RE ASEAN INTERESTS LTD

HCCW 1233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 1233 OF 2000

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REASONS FOR JUDGMENT

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1. On 21 May 2001, I made a winding-up order against Asean Interests Ltd ("the Company"). In view of time constraints, I said I would reduce the reasons for judgment into writing to be handed down. I do so now.

The petition

2. The petition was presented in December 2000 by CDC Group plc. The Company was indebted to the petitioner in the sum of ￡700,000 with interest. A statutory demand had been served in early December 2000 but no payment in whole or in part was made.

3. Since the Master's certificate was given (in late March 2001) and the matter was adjourned to the Companies Court (the first hearing being on 2 April 2001), this petition has been before the Court on no less than 5 occasions. The Company does not dispute that it is indebted to the Petitioner but it has been attempting to arrive at a compromise with it. It would be fair to say that as a result, the Petitioner has not been pressing for the petition to be heard and has not objected to the Company's applications for adjournment.

Supporting Creditors

4. Originally there were two supporting creditors viz. ABSA Asia Ltd and Overseas Chinese Banking Corporation Ltd Tianjin Branch ("OCBC").

5. Subsequently ABSA withdrew, leaving OCBC as the (then) only supporting creditor.

6. OCBC is the security agent for a consortium of three banks viz. Bank of China Tianjin Branch, Development Bank of Singapore Shanghai Branch and OCBC ("the Lenders"). The Lenders had entered into a syndicated loan agreement with TMT Carpet Manufacturing (Tinajin) Co Ltd ("TMT") to make available facilities up to the amount of US$12m.

7. This loan was guaranteed (i) as to 37.5%, by Pharmacia Corportation (formerly known as Monsanto Company) and (ii) as to 62.5%, by the Company and Mr Mohan K Vaswani jointly and severally.

8. The Company's indebtedness to OCBC under this guarantee (under which the guarantors are liable as primary debtors) is said by OCBC to be about US$5.4m and RMB 5.2m. The Company does not dispute that it is indebted to OCBC, although there is some dispute as to the amount of its admitted indebtedness. At the very least, the Company has admitted indebtedness to OCBC in the sum of about US$3.6m. It is OCBC which has been the driving force behind the winding-up of the Company.

9. I should add that on 12 May 2001, Bayer Antwerpen NV has also appeared to support the petition, although the amount of its claim (being about US$160,000) is relatively less than OCBC's.

Opposing creditor/contributory

10. On 12 May 2001, Asean Holdings AG ("Holdings") gave notice of intention to oppose the petition. Its claims is for about US$107m. and it is virtually the sole contributory of the Company.

Company's position

11. The Company has opposed the petition. It has not disputed its indebtedness to the Petitioner and Bayer. Originally, it questioned the extent of its indebtedness to OCBC. However, it has since admitted indebtedness in the sum of about US$3.6m. (being 62.5% of US$6m).

12. Although the Company has not been able to repay its debts as and when they fell due, it says that the debt may be repaid in the near future, as a company by the name of Wing Shen Global Overseas Funds (Chongqing Wanzhou) Industrial Co. Ltd ("Wing Shen") is considering an injection of funds of up to US$8m. into TMT. It is said that Wing Shen will be getting financial assistance from the Hong Leong group. Of the US$8m. intended to be invested, the proposed distribution is that US$6m. will be repaid to the Lenders, slightly less than US$0.9m will go towards repayment of a working capital loan that has been made by the Bank of China, and US$1m will go towards TMT's working capital.

13. One of the conditions precedent is that there should be completion of financial due diligence, with draw-down to be within 30 days of completion of the conditions precedent. The estimated time frame for completion was 3 months from date of acceptance of the plan. In the 5th affirmation of Ho Suk Mi handed up to the Court at the hearing of the Petition on 21 May 2001, it is said that it is expected that the due diligence exercise will be completed in 2 weeks time.

14. Be that as it may, the Lenders have discussed the Wing Shen proposal. In a signed draft affirmation of Tan Tian Seng handed up to the Court, the general manager of OCBC says the result of the discussion was that "all the Lenders do not accept the proposal and they support the petition herein". Amongst other concerns was the financial viability of Wing Shen itself.

Principles

15. It is well-established that a creditor whose debt is not disputed to be due and payable has the right ex debito justitiae to a winding-up order. I would echo with respect the words of Godfrey JA in Re Esquire (Electronics) Ltd [1996] 3 HKC 309, 312:

"An unpaid creditor is entitled ex debito justitiae to an order; it is of no avail to the company to say that, if only it is given time, it will be able to pay. ... The winding up procedure is not ordinary litigation. The special considerations which apply to creditors' winding up petitions require that they should be heard promptly. In normal cases, where the debt is admitted, a period of four weeks from the date of the first hearing ought to suffice to enable the petitioning creditor, if still unpaid, to decide whether to press for a winding up order or whether to rely on other arrangements put forward by the company. Usually this period would also suffice to enable the Company to decide whether or not to promote some such other arrangement".

16. In the present case, the Company has been given 7 weeks from the first hearing of the petition to enable it to attempt to persuade its creditors not to press for a winding-up order. It has not succeeded, at least as far as the unconnected creditors are concerned.

17. I am aware that the value of the Company's debt to Holdings is greater than that owed to the unconnected creditors, but the affirmation of Albert Wong Chor Lun, Holdings' solicitor, contains no grounds for opposing the petition other than to say that OCBC would have "a good chance" to receive payment from TMT "very soon" if the investment plan is allowed to proceed. Evidence of the financial viability of the investor, which OCBC had through its solicitors expressed as an area of concern, and which Mr Vaswani's solicitors had said would be produced, has not been produced.

18. It is accepted that in carrying out the balancing exercise that has to be done between the supporting creditors' and the opposing creditor's positions, the court would give less weight to the views of opposing creditors who are also contributories and who might accordingly have reasons for wishing a particular course distinct from the considerations common to the general body of creditors (Boyle and Marshall, Practice and Procedure of the Companies Court § 9.102).

19. I am conscious of the fact that the Company has not provided a list of its creditors. The evidence available to the Court is that all creditors who have appeared who are not connected to the entity controlling the Company support the petition, and the only opponent is the sole shareholder of the Company. In that situation, the wishes of the unconnected creditors should carry greater weight.

Other matters raised

20. Apart from the proposed investment plan, the Company has also pointed to the fact that bankruptcy proceedings are taking place against Mr Vaswani in Singapore and that the Lenders have obtained an asset preservation order from the Tianjin Municipality Higher Court in the PRC against TMT. However, there is no evidence as to what (if any) dividends would be obtained even if a bankruptcy order is made, nor is there any evidence as to the value of any assets so preserved.

21. As a matter of completeness, I would also record that it was submitted on behalf of the Company that if the Court were not to grant yet a further adjournment, the Company would consider a scheme of arrangement with its creditors. This was obviously an eleventh-hour suggestion. It does not warrant an adjournment being granted. It has come 5 months after the presentation of the petition and towards the tail-end of the 5th hearing. If there were any merits to this proposal, one would have expected it to have been raised fully and seriously right at the start of the petition.

Conclusion

22. In the exercise of my discretion, in the light of the principles set out above, I considered that the wishes of the unconnected creditors should prevail and I made the usual winding-up order.

23. Finally I should record that during the hearing of the petition, a sum of US$1.5m was offered by the Company for payment to OCBC within the day, but that was declined.

24. To this, I would add that a winding-up petition is a class remedy and not to be treated as simply inter-partes proceedings where the parties' commercial considerations are paramount. The Companies Court is not a stakeholder in a market-place where a company can expect to bargain with a petitioning or supporting creditor on successive Monday mornings until the patience of the Court wears out.

25. Similarly, a petitioning or supporting creditor cannot expect to hold the petition to wind up as a threat against a debtor company, hoping that by this threat, it will get paid because that is in truth what it wants rather than a dividend in a liquidation.

26. It is to be hoped that legal advisers, whether of companies the subject of petitions or of creditors, would appreciate that the Court expects that positions, once asserted, will not be readily altered by hidden agenda, commercially motivated or not.