Re China Zenith Chemical Group Ltd (中國天化工集團有限公司) [2025] 2 HKLRD 308, [2025] HKCA 253 (Jeff Yau)
Jeff Yau represented the supporting creditor Gu Yandong (respondent) in Re China Zenith Chemical Group Ltd (中國天化工集團有限公司) [2025] 2 HKLRD 308, [2025] HKCA 253.
C was a limited company listed in Hong Kong. Between 2013 and 2015, C issued and a large number of investors (including X1-3) subscribed to certain bonds. In June 2023, a winding-up petition was presented against C on the basis of C’s failure to pay under the bonds. In March 2024, X1 was ordered to be substituted as the petitioner. At the hearing of the petition and the applications for substitution of X2-3, the Recorder held that C failed to show that there were bona fide disputes of the debts C owed to each of Xs on substantial grounds. C appealed. C also sought leave to adduce on appeal a report of C’s auditors, confirming C’s case that the bond held by X2 was not fully paid for; and an affirmation to the effect that three cheques of $10 million were issued in C’s favour, supporting C’s case that the money purportedly paid for the bond issued to X1 was in fact refunded.
Held, dismissing the appeal, that:
(1) C had not satisfied one or more of the three conditions in Ladd v Marshall for new evidence to be admitted on appeal. It was rejected that the “reasonable diligence” requirement should be considered in the context that C had an onerous task of opposing numerous creditors at the same time and gathering its evidence in opposition within a short span of time. C was a listed company, expected to keep reasonably comprehensive records of the bonds it had issued but not yet matured, with sufficient manpower to handle matters arising from the bonds and resources to engage external assistance if required. Investors who held bonds issued by C had been demanding payment long before March 2024 when X1 was substituted as petitioner. To carry out a detailed review only when a creditor sought to be substituted as petitioner in winding-up proceedings could hardly be said to meet the standards of reasonable diligence (Ladd v Marshall [1954] 1 WLR 1489 considered). (See paras.21-23, 25-27.)
(2) The appeal court should be reluctant to interfere with the judge’s evaluation of the evidence unless it was demonstrated that the judge had fallen into palpable errors in the findings of fact. Here, the Court could detect no error of law or principle in the Recorder’s assessment of the evidence. There was no valid basis to interfere with the Recorder’s finding that C had not discharged its burden of showing a bona fide dispute on substantial grounds in respect of Xs’ claims (Re Cheung Kwan, ex p CM International Capital Ltd [2021] HKCA 282 applied). (See paras.32, 40-42, 49, 55-57.)
(3) (Obiter) In another context on the meaning of “reasonable diligence”, the test is “how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency” (Dicta of Millett LJ in Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at 418d applied).
[The above is excerpted from the headnote to the report in HKLRD.]
