BANK OF CHINA (HONG KONG) LTD v. OASIS HKTL 04A LTD AND ANOTHER

HCA763/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 763 OF 2008

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REASONS FOR DECISION
AND
RULING ON COSTS

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1. On 9 May 2008, I dismissed an application (“the Stay Application”) by the 1^st and 2^nd defendants (“Sub IVA” and “Sub IVB” respectively and “Sub IVs” collectively) by a Summons issued on the same date under section 255 of the Companies Ordinance (“the Ordinance”) for an Order that all further proceedings in this action be stayed, with reasons to be given later.  I now hand down my reasons and decide the outstanding issue on costs as to whether the plaintiff (“BOC”) is entitled to a certificate for 2 counsel, there having been no dispute that costs should otherwise follow the event in favour of BOC.

Transactions underlying the claims

2. BOC’s claims against Sub IVs arose from 2 sets of financing arrangements (“Financial Arrangements”) for the acquisition, in a tax efficient manner, of 2 aircrafts bearing marks B-LFA and MSN 24063 (“Aircraft A”) (in the case of Sub IVA) and B-LFB and MSN 24065 (“Aircraft B”) (in the case of Sub IVB), both owned by and registered in the name of Oasis Hong Kong Airlines Limited (“Oasis”).  The Financial Arrangements are the subject-matters of advance rulings dated 9 November 2007 by the Commissioner of Inland Revenue under section 88A of the Inland Revenue Ordinance.

3. Insofar as it is material to this action, apart from BOC, Oasis and Sub IVs, the Financial Arrangements also involve these parties :

(1)      Oasis HKTL 01 Limited (“Sub I”), a wholly owned subsidiary of Oasis;

(2)     Oasis HKTL 02 Limited (“Sub II”), another wholly owned subsidiary of Oasis;

(3)     Oasis Growth and Income Investments Limited (“OGIIL”);

(4)     Mr Raymond Lee Cho Min (“Mr Lee”);

(5)     Mr Allan Wong Chi Yun (“Mr Wong”); and

(6)     Mr Richard Lee Kwok Yuen (“Mr Richard Lee”).

OGIIL, Mr Lee, Mr Wong and Mr Richard Lee will be called “the Founders” when referred to collectively.

4. Sub II and Sub IVs are all special purpose vehicles incorporated in November 2007 solely for participation in the Financial Arrangements and have no substantial assets other than the rights they have acquired under the various transaction documents constituting the Financial Arrangements.

5. The Financial Arrangement from which BOC’s claim against Sub IVA arose comprises the following series of transactions.

6. By a Partnership Deed dated 21 December 2007, BOC, Sub I and Sub II formed “The Oasis P01 HKLT Partnership” (“Partnership A”) with BOC taking a 99.995% share (“BOC Partnership A Share”).

7. Partnership A then entered into 2 agreements also dated 21 December 2007 with Oasis :

(1)      a Hiring Agreement (“Hiring Agreement A”) under which Partnership A agreed to take on hire from Oasis Aircraft A for 10 years ending on 20 December 2017 with an option to purchase Aircraft A at the end of the hire period for HK$1; and

(2)     an Aircraft Lease Agreement (“Aircraft Lease Agreement A”) under which  Partnership A agreed to lease Aircraft A back to Oasis for approximately 10 years ending on 20 December 2017.

8. (1)     By a Conditional Sale Agreement also dated 21 December 2007 (“Conditional Sale Agreement A”) and made between Partnership A, its 3 partners (BOC, Sub I and Sub II) and Oasis, BOC agreed to sell and Sub II agreed to buy the BOC Partnership A Share at a price to be calculated in accordance with the scale set out in Clause 3.01 and Schedules 2, 3 and 4.

(2)     Completion was scheduled for 4 January 2010 but would be advanced upon the occurrence of certain events triggering an “Early Completion Date”, one of which was the date on which notice was first given by Oasis to BOC to the effect that an “Insolvency Event” had occurred with respect to Oasis under paragraph (a) of the definition of “Early Completion Date” in Clause 1.01.

(3)     Included in the definition of “Insolvency Event” in Clause 1.01 were the admission in writing by a party of an inability to pay its debts as and when due or the appointment of a liquidator over a party or the cessation of business by a party.

9. As Sub II was a special purpose company with no substantial assets, by a Guarantee by deed also dated 21 December 2007 (“Guarantee A”), Sub IVA unconditionally and irrevocably guaranteed to BOC as primary obligor the due and punctual observance and performance of all the terms, conditions and covenants on the part of Sub II under Conditional Sale Agreement A and agreed to pay to BOC from time to time on demand any and every sum(s) of money that Sub II was at any time liable to pay under Conditional Sale Agreement A.

10. (1)     As Sub IVA was likewise a special purpose company with no substantial assets, to ensure that it could obtain funds to honour Guarantee A, by Clause 6.2 of a Shareholders’ Agreement also dated 21 December 2007 (“Shareholders’ Agreement A”) and made between Sub IVA and each of the Founders, the Founders jointly and severally undertook to provide to Sub IVA, upon the passing of an ordinary resolution by Sub IVA, following a demand by BOC and failure by Sub IVA to comply with its obligation under such demand within one business day thereof, additional funding by way of shareholder equity subscription up to the maximum amount owing and unpaid by Sub IVA under Guarantee A, such maximum amount to be provided by the Founders jointly and severally (“Founders’ Undertaking A”).

(2)     Other relevant terms of Shareholders’ Agreement A are :

(A)     Clause 2.1 :

“[Sub IVA] is a special purpose vehicle established solely for participation in a Hong Kong leverages tax lease of one aircraft and such business as shall be agreed from time to time in accordance with this Agreement.  Prior to the discharge of [Guarantee A], [Sub IVA] may not enter into any contract or agreement with any person or create or incur any liability to any person, in each case except for the entry into, and any liability created or incurred under [Guarantee A], [Call Option Deed A] and this Agreement.”

(B)     Clause 3.1 :

“The Shareholders undertake that they shall cooperate with each other as expeditiously as possible to perform all tasks reasonably necessary to make the operations of [Sub IVA] and its business successful and that the terms of this Agreement are complied with.”

(C)     Clause 11.2(a) :

“This Agreement may be terminated immediately if an effective resolution is passed to wind up [Sub IVA] or if a liquidator is otherwise appointed provided however that the Shareholders agree not to pass a resolution to wind up [Sub IVA] during the period that [BOC] is a partner in [Partnership A]”

(3)     The term “the Shareholder” was defined to mean a holder of shares in Sub IVA at the relevant time (Clause 1.1).  At the time of Shareholders’ Agreement A, Sub IVA had issued 1,000 ordinary shares of HK$1 (out of an authorized share capital of 10,000 shares of HK$1 each) which were held as follows :

Shareholder	Number & Percentage of Shares held
OGIIL	990 (99%) shares
Mr Lee	6 (0.6%) shares
Mr Wong	2 (0.2%) shares
Mr Richard Lee	2 (0.2%) shares

The membership of Sub IVA has remained unchanged.

11. By a Call Option Deed also dated 21 December 2007 (“Call Option Deed A”), Sub IVA granted to BOC an option (“Option A”) to require Sub IVA to issue to it 1,050 new shares (“Sub IVA New Shares”) (comprising no less than 51% of the total share capital of Sub IVA) at HK$1 per share.  Option A is exercisable until BOC has received full payment of the purchase price under Conditional Sale Agreement A (Clause 1.01).  The idea is that a controlling shareholding in Sub IVA would put BOC in a position to procure Sub IVA to pass the ordinary resolution required under Clause 6.2 of Shareholders’ Agreement A to invoke the Founders’ Undertaking A.

12. By Clause 3.01, Option A may be exercised only if

(1)     Sub II had become obliged under Conditional Sale Agreement A to purchase the BOC Partnership A Share;

(b)     a demand had been made under Guarantee A by BOC in accordance with the terms thereof; and

(c)     Sub IVA had failed to comply with its obligation under Guarantee A within one business day of receipt of such demand.

13. The issue of the Sub IVA New Shares at HK$1 per share to BOC following receipt by Sub IVA of an exercise notice subject to and in accordance with the terms of Call Option Deed A had in the meantime been approved by a written resolution dated 18 December 2007 signed by the Founders as Sub IVA’s shareholders (“Share Issue Resolution A”).

14. The Financial Arrangement from which BOC’s claim against Sub IVB arose is identically structured.  I shall refer to the transaction documents, partnership, partnership share, undertaking, option, new shares, etc. relating to the Financial Arrangement involving Sub IVB by the same abbreviations but using the letter “B”.

15. On 21 December 2007, BOC contributed the respective sums of HK$118,893,143.05 and HK$117,442,187.35 into Partnerships A and B by way of partnership capital contributions which, in turn, were used by Partnerships A and B to finance parts of the acquisition costs of Aircrafts A and B.

Events on 9 April 2008

16. On 9 April 2008,

(1)     Oasis ceased to carry on all or a substantial part of its business.  It was reported in the media that Oasis had announced that it would cease to operate any flights from that date with no indication that flights would resume.

(2)     Upon the application of Oasis and OGIIL, Mr Justice Barma appointed Mr Edward Simon Middleton and Mr Patrick Cowley (“Oasis Provisional Liquidators”) as provisional liquidators of Oasis and OGIIL.

(3)     The Oasis Provisional Liquidators on behalf of Oasis notified BOC of their appointment.

Consequences of 9 April 2008 events according to BOC

17. BOC takes the view that

(1)     The events on 9 April 2008 constituted an “Insolvency Event” as defined in Clause 1.01 of Conditional Sale Agreements A and B and gave rise to an “Early Completion Date” for each of those agreements.

(2)     Pursuant to Clause 2.01, Sub II became obliged to purchase the BOC Partnership A and Partnership B Shares.

(3)     Under Clause 3.01(a)(i) of Conditional Sale Agreement A/B, as at 9 April 2008, the purchase price payable by Sub II for the BOC Partnership A/B Share calculated in accordance with Schedule 2 was HK$85,138,162.49/ HK$84,100,708.60.

Notices by BOC before action

18. Accordingly, on 9 April 2008, BOC served written notices on Sub I and Sub II, stating that an “Insolvency Event” had occurred, giving rise to an “Early Completion Date” for each of Conditional Sale Agreements A and B and demanding Sub II to purchase the BOC Partnership A Share for HK$85,138,162.49 and the BOC Partnership B Share for HK$84,100,708.60.

19. Sub II did not pay either sum on 9 April 2008 or at any time thereafter.

20. On 10 April 2008, pursuant to Clause 2.1 of Guarantee A/B, BOC demanded Sub IVA/Sub IVB to pay it the purchase price payable by Sub II under Conditional Sale Agreement A/B.

21. Neither Sub IVA nor Sub IVB paid BOC as demanded on 10 April 2008 or at any time thereafter.

22. It is BOC’s case that

(1)     By 11 April 2008, all the conditions set out in Clause 3.01 of Call Option Deed A/B for the exercise of Option A/B were fulfilled, namely :

(A)     Sub II had become obliged under Conditional Sale Agreement A/B to purchase the BOC Partnership A/B Share.

(B)     Demands had been made by BOC upon Sub IVs under Guarantees A and B.

(C)     Sub IVA and Sub IVB had failed to comply with their respective obligations under Guarantees A and B within one business day of receipt of BOC’s demands.

(2)     As neither Sub II nor either of Sub IVs has paid the purchase prices due to BOC under Conditional Sale Agreements A and B, Option A and Option B remain open.

23. On 11 April 2008, BOC served written notices, each accompanied by a cheque for HK$1,050, being the subscription price payable by BOC, on Sub IVA/Sub IVB to issue the Sub IVA/Sub IVB New Shares to BOC on 14 April 2008 (“Exercise Notices”).

24. Neither of Sub IVs issued any shares to BOC or registered BOC in its books and records as holder of any shares on 14 April 2008 or at any time thereafter.

BOC’s claims

25. By the Writ of Summons issued in this action on 2 May 2008, BOC claims against each of Sub IVs with interests and costs :

(1)     an order that Sub IVA/Sub IVB do forthwith issue the Sub IVA/Sub IVB New Shares to BOC at HK$1 per share;

(2)     an order that Sub IVA/Sub IVB do forthwith issue share certificates in respect of the Sub IVA/Sub IVB New Shares in BOC’s name, register BOC in the books and records of Sub IVA/Sub IVB as holder of the Sub IVA/IVB New Shares and enter into, execute, register, give or make any and all such other deeds, assurances, instruments, notices, advertisements and documents as shall be required to evidence, give effect to or advertise the issue of the Sub IVA/Sub IVB New Shares;

(3)     HK$85,138,162.49/HK$84,100,708.60;

(4)     alternatively, damages for breach of Guarantee A/B (quantified at HK$85,138,162.49/HK$84,100,708.60); and

(5)     a declaration that Sub IVA/Sub IVB is and shall remain liable for all Sub II’s liability to indemnify BOC under Clause 10 of Conditional Sale Agreement A/B.

BOC’s application for interlocutory mandatory injunctions against Sub IVs

26. By a Summons taken out under Order 29, rule 1 on 7 May 2008, BOC applies for a mandatory injunction against each of Sub IVs that

(1)     Sub IVA/Sub IVB do forthwith issue the Sub IVA/Sub IVB New Shares to BOC at HK$1 per share; and

(2)     Sub IVA/Sub IVB do forthwith register BOC as the holder of the Sub IVA/ Sub IVB New Shares in its Register of Members and file all necessary returns with the Companies Registry

(“the Injunction Application”).

27. The Injunction Application was made returnable at 9:30 a.m. on 9 May 2008 with an application for abridgement of time for service as the Summons was served in the early evening of 7 May 2008.  The hearing of this application has been adjourned to 28 May 2008.

Resolutions for the voluntary winding up of Sub IVs under section 228A

28. In the meantime, on 8 May 2008, Mr Lee, as sole director, signed 2 identical resolutions (“the Winding up Resolutions”) in respect of each of Sub IVs in, inter alia, the following terms :

“1.     The Company cannot by reason of its liabilities continue its business.

2.       Due to reasons as stated in the winding-up statement to be filed with the Registrar of Companies, the director considers it necessary that the Company be wound up and the winding up should be commenced under Section 228A of the Hong Kong Companies Ordinance because it is not reasonably practicable for the winding up to be commenced under any other section of the Companies Ordinance.”  [original emphasis]

Messrs John Robert Lees and Mat Ng (“Sub IVs Provisional Liquidators”) were appointed joint and several provisional liquidators for the winding up of Sub IVs.

29. On 9 May 2008, a “Statement of Voluntary Winding Up In Case of Inability to Continue Business” (“the Winding-up Statements”) signed by Mr Lee was filed with the Registrar of Companies in respect of each of Sub IVs.  The Winding-up Statements set out the following reasons for winding up each of these companies under section 228A :

“1.     The Company cannot by reason of its liabilities continue its business;

2.       A writ of summons was served by a creditor of the Company on 2 May 2008 in respect of debts due from Oasis HKTL 02 Limited (“Sub II”) and guaranteed by the Company.  On 7 May 2008, the same creditor took out a summons returnable on 9 May 2008 at 9:30 am seeking for effectively a mandatory injunction against the Company;

3.       By a Shareholders’ Agreement dated 21 December 2007 entered between the Company and its shareholders of the Company agreed not to pass a resolution to wind up the Company during the period that the above creditor remains a partner in The Oasis P01 HKTL Partnership where Sub II is also one of the partners; and

4.       In view of the urgency of the matter and in light of the above reasons, the director considers that it is in the best interest of the Company to wind up itself and it is not reasonably practicable for the winding up of the Company to be commenced under any other section of the Companies Ordinance.”

30. In his 1^st Affidavit made on 9 May 2008, under the heading “Decision to wind up the 1^st and 2^nd Defendant companies”, Mr Lee said :

“12.   The reasons why the 1^st and 2^nd Defendant companies went into voluntary liquidation are set out in the Form W2 Statement of Voluntary Winding Up of the 1^st and 2^nd Defendants respectively which have been submitted to the Registrar of Companies this morning (i.e. 9^th May 2008). …

13.     I, in my capacity as the Sole Director of the 1^st and 2^nd Defendant Companies, have no option but to wind up the said companies due to the fact that they cannot continue their business by reason of their liabilities.  As mentioned above, on 2^nd May 2008, the Plaintiff commenced the proceedings herein against the 1^st and 2^nd Defendants in respect of debts due from Oasis HKTL 02 Limited and guaranteed by the 1^st and 2^nd Defendants.

14.  In the circumstances, and given the urgency of the matter by reason of the Plaintiff’s Summons for mandatory injunctions and damages, it was in the best interests of the 1^st and 2^nd Defendant companies that they be wound up pursuant to Section 228A of the Companies Ordinance.” [original emphasis]

BOC’s application to stay the winding up of Sub IVs

31. To complete the background, BOC takes the view that Sub IVs have abused or misused section 228A.  By an Originating Summons issued in HCMP885/2008 in the afternoon on 9 May 2008, BOC applies for declarations that the Winding-up Resolutions and the appointment of the Sub IVs Provisional Liquidators are “null, void and invalid” and for an order that the winding up of Sub IVs be stayed.

32. My attention has been drawn to the statement by Roger J (as he then was) in Bozell Asia (Holdings) Ltd v. CAL International Ltd [1997] HKLRD 1 at 10G that a court would use the powers to stay a winding-up under section 228A if it should be shown that that section has been abused or misused.  To preserve the status quo and in the absence of objection from Sub IVs, I ordered an interim stay of the winding-up of Sub IVs.

Grounds advanced for a stay of this action

33. Sub IVs put forward 2 reasons why this action should be stayed :

(1)     BOC seeks the issue of shares of Sub IVs.  Sub IVs cannot lawfully and properly issue/transfer shares to BOC :

(A)     Section 232 provides : “Any transfer of shares, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the members of the company, made after commencement of a voluntary winding up, shall be void.”

(B)     Under section 230, except as provided in section 228A(5)(a), a voluntary winding up shall be deemed to commence at the time of the passing of the resolution for voluntary winding up.

The issue of the Sub IVA/Sub IVB New Shares would alter the status of the members of Sub IVA/Sub IVB.  Alternatively, there is no provision in the Ordinance authorizing the issue of new shares to a third party.

(2)     The status quo should be preserved.  Sub IVs are special purpose vehicles set up to facilitate financing of Oasis’ airline operation.  Proceedings to wind up Oasis commenced on 9 April 2008.  BOC is in no different position from other creditors of Oasis and should accordingly seek relief within the context of the global liquidation proceedings for Oasis and its subsidiaries.

Stay of action only if “just and beneficial”

34. Section 255 gives the Court the power to determine any question arising in the voluntary winding up of a company or to exercise of any of the powers which the Court might exercise if the company were being wound up by the Court only if it is satisfied that the determination of the question or the required exercise of power will be just and beneficial.

Stay of this action neither just nor beneficial

35. BOC focuses its opposition to the Stay Application principally upon the validity or otherwise of the reasons for winding up given in the Winding-up Statements and, consequently, of the Winding-up Resolutions.

36. In face of such opposition, Sub IVs sought to adjourn the hearing of the Stay Application on the ground that further evidence was required from the Sub IVs Provisional Liquidators and/or Mr Lee regarding the reasons for Sub IVs being put in voluntary winding up.

37. I declined.  There was no reason to suppose that the Sub IVs Provisional Liquidators, not having participated in the decision to wind up Sub IVs under section 228A, would be able to shed any light on what prompted such a move.  As for Mr Lee, being the sole director passing the Winding-up Resolutions and signing the Winding-up Statements, he was required by section 228A(1) to specify in the latter documents his reasons for considering that it necessary that Sub IVs be wound up under section 228A.  In this regard, section 228A reads :

“Special procedure for voluntary winding up of company in case of inability to continue business

(1)     The directors of a company or, in the case of a company having more than 2 directors, the majority of the directors, may, if they have formed the opinion that the company cannot by reason of its liabilities continue its business, resolve at a meeting of the directors and deliver to the Registrar a statement in the specified form (the “winding-up statement”), signed by one of the directors certifying that a resolution has been passed to the effect that—

(a)   the company cannot by reason of its liabilities continue its business;

(b)   they consider it necessary that the company be wound up and that the winding up should be commenced under this section because it is not reasonably practicable for it to be commenced under another section of this Ordinance;

(c)   meetings of the company and its creditors will be summonsed for a date not later than 28 days after the delivery of the winding-up statement to the Registrar.

(2)     The resolution referred to in subsection (1) and the winding-up statement shall specify the reasons in support of the consideration mentioned in paragraph (b) of that subsection.

(3)     …

(4)     Any director of a company signing a winding-up statement without having any reasonable grounds—

(a)   for the opinion that the company cannot by reason of its liabilities continue its business; or

(b)   to consider that the winding-up of the company should be commenced under this section because it is not reasonably practicable for it to be commenced under another section of this Ordinance,

shall be liable to a fine and imprisonment.

5.       …”

Mr Lee has confirmed in paragraph 12 of his 1^st Affidavit that the reasons why Sub IVs went into voluntary liquidation have been set out in the Winding-up Statements.

38. The mechanism for the commencement of voluntary winding up of a company by a directors’ resolution is available only where a view can be formed on reasonable grounds that :

(1)     the company cannot by reason of its liabilities continue its business;

(2)     it is necessary that the company be wound up; and

(3)     it is not reasonably practicable for the winding up to be commenced under another section of this Ordinance, e.g. sections 177 or 228.

39. An issue arises as to the extent to which the Court can, pending determination of BOC’s application to stay the winding up of Sub IVs, go behind Mr Lee’s decision to resort to section 228A.  Ms Wing Kay Po, counsel for Sub IVs, suggests that I should presume the validity of the Winding up Resolutions until the Court rules otherwise.

40. The Stay Application is not the forum to determine the validity or otherwise of the Winding-up Resolutions, and I do not propose to do so under the Stay Application.

41. However, given that I have to be satisfied that a stay of this action would be just and beneficial before I may grant it, I do not see how I can ignore legitimate criticisms that can be made about Mr Lee’s opinions that Sub IVs cannot continue their business by reason of their liabilities and that it is necessary to wind them up or in their best interests to do so (as it is alternatively put in the Winding-up Resolutions and Statements).

42. The only liability of Sub IVA/Sub IVB is that assumed under Guarantee A/B.  The sole business for which Sub IVA/Sub IVB exists is the assumption and discharge of such liability.  One can be forgiven for having difficulty with Sub IVs’ claims of inability to continue their business by reason of the liabilities the assumption and discharge of which is their business.

43. The eventuality of Sub IVA/IVB being called upon to honour Guarantee A/B was anticipated and provided for.  Yet, no attempt has been made by Sub IVA/Sub IVB to enforce the Founders’ Undertaking A/B, the arranged source of funds for compliance with Guarantee A/B.  Unless and until these undertakings have been exhausted, there is no basis for any view to be formed one way or the other regarding the ability of Sub IVs to continue their business.

44. Indeed, by paragraphs 2, 3 and 4 of each of the Winding-up Statements, Mr Lee practically admitted that he resolved to wind up Sub IVs to evade liabilities under Guarantees A and B and acknowledged that the shareholders of Sub IVs, qua shareholders, could not pass resolutions to wind up Sub IVs because of their agreement not to do so under Shareholders’ Agreements A and B.

45. First,

(1)     One can fairly wonder how Sub IVs’ interests would be better served by having them wound up despite the availability of means for satisfaction of their liabilities.  They would not.

(2)     To the contrary, one would have thought that Sub IVs’ interests would be best served by requiring the Founders to fulfil their undertakings to provide the necessary funding to enable Sub IVs to pay BOC.

(3)     The only persons who appear to benefit from the winding up of Sub IVs are the Founders who are at the end of the chain of liabilities for the purchase prices payable by Sub II to BOC under Conditional Sale Agreements A and B.  Mr Lee is one of the Founders.  It is not surprising that the Court is asked to infer that Mr Lee passed the Winding-up Resolutions with a view to absolving himself from personal liabilities under the Founders’ Undertakings A and B and to hold that such self-interest vitiated the Winding-up Resolutions (Howard Smith Ltd v. Ampol Petroleum Ltd [1974] AC 821, PC, at 834A-835H).

(4)     Ms Po’s submission that the interests of Sub IVs (ultimately) means the interests of their shareholders is contrary to principle.

(5)     The explanation that Mr Lee might have been propelled into a sense of urgency because he considered it necessary to protect Sub IVs from BOC’s “spurious” claims and “oppressive” prosecution of such claims is similarly unacceptable.  The proper response to a bad claim or harsh conduct, if any, is to approach and address the Court, not to invoke section 228A.

46. Second,

(1)     Mr Lee passed the Winding-up Resolutions despite his undertaking and agreement in Clauses 3.1 and 11.2(a) of each of Shareholders’ Agreements A and B.  He took care to do so in his capacity as the director of Sub IVs.

(2)     Mr Jat Sew Tong SC, appearing with Ms Linda Chan for BOC, argues that Mr Lee is a “Shareholder” holding 6 shares in each of Sub IVs.  He is bound by the undertaking and agreement in Clauses 3.1 and 11.2(a), whether qua director or shareholder.  The restriction under Clause 11.2(a) is not limited to a shareholders’ resolution.  Mr Lee’s acts of putting Sub IVs into liquidation are in breach of both Clauses 3.1 and 11.2(a).  The Court should not allow the “Shareholders” to act inconsistently with their clear contractual undertaking.

(3)     There is force in this submission.  The term “the Shareholders”, as used in Shareholders’ Agreements A and B, seems to me to be merely a convenient abbreviation for referring to the Founders.  It does not denote them acting only in the capacity of shareholders.  Otherwise, the restriction in Clause 11.2(a) would be pointless as the directors of Sub IVs are, pursuant to Clause 4.1(a), to be appointed and removed by OGIIL which is controlled by Mr Lee, his wife, Mr Wong and Mr Richard Lee to the combined extent of 66.7%.

47. Even if the Winding-up Resolutions should be held valid, the usual reason for a stay of an action involving a company being wound up does not exist in this case, Sub IVs having no creditor other than BOC.  For this reason, I also find that it would be pointless to wait and see if the resolution of the present dispute might be advanced after the meeting of creditors.

48. More importantly, it is to my mind neither just nor beneficial to stay this action which would have the consequence of preventing BOC from having recourse against, not just OGIIL which is being wound up, but all the other Founders.  Although OGIIL holds 99% of the shares in each of Sub IVs, it would, in my view, be unrealistic to think that BOC is still interested in going after OGIIL.  BOC is clearly targeting the other 3 Founders who have assumed joint and several liability for the maximum amounts required by Sub IVs to discharge Guarantees A and B.  Subject to BOC establishing its claims against Sub IVs, I can see no reason why BOC should not be allowed to pursue this course of action.

49. The reference to and reliance on section 232 can be answered in 3 points.

50. Firstly, I see it as an argument that should be more appropriately raised in defence to BOC’s claims for the issue of the New Sub IVA/Sub IVB Shares, whether final or interlocutory, and not for a stay of this action altogether.

51. Secondly, I fail to see what alteration in the status of the members of Sub IVA/Sub IVB the issue of new shares would cause.  Yes, the new shares would enlarge the issued share capital of Sub IVA/Sub IVB and dilute the holdings of the Founders therein in terms of percentage.  However, on the facts known to me, the Founders’ liabilities to contribute in the winding-up of Sub IVs remain fixed at the amounts of the share capital to which they have respectively committed and the expectation to share in the assets of Sub IVs in proportion to their shareholdings is non-existent.

52. Thirdly, even if the issue of the Sub IVA/Sub IVB New Shares would result in an alteration in the status of the members of Sub IVA/Sub IVB, such alteration occurred before, and not after, the Winding-up Resolutions.  This is so because, on a proper analysis, BOC’s rights to be issued the Sub IVA/Sub IVB New Shares (if proved) accrued on 11 April 2008 upon the service of the Exercise Notices following the fulfilment of the 3 conditions laid down in Clause 3.01 of each of Call Option Deeds A and B.  Further, the issue of such new shares had been pre-approved by Share Issue Resolutions A and B dated 18 December 2007.  In Re Blaina Colliery Co. Ltd (1926) 70 Sol Jo 404, preference shareholders had the right to give 6 months’ notice to convert their shares into ordinary shares and some of them gave such notice less than 6 months before the company went into voluntary liquidation.  In holding that such notice was valid and effectual to convert their preference shares into ordinary shares, and did not create an alteration of their status after the commencement of the winding up within section 205 of the Companies (Consolidation) Act 1908 so that they should be regarded as ordinary shareholders in the distribution of the assets of the company, Romer J said :

“At the date of the liquidation they held by virtue of the notice which they had given preference shares which would at a fixed date be converted into ordinary shares.  They had a right to have the ordinary shares at the commencement of the winding up.  If before the date of transfer arrived the company went into liquidation, I do not see how it can be said, when that date arrives, that any change of status will arise after the winding up has commenced.”

53. For the foregoing reasons, I am not satisfied that it would be just and beneficial to stay this action and the Stay Application fell to be dismissed.

54. Sub IVs should pay BOC the costs of and occasioned to it by the Stay Application, to be taxed if not agreed.  On balance, I make no order for a certificate for 2 counsel.