RE SOLAR TOUCH LTD

HCCW 1001/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 1001 OF 2003

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J U D G M E N T

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1. This was the hearing of a creditor's petition to wind up Solar Touch Limited ("the Company"), presented by Trackvilla Holdings Limited ("the Petitioner") on 9 September 2003. The petition is based on a debt of some HK$17.3 million which has its origins in a loan agreement ("the Loan Agreement") dated 5 May 1999 made between the Company and Mega Resources Limited ("Mega Resources"). According to the Petitioner, the Loan Agreement was in fact entered into by Mega Resources as trustee for a company called Pioneer World Holdings Limited ("Pioneer World"), which assigned the debt to the Petitioner by an assignment ("the Assignment") made between the Company, Pioneer World and the Petitioner dated 29 January 2002, but which was not signed on behalf of the Company until 9 May 2002.

2. The Company is incorporated in the British Virgin Islands. It is submitted by Mr Dawes, appearing for the Petitioner, that the Company can and should be wound up under to section 327 of the Companies Ordinance ("the Ordinance"), pursuant to which the court has jurisdiction to wind up unregistered companies. However, Mr Jat S.C., appearing for the Company, submits that the court ought not in this case exercise its discretion under section 327 by making a winding up order, as Hong Kong is not an appropriate jurisdiction in which to wind up the Company.

3. Mr Jat also submits that, in any event, no winding up order should be made because the debt relied on by the Petitioner is disputed by the Company, on grounds which are both bona fide and substantial. In essence, the Company's case is that the loan to it by Mega Resources has been repaid, or alternatively that its liability to repay the loan has been discharged, pursuant to an agreement made between it and Mega Resources in about August 2002, by which the making of certain payments and the settling of certain liabilities (both before and after August 2002) by the Company on behalf of Mega Resources was accepted by Mega Resources as a settlement of the loan by it to the Company.

4. Although the question of whether the court should exercise its jurisdiction under section 327 in respect of the Company is perhaps a matter that should logically be dealt with first, I propose to deal first with the question of whether or not the Company has demonstrated that the debt asserted against it is disputed bona fide on substantial grounds, as this was the issue which was dealt with first by both parties in their submissions, and to which a substantial portion of the evidence was addressed.

5. It appears from the Petitioner's evidence that it is ultimately controlled by the Korea Deposit Insurance Corporation, a Korean government owned institution established with the aim of maintaining the stability of the Korean banking and financial system by providing deposit insurance for the protection of depositors with Korean banks, and by intervening in the event of insolvency of a Korean bank or financial institution. In about April 1998, a Korean bank called the Samyang Banking Corporation became insolvent, and its assets were transferred to another Korean bank, Hanareum Banking Corporation. KDIC is now the ultimate holding company of both Samyang and Hanareum. Among the assets of Samyang were interests in two unit trusts of which it was the sole subscriber, known as the Great Pacific Trust and the Second Great Pacific Trust ("the Great Pacific Trusts"). The fund manager of the Great Pacific Trusts was a British Virgin Islands company called Monotraction Limited ("Monotraction"), which appears to be controlled by a Mr Bing Zhao ("Mr Zhao"), who appears to have played a central role in the events underlying this matter. The Petitioner's position is that both Mega Resources and Pioneer World were special corporate vehicles established by Mr Zhao for the purpose of controlling certain assets of the Great Pacific Trusts.

6. Following the insolvency of Samyang, and KDIC becoming its ultimate holding company, KDIC found that some of Samyang's foreign assets, particularly those held by the Great Pacific Trusts, appeared to be of substantial value. KDIC accordingly took steps to try to recover these assets. Given the structure of the trusts, it was thought that it would be necessary to do this with the assistance of Monotraction and Mr Zhao, and following negotiations, a Memorandum of Understanding and Deed of Settlement were entered into on 26 November 1999, by which it was agreed that Monotraction (and thus, effectively, Mr Zhao) would assist in the recovery of the assets of the Great Pacific Trusts. One such asset was thought to be the loan to the Company. Other assets appear to have included certain assets in Shenzhen, owned by a company called Shenzhen Chenghao Industry Company Limited ("Chenghao"), 95% of the shares of which were held through a company called Everest Resources Limited ("Everest"), another of the special purpose companies set up by Mr Zhao for the purposes of the Great Pacific Trusts. Unfortunately, it would appear that Mr Zhao has not been entirely cooperative in assisting with the recovery of the assets of the trusts.

7. Although KDIC also utilised the services of others in its attempts to recover the assets of the Great Pacific Trusts, such as RSM Nelson Wheeler Corporate Advisory Services Limited ("Nelson Wheeler"), it appears from the documents and correspondence which are in evidence that substantially all of the efforts to recover such assets were ultimately channelled through Mr Zhao.

8. As I have noted, the Company and Mega Resources entered into the Loan Agreement on 5 May 1999. By the Loan Agreement, Mega Resources agreed to lend the Company some HK$30 million. Initially, this was to be secured against listed securities held in an account of the Company with Sun Cheung Tai Credits Limited. However, by an Extension Loan Agreement dated 5 November 1999, made between the Company and Mega Resources, it was agreed that these securities would be replaced by the Company's 49% equity interest in a Mainland company called Baoding Pascali Broadcasting Cable TV Integrated Information Networking Company Limited ("Baoding Pascali"). The investment in Baoding Pascali was, it seems, the principal asset of the Company. The Company says in the evidence of its director Mr Xie Hailin ("Mr Xie") that the purpose of the loan was to enable the Company to fund (at least in part) its investment in Baoding Pascali.

9. Although the Company appears to have wished to draw down the whole of the loan, it seems that Mega Resources was only able to advance some US$2 million (equivalent to about HK$15.6 million, or slightly over half of the loan amount) to the Company. Notwithstanding this, on 28 May 1999, Mega Resources and the Company entered into a further loan agreement by which Mega Resources agreed to increase the loan to a total of HK$50 million. Although the Company appears, in November 1999, to have sought to draw down the balance of the facility as enlarged, it did not receive any part of this balance. This was initially the subject of complaint in the evidence filed on behalf of the Company, but this point was not pursued by Mr Jat at the hearing before me.

10. According to the Company, in about March 2000, Mr Xie and Mr Zhao discussed the repayment of the loan, and agreed that the Company should advance some RMB 10 million to Chenghao by way of loan, as a form of security for the loan by Mega Resources to the Company, it being envisaged that the two loans should be set off against each other in future if necessary. In support of this case, Mr Xie exhibited to his affirmation a series of documents dated in March and April 2000, consisting of a request for repayment or provision of security from Mega Resources (signed by Mr Zhao) to the Company dated 1 March 2000, a notice of remittance from the Company to Mega Resources dated 10 March 2000, indicating that a transfer of RMB 10 million had been effected on 8 March 2000 to Chenghao, and referring to an agreement that the transfer would carry interest and could, if necessary, be set off against Mega Resources' loan to the Company, a remittance advice dated 8 March 2000 evidencing a remittance of RMB 10 million to the account of Chenghao which had been specified in Mega Resources' letter of 1 March 2000 by, it seems, Baoding Pascali, and a letter dated 1 April 2000 from Mega Resources, acknowledging receipt of the funds and confirming the agreement mentioned in the Company's letter of 10 March 2000. Mr Xie says that he understood at the time that Mr Zhao was the managing director of Chenghao.

11. Thereafter, it appears that little of significance happened until sometime in 2002. According to Mr Xie, in about January 2002, he was informed for the first time by Mr Zhao that Mega Resources had entered into the Loan Agreement not on its own behalf, but on behalf of Pioneer World. Mr Xie says that Mr Zhao went on to explain that both of these companies, along with the Petitioner, were ultimately owned by KDIC, and that as part of a restructuring exercise, the loan was to be transferred from Mega Resources into the name of the Petitioner, but that this would not affect the Company's obligations, and that so far as the Company was concerned, it could continue to regard Mega Resources as its lender. Later (it is not clear precisely when), the Company received a letter and draft of the Assignment from Mega Resources, both dated 29 January 2002. The letter stated that the assignment was merely an internal transfer between related companies. It is common ground that the assignment was not in fact signed until about 9 May 2002.

12. Mr Xie says that in reliance on Mr Zhao's assurances, which were echoed in Mega Resources' covering letter dated 29 January 2002, he signed the Assignment on the Company's behalf. The Assignment contained a recital stating that the Company was indebted to Mega Resources in the amount of some HK$17.3 million (representing the loan and accrued interest). Mr Xie says that this was technically correct, since the advance which the Company had earlier made to Chenghao had not yet been set off against Mega Resources' loan to the Company. Mr Xie says further that his impression that the Assignment was merely an internal reorganisation exercise on the part of KDIC, and not intended to change the position, was confirmed by two subsequent letters dated 23 May 2002 and 19 June 2002 received from Nelson Wheeler which made various enquiries about the loan and the shares in Baoding Pascali, in both of which the loan continued to be referred to as a loan from Mega Resources to the Company.

13. Mr Xie also says that on 8 May 2002, just before the Assignment was signed, the Company paid a Mainland law firm known as Hua Han a sum of RMB 200,000 on behalf of Chenghao, at the request of Mega Resources. In support of this statement, Mr Xie produced receipts from Chenghao to the Company and from Hua Han to Chenghao, each in the sum of RMB 200,000.

14. Thereafter, Mr Xie says that in August 2002, Mr Zhao approached him and sought a further advance of RMB 5.3 million to Chenghao from the Company. Mr Xie says that he agreed, and that this advance was duly made, exhibiting in support of this statement a bank payment advice which appears to show the payment of this sum into the same account of Chenghao into which the earlier payment of RMB 10 million had been made. At the same time, Mr Xie was told by Mr Zhao that Chenghao still had to pay the Hua Han law firm some RMB 1 million. Following discussions, he agreed with Mr Zhao that the Company would arrange to settle this amount on behalf of Chenghao, and that the entirety of the Loan and interest owing from the Company to Mega Resources would then be set off against the various advances to and payments on behalf of Chenghao which the Company would have made. Mr Xie says that arrangements by the Company for the release of Chenghao from liability to Hua Han were eventually reached with Hua Han in May 2003, whereupon the Company's liability to Mega Resources in respect of the Loan ceased, as had been agreed.

15. Meanwhile, also in May 2003, the Company transferred its 49% interest in Baoding Pascali to a company called Broadway Offshore Limited ("Broadway"), having agreed to do so by an agreement dated 10 March 2003, in settlement of debts which the Company is said to have owed to Broadway. The agreement relating to this transfer appears to have been signed by Mr Xie on behalf of Broadway, with someone else signing on behalf of the Company. Although Mr Zhao was stated in the agreement to have been the legal representative of the Company, he was not in fact a signatory to the document. It appears from other documents produced by Mr Xie that the transfer of this interest was subsequently approved by the Mainland authorities on about 6 May 2003.

16. Thereafter, says Mr Xie, Nelson Wheeler sought to take steps on behalf of the Petitioner to contact Baoding Pascali, demanding that changes be made in respect of its shareholders and directors, perhaps with a view to protecting the interests of the Petitioner and KDIC - this resulted in Mr Xie writing on behalf of the Company to Mega Resources on 13 June 2003 demanding that the interference with Baoding Pascali's business should be stopped, and referring to the arrangements described above whereby it is said that the liability of the Company in respect of the Loan was released.

17. On 30 July 2003, the Petitioner caused a statutory demand to be served on the Company, by leaving it at an address which was said to be the Company's principal place of business in Hong Kong. Although the Company denies that this address was a place of business, and says that it does not in fact carry on any business in Hong Kong, the demand appears to have come to its attention, as a copy of Mr Xie's letter of 13 June 2003 to Mega Resources was faxed to the Petitioner's solicitors on 1 August 2003, presumably with a view to indicating that the Company disputed its liability to the Petitioner. No payment having been made by the Company to the Petitioner, the petition was presented on 9 September 2003.

18. There was, I think, no difference between the parties as to the test to be applied in determining whether the petition should be dismissed on the basis that the debt on which it is based is disputed. In such a case, it is well established that the burden is on the Company to adduce sufficiently precise evidence to satisfy the court that it disputes the debt bona fide on substantial grounds. When considering the evidence adduced by the Company, the court will approach the evidence critically against the undisputed background and evidence, and will be wary of relying on unparticularised or unsubstantiated assertions (see e.g. Re ICS Computer Distribution Ltd [1996] 1 HKLR 181).

19. In this case, Mr Dawes accepted, I think, that if the Company's case was true, it would amount to a defence to the Petitioner's claim against it. However, he submitted that the court should view that case and the evidence put forward by the Company with considerable skepticism, and contended that when critically examined, the evidence that the Company put forward in support of its case would not bear scrutiny. In his skeleton argument, Mr Dawes suggested that the Company's evidence should not be accepted, as:-

(1) It had failed to put forward any satisfactory evidence to explain the acknowledgment of the Loan in the recitals to the Assignment;

(2) Mr Xie's explanation that the envisaged potential set off had not occurred was not credible, having regard to the fact that something in excess of two years had elapsed between the agreement which was said to have been reached in March 2000 and the signing of the Assignment with such recital on 9 May 2002;

(3) The documents which it had produced as evidence of the payments made to or on behalf of Chenghao were produced very late in the day, being produced for the first time when they were exhibited to Mr Xie's affirmation which was only filed the day before an application for the appointment of provisional liquidators to the Company (which was not in the event proceeded with) was due to be heard; and

(4) In any event, the payment of the initial RMB 10 million to Chenghao did not appear to have been made by the Company, but by Baoding Pascali.

20. These submissions were expanded upon by Mr Dawes in the course of his oral submissions at the hearing. Mr Dawes submitted first that it was not open to the Company to put forward any evidence to contradict the terms of the recital in the Assignment acknowledging the existence of a debt to Mega Resources as at the time when the Assignment was executed. However, it seems to me that the Company's case does not involve having to contradict this statement, as the case put forward is not that the debt had been partially settled (which would mean that the amount of the debt stated in the recital would have been incorrect), but that there was an agreement which had the effect that the existing (correctly stated) debt might in future be set off against the RMB 10 million (together with the interest accruing on that amount) advanced by or at the direction of the Company to Chenghao.

21. Mr Dawes also suggested that even if there had been an agreement for a possible future set off along the lines suggested by the Company , it was surprising that no mention of this potential set off was made in the recitals to the Assignment. Moreover, Mr Dawes pointed out that the second payment said to have been made on behalf of Mega Resources (of RMB 200,000 to enable Chenghao to settle fees payable by it to Hua Han) was also not mentioned.

22. As to this, the Company's case was that it executed the Assignment in reliance on the representations of Mr Zhao to the effect that the execution of the Assignment was a mere formality for internal purposes, and would not alter the relationship between the Company and Mega Resources, which the Company could continue to deal with as if it were the lender. If such representations were made, they would seem to provide some grounds for the Company to suggest that it was entitled to rely on them by entering into the Assignment to accommodate KDIC, Mega Resources and Pioneer World on the basis represented, and could explain why it was not thought to be necessary to specifically mention these payments and their potential effect on the Loan, as the person with whom the Company dealt, Mr Zhao, was well aware of these arrangements, having himself agreed to them on behalf of Mega Resources. The Company contended that such representations by Mr Zhao would be binding on the Petitioner, as he was their agent for the purpose of procuring the execution of the Assignment by the Company.

23. In response to this argument, Mr Dawes suggested that there was material to suggest that there was in fact a close relationship between the Company and Mr Xie on the one hand and Mr Zhao on the other. He drew attention to the fact that Mr Zhao was a director of the Company at around the time that the Loan Agreement was entered into, to the fact that Mr Zhao was named as the legal representative of the Company in the transfer agreement relating to the transfer of the Baoding Pascali shares to Broadway, and to the existence of a number of other companies in which both Mr Zhao and Mr Xie appeared to have interests.

24. The Company accepted that Mr Zhao had been one of its directors in around 1999 up until the middle of 2000. Mr Xie said that Mr Zhao had been made a director of the Company in order to represent the interests of Mega Resources which had agreed to make the Loan to the Company. However, Mr Xie said that Mr Zhao had ceased to be a director of the Company in about June 2000. He said that the reference to Mr Zhao as legal representative of the Company in the Baoding Pascali share transfer agreement must have been a mistake, and pointed to the fact that this agreement was not in fact executed by Mr Zhao on behalf of the Company. Although there was some evidence to suggest that Mr Zhao might have been involved in the Company's business slightly beyond June 2000, as he was apparently recorded as having been chairman of a meeting of the Company's directors in August 2000, and the precise extent and nature of the relationship between Mr Zhao and the Company and Mr Xie is not entirely clear, I do not think that this is sufficient to justify rejecting the Company's case that Mr Zhao made the representations relied on by the Company on behalf of the Petitioner. The only evidence in relation to these representations is that put forward by the Company. The Petitioner does not appear to be in a position to contradict that evidence by bringing forward evidence of its own, whether from Mr Zhao or any other source. It appears from the material before me that for a considerable period, the only person that the Company dealt with in relation to the execution of the Assignment was Mr Zhao. Having chosen to work through Mr Zhao, it seems to me that it is at the least well arguable that the Petitioner is fixed with such representations as he may have made.

25. Moreover, if the underlying case put forward by the Company is true, it would seem to be consistent with that case for Mr Zhao to have made the representations which he is alleged to have made.

26. Mr Dawes also suggested that it was odd that the debt had not been set off by the time that the Assignment was executed, given that it was by then some two years after the agreement alleged by the Company had been entered into. However, the Company's position, if accepted, does provide an answer to this, since it was not until the further advance of RMB 5.3 million made to Chenghao in August 2000 that it was agreed that the set off would take place, upon the Company causing Chenghao's liabilities to Hua Han in the further sum of RMB 1 million to be settled, or released by Hua Han.

27. Finally, Mr Dawes suggested that a close look at the documentation put forward by the Company in support of its case raised as many questions as it answered. My attention was drawn to the fact that the payments to Chenghao (both in March 2000 and August 2002) were, on the face of the documents exhibited, not made by the Company, but by Baoding Pascali, to the fact that the documentation of March and April 2000 relied upon in support of the agreement for a possible future offset of the funds advanced to Chenghao against the loan by Mega Resources to the Company were relatively unsophisticated, compared to the detailed agreements in relation to the Loan and its earlier amendments which had been prepared by lawyers, to the absence of other supporting documentation in relation to the August 2002 transfer of RMB 5.3 million to Chenghao. It was also pointed out that the information as to the payments to Hua Han was limited, and that there appeared to be some indications that that law firm had close connections with Bing Zhao.

28. Taking all of these factors into consideration, Mr Dawes submitted that the court should reject the case put forward by the Company. He suggested that the Company and Mr Xie were likely still to be closely involved with Mr Zhao, and contended, in effect, that the case now being put forward by the Company was being orchestrated by Mr Zhao in order to frustrate the claims of the Petitioner, and that the Company's case was simply a late fabrication to stave off the Petitioner's claim and the petition which had been presented against it.

29. It is fair to say that the documentation put forward by the Company does not cover every point that arises from its case, and that there are several gaps in the documentation. However, it seems to me that Mr Jat was right in saying that in order to dismiss the Company's case out of hand, it would be necessary to conclude (as Mr Dawes suggested I should, if necessary) that the correspondence between the Company and Mega Resources of March and April 2000 was fabricated, and that this was not a conclusion which the court should come to on a summary basis, and certainly not one which the court should reach without very compelling evidence to suggest that the documents were made up for the purpose of these proceedings.

30. I do not see any basis on which the bank vouchers that appear to demonstrate that payments were in fact made to Chenghao should be treated as being for present purposes anything other than genuine. Equally, it seems to me that on the material which has been put forward, the payments said to have been made to Hua Han would also appear to have been effected.

31. If this is right, it would seem to follow that the question is whether or not I should accept the explanation put forward by Mr Xie on behalf of the Company in relation to those payments, and as to the agreement which he says he reached with Mr Zhao as to setting them off against the Company's debt to Mega Resources. In this respect, the correspondence between Mega Resources and the Company of March and April 2000 would appear to support Mr Xie's evidence as to the nature of the arrangement that he reached with Mr Zhao. I do not see that it is possible to conclude summarily that this correspondence was a fabrication for the purposes of these proceedings without giving Mr Xie an opportunity to deal with them, through cross-examination, in a trial of the matter. Although this series of correspondence is less formal than the loan documentation which had earlier been entered into, I do not think that it is possible to ignore it, or dismiss it on the basis that it is not genuine, purely on the basis of affidavit evidence, which so far as the Petitioner's evidence is concerned, does not appear to be from anyone with personal knowledge of the matters in question.

32. Further, in relation to the allegation by the Company that it was told by Mr Zhao that the Assignment was merely a formal document required for the purposes of an internal reorganisation, it does not seem to me that it is possible to dismiss this allegation out of hand, in the light of the letter of January 2002 from Mr Zhao which is to this general effect, and also having regard to the fact that the Petitioner is not in a position to dispute (or at any rate, has not disputed) the making of the representations by Mr Zhao. Nor is there any basis on which I can properly conclude summarily that this letter was not genuine.

33. It is also fair to say that the letters from Nelson Wheeler of 23 May and 19 June 2002, both sent after the Assignment was executed, would appear to suggest that Mega Resources was still the lender and in a position to take decisions in relation to matters connected with the Loan.

34. Further, I do not think that the complaint that these documents were produced relatively late in the day is a matter that carries much weight. So far as the Company is concerned, assuming its case to be true, there would have been no reason to raise any of these matters until, at the earliest, when steps were taken on behalf of the Petitioner or KDIC to try to exercise some control over the affairs of Baoding Pascali. It would appear from the letter of 13 June 2003 that when this occurred, Mr Xie wrote to Mega Resources to put on record the Company's position, in terms that are wholly consistent with its present stance. This letter was, it seems, also forwarded to the Petitioner's solicitors in response to the statutory demand that was served on the Company. The Company's position was therefore brought to the attention of the Petitioner at an appropriate stage. It was not at that stage incumbent on the Company to put forward its evidence in support of its position. This was not required until the Company was faced with an application for the appointment of provisional liquidators, and when this happened, the Company put forward its evidence shortly before the hearing. Throughout, the Company's position has been consistent, and has been along the lines of the defence which it relies on against the Petitioner's claim.

35. It may be that, at the end of the day, after a trial, the result would be that the Company's defence is rejected. However, that possibility does not, to my mind, justify me in rejecting that defence summarily, when there exist documents which I cannot disregard as being obvious fabrications, which lend support to the Company's case.

36. Thus, it seems to me that while the Company's case may not be fully documented, and there may remain some areas in respect of which there are loose ends which have not been tied up, or questions which remain unanswered, it has put forward sufficient evidence to show that it disputes the debts alleged against it bona fide on substantial grounds, and on this basis, it seems to me that the petition should be dismissed.

37. However, in case I am wrong in my conclusions in this respect, I shall go on to deal briefly with the Company's contention that this is not a case in which I should exercise my discretion to wind up the Company under section 327 of the Ordinance.

38. There was no real difference between the parties in relation to the test to be applied in relation to the exercise of this discretion. The three core requirements are that:-

(1) There should be a sufficient connection with Hong Kong, which may, but does not have to, consist of the existence of assets within the jurisdiction;

(2) There must be a reasonable possibility of benefit to those applying for the winding-up order, if one is made;

(3) There must be one or more persons over whom the court can exercise a jurisdiction who are interested in the distribution of the company's assets.

(See e.g. Stocznia Gdanska SA v Latreefers Inc (No 2) [2001] 2 BCLC 116).

39. The Company's case in this regard was that it was not appropriate to exercise such discretion because:-

(1) It does not have any place of business in Hong Kong;

(2) None of its business has been carried on in Hong Kong since at least 2000, which was when its last directors' meeting was held in Hong Kong, subsequent meetings all being held in China;

(3) Apart from some shares which were sold and bank accounts which were closed some time ago (around 2000), the Company has never had any assets in Hong Kong. Its main asset (until its disposal to Broadway) was its interest in Baoding Pascali, which was located and had to be dealt with in the PRC;

(4) It does not have any documents here;

(5) It does not have any other substantial connection with Hong Kong;

(6) There is no basis for thinking that a winding up in Hong Kong will benefit anyone in Hong Kong; and

(7) The evidence indicates that a winding up in Hong Kong would be of no effect in relation to steps that might need to be taken in the PRC (the only place where steps could be taken in respect of the transfer of the Baoding Pascali shares) since a Hong Kong liquidator of a foreign company would not be recognised in the PRC.

40. Mr Dawes accepted that the Company had no assets in Hong Kong. However, he relied on the fact that the Company was stated in various agreements and documents as having an address in Hong Kong as indicating that it did (or at least had at some time) carried on business here. He also drew attention to the fact that the Loan Agreement provided that it was to be governed by Hong Kong law, and subject to the jurisdiction of the Hong Kong Courts. He also relied on the fact that Mr Xie and Mr Zhao were in Hong Kong from time to time, and that it seemed from the evidence that several agreement and documents relating to the Company appeared to be executed here, and that it appeared that the Company's seal was kept in Hong Kong. Finally, Mr Dawes submitted that there was no other more appropriate jurisdiction for the winding up of the Company, since it appeared to have at present no business in China or anywhere else.

41. Mr Dawes referred me to Re A Company (No. 00359 of 1987) [1988] 1 Ch 210, where the facts that a loan agreement had been negotiated, executed and performed in England, the company's directors were resident in England, it had bank accounts in England, and did not appear to carry on business outside England was held to demonstrate a sufficient connection with England even in the absence of assets within the jurisdiction. It seems to me, however, that in this case, the connecting factors are significantly weaker, in that while the Loan Agreement provides that it is to be governed by Hong Kong law and subject to the jurisdiction of the Hong Kong courts, there is no clear evidence as to where it was negotiated, executed and performed. Even assuming that these things took place in Hong Kong, this would appear to be the only item of business that the Company transacted in Hong Kong. Its directors are not resident here (although they appear to have visited Hong Kong from time to time), it has no bank accounts here and it does not appear to have any business activities here - on the contrary, the only place where it appears to have had business interests is in the PRC. It is in my view at best questionable whether or not this is a sufficiently close connection with Hong Kong to justify the court in putting its winding-up machinery into motion.

42. More critically, however, it seems to me that the second core requirement is not established in this case. There being no assets in Hong Kong, Mr Dawes was constrained to accept that the Petitioner's objective was to have liquidators appointed with a view to their taking steps to investigate the transfer of the Company's shareholding in Baoding Pascali to Broadway, and if possible to have it set aside. But it seems clear that Hong Kong liquidators would not be recognised by the authorities in the PRC, which is where any effective steps to have the transfer investigated and set aside would have to be taken. Although Mr Dawes suggested that it might be possible to take action in Hong Kong to set aside the transfer, on the basis that the parties to the transfer both appeared to have addresses in Hong Kong, I am far from convinced that this would be a sufficient basis on which the court here would assume jurisdiction in respect of the matter, where the subject matter of the investigation would be shares in a PRC entity, located in the PRC, in respect of a transaction which appears to have taken place in the PRC. Even if the courts here were prepared to assume jurisdiction, it is highly questionable whether any ruling on the matter here would be recognised in the PRC. In these circumstances, I am not satisfied that there is, in this case, any reasonable possibility of benefit to the Petitioner in obtaining a winding up order against the Company in Hong Kong.

43. In these circumstances, even if I had not considered that the Company had demonstrated that the debt relied upon was disputed by it bona fide on substantial grounds, I would have declined to exercise my jurisdiction to wind up the Company under section 327 of the Ordinance.

44. For both of these reasons, therefore, I would dismiss the petition, and make a costs order nisi that the Petitioner should pay the Company its costs of the Petition, to be taxed on the party and party basis if not agreed.