RE US SMART-TEL (HK) LTD.

HCCW 797/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO.CW 797 OF 1999

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J U D G M E N T

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1. This is a winding-up petition based on an unpaid debt. The facts are as follows.

2. The Petitioner alleged that US Smart-Tel (HK) Limited ("the Company") was indebted to it for approximately US$582,000, being the balance due under an invoice dated 30 April 1999. A statutory demand was served on the Company. Following that demand, the Company, whilst disputing the debt, admitted that a sum of around US$360,000 was due and agreed to pay this amount to the Petitioner by way of instalments. Eight instalments were to be paid commencing 19 July 1999 in varying amounts, the last of which should have been paid on 5 November. After paying two instalments of US$20,000 each, the Company made no further payments.

3. Mr Chow, a director of the Company, who appeared at the hearing, has filed an affidavit explaining why no further payments have been made. It would appear that after making the two payments, the Company's accountant advised that even US$360,000 was more than what was owing to the Petitioner, and that the likely amount would be approximately US$260,000. No evidence of this was filed in support. It is simply a bare allegation. Nor is there any explanation of how the new amount was computed. Be that as it may, the Company is not in a position to pay the balance, assuming that the correct amount due and owing is merely $US$260,000 and not US$360,000.

4. There were other points taken by the Company, the first of which is that the debt arises under a Reseller Agreement entered into between the parties, and it was a term of that agreement that in the event of any dispute, the dispute should be resolved by resolution by way of arbitration in Los Angeles County for a final and binding decision by a panel of three retired judges. The point as to jurisdiction was never taken at the time the Company agreed the repayment schedule with the Petitioner, and it is that agreement to repay by eight instalments rather than the Reseller Agreement which is the basis of the debt.

5. Finally, the Company referred to the fact that it is now having negotiations with a prospective investor. If that agreement should come to fruition, it will have the ability to repay whatever might be owing to the Petitioner. There is exhibited a Memorandum of Understanding dated 10 November 1999 between the prospective investor and the Company. This is not a binding agreement but merely was a statement of intent. There is no other evidence as to the stage the negotiations have reached.

6. The Petitioner has considered the potential transaction and it has reached a commercial decision not to await for its outcome which may not be known for some time and, therefore, seeks a winding-up order.

7. As there is clearly a debt owing to the Petitioner which the Company is unable to repay, and there are no certain prospects of repayment in the very near future, I will make the compulsory winding-up order sought. The costs of the petition are to be a liquidation expense.