From Paychecks to Petitions: Unpaid Wages as a Catalyst for Winding Up a Company
This document has been prepared by Charles Russell Speechlys LLP with Des Voeux Chambers (DVC) for informational purposes only. Refer here for the PDF version.
Introduction
The Companies Court was recently tasked with considering what constitutes ‘special circumstances’ when exercising their discretion to wind up a company, notwithstanding the existence of genuine and serious cross-claims. Prior to this landmark decision, there was little to no legislative or common law guidance on what would constitute special circumstances.
In the judgment of Re Greater Bay Area Dynamic Growth Holding Limited [2025] HKCFI 3316, the Honourable Anthony Chan J (as he then was) affirmed that a petition based on unpaid wages fell within the scope of special circumstances.
Facts of the Case
The Petitioner, a former employee of the Company, sought to wind up the Company after it failed to satisfy a Labour Tribunal award of approximately HK$1.2 million plus interest, representing unpaid wages. Whilst the award was unchallenged, the Company raised two crossclaims against the Petitioner, alleging misconduct during their employment. They contended that these cross-claims exceeded the debt and were genuine and serious, so it would not be justifiable for the Company to be wound up.
Legal Position
The Court acknowledged that where a petition is met with a genuine and serious cross-claim, the petition would be dismissed, save in special circumstances where the court may exercise its discretion to wind up the company (§14). Therefore, the Court had to decide whether unpaid wages engaged the ‘special circumstances’ regime. In finding that a petition based on unpaid wages constituted special circumstances, the Honourable Anthony Chan J considered the following:
- The Employment Ordinance (Cap.57) demonstrates an intention of the legislature to offer maximum protection to the payment of wages. Notably, this Ordinance is the only legal framework on entitlement to payment which is protected by criminal sanctions. (§40).
- S32 (1) Employment Ordinance (Cap.57) prohibits any deductions save for those provided for within the Ordinance. None of the exceptions apply to this case. As shown in Xu Yi Jun v GF Capital (HK) Ltd [2021] 1 HKC 191, employers are not permitted to offset unpaid wages by raising claims for unliquidated damages. This amounts to a tactical deduction. (§§21, 28, 37)
- In considering the doctrine of merger, the Court acknowledged that the petitioner’s sole remedy was to enforce the award, as their claims before the Labour Tribunal would have extinguished when merged into the award, promoting the finality of litigation. However, the Court found that in exercising their discretion it is entitled to take into account the relevant circumstances of the case, specifically that the award was founded on unpaid wages (§§22, 23).
- In defending their position, the Company compared the non-payment of wages to that of a dishonoured cheque or freight claim, which would not constitute special circumstances. The Court rejected these arguments because the autonomous nature of dishonoured cheques or freight claims are derived from common law or practice, whereas the autonomous nature of unpaid wages arise from statute (§41).
Conclusion
This case stands as the first in Hong Kong to recognise a petition debt based on unpaid wages to fall within the scope of “special circumstances”. The Honourable Anthony Chan J's judgment in favour of the Petitioner highlights the judiciary's recognition of the unique protection afforded to unpaid wages under the Employment Ordinance, underscoring the legislative intent to safeguard employee rights. By acknowledging unpaid wages as a special circumstance, the Court has set a precedent for cases where genuine and serious cross-claims are raised by employers to defeat a wages claim. The judgment should be seen as a reminder to employers that raising tactical cross-claims will not be favourably viewed by the courts.
