STRONG BASES IMPORT & EXPORT CO LTD v. NIKSON INVESTMENT LTD AND OTHERS

HCA 2520/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2520 OF 2005

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R U L I N G

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1.  This is an application for ex-parte mareva injunction against the 1^st Defendant.  The Plaintiff said it was the creditor of the 1^st Defendant and the total amount of the liability of the 1^st Defendant towards the Plaintiff was in the sum of $253 million odd dollars.

2.  The 1^st Defendant had shareholdings with the 2^nd and 3^rd Defendants and there is obviously a loan arrangement between the 2^nd and 3^rd Defendant with a Bank called Guangdong Development Bank.

3.  According to the evidence before me, the total amount of the indebtedness of those defendants to Guangdong Development Bank is RMB 1 billion 226 million odd.  It comes to the Plaintiff’s notice that the bank is going to auction these debts in China and the auction is going to take place tomorrow.

4.  It also found out that as part of the auction, the 1^st Defendant would have to transfer the shares in the 2^nd and 3^rd Defendant to the successful bidder at the nominal consideration of HK$1.  The Plaintiff says this is a dissipation of assets by the 1^st Defendant and it tries to apply for a mareva injunction against the 1^st Defendant on that basis.

5.  This court does not have full information as to the value of the shareholdings in the 2^nd and 3^rd Defendants held by the 1^st Defendant.  According to the Plaintiff’s evidence, on the asset side, it is said that the 2^nd and 3^rd Defendants have certain projects in Beijing.  On as-is basis, the total value of these projects is less than the sum due to the Bank.  Hence, the net value of the shareholdings of the 2^nd and 3^rd Defendants may well be nil or even negative.

6.  However, Mr Wong urged this court to take into account of the potential value of the project because according to the evidence placed before me on a completed basis the project will worth a lot more.  I do not think this is correct.  Whether the development of the projects can be materialised depends on the continued funding for the project.  The cost of development had to be deducted from the final figures.  I have no information about the financial position of the 1^st Defendant as well as the 2^nd and 3^rd Defendants.

7.  I find it difficult to conclude that this HK$1 transfer of the 2^nd and 3^rd Defendant’s shares tantamount to a dissipation of assets for the purpose of a Mareva application.

8.  Further, I think there are matters that the Plaintiff could and should have told the court but the Plaintiff have not yet done so in the evidence.  For example, the circumstances under which the advances from the Plaintiff were made and the circumstances under which the elder brother (who used to be a majority shareholder of the 1^st Defendant) ceased to have control over the 1^st Defendant were not accounted for.  It is also an unexplained mystery to me as regards why the Plaintiff allowed such a large unsecured debt to remain outstanding despite the brother’s loss of control over the 1^st Defendant a long time ago.  Also, it has not been explained to me the circumstances under which the bank or rather a manager of the bank become a majority shareholder in the 1^st Defendant.

9.  It seems to me, on the material available, this case is more likely to be a case where there are competing creditors as far as the 1^st Defendant is concerned.  It is not the purpose of a Mareva injunction to give priority to one creditor.

10.  Bearing in mind the Plaintiff’s status as unsecured creditor, it does not have any right to stop the 1^st Defendant from making arrangement with other creditors.  If the Plaintiff considers it has a good case in terms of the transfer of shareholdings in the 2^nd and 3^rd Defendants, being conducted at an undervalue, it seems to me the proper way to deal with the matter is to petition for the winding-up of the 1^st Defendant and the transaction might have to be unravelled in a petition for winding-up.  On the material before me, I am not satisfied that this is an appropriate case to grant any Mareva injunction, therefore I dismiss the application.