Re Ngai Fung International Trading Co. Ltd.

HCCW 1121/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.1121 OF 1999

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J U D G M E N T

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1. This is a creditor's petition to wind up Ngai Fung International Trading Company Limited ("the Company"). The petitioner is in creditors' voluntary liquidation and the petition is being presented on its behalf by its liquidators.

2. The petitioner advanced monies to the Company under a loan agreement dated 9 January 1998. The due date for repayment of the loan was 14 April 1998. The amount outstanding under the petition as amended is US$1.789 million. The debt is not disputed in the sense that it is not denied that this amount was advanced by the petitioner.

3. The Company's defence is that on 28 May 1998, it entered into an oral agreement with an officer of the petitioner to the effect that the date for repayment would be extended to 14 April 2000. It is of course now past 14 April 2000. However, the Company is not in a position to repay the outstanding amount in one go. Its proposal to make a partial repayment and to formulate a repayment schedule for the balance is not acceptable to the petitioner.

4. I now turn to the alleged oral agreement.

5. According to the affirmation of Wong Siu Mui, the agreement was apparently reached in a telephone conversation between a Mr Kun, the manager of the petitioner and Mr Wong for the Company and contained the following terms :

(a) that the Company would repay at least half of the principal, namely US$1.25 million to the petitioner on or before 15 June 1998;

(b) upon receiving that amount from the Company, the outstanding amount and interest would be postponed to 14 April 2000, effectively a moratorium of 24 months; and

(c) the Company agreed to pay the petitioner interest on the outstanding amount at the rate of 20% per annum.

It is common ground that on or about 8 June 1998, the Company repaid HK$10 million to the petitioner, that is equivalent to US$1.28 million. For the petitioner, it was submitted that the alleged oral agreement is nothing but a sham.

6. Counsel for the petitioner referred the court to contemporaneous correspondence. Since the due date for repayment, i.e. 14 April 1998, the petitioner had been pressing for repayment and had granted an extension to 1 June 1998. After the repayment of $10 million, the petitioner continued to press for the balance. On 12 August 1998, the Company wrote to the petitioner in the following terms :

" We refer to your letter of 10th August 1998 and would like to inform you that we are in the course of making the funding arrangement. We believe the said funding would be available at the early of September 1998. Therefore, we write to request for the extension of the payment of the loan for the sum of US$2,500,000.00 and the interest thereon on or before 15th September 1998."

This was the very first opportunity for the Company to set up the oral agreement for an extension in its defence, but the letter in fact shows unequivocally that the Company recognised that it was under a current liability to repay and sought an extension for repayment. If there was in fact an agreement as alleged, it is indeed surprising, if not inexplicable, that it was not raised at this stage. Then on 3 March 1999, the Company wrote to the petitioner's solicitors in the following terms :

" We also refer to our meeting with the Lender at its registered office on 23rd September 1998 in which we suggested several repayment plans for the Lender's consideration. Eventually, we are informed that the said repayment plans will be submitted to the Lender's Head Office for their approval.

Please be advised that we are in the course of making the funding arrangement. In this event, we shall be obliged if you will agree to extend the repayment of the outstanding loan amount for four months from the date hereof."

Again it is surprising to find a letter written in these terms seeking a four month extension when, under the alleged oral agreement, repayment was not due for another 13 months.

7. For the Company, it was submitted that the petitioner chose to deny the oral agreement because there had been a change of manager. But I find it surprising that if such an oral agreement did exist, there was no written reference to it. Previous extensions granted by the petitioner were referred to in a solicitor's letter. Even if (as is the Company's case) Mr Kun did not, for fear of breaching government regulations, wish it reduce to writing, there was nothing to prevent the Company from writing to confirm the arrangement.

8. It was also submitted that had there not been an agreement for extension, it is strange that the petitioner tolerated the Company's repeated delays when the petitioner was itself in financial difficulty. There is nothing in the point given that the petitioner went into creditors' voluntary liquidation only a few months after the due date.

9. I agree with counsel for the petitioner that the contemporaneous correspondence does not bear out the Company's contention. I find it incredible that an agreement for extension would not have been reduced to writing. Given the correspondence cited earlier, it is impossible to accept the Company's contention that there was an extension agreement. I do not accept that such an agreement existed : it is not borne out by the evidence.

10. For these reasons, the Company's case based on an oral agreement is rejected. There is in fact no valid defence to the petition and as the Company is not in a position to make full repayment, I will make an order to wind-up the Company pursuant to the Companies Ordinance. The costs of the petitioner and of the Company are to be a liquidation expense.