STARK MOLY LTD v. WISEKING MINING INVESTMENT CO LTD AND ANOTHER

HCMP 2653/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2653 OF 2011

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HCCW 58/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) ACTION NO. 58 OF 2012

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(Heard together)

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J U D G M E N T

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I.  INTRODUCTION

1.  There are 3 applications before me.

2.  First, in HCMP 2653 Stark Moly seeks a declaration in relation to 86,163 Wiseking shares (the New Shares) which have been allotted to Angel Wise.  The declaration is to the effect that the New Shares stand charged in Stark Moly’s favour pursuant to the terms of a Share Charge Agreement.  Wiseking is a Hong Kong company.

3.  Second, in HCMP 1772 Stark Moly asks that a charging order nisi over the New Shares be made absolute.  This Court made the order nisi on 31 January 2012.  The order nisi was imposed by way of enforcement of a Singapore Judgment for US$9,699,185 (the Principal) plus interest and costs.  Stark Moly had registered the Singapore Judgment here on 27 October 2011.

4.  Third, Angel Wise seeks a stay of HCMP 1772 and 2653.  That is because Angel Wise has commenced voluntary liquidation proceedings in the BVI where it is registered.  A liquidator has yet to be appointed.  Further, on 28 February 2012 Angel Wise petitioned the Hong Kong Court in HCCW 58 for its own winding up.

5.  Angel Wise says that it is now insolvent. Pending liquidation in the BVI and here, Angel Wise contends that Stark Moly should be prevented from jumping the queue of creditors by obtaining an order absolute over the New Shares.

II.  BACKGROUND

6.  By a Loan Agreement dated 12 November 2007, Stark Moly lent the Principal to Angel Wise.  The purpose was to fund Angel Wise’s acquisition of shares in Fabulous Way Ltd. (a Cayman Islands company) (FabWay).

7.  The Loan Agreement was part of a larger arrangement whereby companies (including Stark Moly and Angel Wise) would invest in FabWay.  At the time, Fabway held all 10,000 issued shares in Wiseking.  The latter company, through subsidiaries, owned mining and processing businesses in the Mainland.

8.  Pursuant to the arrangement, Stark Moly acquired 87,660 Fab Way shares and Angel Wise 87,033 FabWay shares.  Angel Wise’s acquisition was funded in part by the Principal loaned from Stark Moly.

9.  When the FabWay shares were acquired, FabWay’s share capital consisted of 1 million ordinary shares.  As a result of the acquisition, Stark Moly and Angel Wise came to hold 8.767% and 8.703% respectively of FabWay.

10.  As security for the loan of the Principal, Angel Wise entered into the Share Charge Agreement (also dated 12 November 2007). The Share Charge Agreement stipulated in cl.2:-

“The Chargor [Angel Wise], as legal and beneficial owner of the Charged Portfolio, and as continuing security for the discharge of the Secured Obligation, charges in favour of the Chargee [Stark Moly] by way of first fixed charge, and assigns and agrees to assign absolutely to the Chargee all his present and future rights, title and interest in and to the Charged Portfolio.”

11.  Share Charge Agreement cl.1.1 defined “Charged Portfolio” to mean “the Shares [the FabWay Shares] and Related Assets”.

12.  The expression “Related Assets” was defined as including:-

“all dividends, interest and other monies paid or payable in respect of the Shares and all other rights, benefits and proceeds in respect of or derived from the Shares (whether by way of redemption, bonus, preference, option, substitution, conversion or otherwise). ”

13.  In July 2009 Stark Moly discovered that, unknown to it, Wiseking had undergone a restructuring in February 2009.  As part of that exercise, Wiseking’s capital had been increased from 10,000 to 1 million shares.  Wiseking had then allotted the newly issued shares to FabWay shareholders, including Stark Moly and Angel Wise.  As a result, Stark Moly became the owner of 86,792 shares (8.679%) in Wiseking, and Angel Wise became the owner of 86,163 shares (8.616%) (that is, the New Shares) in Wiseking.  The restructuring also had the consequence of diluting FabWay’s shareholding in Wiseking from 10,000 out of 10,000 to only 2,807 out of 1 million.

14.  In early 2010 Mr. Lam Fung (a director of Wiseking and FabWay) informed Stark Moly that the 2,807 Wiseking shares owned by FabWay following the dilution were held on trust for (among others) Stark Moly and Angel Wise.

15.  In April 2010 Angel Wise defaulted on its obligation to repay the Principal and interest due under the Loan Agreement. In October 2010 Stark Moly obtained the Singapore Judgment for the outstanding sums due under the Loan Agreement.

16.  In May 2010 Angel Wise transferred the New Shares to Brown Lake Finance Ltd.  Brown Lake in turn transferred the New Shares to Debut Supreme Capital SDN BHD, Apex Return SDN BHD and Splendid Horizon SDN BHD.  Stark Moly therefore commenced HCA 1097 of 2010 against Angel Wise.  By a Judgment dated 15 March 2011, the Court set aside the transfers of the New Shares, pursuant to Conveyancing and Property Ordinance (Cap.219) s.60, as dispositions made with intent to defraud creditors.

III.  DISCUSSION

17.  It is plain that the New Shares were issued to Angel Wise in consequence of Wiseking’s restructuring.  That is apparent from the fact that the number of the New Shares is roughly proportionate to Angel Wise’s holding in FabWay. Similarly, it will be noted that the number of Wiseking shares allotted to Stark Moly as a result of Wiseking’s restructuring is roughly proportionate to Stark Moly’s holding in FabWay.

18.  It follows that the New Shares fall within the definition of “Related Assets” in the Share Charge Agreement.  The New Shares derived from Angel Wise’s holding of FabWay Shares.

19.  This means that, much as the Share Charge Agreement imposed a charge on Angel Wise’s FabWay shares in favour of Moly Stark, the New Shares stood charged in favour of Moly Stark as and when the New Shares were allotted to Angel Wise.  Equity imposed a charge over the New Shares in favour of Moly Stark, pursuant to the terms of the Share Charge Agreement, as and when the New Shares were allotted to Angel Wise.

20.  Therefore, until the Principal and interest due under the Loan Agreement are fully discharged by Angel Wise, Stark Moly retains an equitable interest in the New Shares even while the latter are in Angel Wise’s possession or custody.

21.  Angel Wise claims that, upon issue of the New Shares, Mr. Lam Fung paid $1 per New Share on behalf of Angel Wise.  Angel Wise says that it repaid Mr. Lam Fung by setting off the $86,163 paid by him against monies owing from him to Angel Wise. 

22.  Angel Wise argues that the New Shares therefore do not stand charged to Moly Stark under the Share Charge Agreement.  Angel Wise contends instead that “[a]s separate consideration [namely, $86,163] was given for the [New Shares], they do not constitute rights, benefits and proceeds in respect of or derived from [Angel King’s FabWay Shares]”.

23.  In my view, Angel Wise’s argument is untenable. There is no evidence that the New Shares were allotted otherwise than as part of Wiseking’s restructuring.  If Angel Wise is suggesting otherwise, it is incumbent upon Angel Wise to explain how the shares came to be allotted to it (not just purchased by it) in the first place.  It follows by the Share Charge Agreement that the New Shares stood charged in equity in Stark Moly’s favour once they were issued to Angel Wise. 

24.  That Angel Wise may have given consideration for the New Shares is irrelevant.  This is because Angel Wise cannot be treated as equity’s darling.  Angel Wise cannot be a bona fide purchaser for value without notice.  Angel Wise would have had notice of Stark Moly’s interest. 

25.  Angel Wise must have known of the terms of the Share Charge Agreement which it executed in favour of Stark Moly.  Angel Wise must accordingly have been aware of Stark Moly’s equitable interest in the New Shares at the time when consideration was given for the same.  Any interest that Angel Wise acquired by reason of consideration paid for the New Shares, would still be postponed in priority to Stark Moly’s equitable interest.

26.  Mr. Roger Beresford (appearing for Angel Wise) submits that I should not now determine whether the New Shares are covered by the Share Charge Agreement.  This is because (Mr. Beresford says) Angel Wise disputes that the New shares are so covered.  Mr. Beresford submits that the matter should be left to be decided within Angel Wise’s liquidation, when Angel Wise’s assets can be dealt with by liquidators to the benefit of all creditors.

27.  However, it is incumbent upon Angel Wise to adduce sufficient particulars of its case as to why Stark Moly does not have an equitable interest in the New Shares.  If, on the matters deposed to by Angel Wise, it is apparent that Angel Wise has no case as a matter of law, then there is no impediment to the Court deciding the issue summarily. 

28.  In particular, if (as is the situation here) it is apparent that Stark Moly has some proprietary interest in the New Shares, then the New Shares would not be wholly available to the general body of Angel Wise’s unsecured creditors.  The latter would only be entitled to any value in the New Shares which is in excess of the outstanding amounts due to Stark Moly under the Loan Agreement. 

29.  Stark Moly would then not be stealing a march on the general body of Angel Wise’s unsecured creditors by seeking a charging order absolute over the New Shares now.  On the contrary, by bringing these proceedings, Stark Moly is only attempting to realise its valid security interest in the New Shares.

30.  In my judgment, Stark Moly is entitled to a declaration that the New Shares stand charged in its favour under the terms of the Share Charge Agreement.

31.  That being so, Stark Moly must likewise be entitled to have the charging order nisi in its favour made absolute.

32.  Mr. Beresford submits that, winding up proceedings having been initiated here and in the BVI, the Court enjoys a discretion whether to make the charging order absolute.  He cites in support Roberts Petroleum Ltd. v. Bernard Kenny Ltd. [1983] AC 192 where the House of Lords held that the presentation of a winding up petition will typically be “sufficient cause” to refuse to make a charging order absolute.

33.  However, this is not the typical situation of an unsecured creditor seeking to steal a march over other unsecured creditors by obtaining a charging order just before a winding up order is made.  Here, on analysis, Stark Moly is seeking to enforce a charge over property (the New Shares) in which it holds an equitable interest.  Stark Moly is not an unsecured creditor, but a secured one.  It would be wrong to prevent Stark Moly from enforcing its prior security interest in the New Shares at this time.

34.  By similar token, there is no basis for staying HCMP 1172 and HCMP 2653. 

35.  Where a winding up petition has been presented against a defendant in an action, the Court has a discretion whether or not to stay the prosecution of the plaintiff’s claim in the action.

36.  Normally, the Court refuses a stay where the plaintiff is seeking by its claim to enforce its proprietary rights against the defendant.  The reason is readily apparent: if something belongs to someone else, why should that someone be delayed from claiming what rightfully belongs to him or her?

37.  Such is the situation here.  By HCMP 1172 and HCMP 2653, Stark Moly is enforcing its equitable interest in the New Shares against Angel Wise.  There is no ground for a stay.

38.  Finally, Mr. Beresford refers me to related litigation in the BVI.

39.  On 12 April 2010 Stark Moly issued a statutory demand on Angel Wise in respect of the debt due under the Loan Agreement. Angel Wise applied on 26 April 2010 to set aside the statutory demand.  On 20  July  2010 the BVI Court dismissed Angel Wise’s setting aside application.

40.  On 19 August 2010 Stark Moly petitioned for the appointment of a liquidator over Angel Wise.

41.  But on 2 September 2010 Angel Wise appealed against the refusal to set aside the statutory demand.  The BVI Court of Appeal heard Angel Wise’s appeal on 11 January 2011.  The BVI Court of Appeal then took over a year to deliver its judgment.  The judgment, dismissing Angel Wise’s appeal, finally came out on 13 February 2012.

42.  Mr. Beresford submits that, since Stark Moly itself applied in the BVI for the winding up of Angel Wise, it is inappropriate for me to give judgment today in Stark Moly’s favour.

43.  I am unable to see why.  The taking out of a petition to wind up Angel Wise, could not without more amount to a waiver of Stark Moly’s security interest in the New Shares.  Further, as a result of Angel Wise’s appeal in the BVI, nothing of significance has so far happened in connection with Stark Moly’s winding up application in the BVI.

44.  Mr. Beresford notes that a winding up order under BVI law affects all property belonging to a debtor company regardless of where the property is situate.  Mr. Beresford submits that the BVI Court in its insolvency jurisdiction is thus the more appropriate forum for considering the effect of the Share Charge Agreement on the New Shares.

45.  I disagree.

46.  The Share Charge Agreement is subject to Singapore law and the non-exclusive jurisdiction of the Singapore Court.  But there is no suggestion that Singapore law (or for that matter, BVI law) on charges is different from Hong Kong law.

47.  Wiseking is a Hong Kong company.

48.  The Hong Kong Court is familiar with the facts and matters of this case, there having been previous litigation among the parties in relation to the New Shares.

49.  In light of those factors, in the interests of justice and of saving time and cost, the Hong Kong Court must be the appropriate forum for ruling on whether Wiseking’s shares are or are not subject to a charge.  Insofar as Stark Moly has an equitable interest in the New Shares, then to that extent the New Shares would not be Angel Wise’s property subject to the BVI’s universal insolvency regime.

IV.    CONCLUSION

50.  There will be a declaration that the New Shares stand charged in Stark Moly’s favour pursuant to the Share Charge Agreement.  The charging order nisi is made absolute.  Angel Wise’s application for a stay is dismissed.

51.  I will hear counsel on costs and consequential orders.