GET NICE（UNION）FINANCE CO. LTD. v. LUEN CHEONG TAI INTERNATIONAL HOLDINGS LTD. AND ANOTHER

HCA 1831/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1831 OF 2002

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D E C I S I O N

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1. This is an application by Luen Cheong Tai International Holdings Limited ("the Company"), which is sued as the 1st defendant in this action, made under s.181(a) of the Companies Ordinance, Cap.32. The Company seeks an order that all further proceedings in this action be stayed until the conclusion of the hearing of the petition in HCCW No. 584 of 2002 or until further order, on the ground that a petition for the winding-up of the Company was presented by Showa Leasing (Hong Kong) Limited on 3 June 2002. The petition for winding-up will be heard on 21 August 2002.

2. The writ herein was issued on 15 May 2002 against the Company and one of its directors, Mr Chan Man Chuen. The claim against the Company is in respect of a loan agreement made between the plaintiff as the lender and the Company as the borrower dated 5 July 2001 for a loan of HK$5,000,000.00 to be repaid on 4 January 2002 with interest. The claim against Mr Chan is in respect of a guarantee executed on the same day regarding the Company's liability to the plaintiff under the loan agreement.

3. It is admitted by Mr Chan on behalf of the Company that he and another director had executed the loan agreement on behalf of the Company. There is no dispute as to validity of that agreement except for a money lender's defence which I shall come to. I am not concerned with Mr Chan's position in these proceedings.

4. On 30 May 2002, the plaintiff issued a summons for summary judgement. On 3 June 2002, the petition for winding-up of the Company was presented by Showa Leasing (Hong Kong) Limited. On 12 June 2002, the Company issued the present summons. As a result, on 17 June 2002, a Master made an order adjourning the O.14 summons until after the summons for stay of all further proceedings has been dealt with by me.

5. Very elaborate submissions in writing have been made on behalf of the plaintiff running into 13 pages. This was followed by supplemental written submissions of 14 pages in reply to the Company's written submissions. It is not necessary to set them out in extenso.

6. I have decided to refuse the application for stay of all further proceedings, not primarily for the reasons advanced by the plaintiff .

7. First, I start with the general principle stated in the Court of Appeal decision of Attlee Investments Limited v Lee Chuen t/a Lee Chuen Furniture Co. [1983] 1 HKC 186, which is binding on me. The general principle is that where a petition has been presented which may result in a winding-up or scheme of arrangement, no creditor should thereafter gain priority over others of his class and that even if the execution has already been commenced, a stay should be granted unless there are very exceptional circumstances (at 188F; see also the decision of the English Court of Appeal in Bowkett v Fullers United Electrical Works Limited [1923] 1 KB 160 at 163 - 164).

8. It was submitted by the plaintiff that because the Company, which is a listed company, has made public announcements that it will "oppose vigorously" the winding-up petition and that the directors have considered the Company financially capable to pay the debt in the petition of HK$3,900,000.00 odd and has asserted that the Group will be able to maintain a sufficient level of operations to warrant the continued listing of its shares, a winding-up order will not be made and so a stay should not be considered.

9. To obtain a stay, a company is not required to establish that a winding-up order will be made. If that is the case, a company opposing a winding-up order will be automatically disqualified from seeking relief. All that needs to be established is that a winding-up order may be made. Despite the Company's assertions that it disputes the debt in the petition and that it will put up a "vigorous" opposition, there is nothing in the two public announcements which will lead one to the reasonable conclusion that a winding-up order might not be made. I am satisfied that the petition presented may result in a winding-up order.

10. Next, I consider whether there are exceptional circumstances to justify refusing a stay. I consider there are.

11. The present case is one of the exceptional cases in which one can say with reasonable confidence, by looking at the evidence filed in opposition to the O.14 summons, that the Company does not have a bona fide defence against the plaintiff's claim and there does not exist a genuine dispute between them. I emphasize I say nothing about Mr Chan's defence of non est factum in executing the guarantee, as I am not concerned with him in this application.

12. The validity of the loan agreement is not in dispute save for the defence that the plaintiff was not a money lender and the loan is irrecoverable by virtue of s.23 of the Money Lenders Ordinance, Cap.163. This defence cannot get off ground. It was recited in the loan agreement that the Company is a publicly listed company whose shares are listed for trading on the Hong Kong Stock Exchange and the loan agreement is accordingly exempted from Cap.163. "Exempted loan" is defined in Schedule 1, Part 2, para 14(a) of Cap.163 as including a loan made to a company the shares of which are listed on the Unified Exchange. In the definition of "money lender" in s.2, it is provided that this term does not include, as respects an exempted loan, any person who makes such a loan. The position is clear beyond doubt as established in the cases which Mr Sousa for the plaintiff has refered me to. These are the decisions at first instance of Mr Recorder Ribeiro, SC (as he then was) in Liggars Limited v DC Finance (Holdings) Limited & Another [1998] 2 HKLRD 227 and the decision of the Court of Appeal in the same case reported at [1999] 2 HKLRD 383.

13. The only other ground for disputing liability to pay is that Mr Chan in February 2002 had made a proposal to the plaintiff to pay by instalment (I note that no particulars are given for that allegation), that "no objection" was raised by the plaintiff to Mr Chan's proposal (I note that no allegation is made that the plaintiff had accepted or agreed to allow payment by instalment), and that Mr Chan was led to believe that the plaintiff "was prepared to forbear from suing" the Company.

14. There are two answers to this ground for disputing liability. Firstly, there is no consideration for the promise not to enforce the loan agreement. Secondly, it is not suggested that the plaintiff should forbear from suing indefinitely. Even on Mr Chan's evidence, he received a demand two months later on 30 April 2002 with a writ against the Company two weeks later . In my view, reasonable notice had been given to withdraw the forbearance, even if the plaintiff should forbear from suing as contended.

15. This is a sufficiently clear case in which the defence put forward is not bona fide. If there were a genuine dispute between the plaintiff and the Company, there may be some justification for granting a stay, so as to relieve the Company from the burden of putting up funds to defend this ongoing litigation so that assets would not be further depleted to the detriment of other unsecured creditors.

16. If the plaintiff is not allowed to proceed with the application for summary judgment despite this untenable defence put forward by the Company, the plaintiff may suffer prejudice if the winding-up proceedings should take some time to be resolved and if at the end of the day, the petition is dismissed, the plaintiff will not be able to take immediate steps to levy execution.

17. Another important factor is that the plaintiff has gone on affidavit to say that its intention is merely to proceed with summary judgment at this stage and that it will not proceed with execution of the judgment until the winding-up proceedings have been disposed of or until further order of the court, so there would be no question of gaining priority over other unsecured creditors in the event of liquidation. Mr Sousa has informed me that the plaintiff is willing to offer an undertaking to this effect to the court. I will refuse the relief sought by the Company upon the plaintiff's undertaking. Notwithstanding s.269 of Cap.32, I consider that an undertaking is needed to protect the interest of other unsecured creditors, in view of the proviso in favour of a purchaser in good faith in s.269.

18. For the above reasons, I refuse the application. The order I make is as follows:

Upon the undertaking of the plaintiff that no steps are to be taken by the plaintiff to levy execution against the 1st defendant in respect of any judgment that may be obtained by the plaintiff against the 1st defendant in these proceedings, unless and until the petition in HCCW No. 584 of 2002 has been withdrawn or dismissed or until the further order of the court, the 1st defendant's application for a stay of all further proceedings in this action until the conclusion of HCCW No. 584 of 2002 is dismissed.

19. As for the costs of this application, I see no reason why costs should not follow the event. I make an order that the Company is to pay the plaintiff's costs of this application in any event.