RECOVERY VEHICLE 1 PTE. LTD. v. TOTAL ALLIANCE INVESTMENTS LTD

HCCW 185/2019

[2020] HKCFI 1864

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 185 OF 2019

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D E C I S I O N

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1.  I have before me a petition issued on the 14 June 2019, seeking an order for the compulsory winding-up of the Company on the grounds of insolvency. The Petition was originally listed for hearing on 27 February 2020, but was adjourned because of the general adjournment period (“GAP”). The Petitioner, Recovery Vehicle 1 Pte Ltd, asserts in the petition that pursuant to a legal assignment it acquired title to a debt for US$8,853,841.82 originally owed to Affert Resources Pte Ltd (“Affert”), which is in liquidation in Singapore.

2.  The debt arises from advances made by Affert to the Company primarily through Bank of India’s Hong Kong branch.  The advances took place between August 2012 and July 2013.  I shall proceed on the basis that the advances particularised in an exhibit to the supporting affidavit of Mr Damian John Prentice on behalf of the Petitioner detailing the advances, which (less repayments) total US$8,853,841.82 were made prior to 14 June 2013 are time barred.  The total amount advanced after 14 June 2013 is US$8,375,000.  Payments were made after this date to settle the advances totalling US$7,914,893.  Even assuming that the Company is entitled to credit (which is doubtful) the entire US$7,914,893 against the US$8,375,000, the debt owed to the Petitioner is substantially in excess of the statutory minimum of HK$10,000 which engages the court’s insolvency jurisdiction.

3.  The Company’s defence is contained in the affirmation of Mr Bharath Srinivasan Sethuraman. Mr Sethuraman notes that the transactions took place six years or more ago.  If I understand his evidence correctly, he says that he has only been able to locate one ledger, which he has not exhibited, but which would suggest that something is payable in respect of the transactions contained in the ledgers exhibited by Mr Prentice, although he does not go so far as to suggest that the advances are bogus. He says this in [13] and [14] of his affirmation:

“13. The table of reconciliation produced by the Petitioner purports to portray the amounts transferred to and received from the Respondent as some kind of running account. This was clearly not the case. As mentioned, amounts were paid for supply of minerals. Payments were made in relation to, inter alia, orders placed between the companies.

14. I am advised and verily believe that amounts due on or before the date of the Petition ie 24 June 2019, would be subject to time limitation and the Petitioner should be barred from claiming against the Respondent.  The Petitioner has failed to show that the amounts since then were not repaid by the receipts from the Respondent correspondingly.”

4.  What is clear is that Mr Sethuraman is not able to provide any material evidence to rebut the Petitioner’s contention that substantially more than HK$10,000 is owed to it by the Company.  It is now in excess of one year since the petition was issued and I would expect the Company by now, it has had additional time in order to compile evidence as a consequence of the GAP, to have been able to provide some evidence demonstrating what it believed is the amount if any due to the Petitioner.  As I explained in [12] of my decision in China Culture City Limited [1], it is not sufficient for a company faced with a claim of the sort advanced by the Petitioner simply to say that the records available are unsatisfactory and it is unable to comment in any detail on the quantification of the claim advanced against it.  A company is under a statutory obligation pursuant to section 373 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, to keep proper accounting records.  What these are to consist of is explained in that section.  It is also required to have prepared audited annual financial statements.  In these circumstances, the court can expect a company faced with a claim for payment of the balance of an account to have at least access to its own accounting records and to be able to show what its own accounting records indicate is the amount, if any, that is payable to a creditor.

5.  In order to establish a bona fide defence on substantial grounds it is necessary for a company to take steps to calculate what if anything is payable.  It will only be in circumstances in which it can fairly be said that (through no fault of a company) the account between a petitioner and a company is so unclear that it is difficult to calculate with any certainty a minimum sum that a company owes that a company will be able to avoid, on the grounds that it is not able to explain to the court in detail the accounting relationship between it and a petitioner and assess what is the amount owed a winding up.  The Company’s position in the present case illustrates what is manifestly an inadequate response to a winding-up petition.  I might have been more sympathetic to the Company if the petition had come on quickly, but particularly given the length of time that the Company has now had in order to address the claim I can see no reason not to find that it has failed to demonstrate a bona fide defence on substantial grounds and to make the normal winding-up order, which I do.

6.  So far as costs are concerned, Mr Kirpalani who appears for the Petitioner has sought indemnity costs on the basis that it is quite clear that the evidence that has been filed does not demonstrate a defence.  In addition there is also pre-petition correspondence in which the Company would appear to acknowledge a substantial sum is payable. Although it is probably academic, I accept that, in the circumstances, is appropriate to order that the costs are payable by the Company on an indemnity basis.