitioner.

[1] That is, the Petitioner’s cause of action in respect of the unpaid wages was merged into the LT Award, and his sole remedy is to enforce the LT Award (§22).