RE SKY RIVER INTERNATIONAL TRADING (HK) LTD

HCCW 225/2018

[2019] HKCFI 2561

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 225 OF 2018

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REASONS FOR JUDGMENT

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1.  This is a petition by Yibo International (HK) Ltd (“the petitioner”) for an order that Sky River International Trading (HK) Ltd (“Sky River”) be wound up pursuant to section 178(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“the Ordinance”). At the conclusion of the hearing, a winding up order was made for the reasons set out below.

BACKGROUND

2.  The winding up order was sought on the basis of an unsatisfied statutory demand served on 21 November 2018 for payment of US$100,000 (“the debt”).  As no payment was made within 21 days, the amended petition was served on 20 December 2018.

3.  Yang Jitao (“Yang”) is a director of the petitioner and a majority shareholder.

4.  The petition was opposed not by Sky River, but by its contributories Tong Zunhui (“Tong”) and Zhang Jinyuan (“Zhang”) (collectively “the OCs”).

5.  Sky River was incorporated on 16 August 2013 and carries on the business of mobile telephone trade and distribution in Hong Kong and the Mainland.  Sky River (being a Hong Kong rather than a PRC company) does not have a bank account in the PRC.  Rather, one of its employees holds a bank account in his own name at China Merchants Bank but which is operated on behalf of Sky River and in accordance with the directions of the OCs.

6.  Yang has been operating an international electronics and distribution business (which also sourced and imported mobile phones from Korea for resale) since 2005.

7.  It is common ground that Yang and Tong have known each other for some years.  They renewed contact in 2015.

8.  Yang met with the OCs and discussed potential cooperation arrangements.  The idea was to pool resources to make bulk purchases of mobile phones in South Korea through Yang’s contacts for resale in Hong Kong and elsewhere and would operate independently of Sky River’s existing business.  A business arrangement was agreed but Yang and the OCs differ as to the structure and/or terms of such arrangement.

9.  Simply put, Yang’s case is that it was a business arrangement entered into between Yang on the one hand and Tong and Zhang on the other.  Sky River was not involved.

10.  The OCs’ case is that the agreement between Yang and the OCs envisaged that two companies would be established, that Yang and Sky River would each hold a 50% interest in each of the two companies and that the petitioner was one of the two companies established to carry out the business arrangement.

11.  What is not controversial is that that each side would contribute RMB 2.5 million as working capital, each having a 50% share of the profits, losses and expenses.  Li Chengcheng (“LCC”) and He Chenglin (“HCL”) would be the Mainland China account holders.

12.  On 2 and 7 November 2015, the OCs caused its employee to deposit a total of RMB 2.5 million into HCL’s account.

13.  The petitioner was incorporated on 23 November 2015. Yang is the registered owner of 6,000 of its issued shares and his wife (He Linlin) is the registered owner of the remaining 4,000 issued shares. Yang is its sole director.  According to Yang, by late 2015, his mobile phone import/distribution business had grown and he incorporated the petitioner as well as Hanguo Tianhong Company (“the Korean company”) to facilitate and organise his businesses in the two countries.

14.  On 29 January 2018, the petitioner obtained an ex parte Mareva injunction against Sky River involving a sum USD 550,000 (or HK$4.3 million) in an action based on fraud (HCA 271/2018).  The writ was issued on 31 January 2018.

15.  By a consent order dated 27 February 2018, the petitioner agreed to settle its claim against Sky River upon the latter paying to the petitioner two sums of USD 100,000.

16.  The first sum of USD 100,000 was paid to the petitioner on 20 March 2018 from Zhang’s bank account but the second sum (the debt) was never paid.

THE OCs’ CASE

17.  The OCs raised two defences:

(a) the petitioning debt has been fully settled; alternatively,

(b) Sky River is solvent.

Settlement of debt

18.  The settlement upon which the OCs rely is based entirely on a statement Yang made to the police on 4 April 2018 (“the April statement”).  It was in the following terms:

“ The debt of USD 200,000 has initially been received and the parties are willing to settle. As all the matters have been solved by the court now, I and my company would now not require further follow-up of this case by the police.”

19.  According to the OCs, as a result of the proceedings against Sky River, the OCs no longer had any interest in continuing their cooperation with Yang. They informed Yang that Sky River wished to terminate the business arrangement/‌agreement as well as to distribute all the assets and profits of the petitioner and the Korean company between Yang and Sky River. No date was given in Tong’s affirmation filed in opposition to the petition as to when Yang was so informed but it appears to be common ground that it had happened by the time of the April statement.

20.  The OCs’ submission was that the outstanding sum of USD 100,000 due under the consent order has been settled or offset by what would have been due to Sky River (which had a 50% interest in the petitioner) following the termination of cooperation between the parties. 

21.  In his affirmation, Tong asserted that:

(i) Yang was well aware notwithstanding that precise calculations were yet to be done, that the amount to be returned to Sky River as a result of the termination exceed USD 350,000: §15

(ii) the settlement sum of USD 200,000 represented the difference between the amount of the petitioner’s claim in the proceedings and the amount that had to be returned to Sky River: §15

(iii) on an unspecified date in April 2018, it was calculated that the total assets of the petitioner and the Korean company amounted to RMB 5,554,608 of which Sky River’s share was 50% or RMB 2,777,304 which after subtracting the equivalent of USD 350,000 showed a sum of RMB 511,754 payable to Sky River and an Excel chart to that effect was exhibited as “TZH 7” to Tong’s affirmation: §17

(iv) a similar exercise was carried out in relation to the profits and losses of the petitioner and the Korean company from March 2017 [1]onwards which showed that after taking into account USD 100,000 (or RMB 647,300), an amount of RMB 33,140 remained due to Sky River and an Excel chart to that effect was exhibited as “TZH 8”: §18

(v) both Excel charts were shown to Yang and Yang agreed to offset the outstanding USD 100,000 owed by Sky River to the petitioner as a result of the consent order: §19

(vi) “as such”, on 4 April 2018, Yang voluntarily made the April statement: §19.

22.  The evidence of the OCs is seriously problematic for a number of reasons.  First, the evidence lacks precision: important dates (such as the termination of cooperation with Yang and when Yang was shown the Excel charts) are missing.  Second, the factual basis for asserting that Yang “was well aware” that the amount had to be returned as a result of the termination of cooperation would exceed USD 350,000 is not stated.  Third, contrary to what is asserted in §19 of Tong’s affirmation, Yang could not have seen the Excel charts relied on before he made the April statement: TZH 7 on its face bears the date “2018/4/26”.  Absent evidence to the contrary, that would appear to be the date that Excel chart was prepared. Fourth, TZH 8 seems to cover the period from March 2016 to May 2017 rather than “from March 2017” as asserted.  The last page contains entries that do not show any dates and at the bottom of the chart there is a set of calculations where the figure 511,754 appears.  It is a figure that features prominently in TZH 7, §17 of Tong’s affirmation as well as in an IOU (referred to below) signed on 11 May 2018.  This again raises serious doubts as to the date it was prepared and shown to Yang and reinforces the point referred to earlier.

23.  Turning to the April statement itself, it is hardly a categorical statement of receipt of the outstanding amount.  The meaning of “has initially been received” (emphasis added) is equivocal.  But importantly, Yang has given an explanation of the circumstances that gave rise to the April statement.

24.  Apart from the action (which is a civil matter), the petitioner had also filed a complaint with the police concerning the fraud.  This led to a police investigation and the freezing of Sky River’s bank account.  By the time of the April statement, it was already known that the parties were going their separate ways. The OCs wanted Sky River’s account unfrozen and that required Yang’s cooperation which he gave by telling the police that Yang/the petitioner no longer required the police to follow up the case.

25.  It is Yang’s evidence that he did so as a gesture of goodwill but on the clear understanding that the outstanding amount would be paid promptly.  Put in that context, the April statement is unexceptional and understandable.

26.  According to Yang, he was only shown the Excel charts TZH 7 and TZH 8 on 11 May 2018 which purport to show that a sum of RMB 511,754 payable to Tong and Zhang as a result of the termination of cooperation.  Yang was then presented with an IOU for that amount which he signed without any independent enquiry into the finances of the business arrangement but on the precondition that the outstanding debt would be repaid before profits of the business arrangement would be distributed.

27.  The IOU drafted by the OCs stated that “due to business collaboration” between Yang, Tong and Zhang in relation to Korean version mobile phones, Yang owed Tong and Zhang a sum of RMB 511,754.  What is significant is that the IOU was not made out to Sky River but to the OCs in their personal capacity.  This necessarily undermines the credibility of the OCs’ case.

28.  The court was also shown WeChat messages between Yang and the OCs that took place after the date of the IOU in which Yang repeatedly chased the OCs to carry out their promise to pay the outstanding sum.  Had the outstanding sum been already settled, such exchanges would not have taken place.  Further, Yang demanded that the IOU should be returned to him. In a message to Tong, Yang wrote: “you cannot con me to write an IOU without transferring the money and then refuse to return the IOU to me”. That is wholly consistent with Yang’s account.

29.  In my view, the OCs have clearly not adduced credible evidence of settlement nor have they shown that a genuine and bona fide dispute exists in relation to the debt.

Solvency

30.  The OCs have exhibited what is said to be the latest bank statement of Sky River’s bank account with the Bank of China showing a total relationship balance as at 29 September 2018 of approximately $1.5 million.  Ms Phyllis Lee counsel for the OCs, informed the court that the account remains frozen.  It was submitted that Sky River is solvent and has more than sufficient monies to settle the debt.

31.  The fact that there is a bank statement showing a balance in excess of the debt does not establish the solvency of Sky River. Without evidence of its current liabilities, the court is simply not in a position to form a view as to the company’s solvency: see An Feng International Trading Limited v Honour Link International Development Limited [1999] 3 HKC 116 at 123D–E.

CONCLUSION

32.  For the reasons set out above, at the conclusion of the hearing, a winding up order was made.

COSTS

33.  The petitioner sought a costs order against the OCs on the basis that they have unreasonably opposed the petition, citing Re Datacom Wire & Cable Co Ltd [2000] 1 HKLRD 526 at 530D.

34.  In the present case, the evidence the OCs adduced in opposition to the petition was so tenuous and unsatisfactory that the court was driven to conclude that their opposition to the petition was entirely unreasonable. Accordingly, the OCs were ordered to pay the costs of this petition.