RE TIAN SHAN DEVELOPMENT (HOLDING) LTD

HCCW 484/2021

[2022] HKCFI 3084

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 484 OF 2021

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R E A S O N S  F O R  J U D G M E N T

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1.  At the hearing of the petition presented by the petitioner, White Dynasty Global Holdings Limited (“Petitioner”), against Tian Shan Development (Holding) Limited (“Company”) on 28 December 2021 pursuant to s.327(3)(b) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUO”), I made a winding-up order against the Company. These are the reasons for my judgment.

Background

2.  The Company is incorporated in the Cayman Islands and has since 11 June 2007 been registered as an oversea company under Part XI of the former Companies Ordinance (Cap. 32).  The Company’s shares are and have since 15 July 2010 been listed on The Stock Exchange of Hong Kong Ltd (stock code 2118).  The Company has a principal place of business in Hong Kong. 

3.  The Company is an investment holding company and holds a number of subsidiaries incorporated in Hong Kong and the Mainland (together “Group”).  The Group engages in development and sale of real properties in the Mainland and focuses on residential and industrial properties with a number of properties under development in Shijiazhuang, Tianjin, Ningxia and Yangzhou. 

4.  The Petitioner holds a bond certificate dated 29 March 2021 for a principal of HK$200 million with interest at 15% p.a. (“Bond”). The Company defaulted in redeeming the Bond.  As at 29 September 2021, the entire principal of HK$200 million remained unpaid (“Debt”) and interest continued to accrue at 15% p.a. together with further default interest rate at 15% p.a..

5.  By a statutory demand served on the Company on 5 October 2021, the Company was required to pay the Debt within 21 days.  No payment was made by the Company and the Petition was presented on 28 December 2021. In January 2022, the Company made a partial repayment of HK$47,000,002 which was applied by the Petitioner to repay the interest due.

6.  There is no dispute that the Debt was due and payable.

7.  The Petition first came to be heard before this Court on 3 May 2022.  Although the Company through counsel indicated that it opposed the Petition, the affirmation in opposition was only filed on 28 April 2022[1], hence in breach of rule 32 of the Companies (Winding-up) Rules (Cap. 32H).  In line with the usual practice of the Companies Court where the company failed to file its affirmation in opposition in accordance with rule 32, an order was made giving conditional leave to the Company to file its affirmation in opposition upon payment of HK$32 million into court within 42 days of the order.  In the same order, directions were given on the filing of further affirmations including an affirmation to be filed by the Company to update its financial position and progress of fund raising by 18 July 2022.

8.  The Company did not comply with the condition as a result of which there was no affirmation in opposition to the Petition.  Nor did the Company file any affirmation to provide any update on its financial position and progress of fund raising.

9.  Nevertheless, at the hearing of the Petition on 22 August 2022, the Company applied for, and the Petitioner agreed to, a short adjournment to explore whether the parties could reach a settlement agreement in respect of the debts owed.  On that basis, the Petition was adjourned for 6 weeks to give one final chance for the Company to see if it could reach any agreement with the creditors.  The Company was given leave to file an affirmation to update its financial position and progress of settlement negotiations or restructuring (if any) with the creditors by 26 September 2022.

10.  On 26 September 2022, the Company filed the 3^rd Affirmation of Si Jingxin (“Si 3^rd”) which shows that that the Company did not reach any agreement with the Petitioner or indeed any creditors.

Discussion

11.  At the hearing, Ms Sharon Yuen, counsel for the Petitioner, asks the court to make an immediate winding-up order against the Company on the grounds that (1) as an unpaid creditor in respect of the Debt, the Petitioner is entitled ex debito justitiae to a winding-up order against the Company; (2) there is no evidence to dispute any of the matters pleaded in the Petition including the plea that the 3 “core requirements” for the court to exercise its discretionary jurisdiction to make a winding-up order against the Company are satisfied; and (3) the Company has not reached any agreement with the Petitioner (or any creditors) to compromise the debts owed.  Nor has there been any proposed restructuring proposal which has the support of the requisite majorities of creditors.  

12.  Ms Yuen also points to the fact that the Petition has the support of the following 8 unsecured creditors, all of whom have filed Notices of intention to appear in and support the Petition:

Creditor	Amount Owed
Wang Peiyi	HK$10,291,667
Ma Yifang	HK$10,000,000
Chen Baohua	HK$10,000,000
Wang Mingchun	HK$10,000,000
Song Hongbo	HK$10,000,000
Yao Weitang	HK$6,000,000
Wang Tao	HK$5,221,232.88
Guo Yanlong	HK$5,000,000

13.  Further, although Maxiup Holdings Ltd (a creditor to whom HK$380 million was owed) had filed a notice of intention to appear in and oppose the Petition, by letter dated 4 August 2022, it informed the court and the parties that it would not oppose the Petition. 

14.  As regards the 3 core requirements, there is no dispute that the first and third requirements are satisfied.  Although at the last hearing, counsel for the Company raised an argument that the second core requirement was not satisfied, at the hearing, Mr Terence Tai (rightly) does not pursue the contention given that the Company has not filed any evidence to take issue with any of the averments in the Petition.  

15.  In any event, as Ms Yuen submits, in §8 of the Petition, the Petitioner identified the Company’s close connections with Hong Kong and the bases upon for contending that there is a reasonable possibility of benefit to the creditors for the Company to be wound up in Hong Kong.  Such matters include:

(1)  The Company’s shares are listed on the Main Board and its principal place of business has been in Hong Kong;

(2)  The Company has a bank account in Hong Kong held with Bank of China (Hong Kong) Limited;

(3)  The Company has significant assets in Hong Kong in the form of 100% shareholding in 2 Hong Kong companies held through its intermediate subsidiaries;

(4)  The Company’s auditor (KPMG) is located in Hong Kong and at least 2 of the Company’s key officers (a director and the Company’s authorised representative in Hong Kong and company secretary) are Hong Kong residents and the director resides in Hong Kong;

(5)  The 2020 annual general meeting and 3 extraordinary general meetings of the Company took place in Hong Kong; and

(6)  The Debt was incurred in Hong Kong, the Bond certificate is governed by Hong Kong laws and contains a non-exclusive jurisdiction clause in favour of Hong Kong court.

16.  Further, it is indisputable that the second core requirement is satisfied.

17.  The principle was recently summarised in Re Carnival Group International Holdings Limited [2022] HKCFI 2668, §18:

“The test of the second core requirement, as recently stated by the Court of Final Appeal in Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK2 Ltd [2022] HKCFA 11, is as follows:

(1) The nature of the inquiry is ‘to ascertain whether it would be appropriate to put into motion the winding-up machinery in respect of a particular overseas company’ (§83);

(2) The requirement is set at ‘low threshold’ and is met ‘as long as the benefit can be said to be a real possibility, rather than a merely theoretical one’ (§§56, 83); and

(3) Even in cases where there are no assets for a liquidator to administer, the requirement is satisfied so long as there is ‘some useful purpose serving the legitimate interest of the petitioner’ (§54(4)).”

18.  As the CFA stated in Re Shandong Chenming Paper Holdings Ltd [2022] HKCFA 11 at §54, one should adopt a “pragmatic approach” in assessing whether it would be useful to wind up a foreign company.

19.  Specifically, “[i]n the case of a non-Hong Kong company whose primary listing has been on HKEx, it would not be difficult for the petitioner to satisfy the 3 core requirements” (Re Up Energy Development Group Ltd [2022] 2 HKLRD 993, §47).

20.  In particular, the interposition of offshore subsidiaries between the Company and its Hong Kong sub-subsidiaries do not necessarily prevent the liquidators from taking control of such subsidiaries or sub-subsidiaries (Re GTI Holdings Ltd [2021] HKCFI 3647 at §24(2)).  As explained in §16(1) of Re NewOcean Energy Holdings Limited [2022] HKCFI 2501:

“The question whether the liquidators would be able to get control over the subsidiaries incorporated in other jurisdictions is a question of fact. The Hong Kong court has in the past wound up many companies incorporated in other jurisdictions, and the liquidators appointed under the CWUO have often been able to obtain control over the subsidiaries or sub-subsidiaries incorporated in other jurisdictions including the BVI, Cayman Islands and Bermuda without any problem. This in part may be attributed to the fact that the directors (or shareholders) of the subsidiaries concerned have cooperated with and passed control of those subsidiaries to the liquidators appointed under the CWUO. This is unsurprising, particularly if the directors are based in Hong Kong and subject to the jurisdiction of the Court. In any event, if and insofar as it becomes necessary, the liquidators can seek a winding up order against the holding company from the court of the place of incorporation (if it has not already been wound up) or against the subsidiaries concerned from the courts of their places of incorporation. This can normally be done swiftly and without any issue.”

21.  Applying the above authorities, the matters pleaded at §8 of the Petition plainly satisfy the second core requirement.  This is reinforced by the fact that:

(1)  after presentation of the Petition, the Company was able to make a partial payment to the Petitioner in January 2022.  This demonstrates that there is benefit in the form of leverage arising as an incident to the presentation of the Petition against the Company (Shandong Chenming at §§65-67, 81-82); and

(2)  the Company has substantial assets which can be realised for the benefit of its unsecured creditors, which include cash of RMB3,501,669.36 and receivables of RMB1,260,290,137.68 referred to in Si 3^rd and the management accounts made up to 31 August 2022.

22.  I agree with Ms Yuen’s submissions.

23.  Mr Tai accepts that the Petitioner is entitled ex debito justitiae to a winding-up order but invites the court to adjourn the Petition to allow the Company to raise funds to pay its creditors.  In particular, he submits that the Company has already sold 2 properties and will be able to complete the sale of 4 other properties by the end of the year[2].

24.  I do not think that this is a valid ground for the court to further adjourn the Petition.  As Ms Yuen submits, the information on the alleged sale of properties is vague and deficient in that:

(1)  There is only one sentence about the progress of the alleged sale.  There is no supporting document or information on how the assets are held, whether the assets are subject to any encumbrances and the amount of proceeds which may be realised from such sale.  Notably, the Company has various secured creditors (described in Si 3^rd §11), but no details have been provided.

(2)  On the Company’s evidence, only 2 assets said to have been sold have signed contracts, yet there is no information on the terms of such contracts.  As regards the 3 other assets, the only information disclosed is that the Company has been “Discussing with buyer, estimated sale before December”.  There is no information on the progress of negotiations and whether such sale, if effected, would result in any net proceeds which may be used by the Company to repay the debts owed to the Petitioner and the supporting creditors. 

(3)  Even for the 2 assets with contracts allegedly signed, the estimated sale proceeds only come to RMB76 million (assuming they are free from encumbrances, which is unclear), which is not even sufficient to discharge the Debt. 

25.  For the above reasons, it is appropriate for the court to wind up the Company so that liquidators can take steps to preserve, collect and realise the assets of the Company for the benefit of the creditors as a whole.