Hong Kong Court expresses dissatisfaction in relation to the “unhealthy” practice of creditors issuing multiple winding-up petitions against the same debtor company

In recent years, there has been an increasing trend for different creditors to issue multiple petitions against the same debtor company. This may be due to the large number of listed companies in Hong Kong encountering financial difficulties during this period of economic downturn, or simply a lack of knowledge of the law in this area.

In Re China Greenfresh Group Co Ltd ([2021] HKCFI 36 and [2021] HKCFI 1257) and Re Grand Peace Group Holdings Limited ([2021] HKCFI 1142), the Court expressed its dissatisfaction in relation to this practice, and explained the Court’s approach to dealing with subsequent petitions issued against the same debtor company.

Re China Greenfresh Group Co Ltd ([2021] HKCFI 36 and [2021] HKCFI 1257)

In Re China Greenfresh Group Co Ltd, the company is listed on the Main Board of the Hong Kong Stock Exchange.  There were a total of 5 petitions issued against the company, with the 1^st petition and the 5^th petition both initially listed for trial in April 2021. The petition in question in the hearing was the 4^th petition.

The Court noted the following relevant principles and practice to discourage creditors from issuing winding-up petitions when the debtor company is already subject to a winding-up petition:

1. It is inappropriate and most unusual for there to be more than one petition pending against a company.  Consistent with the principle that a bankruptcy petition is a class remedy, the legislation, rules and court practice are generally based upon the notion that there should only be one petition against a debtor at any one time; and
2. In England, the relevant Practice Direction^[1] provides that “Before presenting a winding up petition, the creditor must conduct a search to ensure that no petition is pending. Save in exceptional circumstances a second winding up petition should not be presented whilst a prior petition is pending. A petitioner who presents a petition while another petition is pending does so at risk as to costs.”

Where there are multiple petitions, the conventional practice should be:

1. In the absence of exceptional circumstances, any winding-up order should be made on the first petition and the subsequent petitions should be removed from the Court file;
2. Where there are exceptional circumstances justifying the existence of multiple petitions on the Court file, any winding-up order should still be made on the first petition; and
3. The first petition would not be dismissed without the subsequent petitioners being given an opportunity to apply for substitution.

In light of the principles and practice mentioned above, the Court considered that with the 1^st petition pending, the 4^th petition was procedurally improper. The petitioner in the 4^th petition could appear on the 1^st petition as a supporting creditor and be substituted as the petitioner in the 1^st petition if the petitioner in the 1^st petition had been paid off or was otherwise unwilling to proceed with the 1^st petition. 

In relation to the appropriate approach to deal with subsequent petitions, the Court explained the difference between ordering dismissal and ordering removal of a petition from the Court file:

1. A petition should be dismissed if it is clear that it should never had been presented; and
2. A petition should be removed from the Court file if there is some extenuating circumstance, such as the petitioner not being aware of the earlier petition.

By its decision dated 29 April 2021, the Court made the following orders in respect of the 1^st, 4^th and 5^th petitions:

1. The 1^st petition be further adjourned to a hearing before the Companies Judge;
2. The 4^th petition be removed from the Court file and there be no order as to costs; and
3. The 5^th petition be dismissed. As for costs, whilst the petitioner was at fault for issuing the 5^th petition and thus should bear costs, the Court made no order as to costs, as it appeared that the way both the solicitors for the company and the petitioner dealt with the matter was “sufficiently muddled”.

Re Grand Peace Group Holdings Limited ([2021] HKCFI 1142)

In Re Grand Peace Group Holdings Limited, notwithstanding the Court’s guidance with regard to cases involving multiple petitions, as laid down in Re China Greenfresh Group Co Ltd, the petitioner in the 2^nd petition sought to justify the issue of the 2^nd petition on the ground that there were the following exceptional circumstances:

1. The earlier petition did not set out facts or matters capable of satisfying the requirements which needed to be met before the Court will exercise its discretion to wind up a company incorporated in a foreign jurisdiction; and
2. The progress of the earlier petition was dilatory.

The Court did not accept these as exceptional circumstances and considered that the proper course was to appear on the earlier petition as a supporting creditor and apply for substitution if necessary. Given that the petitioner which issued the 2^nd petition was aware of the earlier petition, the Court ordered that the 2^nd petition be dismissed with costs to be paid by the petitioner of the 2^nd petition to the company.

Comment

The Court’s clear guidance reminds creditors and practitioners that before a creditor decides to issue a winding-up petition, they must conduct a search to ensure there is no pending petition against the subject company. Where a creditor knows of an extant petition against the same subject company, the appropriate approach is to appear on such petition as a supporting creditor and apply for substitution, if necessary. Creditors should be mindful of the potential adverse costs consequences if they nonetheless decide to issue a further winding-up petition against the same company.

^[1] Paragraph 9.2 of the Practice Direction (Insolvency Proceedings)

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