RE WANG YAOLIANG t/a YIU TAT INDUSTRIAL CO

HCCW 123/2018

[2019] HKCFI 2784

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 123 OF 2018

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REASONS FOR DECISION

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1.  On 15 May 2018, Wang Yaoliang trading as Yiu Tat Industrial Company (the “Petitioner”) presented a winding up petition (the “Petition”) against Generic Enterprises Limited formerly known as Lionstar Enterprises Limited (the “Company”) on the ground that the Company failed to pay a sum of US$137,186.64 which is said to be presently due and owing to the Petitioner (the “Petitioning Debt”).

2.  On 4 April 2018, a statutory demand was duly served on the Company (“the Statutory Demand”). The Company has not taken any steps to set aside the Statutory Demand or restrain the presentation of the Petition.

3.  On 3 October 2019, I heard the Petition. Having heard the parties’ submissions, I made the usual winding up order against the Company but stayed the sealing of the winding up order on the Company’s undertaking to pay the Petitioning Debt and interest to the Petitioner within 28 days. On 4 October 2019, upon the parties’ joint application, I amended paragraph 3 of the orders dated 3 October 2019 as follows:

“ upon the Company’s undertaking to pay a sum of USD137,186.64 as the Petitioning Debt and USD20,120 as agreed interest within 28 days from the date hereof, the sealing and the execution of the Winding Up Order be stayed for a period of 28 days.”

4.  I now give my reasons.

Material facts

5.  The Petitioner and the Company had a continuous course of commercial dealings before the accrual of the Petitioning Debt. The contemporaneous documents demonstrate that during the period from at least March to July 2017, the Petitioner issued various invoices to the Company for goods sold and delivered by the Petitioner to the Company during that period.

6.  The Petitioner’s case is a simple and straightforward one. The Petitioner had delivered goods pursuant to purchase orders issued by the Company. Invoices were issued for the goods sold and delivered. The Company had duly admitted and acknowledged its liabilities under a total of 24 unpaid invoices issued by the Petitioner to the Company from 8 September 2017 to 20 November 2017.

7.  The Company has gone through a change of management. The new management does not consider that the Petitioning Debt is presently due and owing and has raised a number of defences which will be analysed below.

Applicable legal principles

8.  The relevant legal test is well established. The burden rests on a debtor to demonstrate to the Court with sufficiently precise factual evidence that there is a bona fide dispute of the petitioning debt on substantial grounds. It is not enough for a debtor to simply raise some factual disputes and submit that such factual disputes have to be resolved in a trial.

9.  There are dicta to the effect that the threshold test for resisting a petition would require a higher standard. (See Re ICS Computer Distribution Ltd [1996] 1 HKLR 181 at 183G–J per Rogers J (as he then was).)  In practice, I do not see how this higher standard will yield a different result when applying to the facts of a particular case. Recently, in Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850, Kwan JA (as she then was) at §27(4) said:

“ Notwithstanding this difference, it is fair to say that the threshold tests in both situations are broadly similar, as noted in the two recent English authorities. If a petition is dismissed on the basis there is a bona fide dispute on substantial grounds, it would be most unlikely that summary judgment could be obtained. Most probably, the defendant would be given leave to defend, whether unconditionally, or with conditions imposed if his defence is regarded as shadowy. Conversely, where a defendant has obtained leave to defend, unconditionally or with conditions, it would be most unlikely that a petition would be granted. See Markham v Karsten at [45]. The statements of Rogers J in ICS Computer at 183E–F did not suggest otherwise.”

10.  I am of the view that the key is for the Court to assess whether there are real and substantial disputes of facts which render the summary procedure of a bankruptcy and/or winding up proceedings unsuitable for the determination of such real and substantial disputes of fact. In such scenario, the validity of the petitioning debt would need to be fully investigated in a trial. However, peripheral and/or disputes of fact which do not go to the foundation of the petitioning debt are normally distractions and are irrelevant in determining whether there are bona fide disputes to the petitioning debt on substantial grounds.

Analysis

11.  Having considered the contemporaneous documentary evidence, I am of the view that the Petitioner’s case is clear and there are no bona fide disputes to the Petitioning Debt on substantial grounds. First, the unpaid invoices relate to the purchase orders issued by the Company. The purchase orders were signed and confirmed Ms Amy Yan on behalf of the Company.

12.  Secondly, all the relevant commercial invoices were issued by the Petitioner to the Company after the relevant goods were duly delivered. The Company did not make any protest at the material time that the Petitioner had wrongly issued the relevant invoices to the Company.

13.  The Petitioner’s invoices were attached to the emails sent by Mr Anson Liu of Yiu Jin to the Company. Mr Anson Liu went on oath to state that:

“ 11. As in the case of the Unpaid Purchase Orders and the Unpaid Invoices, after the goods under the Previous Purchase Orders were duly shipped by the Petitioner to the Respondent and duly accepted by the Respondent, the Petitioner issued invoices to the Respondent. …

…

12  (2)  As shown in the delivery notes themselves, many of them were signed by Elaine Ng of the Respondent (‘Elaine’) and stamped with the Respondent’s company chop to acknowledge receipt of the goods.”

14.  Thirdly, in various emails from Ms Elaine Ng of the Company to Mr Anson Liu of the Petitioner, it is clear that payments due under the invoices were acknowledged and duly admitted. In an email dated 10 July 2017, Ms Elaine Ng duly acknowledged that payments had to be made to the Petitioner under various invoices and in an email dated 11 July 2017, she asked Mr Anson Liu to provide an update of a statement of accounts. This shows that there was a running account between the Petitioner and the Company.

15.  Fourthly, delivery notes were signed by Ms Elaine Ng and the Company’s chop was affixed to the delivery notes although the recipient was one Frayte Logistics Limited (“Frayte”).

16.  Fifthly, there are contemporaneous debit advices which show that the Company had paid the Petitioner under various invoices. Last payment in the sum of US$38,124.02 was paid by the Company on 3 October 2017.

17.  Sixthly and importantly, statements of account which set out the amounts due from the Company to the Petitioner were periodically sent by Ms Elaine Ng of the Company to the Petitioner under the reference of “Yiu Jin/Yiu Tat”.  It is important to note that in the statement of account dated 8 September 2017, the unpaid invoices numbered 17264, 17265, 17267, 17268, 17272, 17274 and 17279 were covered. Unpaid invoices numbered 17290, 17291, 17297 and 17298 were recorded in the statement of account dated 22 September 2017.

18.  By an email dated 17 November 2017, Ms Elaine Ng, who on her own evidence joined the Company since July 1998 and had by November 2017 worked for the Company for nearly 20 years and was responsible for general administrative functions of the Company, informed Mr Anson Liu that the Company would pay the Petitioner the first 7 of the 24 unpaid invoices by bank settlement and that she would email the bank document to him for reference once she received the same.

19.  Crucially, thereafter Mr Anson Liu by email dated 24 November 2017 at 14:10 hours sent to Ms Elaine Ng the statement of account updated to 24 November 2017 which clearly shows all the 24 unpaid invoices issued by the Petitioner to the Company from 8 September 2017 to 20 November 2017 and the outstanding balance of US$137,186.64.

20.  By email dated 12 November 2017 at 18:24 hours, Mr Mark Orton of the Company, who the Company admitted was responsible for conducting the Company’s principal activity (together with Mr Gordon John Gregor), promised the Petitioner that:

“ Funds are being arranged and be sent Wednesday (i.e. 13.12.2017) and will be sent direct to your account so you receive on Wednesday (i.e. 13.12.2017) or Thursday (i.e. 14.12.2017)”.

21.  Finally, the Petitioner relied on a final statement of account dated 22 December 2017 which Ms Elaine Ng signed and a company chop of the Company was affixed to evidence an admission of liability. Mr Ng for the Petitioner submitted that this final statement of account clearly showed the particular of all the 24 unpaid invoices and the outstanding balance of US$137,186.64, the Petitioning Debt.

22.  In view of the above contemporaneous documentary evidence, I am of the view that there are no bona fide disputes to the Petitioning Debt.  

23.  Mr Chow for the Company submitted that as the Company has undergone a wholesale change of ownership and management on or about 14 December 2017, it had no record of and did not enter into the underlying transactions with the Petitioner purportedly giving rise to the Petitioning Debt.

24.  Whilst this Court is sympathetic with the Company’s apparent lack of knowledge due to the change of management in December 2017, the contemporaneous documentary evidence all point to the subsistence and validity of the Petitioning Debt. The Company pointed to a number of “unusual features” about the documents, but I am of the view that none of them amounts to bona fide disputes to the Petitioning Debt on substantial grounds.

25.  First, Mr Chow for the Company submitted that the shipper and the factory name is Yiu Jin Manufacturing Company Limited (“Yiu Jin”) and not the Petitioner. I am of the view that there is nothing in the point. It is perfectly normal for the Petitioner to engage a manufacturer in the Mainland, China as a manufacturer and shipper, that manufacturer or shipper may or may not be related to the Petitioner. Mr Ng for the Petitioner also pointed out that the Company is not saying that it owes the Petitioning Debt to Yiu Jin. 

26.  Secondly, Mr Chow for the Company also pointed to the different email addresses, for example, Mr Anson Liu used an email address ending with the domain @yiujin.com and a template signature in his emails relating himself to “Yiu Jin Manufacturing Company Limited” carrying a PRC address and a PRC telephone number land line number. I am of the view that there is nothing in this point.  Mr Anson Liu could well have different email addresses and even a position in Yiu Jin.

27.  Thirdly, Mr Chow for the Company submitted that the circumstances under which Ms Elaine Ng’s signature and the Company’s chop came to be affixed on the document are hotly disputed and highly contentious. Mr Ng for the Petitioner submitted that it is incredible that Ms Elaine Ng could have been pressured or harassed by the Petitioner to sign on the document. It is important to note that Ms Elaine Ng confirmed that it was her who signed on the document and despite the fact that she said “I am advised and verily believe and understood at the time, that I was not in a position nor was I authorized to verify the contents of the documents for and on behalf of the Company … Anson had desperately sought my signature on the document so that he could show his boss”, somehow she was able to get hold of the Company’s chop and affixed the same on the final statement of account.

28.  Ms Elaine Ng also went on oath to say that:

“ I am then shown documents which purport to be purchase orders placed in 2017 with the Petitioner under the name and logo of the Company (‘Purchase Order’). I am unaware of the Company having placed these Purchase Orders notwithstanding I would have had knowledge of them and had they in fact had been placed by the Company, and I have never seen these documents before my involvement in these proceedings.”

29.  Mr Ng for the Petitioner submitted that the above statements are incredible in view of the series of contemporaneous documentary evidence. I agree.

30.  In any event, even if this Court were not to take into consideration the probative value of the final statement of account signed by Ms Elaine Ng, this Court is still persuaded that in view of the volume of contemporaneous documentary evidence including the previous commercial dealings between the Petitioner and the Company, the Petitioning Debt cannot be disputed on bona fide and substantial grounds.

31.  Fourthly, Mr Chow for the Company submitted that the goods were delivered to Frayte. I am of the view that this alone does not point to the Company’s contention it was not the contracting party. It is quite normal for parties to enter into contracts for deliveries to be made to one of the parties’ designated entities.

32.  Fifthly, Mr Chow for the Company also submitted that some of the individuals who were involved were not the employees of the Company. It is true that the Company did have other affiliated companies at the material time. The fact that the Company might have sought the assistance of its affiliated companies’ staff in relation to its business activities in the Mainland is nothing surprising. I am of the view that nothing turns on this. The Petitioner’s case is very simple, purchase orders were issued by the Company, goods were duly delivered to the designated entity as requested by the Company, commercial invoices were issued and the Company had admitted and acknowledged liabilities of the same by various emails and statements of accounts.

33.  Mr Ng for the Petitioner also submitted that Mr Victor Edmond McCuskey (“McCuskey”) who filed the main affidavit in opposition to the Petition was only appointed as a director of the Company on 14 December 2017 and thus has no personal knowledge of the relevant events. Mr Ng submitted that the approach taken by the Company was to raise suspicions and then required the Court to investigate those suspicions in a trial. I agree.  

34.  In Lady Anne Tennant v Associated Newspapers Group Ltd [1979] FSR 298 at 303, Megarry VC said:

“ A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism.”

35.  In Maple Trade Finance Inc v Huge Best International Ltd HCCW 389/2010, unreported, 22 June 2011, Deputy High Court Judge Coleman SC (as he then was) at §103, after citing Megarry VC’s well- known passage above, said:

“ If such an approach is not capable of satisfying the burden on a defendant facing a summary judgment application, it cannot satisfy the burden for the Company to demonstrate the existence of a bona fide dispute on substantial grounds.”

36.  I have also taken into account all the issues set out in Mr Chow’s Skeleton Submissions and his submission that the same should be investigated in a trial. I am of the view that the correct approach is to identify what are the core issues and whether there are bona fide disputes to those issues on substantial grounds and not whether there are suspicious features surrounding the case that should be investigated in a trial.

Disposition

37.  For all the reasons stated above, I made the usual winding up order against the Company with the interim stay as set out in paragraph 3 above.

38.  The Petitioner is also entitled to the costs of the Petition against the Company, on a party to party basis, to be taxed if not agreed.

39.  Finally, it remains for me to thank Mr Ng for the Petitioner and Mr Chow for the Company for their helpful assistance to this Court.