1. When a company goes into liquidation, who may sue in its name – and in which court? In Chu Kong v Lau Wing Yan [2026] HKCA 1004, the Court of Appeal (Kwan VP, Chu VP and Cheng J) gave a firm answer that carries significance well beyond Hong Kong’s borders.
2. Dismissing an appeal in one chapter of a sprawling shipping dispute that has spawned no fewer than 33 actions in Hong Kong alone, the Court held that a contributory has no locus standito bring a double derivative action on behalf of a company in liquidation, and that the integrity of a foreign liquidation must be respected by directing aggrieved parties back to the appointing court. Grounds 1 and 2 of the appeal – on standing – were dispositive, and they repay close attention.
The Present Dispute
3. The appellant, Mr Chu Kong, and the first respondent, Mr Lau Wing Yan, were former business partners in a shipping empire of over 100 companies. Their falling-out, described by one judge as “a total war of attrition,” produced litigation across Hong Kong, the British Virgin Islands and Singapore. At the centre sat Ocean Sino Limited (“OSL”), a BVI-incorporated joint venture owned equally by Chu and Lau, and its wholly-owned Hong Kong subsidiary, PBM Asset Management Limited (“PBM”).
4. OSL was wound up in the BVI on the just and equitable ground– an order ultimately restored by the Privy Council in October 2020 – and its liquidators took control of both OSL and PBM. Chu then commenced a double derivative action in Hong Kong (HCA 1885/2021), purportedly on behalf of OSL and PBM, alleging breaches of fiduciary duty by Lau and three of the OSL liquidators. Au-Yeung J struck it out, principally because Chu had no standing: a derivative action is not available where a company is in liquidation. The Court of Appeal agreed, and that finding alone was fatal to the appeal.
A Contributory cannot Sue Derivatively for a Company in Liquidation
5. The applicable principles were not in dispute. Where a wrong is done to a company, the company is the proper plaintiff. A derivative action is a limited exception, available only where it can prima faciebe shown that the alleged wrongdoers control the company and can thereby stifle an action against themselves – the familiar exception to the rule in Foss v Harbottle (1843) 2 Hare 461.
6. That rationale evaporates once a company enters liquidation. As the Court explained, the company in liquidation–a nd its wholly-owned subsidiary – come under the control of the court through the liquidator as an officer of the court, and are no longer in the grip of any wrongdoer. There is, in the words of the Privy Council authority Ferguson v Wallbridge [1935] 3 DLR 66, a “vast distinction” between a company that is a going concern and one in liquidation. In the latter case there is no need for a derivative action at all: a contributory’s proper course is to go to the companies court and ask for an order that the liquidator bring the action, or that the contributory be permitted to bring it in the company’s name on the usual indemnity – with the court acting as a filter against wrong-headed litigation.
7. Chu’s central argument was that the OSL liquidators could not be regarded as independent precisely because they were the persons against whom wrongdoing was alleged, so that the Foss v Harbottleexception was engaged. The Court rejected this as untenable. Quite apart from a factual finding that the liquidators could not have been wrongdoers in control, the argument overlooked that the liquidators are subject to the supervision of the BVI court. There was an established mechanism – a challenge to the liquidators’ decisions under section 273 of the BVI Insolvency Act 2003 and/or an application to remove them – that gave Chu an adequate alternative remedy. He was not “left without an alternative remedy”.
The Cross-Border Significance
8. The significant aspect of the judgment lies in how the Court applied established insolvency principles to the cross-border setting. The liquidators here were appointed not by the Hong Kong court but by the BVI court. The Court was “inclined to agree” that the principle protecting a court’s own officers from collateral suit “applies with equal force to a cross-border context.”
9. The reasoning rests on two interlocking ideas. First, the courts administering corporate insolvency will not allow their officers to be sued in another court over the discharge of their duties; the proper remedy is to apply to the very court in which the officer was appointed, which can then grant appropriate relief and protect the integrity of the winding-up process under its supervision. Second, this dovetails with the doctrine of modified universalism, under which the Hong Kong court has a common law power to assist foreign insolvency proceedings and recognise foreign court-appointed office-holders.
10. Thus, a party aggrieved by the conduct of foreign court-appointed liquidators of a BVI company– even where that conduct concerns the management of a Hong Kong subsidiary and the commencement of Hong Kong winding-up proceedings – should ordinarily apply to the appointing court for directions, not sue the liquidators collaterally in Hong Kong. Recognition and assistance under modified universalism is a two-way street: a court that extends comity to a foreign liquidation will not readily allow its own process to be used to undermine that liquidation.
Practical Takeaways
11. For practitioners advising shareholders, contributories or creditors of a company in liquidation– particularly in the offshore and cross-border structures that are ubiquitous in Hong Kong commercial life – the decision offers several lessons.
12. First, where the company is in liquidation, the remedy lies within the liquidation regime: apply to the companies court for an order that the liquidator sue, or for leave to sue in the company’s name on an indemnity. Alleging that the liquidators are themselves the wrongdoers does not grounda derivative action; it points instead to the statutory and supervisory mechanisms for challenging or removing them.
13. Second, and most distinctively, where the liquidators are appointed by a foreign court, the appropriate forum for grievances about their conduct is generally that foreign court. Onecannot accept the benefits of modified universalism –recognition of the foreign appointment – while seeking to litigate against the office-holders in Hong Kong without first obtaining the appointing court’s directions.
14. For a jurisdiction in which a vast number of operating companies are incorporated in the BVI, the Cayman Islands and elsewhere, the alignment of derivative-action principles with the cross-border recognition regime is a welcome clarification. It confirms that the Hong Kong court will guard the integrity of foreign liquidations it recognises, and will not lend its process to attempts to circumvent the appointing court.
Read the judgment here: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=181299&currpage=T
Mr Anson Wong SC, leading Mr Lai Chun Ho, instructed by Adrian Elms & Co, for the 1st Defendant (1st Respondent).
Mr Tommy Cheung, instructed by Reynolds Porter Chamberlain, for the 2nd Defendant (2nd Respondent).
