1. Sufficient connection with Hong Kong.
2. Reasonable possibility that the winding up order would benefit those applying for it.
3. The Court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.

The recent decision of the Court of Appeal in Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK2 Ltd [2020] HKCA 670 concerns the second of these requirements. Shandong Chenming Paper Holdings Ltd (Chenming), a company incorporated in Mainland China and listed in Shenzhen and Hong Kong, entered into a joint venture agreement with Arjowiggins HKK2 Ltd (HKK2). The parties fell into dispute and in 2015 HKK2 obtained a substantial arbitration award against Chenming on the grounds that Chenming had breached the agreement.

A declaration (previously obtained by Chenming) that HKK2 could not petition for Chenming to be wound up was set aside by Harris J ([2017] 4 HKLRD 84). There was no dispute as to the first and third requirements, but only as to HKK2’s ability to establish the second: Chenming argued that although solvent, it had no assets or business in Hong Kong, so appointing a liquidator there would be an “exercise in futility”. Rejecting HKK2’s suggestion that Chenming’s listing status was an asset capable of realisation, Harris J held, in essence: (i) the second requirement was satisfied: due to the potentially severe consequences for the company, the benefit to be derived was the leverage created by the prospect of a winding-up order; but in any event (ii) the second core requirement was capable of modification if circumstances required, and should be modified because Chenming had shown “disregard for the integrity” of Hong Kong’s legal system by refusing to pay the award.

Dismissing Chenming’s appeal, Barma JA giving the lead judgment rejected the second of these propositions. In the context of members’ petitions, the CFA in Yung Kee Holdings had described the second requirement as always essential, and the same applied to creditors’ petitions. The requirement could not be modified or dispensed with.

However, on the question whether the second requirement was satisfied, Barma JA agreed with the judge. He held that the judge had in mind that the making of the order would benefit HKK2, and if Chenming suffered the making of a winding-up order against it before realising that its best interests might lie in meeting the award, the making of the order would produce a real benefit for HKK2 by resulting in payment of the sums it was owed.

The importance of the decision lies in its confirmation that the second core requirement cannot be modified or dispensed with, and that a Mainland company listed in Hong Kong is liable to be wound up there.

Victor Joffe QC represented Chenming and kindly wrote this blog.