Buying Time in a Winding-Up Petition: What Must a Company Prove?

When faced with a winding-up petition, many companies assume that if they are actively seeking investment, refinancing, asset sales or restructuring proposals, the Court will automatically grant additional time. This is often not the case.

Hong Kong courts repeatedly emphasise that an adjournment of a winding-up petition is an indulgence, not an entitlement. In Re China Huiyuan Juice Group Limited [2020] HKCFI 2940, the court provided important guidance on the circumstances in which a company may be granted time to pursue restructuring or repayment proposals.

In this article, we outline the key principles governing adjournment applications, the evidence expected by the court, and the practical steps companies should consider when facing insolvency proceedings.

1. An adjournment is not a right. Where a debt is undisputed and the company is insolvent, the Court’s starting point is that a winding-up order should ordinarily be made.

   A company seeking additional time bears the burden of persuading the Court that there is a proper basis for delaying the winding-up process. The Court does not grant adjournments merely because management believes that a solution may emerge in the future.

2. The burden rests on the company. The onus falls squarely on the company to justify why a winding-up order should not be made immediately.

   The company must provide credible evidence demonstrating that the proposed restructuring, refinancing or repayment plan is likely to succeed within a reasonably identifiable timeframe. Unsupported assertions are unlikely to carry significant weight.

3. The Court expects a clear and realistic timeline. A recurring theme in insolvency decisions is the importance of specificity. The Court will expect evidence explaining:
   1. What steps have already been taken.
   2. What steps remain outstanding.
   3. The anticipated timetable for implementation.
   4. The likelihood of completion.

   The more detailed the proposal with substantiating evidence, the greater the prospect of obtaining an adjournment.

4. A tangible benefit to creditors must be demonstrated. The court is not concerned solely with saving the company. Instead, key question is whether an adjournment is likely to produce a more favourable outcome for creditors than an immediate winding-up order.

   The company must demonstrate a real possibility of a tangible commercial benefit for creditors rather than a merely speculative or hypothetical advantage.

5. Creditor views matter. The court will consider the position adopted by creditors.

   Relevant factors would include:

   1. The number of creditors supporting the adjournment.
   2. The value of the debts owed to supporting creditors.
   3. The number and value of creditors opposing the adjournment.
   4. The reasons advanced by creditors on both sides.

   Support from a substantial body of creditors can be an important factor in favour of granting additional time. The court may also attach particular weight to the views of creditors with the greatest economic interest in the outcome and those best placed to assess the prospects of a restructuring. Conversely, significant creditor opposition may undermine the application.

6. The feasibility of the proposal is critical. The court will closely scrutinise whether the proposed restructuring is realistic and achievable.

   The court will consider whether funding is genuinely available, whether negotiations have progressed beyond preliminary discussions, whether key commercial terms have been agreed, whether documentation is being finalised, and whether there is objective evidence that the proposal can be successfully implemented.

   A proposal supported by concrete evidence will carry more weight than one based solely on ongoing discussions.

7. Evidence is everything. The court will generally expect witness statements or affidavits exhibiting relevant documents such as funding proposals, term sheets, restructuring plans, creditor support letters, financial information and forecasts, etc.

8. Last-minute applications face particular challenges. Companies often wait until shortly before the hearing to seek more time. This can be problematic if insufficient evidence has been assembled or if the company cannot demonstrate meaningful progress towards a restructuring.

   Early preparation and engagement with creditors can materially improve the prospects of a successful adjournment application.

9. Practical steps.

   Companies facing a winding-up petition should:

   1. Start preparing evidence immediately.
   2. Develop a realistic restructuring or repayment proposal.
   3. Engage constructively with creditors.
   4. Identify creditor support wherever possible.
   5. Obtain legal advice and representation at an early stage.

   Petitioning creditors should:

   1. Assess whether the company’s proposal is realistic.
   2. Scrutinise the evidence supporting any adjournment request.
   3. Consider the position of other creditors.
   4. Challenge speculative restructuring proposals.
   5. Act promptly to protect recovery prospects.

10. Final thoughts. The decision in Re China Huiyuan Juice Group Limited demonstrates that obtaining an adjournment of a winding-up petition requires far more than a promise of future repayment. The Court expects compelling evidence, a realistic timetable and a demonstrable benefit to creditors before it will delay the winding-up process.

    Whether you are a company seeking additional time to restructure or a creditor considering how best to respond to an adjournment application, early strategic advice can be critical to protecting your position.

Our firm regularly advises companies, directors, shareholders and creditors on winding-up petitions, insolvency disputes, restructuring proposals, adjournment applications and urgent court proceedings. If you require advice on a winding-up petition or insolvency-related dispute, please contact us for a confidential discussion.

Contact

Ashima Sood
+852 2555 9009
ashimasood@nanwanis.com