RE ACADA DEVELOPMENTS CO LTD

HCCW 649/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 649 OF 2004

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AND

HCCW 650/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 650 OF 2004

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(Heard Together)

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J U D G M E N T

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1.  These two winding-up petitions against Acada Developments Company Limited (“Acada”) and Fonda Oil Company Limited (“Fonda Oil”)(collectively “the Companies”) are ordered to be heard together.  Both petitions are presented by the Bank of China Singapore branch.

2.  In respect of Acada, the petitioner had extended facilities to Acada under two facility letters dated 22 October 1983 and 18 November 1997, for overdraft, letters of credit, trust receipts and/or shipping guarantees facilities.

3.  Acada had defaulted under the facilities.  As at 22 May 2003, US$33,645,991.03 was due from Acada to the petitioner.  On 6 June 2003, the petitioner’s solicitors served a demand on Acada pursuant to section 178(1) of the Companies Ordinance, Cap. 32, demanding payment of the sum aforesaid.

4.  On 28 August 2003, the petitioner exercised its power of sale under a mortgage and sold two properties in Singapore mortgaged to the petitioner and applied the net proceeds to reduce the debt due from Acada.  The debt thus reduced amounted to US$33,209,056.26.  This formed the debt in the petition against Acada.

5.  As for Fonda Oil, the petitioner granted facilities to it by two facility letters dated 22 October 2003 and 3 April 1996.  Fonda Oil also defaulted under the facilities.  As of 22 May 2003, US$41,909,338.11 was due from Fonda Oil.  The indebtedness was due to current account facilities, revolving credit facilities and trust receipts.  On 6 June 2003, the petitioner’s solicitors served a demand under section 178(1) on Fonda Oil demanding payment of the said sum.  This formed the debt in the petition against Fonda Oil.

6.  The Companies have not denied that the amounts in the respective petitions were advanced by the petitioner to them under the various facility letters.  The only ground for resisting the winding-up petitions, as appeared from the evidence filed on behalf of the Companies, is an alleged repayment agreement and subsequent agreements reached between the petitioner and the Companies, the effect of which was that the petitioner had agreed with the Companies to withhold legal proceedings to enforce the debts in the petitions.

7.  According to the evidence of John Wang, who is a director of the Companies, the petitioner had granted facilities to the Companies in 1983 to facilitate the business of the Companies of trading in crude oil and petroleum products.  Business had been good until the major buyer of the Companies in China, Southern Industry and Commercial Corporation (“Southern”), a national corporation in Guangzhou, defaulted in 1993 in a sale involving the total price of US$28 million.  Despite this substantial default in 1993, the Companies still had the support of the petitioner and in 1996 and 1997 the petitioner had granted facilities to the Companies by the facility letters as mentioned.

8.  As for the repayment agreement it is alleged by Mr Wang in his first affidavit that this was made in late 1996 or early 1997, as a result of his discussions and meetings with the general manager of the petitioner Zhu Hua and the vice general manager Lin Ju Zheng.  Prior to 1997, Mr Wang had acquired land in Jakarta (“the Land”) of 310,000 square metres in the name of another company, for the purpose of developing the Land into a high class residential district.  According to him, by the repayment agreement, it was agreed as follows:

(1)	the Land held by the third party would be redeveloped and the net proceeds of sale of the properties built would be used to discharge all the debts of the Companies with interest to the petitioner.  It was alleged that the net proceeds were estimated to be sufficient for this purpose;
(2)	the petitioner would not demand repayment before the redevelopment was completed; and
(3)	the title deeds of the Land would be delivered to the petitioner.

9.  In 1997, Indonesia was hit by the world financial crisis.  Mr Wang alleged that a subsequent agreement was made with the petitioner’s officers in 1997, by which they agreed to put the redevelopment of the Land on hold, until the political and financial circumstances in Indonesia had improved.

10.  In the meantime, the Companies continued to seek repayment from Southern as a parallel measure.  I should mention that sometime in 1998, Southern was dissolved by the state and it no longer exists as a legal entity in China.

11.  In 1999, Mr Wang had another meeting with the petitioner’s officers Mr Zhu and Mr Lin.  He alleged that a second subsequent agreement was reached whereby it was agreed that:

(1)	the Companies would continue with their efforts to procure repayment by their debtor Southern; and
(2)	the petitioner would not take legal proceedings until “arrangements for the funds were made and ready for payment to the Companies”.

12.  Despite the repayment agreement and the two subsequent agreements, the Companies have not made any subsequent payment to the petitioner to reduce their indebtedness.  The petitioner started issuing notices to the Companies to demand payment as early as 1998 and, as mentioned earlier, demands under section 178 were served on the Companies in June 2003.  Also in June 2003, the petitioner served statutory demands on Mr Wang and two others in respect of the personal guarantees they had provided for the Companies’ debts.  The guarantors applied to set aside the statutory demands in June 2003.  The applications were unsuccessful and their appeals were dismissed by the Court of Appeal in July 2004.  In July 2004, bankruptcy orders were made against each of the three guarantors including Mr Wang.  The petitions to wind up the Companies were presented on 1 June 2004.

13.  The petitioner has filed evidence denying the existence of the repayment agreement and the two subsequent agreements.  The burden is on the Companies to satisfy the court that they have raised a bona fide dispute that the petitioning debts are not presently due and payable on substantial grounds. 

14.  I have no hesitation in coming to the view that the Companies have not discharged that burden.  I say so for these reasons.

15.  Firstly, none of the repayment agreement and the two subsequent agreements were evidenced in writing.  There was no record of any minutes or documents to lend support to the allegation that such agreements were ever made.  One would have expected in the normal course of events that such important agreements would be evidenced in writing.

16.  Secondly, the alleged verbal agreements were devoid of particularity.  They were also devoid of commercial sense or reality.  For instance, it was alleged that the petitioner would not demand payment until the redevelopment of the Land was completed, but there was no time frame for redevelopment and the project was put on hold indefinitely until the situation in Indonesia has improved.

17.  I completely fail to understanding the purport of the second subsequent agreement, whether it was alleged that until the Companies had managed to recover something from Southern, the petitioner would withhold legal action.  It is not apparent how Southern, which was dissolved in 1998, would be able to honour any promise to repay its substantial indebtedness to the Companies.

18.  There are no documents at all to lend credence to the assertion that the net proceeds of the properties to be built on the Land and to be sold on completion of the redevelopment would be sufficient to pay off all the debts of the Companies with interest to the petitioner.  There are no particulars at all of how the first subsequent agreement was made, who was to decide if it would be the right time to carry out or resume the redevelopment of the Land.  It was alleged that John Wang had helped to put together a schedule to procure an investment in oil business and that substantial capital would be injected into one or both of the Companies and that this substantial capital would include repayment to the petitioner.  No information was provided as to who was to inject this substantial capital, how much was to be injected, over what period of time would the injection of capital be made.  There was no explanation why no documents were adduced regarding this schedule which John Wang had helped to put together.

19.  Thirdly, I find the allegation of the various verbal agreements simply incredible.  They were not raised in the applications of the guarantors to set aside the statutory demands or in the bankruptcy proceedings, although some sort of explanation was given by John Wang in his affirmation filed in these proceeding why they did not do so due to the “sensitive” nature of this allegation.  One of the allegations advanced in these proceedings was different from the allegation in the earlier proceedings.  It was alleged in the earlier proceedings that a security was created over the Land.  There is no evidence to contradict the petitioner’s evidence in the earlier proceedings that any security created over the Land would be unenforceable under Indonesian law.

20.  Further, John Wang had changed his allegation as to the date when the alleged repayment agreement was made.  In his first affirmation, he said it was made in late 1996 or early 1997.  He changed this material date to April 1998, after the petitioner adduced evidence that the general manager with whom the agreement was allegedly made was not appointed until April 1998.  The altered version of the date of the repayment agreement would equally make no sense, as the alleged repayment agreement had to be made before the first subsequent agreement, and the first subsequent agreement was made in 1997 as a result of the world financial crisis, according to John Wang.

21.  For the above reasons, I am satisfied there is no bona fide dispute of the petitioning debts on any substantial ground.  I therefore make a winding-up order in respect of each of the Companies.  The petitioner’s costs in the petitions, including the costs reserved on 10 December 2004, would be paid out of the assets of the company concerned.