EXCELLENT ASIA (BVI) LTD v. MAS MEDIA GROUP LTD

HCCW 42/2020

[2021] HKCFI 3605

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 42 OF 2020

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D E C I S I O N

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1.  On 2 March 2020 the Petitioner issued a petition to wind up the Company on the grounds of insolvency. To prove insolvency the Petitioner relied on non-payment of a statutory demand dated 3 February 2020 for HK$66,820,425. A minor amendment was made to [2] of the Petition in August of 2020 to correct the issued capital of the Company.

2.  In July 2020 the Company filed evidence in opposition in the form of an affidavit made by Lam Nam, a director of the Company. The opposition was based on the figure in the statutory demand being for an excessive amount.  It was not disputed that the Company owed to the Petitioner at least HK$13,760,000 pursuant to a judgment that it had obtained.  The fact that the amount in the statutory demand is overstated would clearly not establish a bona fide defence on substantial grounds in these circumstances.  A petition is not a process to determine how much is owed by a debtor company, it is to determine whether a company is insolvent and if it admits that it owes a significant sum and has simply not paid it, this may be sufficient to permit the court to conclude that it is insolvent regardless of whether or not a statutory demand has been served.  If one has been served, but there is a dispute about how much is payable than it is incumbent on the debtor to say how much it believes is due and offer to pay it.  If it does not it fails to demonstrate that it has a bona fide defence on substantial grounds to a petition.

3.  In about February 2021 it finally occurred to the Petitioner’s solicitors that the Petition was defective as the Company is incorporated in the Cayman Islands and the Petition did not state how the three core requirements explained by Ma CJ and Lord Millett NPJ in Kam Leung Sui Kwan v Kam Kwan Lai[1] are satisfied:

“20. In these circumstances the courts have adopted some necessary self-imposed constraints on the making of a winding-up order against a foreign company. There is no need to show that the company has ever had a place of business within the jurisdiction or has ever carried on business there.[2] As the law has developed, however, the Courts have laid down three so-called core requirements which must be satisfied before the court will exercise its statutory jurisdiction to wind-up a foreign company. These were summarised by Susan Kwan J (as she then was) in Re Beauty China Holdings Ltd[3] as follows:

(1) there had to be a sufficient connection with Hong Kong, but this did not necessarily have to consist in the presence of assets within the jurisdiction;

(2) there must be a reasonable possibility that the winding-up order would benefit those applying for it; and

(3) the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.

In the present appeal, the parties have focused on only the first of these core requirements.”

4.  The Petitioner issued a summons on 9 March 2021 seeking to introduce a re-amendment to assert matters that are capable of satisfying the three core requirements.  It is convenient to quote the proposed re-amendment:

“8A. The Company has a sufficient connection with Hong Kong.

(1) It has a principal place of business located in Hong Kong, as stated in paragraph 1 above.

(2) Although the Company was incorporated in the Cayman Islands, it was registered in Hong Kong under Part XI of the Companies Ordinance (Cap. 32) as a non-Hong Kong company on 25^th February 2011.

(3) According to the Company’s own Form NN3 (dated 2^nd April 2020), the Company’s company secretary is a company located in Hong Kong; the Company’s sole director, Lam Nam, has a residential address in Hong Kong and has a Hong Kong Identity Card Number;

(4) According to that same Form NN3, the Company’s registered office and principal place of business in the Cayman Islands (its place of incorporation), is merely a post-office box address: Scotia Centre, 4^th Floor, P.O. Box 2804, George Town, Grand Caymen KYI-1112, Cayman Islands.

(5) The contract which gave rise to the First Arbitration Award and the Judgment, the statutory demand and this Petition, was an agreement in writing entered in or about March 2011 (the ‘Share Subscription Agreement’) between the Petitioner and the Company, in consideration of the Company agreeing to cause the Company to be listed on the Stock Exchange of Hong Kong on or before 31^st December 2011, the Petitioner agreed to subscribe 43 new shares of the Company for the sum of HK$13,760,000.00.

Under the Share Subscription Agreement, the governing law was agreed to be the substantive law of Hong Kong with due regard to the conflict of law principles.

Further, the Share Subscription Agreement at clause 17.3 provided that if a dispute arises, which is not resolved through negotiation within one calendar month of the dispute arising, the dispute shall be settled by arbitration in Hong Kong under the Hong Kong International Arbitration Centre Administered Arbitration Rules in force.

8B. There is a reasonable possibility that a winding up order made in this action would benefit the Petitioner for the following reasons. A liquidator appointed by the Hong Kong Court can carry out investigations of the Companies activities, its assets and liabilities and take asset recovery actions in Hong Kong, in light of the Company’s sufficient connection with Hong Kong and very weak connection to the Cayman Islands (the place of its incorporation), as stated in paragraph 8A above.

Further, or in the alternative, the Company has in fact received HK$13,760,000.00 paid by the Petitioner and HK$26,240,000.00 paid by Mascot International (BVI) Corporation, as held in the First Arbitration Award, Reasons for and Forming Part of the Final Award, paragraph 3. The Petitioner verily believes that there is a reasonable prospect that the leverage and pressure created by the making of a winding up order, and the appointment of a liquidator to investigate the Companies activities, assets, liabilities and to take steps to recover assets, may cause the Company to pay the debt due to the Petitioner under the Judgment.

8C. This Honourable Court is able to exercise jurisdiction over the Petitioner in the distribution of the Company’s assets because:

(1) the Petitioner submits itself to the jurisdiction of the Hong Kong Courts by taking out this Petition;

(2) it has already submitted itself to the Hong Kong jurisdiction in the HCMP 219/2014 action to enforce the First Arbitration Award by way of entering judgment in terms of the First Arbitration Award;

(3) The seat of the arbitration giving rise to the First Arbitration Award was in Hong Kong, as held in the First Arbitration Award at paragraph 3.

(4) Paragraph 8A(5) herein is repeated.”

5.  The third core requirement is clearly not satisfied. It is trite that the Petitioner needs to demonstrate that there is a creditor other than the Petitioner subject to the jurisdiction of the court and this is not asserted.

6.  It also seems to me that the second core requirement is not satisfied.  I explain what satisfying the second core requirement involves in In Re China Creative Global Holdings Limited[4] at [5]:

“The second core requirement requires that a petitioner demonstrates a real and discernible benefit of a winding up order being made in Hong Kong. In assessing this the Court takes a pragmatic approach and does not require the Petitioner to identify with great precision what the benefit will be or quantify with exactness the value of the benefit...”

7.  It is necessary to assert some concrete benefit in order to satisfy this requirement.  Although, putting pressure on a company to pay may have been sufficient in the case of Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd[5], because it was clearly solvent and had a valuable duel A listing, which it stood to lose, this will not generally be the case of a private company, which for present purposes must be assumed to be actually insolvent.  If this were not the case arguably the second core requirement would always be satisfied just as would be the case if the mere assertion that it is worth appointing a liquidator, because you never know what might be revealed by an investigation was sufficient, which clearly it is not.  Once it dawned on the Petitioner’s solicitors that they had overlooked the jurisdiction issue and they began to consider how to proceed, the Petitioner should have been advised that the correct course was to issue a petition in the Cayman Islands.

8.  I, therefore, dismiss the summons to re-amend and the Petition.  The Petitioner shall pay the Company’s costs, such costs to be taxed if not agreed.