Hong Kong’s Winding-Up Gateway Narrows: Stricter Application of the Second Threshold Requirement in Winding Up Foreign Companies in Hong Kong

(A) Introduction
 
In determining whether to wind up a foreign company, whether the second threshold requirement is satisfied is usually the main issue vigorously contested by the parties.
 
Recently, Re Up Energy Development Group Ltd (in Liquidation) (CACV 233/2022, date of judgment: 16 June 2025)[1] marks a significant shift towards a stricter application of this requirement, moving from “merely theoretical” benefits to “real” benefits. This ruling heightens the evidentiary burden for petitioners. Mere reliance on a company’s Hong Kong listing status or abstract advantages of Hong Kong liquidation without evidence of tangible benefits will be insufficient to satisfy this requirement.
 
This article examines key cases concerning the second threshold requirement, demonstrating its increasingly strict application in Hong Kong winding-up proceedings against foreign companies.
 
(B) Three Core Requirements for Winding Up a Foreign Company in Hong Kong
 
In Shandong Chenming Paper Holdings Limited v Arjowiggins HKK 2 Limited (FACV 4/2022, date of judgment: 14 June 2022)[2], the Court addressed the requirements for winding up a foreign company under section 327(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUMPO”).
 
The Appellant, which was a Mainland Chinese company listed in Hong Kong, argued that the second threshold requirement was not satisfied.[3]
 
The three core requirements for the Hong Kong Court to exercise its jurisdiction to wind up a foreign company pursuant to section 327(3) of the CWUMPO are that:[4]
(1)  There must be a sufficient connection with Hong Kong;
(2)  There must be a reasonable possibility that the winding-up order would benefit those applying for it; and
(3)  The Court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.
 
The Court clarified that these are self-imposed threshold restraints on its exercise of jurisdiction to set in motion its winding-up procedures over a foreign company.[5]
 
The purpose of the second threshold requirement is to ensure that the winding-up process serves a "useful” purpose to the petitioner. A pragmatic approach should be applied in assessing this.[6] The benefit need not arise solely from the making of a winding-up order and need not be monetary or tangible.
 
Most importantly, the threshold is low.[7] It is sufficient if a “useful” purpose serving the petitioner’s legitimate interest could be identified. It could be satisfied by the commercial pressure placed on the debtor to pay an undisputed, or indisputable, debt by the invocation of the court’s winding-up procedures.[8] The presentation of the winding-up petition itself satisfied this requirement due to the leverage it created.[9]
 
(C) Evolving Strictness of the Application of the Second Threshold Requirement
 
(1)   Re Tian Shan Development (Holding) Ltd (HCCW 484/2021, date of judgment: 5 October 2022)[10]
 
In Re Tian Shan Development (Holding) Ltd, Tian Shan Development (Holding) Limited (“TSDHL”) was incorporated in the Cayman Islands and was registered as an oversea company under Part XI of the former Companies Ordinance (Cap 32).[11]
 
The Court found that the second threshold requirement was satisfied on the following grounds:[12]
(1) TSDHL was a Hong Kong listed company and its principal place of business was in Hong Kong;
(2) TSDHL had a bank account in Hong Kong;
(3) TSDHL had significant assets in Hong Kong (100% shareholding in two HK subsidiaries);
(4) TSDHL’s auditor was located in Hong Kong and at least 2 of its key officers were Hong Kong residents and the director resides in Hong Kong;
(5)The 2020 annual general meeting and 3 extraordinary general meetings of TSDHL took place in Hong Kong; 
(6)The debt underlying the petition was incurred in Hong Kong, the Bond certificate was governed by Hong Kong laws and contains a non-exclusive jurisdiction clause in favour of Hong Kong Court; 
(7) TSDHL made a partial payment to the Petitioner in January 2022 after the petition’s presentation; and
(8) TSDHL had substantial assets which can be realised for the benefit of its unsecured creditors.
 
This case shows that the second requirement was easily met given TSDHL's  substantive operational ties to Hong Kong, including its listing, principal place of business, subsidiaries, key personnel, and identifiable assets. Notably, the reasoning conflated the conditions for satisfying the second threshold requirement with those of the first threshold requirement. The Court presumed that establishing a sufficient connection with Hong Kong (the first threshold requirement) satisfied the second threshold requirement (reasonable possibility that the winding-up order would benefit the petitioners).
 
(2)   Re Guoan International Ltd (HCCW 453/2022, date of judgment: 3 March 2023)[13]
 
In Re Guoan International Ltd, the Court considered a petition for the ancillary winding-up in Hong Kong of Guoan International Limited (“GIL”), a company incorporated in the Cayman Islands. It had already been wound up by the Grand Court of the Cayman Islands on 28 February 2022, with Mr Yuen Tsz Chun and Mr Martin Trott appointed as Joint Official Liquidators (“JLs”). [14]
 
The Court found that the second threshold requirement was satisfied on the following grounds:[15]
(1)   Making a winding up order against GIL was the only way to enable GIL or the JLs to utilize the CWUMPO’s statutory powers.
(2)   Without such an order, the JLs could not deal with/dispose of Hong Kong assets. This harmed the interest of the creditors.
(3)   Given that almost all the business and affairs of GIL were conducted by the former directors and management in Hong Kong, appointing Hong Kong liquidators to conduct the liquidation under the supervision of the Hong Kong Court would be in the creditors' best interests. The Hong Kong Court is best placed to consider and if necessary, decide what steps should be taken by the liquidators when dealing with the affairs and assets of GIL within the jurisdiction. Moreover, once appointed, the liquidators would be able to expeditiously and cost-effectively exercise all the powers under the CWUMPO.
 
This case is different from the pervious case because winding up order was made in Cayman Islands before the Petitioner commencing the proceedings in Hong Kong. The Court tied “benefit” to functional gaps in cross-border insolvency: JLs lacked authority over Hong Kong assets, so a Hong Kong winding-up order was necessary for them to exercise CWUMPO powers and protect creditors’ interests.
 
(3) Re Dexin China Holdings Company Limited (德信中國控股有限公司) (HCCW 164/2024, date of judgment: 14 June 2024)[16]
 
In Re Dexin China Holdings Company Limited, Dexin China Holdings Company Limited ( “Dexin”) was incorporated in the Cayman Islands and was registered as a non-Hong Kong company under the Companies Ordinance (Cap. 622).[17]
 
The Court found that the second threshold requirement was satisfied on the following grounds:[18]
(1) As a listed company in Hong Kong, the leverage or commercial pressure created by the petition itself constitutes a sufficient benefit to the Petitioner.
(2) Dexin carried out substantial fund-raising activities in Hong Kong.
(3) Dexin has bank accounts in Hong Kong which have been used to defray the expenses of the principal office in Hong Kong.
(4)The winding up of Dexin would enable liquidators to take control over Dexin and investigate Dexin’s assets and affairs and potentially recover assets for the benefit of the creditors as a whole .
(5)Although Dexin was incorporated in the Cayman Islands, Dexin had no substantive presence there. In contrast, Dexin’s shares were listed in Hong Kong and had a principal place of business in Hong Kong. There is a reasonable possibility of benefit that the liquidators appointed in Hong Kong could seek recognition and assistance from the Mainland courts under the “Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region” issued in May 2021.
 
This case illustrates the Court’s pragmatic approach to the second threshold requirement, focusing on Dexin’s substantive operational ties to Hong Kong (particularly its HKEx listing), which facilitated asset investigation, recovery prospects, and cross-border judicial cooperation.
 
(D) Shift towards Stricter Application of the Second Threshold Requirement
 
(1)   Re Up Energy Development Group Ltd (HCCW 91/2016, date of judgment: 6 May 2022)[19]
 
Background
 
Up Energy Development Group Limited (“UE Development”) was a registered non-Hong Kong company incorporated in Bermuda[20] and a listed company in Hong Kong.[21] The Bermuda court made a winding up order against UE Development in March 2022.[22] The provisional liquidators (“PLs”) and one opposing creditor opposed the Hong Kong winding-up petition. One of their grounds is that the second core requirement for a winding-up order was unsatisfied.[23]
 
The Court’s Analysis
 
The Court clarified that as UE Development was wound up in Bermuda, the real issue was whether the Petitioner is able to satisfy the second threshold requirement to justify Hong Kong’s exercise of winding-up jurisdiction.[24] The Court stated that “for non-Hong Kong companies primarily listed on HKEx, it was not difficult for the petitioner to satisfy the three core requirements”.[25] This is because such companies invariably had close operational ties to Hong Kong, including a principal place of business, banking relationships, and management presence.
 
The Court noted that UE Development held no assets in Bermuda and had not carried on any business or other activity there.[26] As such, there was no reason for the liquidators appointed in Bermuda to handle the affairs arising in the liquidation of such company in Hong Kong.
 
Applying the principles in the case of Shandong Chenming Paper Holdings Ltd, the Court affirmed that the second threshold requirement is a low threshold and the petitioner is only required to demonstrate a reasonable prospect of sufficient benefit from the winding up order. The flexible nature of this enquiry allows consideration of unpleaded benefits and advantages where appropriate.
 
The Court found that the second core requirement was satisfied on the following grounds:

(1) UE Development had assets in Hong Kong which may be recovered by the liquidators, including cash deposits and at least three direct subsidiaries namely, (a) Up Energy (Hong Kong) Ltd (“UE HK”), (b) Up Energy Resources (Hong Kong) Ltd (“UE Resources”), and (c) Up Energy Finance Ltd (“UE Finance”).[27] 

(2) Substantial funds were derived from loans advanced by funders for the substantial costs incurred in dealing with resumption of trading, UE Development’s proposed scheme of arrangement with all its creditors, the present petition, the proceedings in Bermuda and the PLs’ remuneration.
 
(2)   Re Up Energy Development Group Ltd (in Liquidation) (CACV 233/2022, date of judgment: 16 June 2025)[28]
 
The Court of Appeal overturned the winding up order made by the Honourable Madam Justice Linda Chan (the “Judge”) and held that the Petitioner failed to satisfy the second requirement for winding up a foreign company in Hong Kong.
 
Lower Court’s Reasoning
 
The Court of Appeal viewed that the Judge found the second requirement satisfied on two grounds: (1) UE Development had various assets in Hong Kong, namely: (i) cash deposits of HK$200,000 in UE Development’s bank account; (ii) funds that UE Development had in the past 5 years; and (iii) at least 3 direct subsidiaries in Hong Kong (i.e. UE HK, UE Resources, and UE Finance); and (2) there were “clear advantages” available to the liquidators if UE Development was wound up in Hong Kong but not otherwise, namely, more extensive statutory powers under the CWUMPO, more effective exercise of powers potentially grantable via recognition, and saving time and costs compared to obtaining a recognition order.[29]
  
Test for Second Threshold Requirement Affirmed
 
The Court of Appeal reaffirmed that the test for the second threshold requirement is low and flexibility as to the nature or extent of the likely benefit.[30] It will be satisfied so long as the benefit is a real possibility, rather than a merely theoretical one.
 
Procedural Fairness
 
Integrated Capital (Asia) Limited (“ICA”), one of the opposing creditors, submitted that the Petitioner failed to plead in the Petition any benefit in the context of the second threshold requirement and only changed their stance to seek a winding up and specified the alleged benefit in submissions at very late stage. This led to unfairness, depriving them of a proper opportunity to respond.[31] ICA further submitted that the Judge wrongly reversed the burden of proof by suggesting the PLs had to prove the absence of benefit.[32]
 
The Petitioner argued that ICA suffered no prejudice because the parties were directed by the Judge to address her concerns and the PLs had provided a table of comparison of liquidators’ powers under Bermudian law and the CWUMPO respectively in their skeleton submissions as early as 14 February 2022 .
 
The Court of Appeal noted that the requirement of pleading how the threshold requirements are satisfied is a rule of practice rather than a rule of law. A judge may not dismiss a petition solely due to absence of the averments in the petition itself if the judge can properly be satisfied that there is no unfairness and the petition could be fairly argued and determined.
 
Analysis of UE Development’s Assets
 
As to whether the second threshold requirement was satisfied, ICA submitted that the benefits relied upon by the Judge were either non-existent or theoretical. ICA argued that the Judge erred in relying on the presence of assets in Hong Kong as showing the requisite reasonable prospect of a sufficient benefit.

The Court of Appeal found the Judge erred in relying on the presence of Hong Kong assets as demonstrating a reasonable prospect of sufficient benefit:
(1) Bank deposit of HK$200,000: Evidence showed HK$170,000 was expected to be irrecoverable upon liquidation due to the liabilities owed to the bank. This left only HK$30,000 which was a negligible sum.[33]
(2) “Cash Funds”: This point was not raised by the Petitioner in its evidence and hence there was no opportunity for ICA to respond or comment. It would be speculative to assume that upon the expenses being disapproved, the loan proceeds would necessarily belong to UE Development. A winding up order had already been made in Bermuda, but there was no discussion of the impact of the similar provision rendering post-petition dispositions void that existed in Bermuda.[34]
(3) Hong Kong Subsidiaries:[35]
(a)   UE HK: It was held through UE International, a BVI company. UE Development’s asset was the shares in a BVI company. A Hong Kong winding up order would be unlikely to be recognised in the BVI. Both the shares in UE International held by UE Development and the shares in UE HK held by UE International were charged as security for the convertible notes, and that the underlying operational assets, many of which were held by Mainland subsidiaries down the chain from UE HK, were charged to creditors.
(b)   UE Resources: It was held through Up Energy Development Group (BVI) Co Ltd, a BVI company. The relevant asset of UE Development relating to UE Resources was the shares in the BVI intermediate holding company.
(c)   UE Finance: Its receivables were dwarfed by liability. As such, it would unlikely to produce any real value for creditors.
 
In light of the above, the Court of Appeal concluded that there was no prima facie case that UE Development had assets in Hong Kong that are of value and would enure to the benefit of the creditors if wound up in Hong Kong.
 
Powers under the CWUMPO
 
ICA submitted that the alleged advantages/ benefit to the creditors from Hong Kong winding-up powers were theoretical and speculative. 
 
The Court of Appeal agreed and stated that the mere availability of the “full suite of powers” under the CWUMPO is not by itself, sufficient to establish a "reasonable possibility" of benefit.[36] The petitioner must provide some factual basis to show that there is a reasonable possibility of real benefit for the petitioner from the winding up. The second threshold requirement could not be satisfied simply saying there are greater powers available to a liquidator in Hong Kong if the company is wound up in Hong Kong as well.
 
Burden of Proof
 
The Court of Appeal stated that the petitioner has the burden of proof to satisfy all three threshold requirements, failing which the petition had to be dismissed.[37]
 
No Presumption
 
The Court of Appeal clarified that there is no presumption that the threshold requirements are automatically satisfied simply because a company is listed in Hong Kong.[38]
 
(E)  Key Takeaways
 
In conclusion, Hong Kong Courts have clarified their approach to the second threshold requirements, demanding concrete evidence of “real” benefits to the petitioner and creditors arising from a Hong Kong winding-up order.
 
Petitioners applying to wind up foreign companies in Hong Kong must prove that all three threshold requirements are satisfied. A Hong Kong listing alone does not automatically satisfy the threshold requirements. Further, the mere availability of Hong Kong liquidators’ "full suite of powers" under the CWUMPO is not, by itself, sufficient to satisfy the second threshold requirement.  The latest strict approach significantly increases the evidential burden on petitioners, moving beyond reliance on the inherent characteristics of a Hong Kong listed company.
 
Creditors considering winding-up petitions against foreign companies in Hong Kong must critically assess which jurisdiction should have the primary jurisdiction over its liquidation. If the debtor has assets in Hong Kong, creditors must conduct thorough due diligence to establish the existence, location, value, and encumbrances of those assets and determine whether those assets are of value and would enure to their benefit.
 
 

 

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[1] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=169665
[2] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=144911
[3] Shandong Chenming Paper Holdings Limited v Arjowiggins HKK 2 Limited (FACV 4/2022, date of judgment: 14 June 2022), paragraph 4
[4] Ibid, paragraph 3
[5] Ibid, paragraph 22-23
[6] Ibid, paragraph 54
[7] Ibid, paragraph 56
[8] Ibid, paragraph 57
[9] Ibid, paragraph 66
[10] https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=147759&QS=%2B&TP=JU
[11] Re Tian Shan Development (Holding) Ltd (HCCW 484/2021, date of judgment: 5 October 2022), paragraph 2
[12] Ibid, paragraphs 15 and 21
[13]https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=150952&QS=%2B&TP=JU
[14] Re Guoan International Ltd (HCCW 453/2022, date of judgment: 3 March 2023), paragraph 3
[15] Ibid, paragraphs 31-36
[16]https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=160693&QS=%28%7B%E5%BE%B7%E4%BF%A1%E4%B8%AD%E5%9C%8B%E6%8E%A7%E8%82%A1%E6%9C%89%E9%99%90%E5%85%AC%E5%8F%B8%7D+%25parties%29&TP=JU
[17] Re Dexin China Holdings Company Limited (德信中國控股有限公司) (HCCW 164/2024, date of judgment: 14 June 2024), paragraph 2

[18] Ibid, paragraph 17
[19] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=144041
[20] Re Up Energy Development Group Ltd (HCCW 91/2016, date of judgment: 6 May 2022), paragraph 2
[21] Ibid, paragraph 3
[22] Ibid, paragraph 30
[23] Ibid, paragraph 32
[24] Ibid, paragraph 34
[25] Ibid, paragraph 47
[26] Ibid, paragraph 49
[27] Ibid, paragraph 54
[28] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=169665
[29] Re Up Energy Development Group Ltd (in Liquidation) (CACV 233/2022, date of judgment: 16 June 2025), paragraphs 29-31
[30] Ibid, paragraph 41
[31] Ibid, paragraph 44
[32] Ibid, paragraph 47
[33] Ibid, paragraph 55
[34] Ibid, paragraph 56
[35] Ibid, paragraph 57
[36] Ibid, paragraph 61
[37] Ibid, paragraph 71
[38] Ibid, paragraph 75