GINFAX DEVELOPMENT LTD v. JAZZ PHOTO (HONG KONG) LTD (in liquidation)

HCCW1165/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1165 OF 2003

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  REASONS  FOR  DECISION

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Introduction

1. This is an application by Ginfax Development Limited (“Ginfax”) for validation of 15 payments by the Company by cheques for payments of goods delivered pursuant to section 182 of the Companies Ordinance, Cap. 32.

2. On 4 June 2009, I allowed the application and indicated that I would give my reasons in writing, which I now do.

Background

3. Ginfax is a supplier of cameras, films and accessories.  Since 1995, it had supplied products to the Company on a regular basis.  Other than that, Ginfax had no connection whatsoever with the Company.

4. The trade practice between the parties was this.  The Company would place orders with Ginfax by way of purchase orders.  Ginfax then arranged shipment of the goods and issued the invoice and shipment documents to the Company for payment.  The Company then issued post-dated cheques (normally up to 30 days after shipment) as payment.  Since about 2000, Ginfax gave the Company a credit limit of US$300,000 to US$350,000, thereby allowing the Company to issue post-dated cheques up to that limit.

5. In about 2002, there were rumours that the Company and its parent company were being sued by the petitioner herein in the USA.  In about March 2003, the Company assured all its suppliers that it was confident of the outcome of the USA action.  Based on that assurance, Ginfax continued to supply goods to the Company on the usual terms.

6. In about August 2003, the outstanding payments due from the Company for goods supplied by Ginfax began to exceed the credit limit.  Ginfax discussed with the Company about payment arrangements.  Ginfax withheld goods which were being shipped and refused to release them to the Company until satisfactory payments had been made.  On 16 October 2003, Ginfax received a payment schedule from the Company up to 22 October 2003.  The schedule showed that, with payment anticipated to be made on 22 October 2003, the outstanding amount due from the Company would fall below the credit limit.  The Company therefore requested Ginfax to deliver the goods referred to in the schedule.  Ginfax agreed and delivered the goods as requested.

7. On 22 and 25 October 2003, Ginfax deposited the 15 cheques in question, totaling HK$582,119.79, for partial payment of the September shipment, which were all cleared subsequently.

8. On 22 October 2003, the winding up petition herein was presented.  It was advertised on 8 November 2003.  Ginfax was unaware of the petition until January 2004.  The Company was eventually wound up on 28 January 2005.

Discussion

9. Under section 182 of the Companies Ordinance, in a winding up by the court, any disposition of the property of the company made after the commencement of the winding up, that is, the date on which the petition was presented, shall be void unless the court otherwise orders.

10. The court will normally validate dispositions carried out in good faith in the ordinary course of business at a time when the parties did not know that a petition had been presented, unless there are grounds to believe that the transaction involved an attempt to prefer the party in whose favour the dispositions were made.  See Denny v John Hudson & Co. [1992] BCLC 901 at p. 905; HSBC v Vesoco Company Limited (in liquidation), HCCW61/1998, unreported, 23 May 2000, per Deputy Judge Kwan (as she then was) at para. 8.

11. Here, all the cheques in question, which were then post-dated, were delivered for payments of goods shipped in September 2003 in accordance with the usual trade practice between Ginfax and the Company.  By then the petition had yet to be presented.   When Ginfax deposited the cheques for payment on 22 and 25 October 2003, it was not aware of the petition.  In such circumstances, I am of the view that the payments by the cheques were all made in good faith and in the ordinary course of business and, contrary to the liquidator’s submission, did not involve any attempt to prefer Ginfax.

Conclusion

12. For the above reasons, I allowed the application.