RE HONG KONG INVESTMENTS GROUP LTD

HCCW 63/2017

[2018] HKCFI 984

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 63 OF 2017

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HCB 1361/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1361 OF 2017

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J U D G M E N T

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Introduction

1.  There are before this court two Petitions presented by Haitong International Finance Company Limited (“Petitioner”):

(1)   dated 17 February 2017, for a winding up order against Hong Kong Investments Group Limited (“Company”), incorporated in the BVI as a company limited by shares and an unregistered company within the meaning of section 326(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (“Ordinance”); and

(2)   dated 6 March 2017 (as amended on 5 December 2017), for a bankruptcy order against Mr Cheung Chi Mang (“Debtor”), director and beneficial shareholder of the Company.

2.  The Petitions are based on the Company’s and the Debtor’s non-compliance with 2 statutory demands dated 11 January 2017 (“statutory demands”) served on each of them, in the case of the Company, for the sum of over HK$167 million and in the case of the Debtor, for the sum of over HK$163 million.  There was no application to strike out or set aside the statutory demands.

3.  The reason why the sum said to be owed by the Debtor is slightly smaller than the sum said to be owed by the Company is apparently because originally the Petitioner has given credit to the Debtor for the estimated value of security held by it to the tune of HK$3.7 million.  For reasons set out in paragraph 4 of the Petitioner’s skeleton argument, the Petitioner submits it is not a secured creditor within the definition under section 2 of the Bankruptcy Ordinance (“BO”) and the debt due and owing by the Company and the Debtor is the one and same amount of HK$167,740,831 (“Debt”).  For the present purpose, nothing important turns on it.

4.  The Debt is the outstanding balance of a loan advanced by the Petitioner to the Company pursuant to a facility agreement dated 22 December 2015 (“December Facility Agreement”).  Pursuant to the December Facility Agreement, a term loan of HK$435,000,000 was advanced by the Petitioner to the Company (“Company Loan”).  The repayment date of the Company Loan was 11 September 2016.

5.  By a personal guarantee also dated 22 December 2015 (“Guarantee”), the Debtor guaranteed the repayment obligations of the Company under, inter alia, the December Facility Agreement.

6.  As at 10 January 2017, the outstanding principal of the Company Loan plus accrued interest amounted to HK$167,740,831 ie the Debt.

7.  By way of background,

(1)   Haitong International Securities Group Limited (“HT Group”) is a company listed on the Hong Kong Stock Exchange.

(2)   The Petitioner is a subsidiary of HT Group.

(3)   Another subsidiary of HT Group viz Haitong International Securities Company Limited (“HT Securities”) was at all material times licensed by the Securities and Futures Commission (“SFC”) to carry out regulated activities including inter alia securities dealing.

(4)   On or about 20 March 2013, the Company opened a securities margin account (“Margin Account”) with HT Securities.  Since then, the Company has been actively trading in stocks listed on inter alia the Hong Kong Stock Exchange, Singapore Stock Exchange and Shanghai Stock Exchange in that account.

(5)   As far as Hong Kong Stock Exchange was concerned, the stocks traded by the Company varied and the volume of trading was substantial ie to the tune of hundreds of millions HK dollars.

(6)   In December 2014, the Company started trading in HT Group shares in the Margin Account, while continuing trading other stocks listed on the Hong Kong Stock Exchange.

Deliberation

8.  The Company and the Debtor oppose the Petitions on the following grounds:

(1)   There is a genuine dispute to the Debt on substantial grounds (“Ground 1”).

(2)   The Company has a counterclaim/cross-claim against inter alia the Petitioner which will extinguish the Debt (“Ground 2”).

(3)   The Petitioner’s position is secured by substantial assets in the Company’s name with a market value exceeding the Debt (“Ground 3”).

(4)   The Company is a foreign company with no place of business in Hong Kong.  The Court should not exercise its jurisdiction to order its winding-up (“Ground 4”).

9.  The Debtor’s liability to the Petitioner arose by virtue of his capacity as a guarantor of the Company and has no separate and independent defence to the Petition against him as such.  If the Company fails in opposing the Petition against it on any of Ground 1, 2 or 3[1], then the Debtor will also fail in opposing the Petition against him, and vice versa.  For the sake of simplicity of presentation, this court will concentrate on the Company’s case in its deliberation of Grounds 1 to 3 below.

Grounds 1 and 2

10.  A petitioner who is owed an undisputed or indisputable debt is entitled to a winding up order ex debito justitiae: Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd [2017] 4 HKLRD 84 at [29].

11.  In order to successfully oppose a petition on the basis of a bona fide dispute to the debt on substantial grounds, a corporate or personal debtor has to adduce sufficiently precise evidence which is believable, and must establish that it/he actually has a defence of substance, not just a fair probability of one: Re ICS Computer Distribution Ltd [1996] 1 HKLR 181; Re Tam Mei Kam unrep; HCB 3777 of 2011; 25 April 2012; Barma J (as he then was); Wong Lo Fung v AXA China Region Insurance Co Ltd unrep; HCB 1864/2013; 29 August 2014 at [25]–[26]; Re Chan Hon Kwong unrep, HCB 6548/2016, 27 April 2017.

12.  Winding-up and bankruptcy proceedings are summary in nature and are not intended to be used for the purpose of debt collection.  Where there is a bona fide dispute turning to a substantial extent on disputed questions of fact which require viva voce evidence, the dispute cannot properly be decided on a petition in which case the petition should be dismissed.  In Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850 at [27(5)], Kwan JA set out her understanding of the law in this way:

“ (5) …It is well established that petitions are not meant to be used for the purpose of debt collection and the winding-up or bankruptcy jurisdiction of the court would be exercised only in very clear cases. Where oral evidence is required to decide a real and substantial dispute of fact, the court will dismiss the petition...”

13.  In the context of a winding-up petition, the court’s approach where a debt is said to be bona fide disputed on substantial grounds can be summarized as follows:

(1)   The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds.  In this context, “substantial” means having substance and not frivolous.

(2)   The court should look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye.

(3)   The court would caution itself against unsubstantiated and unparticularized assertions.  It is incumbent on the company to put forward “sufficiently precise factual evidence” to substantiate its allegations.

(4)   The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists.  In so doing, the court necessarily has to take a view on the evidence, to see if the company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the company.

Re Hong Kong Construction (Works) Ltd unrep, HCCW 670/2002, 7 January 2003, Kwan J (as she then was) at [6]; Re Yueshou Environmental Holdings Ltd, HCCW 142/2013, 16 July 2014, Harris J at [8]-[9]; Re Posismo Limited unrep, HCCW 43/2017; 27 February 2018 at [10].

14.  The same approach applies to bankruptcy petitions: Re Leung Cherng Jiunn (debtor) supra.

15.  Where a corporate or personal debtor opposes a petition on the basis that it/he has a genuine and serious cross-claim against the petitioner greater than or equal to the petition debt, it/he has the onus of establishing that the cross-claim is genuine, serious and of substance.  There must be supporting relevant details to demonstrate that the cross-claim is based on substantial ground.  The test is very much the same as the test for deciding whether a debt is disputed in good faith and on substantial grounds: Re Sinom (Hong Kong) Ltd [2009] 5 HKLRD 487 at [11]-[12] (Kwan J as she then was); Re Alpha Building Construction Ltd unrep, HCCW 283 of 2014, 20 May 2015, Harris J at [8].  Delay in prosecuting a cross-claim may be relevant in the assessment of its genuineness and credibility, but it is not an absolute bar to reliance on it: Re Sinom (Hong Kong) Ltd at [13]-[14]; Re Alpha Building Construction Ltd at [8]; Re She Ka Kui unrep, HCB 1013/2017; 26 April 2018 at [36].

16.  As the factual disputes raised by the Company with regard to Grounds 1 and 2 are the same, and as the court’s approach to Ground 1 and Ground 2 is also substantially the same, it is convenient to deal with both grounds together.

17.  The Company’s case is pleaded in the Statement of Claim in HCA 1295 of 2017 commenced on 2 June 2017 by the Company against HT Group as 1^st Defendant, HT Securities as 2^nd Defendant and the Petitioner as 3^rd Defendant. Its factual case has been succinctly summarized in Mr Li’s skeleton submissions.  For ease of reference, the material paragraphs are quoted below:

“ 11. HT Group is a company listed on SEHK (stock code 665). [The Petitioner] and HT Securities are 2 operating subsidiaries…

12. The parties’ dispute arose out of [the Company’s] investment in a very sizable holding of HT Group shares through its account with HT Securities.

13. In early 2013, [the Company] opened a securities margin account with HT Securities. The margin ratio initially was 20-30%.

14. In late 2014, [the Debtor] was introduced to Mr Lin, who was (and still is) the most senior executive in the HT Group companies, being its Executive Deputy Chairman, CEO, Managing Director, chairperson of the Executive Committee, and chairperson of the Strategic Development Committee.

15. By then, [the Company] had already become one of HT Securities’ largest clients. [The Debtor’s] evidence is that Mr Lin was keen to maintain the relationship…

16. [The Company/the Debtor’s] case is that since 2014, Mr Lin, acting for HT Group, HT Securities, and (later) [the Petitioner], repeatedly advised [the Company] to invest in HT Group shares and (later) not to dispose of the shares. He forecasted, giving ostensibly logical reasons that the Hong Kong stock market was booming and HT Group was a potential target of takeover, that its share price would go from ~$5 to as high as $20 per share.

17. Given Mr Lin’s knowledge and experience with the securities market, and his inside senior position at HT Group, [the Debtor] trusted his advice and forecast (the “Advice and Forecast”). In reliance thereof, [the Company] started to acquire HT Group shares.

18. Mr Lin categorically denies giving such advice…

19. Moreover, [the Company] was acquiring a sizable shareholding in HT Group, it would be only natural for Mr Lin (if not also part of his job) as CEO to reach out and share the corporate outlook as part of a listed company’s investors relations.

20. The numbers support [the Company/the Debtor’s] case. HT Securities had extended a margin ratio to [the Company] was 20-30%. For and since [the Company’s] acquisition of HT Group shares, the ratio was increased to 70% and at one point reached as high as 169%—on condition that the financing was used only to acquire more HT Group shares.

21. This makes economic sense. HT Group was in effect financing (and Mr Lin was causing HT Group to finance), through HT Securities, the acquisition of its shares in a not-so-voluminous market, inevitably pushing up HT Group’s share price. In the 6 months from December 2014 to June 2015, [the Company] acquired 102,434,000 shares at a total consideration of $640,028,119 and with a market value of $713,038,000. This shareholding represented ~2% of the total issued share capital of HT Group and equated to many days of trading volume.

22. In July 2015, HT Group’s share price began a downturn. [The Company/the Debtor] sold a small amount. Their case is that Mr Lin was very much against selling, which would cause further downward pressure on the share price. He sought to explain that the downturn was only temporary, due to US short sellers shorting PRC companies, and that HT Group was itself buying back shares in the open market to shore up the share price. He also assured [the Company/the Debtor] that it would not cause HT Securities to liquidate the account.

23. Indeed, HT Securities did not try to sell the HT Group shares and other assets in the account — despite that the account was substantially overstretched. This fact speaks volumes. HT Group and HT Securities were desperate for [the Company] to hold onto the HT Group shares and were willing to continue to finance so.

24. Mr Lin now pretends that he was indifferent as to whether [the Company] held onto the shares and therefore he could not have advised [the Company/the Debtor] to do so. This beggar’s belief.

25. In WeChat messages[2], Mr Lin was clearly seeking to persuade [the Debtor] not to have [the Company] offload its shares in HT Group. Mr Lin now says these messages should be placed in context (including in the chain of other WeChat messages) and he was expressing his “personal views” separate from his capacity as the top guy at HT Group. This explanation is rather half-hearted. In any event, it only highlights that there is a factual dispute.

26. [The Company’s] case is that Mr Lin told [the Debtor]: although HT Group (and its subsidiaries) were keen for [the Company] to hold onto the shares, the very high level of margin in [the Company’s] account at HT Securities was in breach of the regulatory rules and would prompt SFC enquires. Mr Lin proposed and arranged to move the financing from margin financing by HT Securities to a loan by [the Petitioner].

27. Mr Lin, acting for HT Group, HT Securities, and [the Petitioner], made certain advice and representations including that the loan would not need to be repaid until a reasonable time after HT Group’s share price rebounds to cover the loan and HT Securities would not liquidate [the Company’s] account until such time (the “August Advice and Representations”). Executives at [the Petitioner] repeated the same. In reliance thereof, [the Debtor] entered into a facility agreement with [the Petitioner] dated 31 August 2015[3].

28. Mr Lin denies making such advice and representations. But there could be no other logical explanation of [the Petitioner] making such a large unsecured loan to [the Company[4]/the Debtor].

29. Moreover, it is telling that Mr Lin (or others for the Petitioner) do not deny [the Debtor’s] evidence that whilst the loan of $400,000,000 was paid into his bank account, he was required to pre-sign 2 blank cheques by which HT Group etc arranged to pay a practically identical amount immediately out to HT Securities. These matters were also reflected in the contemporaneous bank statements, securities account statements, and cheques.

30. It is also disingenuous of Mr Sun Jiafeng of [the Petitioner] to say cryptically that [the Debtor] had told him the loan was for “personal needs”. It is difficult to imagine [the Petitioner] not knowing the true purpose of this “personal loan” of $400,000,000: to continue HT Group’s financing (previously through HT Securities) of a sizable acquisition and then holding of its own shares.

31. In this regard, it is worth noting that the documentary evidence shows: the loan was in fact paid to [the Debtor] by “Haitong International Securities”, ie HT Group or HT Securities, not [the Petitioner].

32. Around 3 months later, Mr Lin told [the Debtor] that the loan had to be remade and re-documented, with the important terms unchanged. Mr Lin reiterated his advice and representations (the “December Advice and Representations”). Executives at [the Petitioner] said the same. In reliance thereof, [the Company] entered into [the December Facility Agreement] with [the Petitioner] for $435,000,000 and [the Debtor] signed [the Guarantee].

33. Mr Lin denies making such advice and representations.

34. It is, however, interesting to note that Mr Lin (and others for [the Petitioner]) do not deny that the loan to [the Company] in December 2015 went directly and entirely to repaying the loan to [the Debtor] in August 2015.  [The Company] never saw a penny of it.  This reinforces the main point in [the Company/the Debtor’s] case—the arrangements were all long to finance the shareholding in HT Group.”

18.  By reason of the aforesaid, the Company disputes the Debt on 3 bases.

19.  First, the Company has a substantial cross-claim against HT Group and HT Securities for breaches of fiduciary duty and duty of care by reason of their Advice and Forecast which induced it to acquire a sizable number of HT Group shares.  Further, the forecast of HT Group’s share price was a misrepresentation for which the Company can assert a claim against HT Group and HT Securities under section 108 of the Securities and Futures Ordinance (“SFO”): see paragraphs 47 and 48 of Mr Li’s skeleton submissions.

20.  It is important to note that the claim for breach of fiduciary duty and duty of care as well as under section 108 of SFO is not made against the Petitioner.  Mr Li, in his supplemental skeleton submissions, has very fairly referred this court to Atlantic & General Investment Trust Ltd v Richbell Information Services Inc. [2000] 2 BCLC 778, a decision of Judge Weeks QC sitting as a Judge of the High Court, and Re The Sun’s Group Ltd [2004] 3 HKLRD 65, a decision of Kwan J (as she then was).

21.  In Atlantic & General Investment Trust Ltd v Richbell Information Services Inc, the debtor company asserted a cross-claim against not only the petitioner but also its parent company.  At 790i to 791b, the learned Judge suggested that the cross-claim against the petitioner’s parent company was something he should take into account in the exercise of the court’s jurisdiction to wind up the debtor company, citing Tottenham Hotspur plc v Edennote plc [1995] 1 BCLC 65, a decision of Rattee J, in support.

22.  In Re The Sun’s Group Ltd at [49], the learned Judge disagreed with that proposition.  In her Ladyship’s view, the reason for staying or dismissing a petition where there is a genuine cross-claim exceeding the petitioning debt is the possible extinguishment of the debt by the cross-claim.  For this to happen, there must be mutuality.

23.  This court entirely agrees with the decision and reasoning of Kwan J in Re The Sun’s Group Ltd. The first principle of company law is the doctrine of corporate identity, established by the House of Lords in Salomon v A Saloman & Co Ltd [1897] AC 22.  In the present case, it means the Petitioner is a separate legal entity from either HT Group or HT Securities.  The Company may consider it has a valid claim against HT Group or HT Securities, but that is not the same as a cross-claim against the Petitioner for the purpose of opposing the present Petition.

24.  Second, by reason of the so-called August Advice and Representations and December Advice and Representations, the Company Loan from the Petitioner to the Company in December 2015 would not be due until a reasonable time after the HT Group share price has rebounded to a level sufficient for the shares' sale proceeds to cover it.  The Company contends that the Petitioner has represented and agreed so, presumably through Mr Lin (“Alleged Assurance”): see paragraph 58 of Mr Li’s skeleton submissions.

25.  Third, the Company Loan was in truth a loan to facilitate the holding of the HT Group shares in the Margin Account.  This was margin financing and the Petitioner was engaging in the regulated activity of margin financing without a licence, in breach of section 114 of SFO.

26.  As set out in Ms Chan SC’s skeleton submissions, the Petitioner’s replies to these 3 bases are many-fold.  This court needs only refer to those which are sufficient to dispose of the Company’s arguments.

27.  First and foremost, while Mr Lin is and since April 2011 has been the Deputy Chairman, Managing Director and CEO of HT Group, he did not act on behalf of the Petitioner or HT Securities at the time of the so-called August or December Advice and Representations.  This is because Mr Lin had already resigned as director of them on 31 July 2015.  Since then, he no longer had authority to act on behalf of the Petitioner (or HT Securities, for that matter) in his dealings with the Company or the Debtor.

28.  The Company has simply failed to establish, by reference to evidence, the Petitioner has granted actual authority to Mr Lin to make the so-called August and December Advice and Representations.  Nor can the Company establish, by reference to evidence, what the Petitioner has said or done in order to cloak Mr Lin with ostensible authority to do so.  Hence, whether or not Mr Lin himself has made the so-called August and December Advice and Representations, which he strenuously denies, the Petitioner is not bound by what he might have said to the Company or the Debtor.  The same can be said of the Petitioner’s executives who allegedly repeated the so-called August and December Advice and Representations, referred to at paragraphs 27 and 32 of Mr Li’s skeleton submissions.

29.  Second, anyone who has any experience in the stock market knows there is no remotely sure way to predict the future movement of the price of a particular stock, especially in a volatile market.  According to CCTD-11 and CCTD-12 exhibited to the 3^rd affirmation of Cheung Che Tsuen Desmond dated 5 March 2018, the price of HT Group shares was highly volatile in 2015.  On 2 January 2015, HT Group shares closed at HK$3.41.  On 12 June 2015, it rose to HK$7.77 before starting to drop sharply.  On 31 August 2015 ie the date of the August Facility Agreement, the share price dropped to HK$3.95 and continuing.  On 22 December 2015 ie the date of the December Facility Agreement, its closing price was HK$4.89.

30.  Mr Lin and the Debtor are not just anybody with any experience in the stock market — they are active participants with vast experience in inter alia the Hong Kong stock market.  It is inherently improbable that Mr Lin would have made the so-called August and December Advice and Representations and given the Alleged Assurance to the Debtor.  It is equally inherently improbable that the Debtor would have relied on them in entering into the August Facility Agreement personally or the December Facility Agreement on behalf of the Company.

31.  Further, given Mr Lin’s experience in the Hong Kong stock market, it made no commercial sense for him to have made the so-called August and December Advice and Representations and given the Alleged Assurance since it would mean the Company Loan (or the personal loan to the Debtor) would not be repayable if the price of the HT Group shares did not rebound sufficiently, which is what happened in the present case.   

32.  Of course, the Company’s case might be more believable if it were supported by contemporaneous documents.  But it is not.  As fairly acknowledged by Mr Li in his skeleton submissions at paragraph 59, the Company’s/Debtor’s documentary evidence is somewhat sparse.  In the WeChat messages exchanged between Mr Lin and the Debtor from around July 2015 to January 2016, there was no mention at all of the so-called August and December Advice and Representations or the Alleged Assurance.

33.  According to the transcript of audio recordings of phone calls between representatives of HT Securities and the Debtor from May to December 2016, HT Securities’ representatives repeatedly demanded the Company to meet margin calls by selling stocks in the Margin Account, failing which HT Securities might have to do so compulsorily.  There was also no mention of the so-called August and December Advice and Representations or the Alleged Assurance.

34.  Even after the Debtor/the Company have engaged lawyers viz Messrs Ho & Wong to represent them in these proceedings, there was still no mention of the so-called August and December Advice and Representations or the Alleged Assurance in their initial letter to the Petitioner’s solicitors dated 21 April 2017.  It was not until 8 May 2017 when Messrs Ho & Wong for the first time made an unparticularised reference to the Alleged Assurance in their letter to the Petitioner’s solicitors.

35.  In other words, the Company’s case is based simply on the bare assertion of the Debtor himself.

36.  Worse than that, the Company’s case is contradicted by a letter dated 31 March 2017 signed by the Debtor on its behalf to the Petitioner’s solicitors.  In that letter, not only did the Company and the Debtor not dispute the Debt, they actually proffered a repayment proposal to settle the Debt and said they would endeavor to repay the principal sum in full within 5 years.  The relevant parts of the letter read:

「 對於貴所列的應付本金HKD127,882,695.00和由此產生的應付利息計HKD39,858,136.00，在短期內肯定無法償還。現階段本人一直在中國大陸尋找商機，希望能竭盡全力盡快先償還部份欠款。根據香港投資有限公司和本人目前的經濟能力，現提出如下方案並制定相應的還款計劃:

(1) 截停收取利息，同時在所述的總債務中豁免應付利息;

(2) 對於本金部份爭取在5年內還清，在近一年內每月先歸還HKD20萬元。」

37.  Third, as far as illegality is concerned, the relevant parts of section 114 of SFO provide:

“ 114. Restriction on carrying on business in regulated activities, etc.

(1) Subject to subsections (2), (5) and (6), no person shall—

(a) carry on a business in a regulated activity;

…

(8) A person who, without reasonable excuse, contravenes subsection (1) commits an offence…”

38.  “Regulated activities” include inter alia “securities margin financing”: see Schedule 1 Part 1 and Schedule 5 Part 1 of SFO.

39.  Schedule 5 Part 2 of SFO defines “securities margin financing” as follows:

“ ‘securities margin financing’ (證券保證金融資) means providing a financial accommodation in order to facilitate:

(a) the acquisition of securities listed on any stock market, whether a recognized stock market or any other stock market outside Hong Kong, and

(b) (where applicable) the continued holding of those securities,

whether or not those or other securities are pledged as security for the accommodation…”

40.  In Ms Chan SC’s skeleton submissions, she criticises the Company for failing to explain in what way the December Facility Agreement can be said to have infringed any provisions of SFO, including section 114 for being unlicensed “securities margin financing”.  There is considerable force in the criticism.

41.  In Clause 3.1 of the December Facility Agreement, the purpose of the Company Loan was stated thus:

“ The Borrower shall apply all amounts borrowed by it under the Facility towards the prepayment of the Outstanding Existing Amount on behalf of the Personal Guarantor and the payment of any legal fees in relation to such prepayment and the Facility.”

42.  As defined in Clause 1.1 of the December Facility Agreement, “Outstanding Existing Amount” means the total amount due from the Debtor to the Petitioner under the August Facility Agreement.  Simply put, the purpose of the December Facility Agreement was to discharge the Debtor’s personal indebtedness to the Petitioner under the August Facility Agreement.  There is no suggestion that any part of the Company Loan has been paid into the Margin Account for the acquisition of securities by the Company.  Indeed, if one reads the December 2015 statement of the Margin Account, there was no acquisition of securities in that month at all — all the transactions recorded in it were for the sale of existing stocks held in the account.  The same is true for the months of January, February or March 2016.  In these circumstances, it is difficult to see how the December Facility Agreement can be said to have anything to do with securities margin financing as defined in SFO.  In this court’s view, the plea of illegality is wholly devoid of merits.

43.  To conclude, the Company has raised a cloud of factual/legal issues on affidavits in opposition to the Petition but, upon closer analysis, this court is not satisfied that

(1)    there is a genuine dispute to the Debt on substantial grounds;

(2)    the Company has a substantial cross-claim against the Petitioner which will extinguish the Debt; or

(3)    the Company Loan is illegal and unenforceable.

44.  Accordingly, this court must reject Grounds 1 and 2.

Ground 3

45.  This ground can be disposed of swiftly.

46.  The Company’s point, at paragraph 40 of Mr Li’s submissions, is that it has substantial assets consisting of HT Group shares held in the Margin Account with HT Securities which the Petitioner can look to for repayment.  The Company may well have other assets in Hong Kong but, in support of Ground 3, it only points to those HT Group shares.

47.  In this court’s view, that is a false argument for the simple reason that the Petitioner has no legal right to sell those HT Group shares in satisfaction of the Debt at all.  As explained in the 2^nd affirmation of Ngan Man Wing, only HT Securities has such a right pursuant to its Margin Account Terms and Conditions.  Furthermore, under those terms and conditions, the proceeds of sale must first be applied to repay all the liabilities owed by the Company to HT Securities.  It is only if there is any surplus that the surplus can be applied to repay the Company’s liability to the Petitioner.

48.  According to the statement dated 31 January 2018, the Company owed an aggregate amount of HK$383,333,939.46 to HT Securities as at 31 January 2018 while the then value of the HT Group shares (at HK$5.55 per share) in the Margin Account was merely HK$331,900,694.85.  On 20 February 2018, the value of the HT Shares in the Margin Account dropped to HK$295,421,519.38 (at HK$4.94 per shares).  In other words, as things presently stand, the Company’s HT Group shares are not sufficient to pay off its liability to HT Securities.  

Ground 4

49.  It is common ground that the Company was incorporated in the BVI and is an “unregistered company” for the purpose of section 326(1) of the Ordinance.

50.  Sections 327(1) and (3) of the Ordinance provide:

“(1) Subject to the provisions of this Part, any unregistered company may be wound up under this Ordinance, ….

…

(3) The circumstances in which an unregistered company may be wound up are as follows-

(a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the court is of opinion that it is just and equitable that the company should be wound up.”

51.  The jurisdiction of the court to wind up an unregistered company is engaged if one of the matters specified in section 327(3) is present: Re China Medical Technologies Inc [2014] 2 HKLRD 997 at [29].  In the present case, there is no doubt that this court has jurisdiction by reason of the circumstances stated in section 327(3)(b) ie the Company is unable to pay its debts.

52.  Once the jurisdiction to wind up the Company is engaged, the court has to consider whether or not to exercise its discretion to do so.  In this regard, the three “core requirements” referred to in Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501 become relevant to that determination.

53.  In Kam Leung Sui Kwan v Kam Kwan Lai at [19] and [20], Ma CJ and Lord Millet NPJ observed as follows:

“ 19. …this is a discretionary jurisdiction, though this does not follow from the word “may”. This word merely means “is liable to” and is appropriate to describe the conferment of jurisdiction. Nevertheless the most appropriate jurisdiction in which to wind up a company is the jurisdiction where it is incorporated...It is well established that there must be some connection between the foreign company and the jurisdiction other than the petitioner’s decision, which would be present in every case, to present a winding up petition there rather than in the country of incorporation.

20. In these circumstances the courts have adopted some necessary self-imposed constraints on the making of a winding up order against a foreign company. There is no need to show that the company has ever had a place of business within the jurisdiction or has ever carried on business there. As the law has developed, however, the courts have laid down three so-called core requirements which must be satisfied before the court will exercise its statutory jurisdiction to wind up a foreign company. These were summarised by Kwan J (as she then was) in Re Beauty China Holdings Ltd.^[5] as follows:

(1) there had to be a sufficient connection with Hong Kong, but this did not necessarily have to consist in the presence of assets within the jurisdiction;

(2) there must be a reasonable possibility that the winding-up order would benefit those applying for it; and

(3) the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.”

54.  In this court’s view, all three core requirements are satisfied in the present case.

55.  First, the Company has a sufficient connection with Hong Kong. It held and continues to hold substantial amount of Hong Kong listed securities in Hong Kong.  It also maintained a bank account with HSBC in Hong Kong.  In creditors’ winding-up petitions, the presence of assets within the jurisdiction is normally sufficient to satisfy the first core requirement: Re China Medical Technologies Inc at [32]-[33].

56.  Furthermore, under the December Facility Agreement, it appointed a Hong Kong company viz Fu Yuen Chemical Material Ltd (“Fu Yuen”) as its agent for service of process.  Fu Yuen has a Hong Kong business address at Unit 1503, 15/F, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong (“Wanchai Address”).  The Company had given the Wanchai Address as its address (i) to HT Securities, as shown in the statements of the Margin Account, (ii) to the Petitioner, as shown in the December Facility Agreement as well as (iii) to HSBC, as shown in its bank account statement.  It sole director and shareholder viz the Debtor holds a Hong Kong ID Card and gave a Hong Kong residential address when executing the Guarantee.

57.  Second, there is a reasonable possibility that the winding-up order would benefit the Petitioner, given the Company’s holding of substantial securities listed in the Hong Kong Stock Exchange.  In Kam Leung Sui Kwan v Kam Kwan Lai at [22], the Court of Final Appeal expressly recognized that “the presence of significant assets within the jurisdiction normally means that a winding-up order is likely to benefit the creditors applying for it”.

58.  Lastly, the third core requirement is also satisfied since at least one creditor of the Company viz HT Securities was incorporated in Hong Kong, as acknowledged by the Company in its Statement of Claim in HCA1295 of 2017.  HT Securities has at all material times been carrying on and still carries on business in Hong Kong.  So does the Petitioner.

59.  For these reasons, this court is satisfied that it has jurisdiction to wind up the Company and that it is proper to exercise its discretion to do so.

Conclusion

60.  In the premises, all four grounds put forward by the Company and the Debtor to oppose the Petitions fail.

Disposition and costs order nisi

61.  There shall be a winding-up order against Hong Kong Investments Group Limited and a usual bankruptcy order against Mr Cheung Chi Mang.  There shall also be an order nisi that costs be to the Petitioner, to be taxed if not agreed, with certificate for two counsel.