RE HONGKONG CORFU INDUSTRY LTD

HCCW 236/2020

[2020] HKCFI 3039

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 236 OF 2020

________________________

________________________

________________________

J U D G M E N T

________________________

1.  By a petition presented on 27 July 2020 the petitioner, VTB Commodities Trading DAC, Dublin, Zug Branch, seeks a winding-up order against Hongkong Corfu Industry Limited (香港東孚實業有限公司) (“Company”) on the ground that it is insolvent and unable to pay its debts.

2.  The petition first came to be heard before this Court on 9 November 2020 and was adjourned for 3 weeks as the Company had filed an affirmation of Zhang Wentao dated 6 November 2020 (“Zhang 1^st”) raising a number of grounds in opposition to the petition.  The Court acceded to the Company’s application for leave to file a further affirmation, and a second affirmation of Zhang Wentao was filed out of time on 23 November 2020 (“Zhang 2^nd”).  The petitioner filed 2 affidavits in reply, being the 2^nd affidavit of Daniel John Rose (“Rose 2^nd”) filed on 13 November 2020 and the 3^rd affidavit of Daniel John Rose filed on 26 November 2020 (“Rose 3^rd”). 

3.  By letter dated 27 November 2020 Messrs Latham & Watkins LLP, solicitors for the Company, informed the Court that they no longer have instructions to act for the Company and have applied for an order to cease to act.  The Company is unrepresented at the hearing.

4.  The petition relies on the Company’s failure to satisfy a statutory demand dated 3 July 2020 (“SD”) whereby the petitioner demanded the Company to pay (1) USD40,211,619.39 (“USD Debt”), being the amount due and payable under the facility agreement dated 20 July 2018 (“USD FA”), and (2) EUR102,691,918.41 (“EUR Debt”), being the amount due and payable under the facility agreement dated 21 June 2019 (“EUR FA”).  The terms of the USD FA and the EUR FA (together “FAs”) are materially the same. 

5.  There is no dispute that the USD Debt and the EUR Debt (together “Debts”) were advanced to the Company, and the Company does not have the financial means to repay them. 

6.  The burden is on the Company to adduce sufficiently precise factual evidence to show that there is a bona fide dispute to the Debts on substantial ground.  At the last hearing (when the Company was represented by senior counsel) and in the 2 affirmations filed in these proceedings, the Company raises 7 grounds in opposition to the petition.

7.  First, the Company puts the petitioner to strict proof as to why and how the EUR Debt became due and payable on 24 December 2019 (as alleged in the SD).   

8.  Mr Douglas Lam SC (leading Ms Jasmine Cheung) submits that the EUR Debt became due and payable by reason of the acceleration notice dated 23 December 2019 issued to the Company (“Acceleration Notice”).  The Acceleration Notice referred to an event of default under clause 24.10 of the EUR FA on 20 December 2019 when a freezing order was granted against the bank deposits of Lufang Metals Material Co., Ltd, which is a “Relevant Person” as defined in the EUR FA.  By virtue of clause 24.27 of the EUR FA, the date for repayment of the EUR Debt was accelerated. 

9.  The Company has not adduced any evidence to dispute the event of default or the petitioner’s right to issue the Acceleration Notice in reliance on such default. 

10.  Second, the Company contends that the petitioner is not a party to the USD FA and, therefore, does not have standing to demand payment of the USD Debt. 

11.  There is no dispute that the USD FA was entered into between the Company and another entity, VTB Capital Trading Limited (“VTB Capital”).  In Rose 2^nd, the petitioner explains that VTB Capital was merged with the petitioner with effect from 17 March 2019 and, consequently, all the assets and liabilities of VTB Capital were transferred to the petitioner from that date.  The transfer was confirmed by the UK Companies House Record dated 19 March 2019, which is a public record. 

12.  In Zhang 2^nd, the Company asserts that it did not receive any notice from the petitioner or VTB Capital in respect of the merger until it was mentioned by Mr Lam SC at the last hearing. Nor did the Company receive any notice from the petitioner or VTB Capital in respect of any transfer or assignment of the rights and obligations under the USD FA.  The Company reserves its right to adduce expert evidence on the legal effect and implication of the merger on the rights and obligations of the relevant parties under the USD FA. 

13.  In Rose 3^rd, the petitioner exhibited the Order of the High Court of Ireland dated 7 March 2019 confirming the merger of VTB Capital and the petitioner and its consequences, which took effect from 23:59 Irish Standard Time on 17 March 2019 that (1) all the assets and liabilities of VTB Capital were transferred to the petitioner; and (2) every contract or agreement to which VTB Capital is a party shall be construed and has effect as if the Company had been a party thereto instead of VTB Capital, and the Company shall have the same rights and subject to the same obligations thereto.

14.  It is clear that as a result of the merger, the petitioner became entitled to exercise all the rights under the USD FA in place of VTB Capital. 

15.  Third, the Company says that the Acceleration Notice was marked “without prejudice” and hence cannot be relied upon by the petitioner.  The point is misconceived.  Even if the Acceleration Notice contains without prejudice privilege (I do not think it does), such privilege has been waived by the petitioner when it referred to and rely on such Notice in the SD.  In any event, no complaint can be made by the Company as it exhibited the Acceleration Notice to Zhang 1^st.   

16.  Fourth, the Company contends that the Acceleration Notice was not properly served on the Company as it was sent to an address other than the address for communication stipulated in clause 35.2 of the FAs.  

17.  Mr Lam SC submits, and I agree, that the point is a bad one, given that:

(1)  the Company had admittedly received the Acceleration Notice and was able to exhibit it to Zhang 1^st.  This accords with clause 24.27 of the FAs, which provides that acceleration can be effected “by notice to the Borrower” (i.e. the Company);

(2)  clause 35.1 of the FAs provides that any communication to be made under or in connection with (amongst others) the FAs shall be made in writing and may be made by fax or letter.  The Acceleration Notice was faxed to the Company’s fax number stipulated in clause 35.2 of the FAs; and

(3)  clause 35.4 of the FAs further provides that any communication may be made by electronic email or other electronic means.  The Acceleration Notice was emailed to the Company at the email address stipulated in clause 35.2 of the FAs. 

18.  Fifth, the Company argues that the Acceleration Notice was issued by the petitioner in its capacity as lender and not as agent.  This is a non-point. The petitioner is both the agent and the sole lender under the FAs, as stated in Schedule 1 thereto.  Contrary to the Company’s argument, clause 24.27 does not require the petitioner to state that the Acceleration Notice is issued in its capacity as agent or that the Notice was issued at the directions of the “Majority Lenders”.

19.  Sixth, the Company contends that the petitioner is not entitled to exercise its right to accelerate the date for repayment of the loans under the FAs in light of its “lead role” and participation in the Company’s discussions with creditors regarding the restructuring proposals in respect of its indebtedness.  It is alleged that there was a “common understanding” between the Company (and its affiliated companies) and the creditors that the creditors including the petitioner would not pursue independent enforcement actions while restructuring is still ongoing. 

20.  The Company has not adduced any documents in support of the alleged “common understanding”.  Even if, which I do not think is the case, the Company has established the alleged “common understanding”, it does not have the effect of taking away the petitioner’s right to accelerate the date of repayment of the EUR Debt or to take enforcement actions in respect of the Debts. 

21.  Lastly, as regards the restructuring proposals and efforts which have been put forward by the Company (and its affiliated companies) and are said to be ongoing, the petitioner makes clear that it does not accept the proposals. 

22.  As the Company fails to show that there is a bona fide dispute on substantial ground in respect of the Debts, the petitioner is entitled ex debito justitiae to a winding-up order against the Company.  The usual winding-up order is made against the Company, with the petitioner’s costs and the Official Receiver’s costs be paid out of the assets of the Company, to be taxed if not agreed on a party and party basis.