RE SINO AMERICAN TELECOM INC.

HCCW 329/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO. 329 OF 1998

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R U L I N G

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1. There is a Petition to wind-up Sino American Telecom Inc. (hereinafter referred to as "the Company").

2. The Petitioner is a creditor of the Company. The debt stated in the Petition is in a substantial sum.

3. The Company has not disputed that debt. Provisional Liquidators have been appointed and the reports show that the Company appears to be insolvent.

4. The Company's majority shareholder, Mr. Allan Yuen accepts that the Company is indebted to the Petitioner. This is despite his position taken in August 1998, when he alleged that the Company was solvent, but since October 1998 the stand that Mr. Yuen has taken is that the Petition has been presented for an improper purpose and is an abuse of process of the Court.

5. There is also one opposing creditor, Mr. Andrew Chan, who has this morning confirmed that he opposes the Petition on the ground that the Company, he says, is not insolvent.

6. Yesterday morning, there was argument as to, amongst other things, the procedure to be adopted. Mr. Whitehead for the Petitioner says that given that the Company's indebtedness to the Petitioner has not been challenged, and that the general rule is that the Court would almost always exercise its discretion to wind-up a company which is insolvent, the burden is on the opposing contributory, Mr. Yuen to begin.

7. Mr. Chain counsel for the opposing contributory, accepts that the burden of showing that the Petition is an abuse of process is on the opposing contributory. However, he submits that the Petitioner should still be required to begin mainly for two reasons.

8. First, he submits that on the authority of Harman J.'s judgment in Re A Company [1983] BCLC 492 that a Petition is not a lis inter partes. The Court still has to exercise a discretion before it decides whether to grant a winding-up order, and therefore the Petitioner should still prove its case; and in this case, there is also an opposing creditor in the person of Mr. Chan.

9. Secondly, Mr. Chain submits that Le Pichon J. had made an order that all deponents attend for cross-examination, and Mr. Chain submits that that must include the deponent of the affidavit verifying the Petition, without which there would be no evidence in support of the indebtedness.

10. Mr. Whitehead has also this morning referred me to another judgment of Harman J. in Re A Company exparte Computer Partnership Limited [1993] BCLC 597 in which Harman J. has said, amongst other things, that where there is prima facie evidence of insolvency, upon that basis the company is an insolvent company liable to be wound-up, unless other creditors appear on the hearing and show that there are reasons why the class remedy should not be invoked.

11. In my view, the correct approach should be considered in the following way: where an opposing contributory such as Mr. Yuen has alleged that the Petition is presented for an improper purpose and is an abuse of process, which is an allegation that strikes at the heart of the proceedings, an application to strike out the Petition and to dismiss the proceedings could and should have been launched before the hearing of the Petition.

12. An allegation that a Petition is being presented for an improper purpose and is an abuse of process is, in effect, an allegation that the Petition should not even be entertained by the Court.

13. Whether the debt that is the basis of the Petition is disputed or not, is not to the point. So it is irrelevant whether the order of Le Pichon J. requiring all deponents who had made affidavits in the Petition to attend for cross-examination applies or not in the present case.

14. Mr. Chain submits that an opposing contributory is entitled either to strike out the Petition in limine or to wait until the hearing of the Petition when the onus would be lighter.

15. In my view, the opposing contributory is not entitled to do so. An application to strike out for abuse of process should be made promptly. If it is not, it risks being dismissed for delay. In this case, Mr. Yuen has been appearing in person, so some indulgence has to be granted to him. But in my view, if he persists now in challenging the Petition on the ground of abuse of process, I think it should be encumbent on him to present his case before the hearing of the Petition.

16. The effect of that is, in my view, and I rule that the opposing contributory, Mr. Yuen, who has alleged that this Petition is being brought for an improper purpose and is an abuse of this Court's process should be required to present his case before the hearing of the Petition. If he succeeds, the Petition should not even be heard. That is because the Court would have found that this is an abuse of the process. If he fails, the Petition will then be heard and I will then consider whether in the light of Mr. Chan's position, the Petitioner should begin.