RE WING TAK LEE FINANCE LTD

HCCW 112/2023

[2023] HKCFI 2308

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO 112 OF 2023

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition presented by Mr Lau Sih Kay (劉錫其)  (“Mr Lau”)  and Ms Yung Mei Wan (翁美魂)  (together “Petitioners”)  on 7 March 2023 (as amended on 23 May 2023)  (“Petition”)  to wind up Wing Tak Lee Finance Limited (“Company”)  on insolvency ground, I made a usual winding-up order against the Company. These are the reasons for my judgment.

2.  The Company was incorporated in Hong Kong on 15 October 2013.  It was a licensed money lender from 20 August 2020 until 16 July 2022 when it ceased to carry on business. 

3.  The Company has 2 shareholders and directors, who are Mr Cai Xiao Xiong (蔡小雄)  (“Mr Cai”)  and Mr Chan Kai Ping (“Mr Chan”). Mr Cai holds 90% shareholding in the Company.

4.  Mr Cai and his twin brother, Mr Tsoi Wai (蔡煒)  (“Mr Tsoi”), are the sons of the late 蔡媽輝 (“Tsoi Senior”).

5.  The Petitioners are husband and wife.  Mr Lau engages in the business of selling pork.  He had been a very good friend and acquaintance of Tsoi Senior, who was a major importer and wholesaler of chilled pork in Hong Kong.  Mr Lau visited Tsoi Senior’s home many times where came to know his sons, Mr Cai and Mr Tsoi.

6.  It is not in dispute that in 2015, Mr Tsoi asked Mr Lau to lend money to the Company to fund its operations.  Mr Lau agreed to advance loans to the Company as he trusted Tsoi Senior and was willing to help his sons financially, and he considered the interest rates proposed by Mr Tsoi acceptable.  Over the years, Mr Lau entered into several loan agreements with the Company in excess of HK$10 million.  From 2015, the Company paid interest at the end of each year and the principals were rolled over to the following year.  New loan agreements were signed for extensions of the repayment dates.

7.  The Petitioners’ case is very straight-forward:

(1)  Pursuant to 3 loan agreements (in Chinese)  dated 16 May 2019 (as extended by a supplemental agreement dated 16 May 2021), 19 July 2019 (as extended by a supplemental agreement dated 19 July 2021)  and 18 October 2019 (as extended by a supplemental agreement dated 18 October 2021)  (collectively “Agreements”), they advanced loans in the principal amount of HK$6 million, HK$7 million and HK$2 million respectively to the Company (collectively “Loans”).  All the Agreements were signed by Mr Chan on behalf of the Company.

(2)  The terms of the Agreements are identical.  They provide inter alia that the Loans are for a term of 12 months with interest at 1.2% per month payable on the 5^th day of each month.  If the Company defaults in paying any amount due, an additional interest at 0.3% per month is payable on the amount due and unpaid.

(3)  The Loans became due and payable by 18 October 2022 at the latest.

(4)  Taking into account the payments of interest in the aggregate sum of HK$11,146,529 made by the Company in the past (collectively “Payments”), as at 18 January 2023, the amount due and payable was HK$17,634,193.55 of which HK$2,634,193.55 was interest (“Debt”).

8.  On 18 January 2023, the Petitioners’ solicitors served a statutory demand on the Company requiring it to pay the Debt within 21 days thereof (“SD”).  The Company failed to comply with the SD and is deemed unable to pay its debts by virtue of s.178(1)(a)  of the Companies (Winding up and Miscellaneous Provisions)  Ordinance (Cap. 32).

9.  In his affirmation filed on 10 July 2023 in opposition to the Petition (“Cai 1^st”), Mr Cai claims that:

(1)  The “day-to-day operations and business of the Company” were mainly managed and overseen by Mr Chan, as Mr Cai had other businesses to operate and manage in the Mainland;

(2)  On 3 October 2022, he “discovered” that Mr Chan had in breach of his fiduciary duties owed to the Company “wrongfully entered into improper loan agreements with various parties without the authorisation, consent, approval of and/or prior notice to the Company and such loan agreements were illegal and/or contrary to the interests of the Company”;

(3)  As a result of the aforesaid discovery, Mr Chan resigned as director on 5 October 2022;

(4)  The Loans including the “favourable rates of interest” were procured by Mr Tsoi through Mr Chan, and were provided to the Company[1] due to the personal relationship they had with Mr Tsoi, who is a long-time friend of the Petitioners;

(5)  Had Mr Chan/Mr Tsoi informed the Company of Mr Tsoi’s relationship with the Petitioners, “it was highly unlikely that the Company would enter into such transactions / arrangements with the Petitioners”, given that the Company had sufficient liquidity and the prime lending rate of major banks from November 2019 to May 2023 was less than 6% per annum.  This means that it was more economical for the Company to take out loans with banks;

(6)  The Company ceased to make any further payments upon learning the “wrongful/dubious transactions made by Mr Tsoi via Mr Chan”;

(7)  There is a bona fide dispute on the Debt as the Petitioners acted in breach of s.7 of the Money Lenders Ordinance (Cap. 163)  in that (a)  they have been carrying on the business of making loans and/or holding themselves out in a way as engaging in money lending business without any licence, (b)  the interest rate is “plainly much higher than the usual interest rates available to a private individual from retail banks under a savings account or even fixed time deposits”; (c)  the default interest payable is even higher at 1.5% per month; (d)  the Payments made by the Company represent at least 74% of the Loans; and

(8)  The Company is solvent in that according to its audited financial statements for the year ended 31 December 2021 (“2021 AFS”), the Company had total assets of HK$774,292,024.50.

10.  In his skeleton, Mr Owen Tsoi, counsel for the Company, submits that there is a bona fide dispute on the Debt and the Company is solvent in that:

(1)  The Agreements were entered into by Mr Chan in contravention of his fiduciary duties owed to the Company because (a)  the Agreements were unnecessary and at “excessive uncommercial rate” and hence contrary to the interest of the Company; and (b)  Mr Chan was “in conflict of interest against the Company”;

(2)  The Petitioners carried on money lending business without any licence.  There were “many unexplainable features” in the Agreements which cannot be determined summarily; and

(3)  The Company has rebutted the presumption of insolvency as the 2021 AFS shows that the Company had assets of HK$774 million, with revenue of HK$12.5 million and profits of HK$583,598.66. The assets far exceed the Debt. 

11.  There is no merit in the grounds raised by the Company.

12.  First, the suggestion that the loan agreements made with various parties (including the Agreements)  were entered into by the Company without proper authority or without the knowledge of Mr Cai is wholly without basis, having regard to the following facts:  

(1)  On the Company’s own case, Mr Chan was the director who dealt with the day-to-day operations and business of the Company which must include obtaining loans from other parties for the purpose of funding the business of the Company (for the reason stated in §(2)  below).  Mr Chan must have actual or at least ostensible authority in entering into loan agreements with third parties including entering into the Agreements with the Petitioners.

(2)  The Company only has paid-up capital of HK$100,000 and has been depending entirely on the loans provided by third parties and bank to finance its business.  This can be seen from the 2021 AFS which shows that as at 31 December 2021, the “amount due to related parties” was HK$745,259,032, the “bank overdrafts” was HK$156,973.96 and “bank loans” was HK$21,000,000.

(3)  In Note 3 to the 2021 AFS, it recorded under “Finance Costs” that the “interest expenses for the amount due to a related party” was HK$5,691,170.35 for 2021 and HK$5,452,457.90 for 2020, while the “interest on bank loan” was HK$866,780.99 for 2021 and HK$1,116,085.36 for 2020.

(4)  The 2021 AFS was approved by both Mr Chan and Mr Cai. 

(5)  Mr Cai was aware that Mr Tsoi procured the Loans from the Petitioners (see §9(4)  above).  The assertion that he did not know about Mr Chan entering into the Agreements cannot be true.

13.  As Mr Chan had actual or ostensible authority in entering into the Agreements with the Petitioners, the Company is bound by the Agreements.  It is not necessary to consider whether the Agreements were in the interest of the Company.

14.  Nevertheless, I have no hesitation in rejecting Mr Cai’s assertion that the Agreements were not in the interest of the Company for the following reasons:

(1)  The Company has been relying heavily on the loans advanced by third parties to finance its business.  The amount advanced by third parties was about 35 times of the amount advanced by bank.

(2)  It is not in dispute that Mr Lau was a long-time friend of Tsoi Senior and he knew both Mr Tsoi and Mr Cai, and it was Mr Tsoi who procured the Loans from Mr Lau.  There was nothing “dubious” or “suspicious” about the Petitioners agreeing to advance the Loans to the Company, whose major shareholder is a son of Tsoi Senior.

(3)  There is simply no evidence in support of Mr Cai’s bald assertion that the Company would be able to borrow the same amount as the Loans from any bank, let alone at the rate suggested.

(4)  In any event, the interest rate under the Agreements is neither excessive nor unreasonable in view of the amounts involved and the fact that the Loans are unsecured.  This is reinforced by the fact that the Company has obtained loans from the 9 supporting creditors at similar interest rates.  

15.  Third, the documents produced by the Petitioners, including the contemporaneous messages between Mr Lau and Mr Chan, show that the Payments were made by the Company for payment of interest due and payable under the Agreements.  The Company has not adduced any evidence to show that the principal of the Loans has been paid or that the calculation of interest up to the date of the SD is in any way incorrect.

16.  Fourth, the contention that the Company is solvent must be rejected:

(1)  The Company has failed to comply with the SD and is deemed insolvent.

(2)  The 2021 AFS confirms that the Company is insolvent in that it had current liabilities of HK$767,475,382.96 as at 31 December 2021, but its current assets were only HK$766,191,524.50.  The majority of the current assets consisted of amounts due from Mr Cai (HK$233,187,269.19), Mr Tsoi (HK$307,879,858.87)  and Mr Chan (HK$106,910,797.58).  There is no evidence to show that Mr Cai, Mr Tsoi or Mr Chan are able to pay the amounts owed when called upon by the Company to do so.

(3)  The Company is admittedly indebted to 9 supporting creditors in the aggregate principal amount of HK$18.7 million.  Each of these creditors has filed an affirmation to produce his/her loan agreement and confirm that the Company owes but fails to pay the amount due.  

17.  Lastly, the suggestion that the Petitioners engaged in money lending business without licence is wholly without basis.  As stated above, the Loans were advanced by the Petitioners to the Company owing to the personal relationship between Mr Lau and Tsoi Senior/his sons.  There is nothing to suggest that the Petitioners have been in the business of making loans, still less holding themselves out as carrying on money lending business.