Hong Kong Court of Appeal Clarifies the Second Threshold Requirement for Winding Up Foreign Companies: Key Takeaways from the Re Up Energy case

On 16 June 2025, the Hong Kong Court of Appeal delivered its judgment in the case of Re Up Energy Development Group Ltd (in Liquidation) [2025] HKCA 555, providing much-needed clarity on the requirements for winding up foreign companies in Hong Kong. The decision, which overturned a previous winding-up order, is a must-read for insolvency practitioners, cross-border creditors, and anyone involved in restructuring or enforcement against offshore entities with Hong Kong connections.

Background

Up Energy Development Group Limited (“Up Energy”), incorporated in Bermuda and listed in Hong Kong, became insolvent after defaulting on convertible notes totalling over HK$3.4 billion. While winding-up proceedings were initiated in both Bermuda and Hong Kong, the Bermuda court appointed provisional liquidators and later made a winding-up order on 21 March 2022. The Hong Kong court, despite opposition from certain creditors and the Bermuda-appointed provisional liquidators, also made a winding-up order on 6 May 2022. This order was subsequently appealed by a creditor.

The Three Threshold Requirements

The Court of Appeal’s analysis centred on the well-established three threshold requirements for winding up a foreign company in Hong Kong, as set out in Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd (2002) 25 HKCFAR 98:

1. Sufficient connection with Hong Kong (not necessarily assets within the jurisdiction);
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.

Issues regarding the Second Threshold Requirement

The crux of the appeal was whether the second threshold requirement - a reasonable possibility of benefit to the petitioner - was satisfied. The Court of Appeal’s key findings are as follows:

1. Low but real threshold: The Court reaffirmed that the second requirement is not a high bar, but it must be more than merely theoretical. There must be a “real possibility” of benefit, not just a hypothetical or speculative one.
    
2. No automatic satisfaction: The Court clarified that the availability of the “full suite of powers” under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUMPO”) will not of itself give rise to a real possibility of benefit. Otherwise, it would render such requirement otiose, as it would be met in every case.
    
3. Need for specific, fact-based benefit: The petitioner must point to a discernible and real benefit arising from a Hong Kong winding-up order. General assertions about the potential for investigation or the existence of statutory powers are insufficient unless tied to specific facts or circumstances suggesting a real prospect of benefit.
    
4. Assets in Hong Kong must be meaningful: The Court scrutinized the alleged Hong Kong assets (bank deposits, subsidiaries, receivables) and found them either negligible, encumbered, or of no real value to creditors. The presence of assets in Hong Kong, without evidence of value or recoverability, does not satisfy the requirement.
    
5. Evidence is required to support the need for powers under CWUMPO: The Court noted that neither the petitioner nor the Bermuda liquidators identified any specific matter requiring investigation or action in Hong Kong that would necessitate the broader powers available under a Hong Kong winding-up order. The Court emphasized that relevant evidence is required. It is not sufficient to say that it cannot be ruled out that additional assets and/or possible causes of action can be identified in Hong Kong which at the end of the day may lead to recovery of additional assets. 

Practical Implications

1. Petitioners must do their homework: Creditors seeking to wind up a foreign company in Hong Kong must provide concrete evidence of a real, case-specific benefit. Boilerplate references to statutory powers or generic investigative possibilities will not suffice.
    
2. Recognition vs Ancillary Winding Up: The judgment underscores the importance of considering whether recognition of foreign insolvency proceedings is adequate, or whether a full Hong Kong winding-up is truly necessary and beneficial.
    
3. No presumption for listed companies: Even for companies listed in Hong Kong, there is no presumption that the threshold requirements are met. Each case turns on its own facts.
    

Conclusion

This decision is a timely reminder that Hong Kong’s jurisdiction to wind up foreign companies is not to be exercised lightly. Petitioners must be prepared to demonstrate, with evidence, a real and not merely theoretical benefit to creditors.

As for practitioners, the message is clear: specificity and substance are essential when seeking to invoke the Hong Kong court’s winding-up jurisdiction over foreign companies.
 

Link to the full judgment: legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=169665&currpage=T