THE INTERNATIONAL COMMERCIAL BANK OF CHINA CO LTD (HONG KONG BRANCH) v. KELVIN EDWARD FLYNN

HCCW 622/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 622 OF 2004

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D E C I S I O N

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1.  This is an application taken out by the International Commercial Bank of China Company Limited (Hong Kong Branch) (“the Bank”) under sections 199(3), 200(5) and 186 of the Companies Ordinance, Cap. 32.

2.  The Bank seeks an order that:

(1)	the provisional liquidator of Forefront International Limited (“the Company”) be directed to take all necessary steps and/or execute all necessary documents to effect forthwith the transfer to the Bank 39,888,805 shares in Forefront International Holdings Limited (“FIHL” and “the FIHL Shares”) registered in the name of the Company and charged to the Bank by a share mortgage executed by the Company on 13 March 2003 (“the Share Mortgage”);
(2)	alternatively, leave be granted to the Bank to commence an action against the Company to enforce the Share Mortgage.

3.  The background matters may be stated as follows.

4.  The Company was incorporated in Taiwan and was wound up by an order of this court on 14 July 2004.  Provisional liquidators were appointed for the Company on 7 June 2004.

5.  FIHL is a company listed on the main board of The Stock Exchange of Hong Kong Limited.  The FIHL Shares mortgaged to the Bank under the Share Mortgage were to secure, inter alia, facilities granted to Todaytech Asia Limited (“Todaytech”) by the Bank in the amount of US$10 million for the issue of a standby letter of credit pursuant to a facility letter dated 13 March 2003.  Todaytech is an affiliated company of the Company.  The Share Mortgage was registered on 1 April 2003 at the Companies Registry and the share certificates relating to the FIHL Shares were deposited with the Bank.  The Share Mortgage provided that upon the occurrence of an event of default, the security constituted by the Share Mortgage shall become enforceable.

6.  On 2 March 2004, facilities to the extent of US$10 million under the facility letter were drawn down by Todaytech.  On 17 June 2004, the Bank demanded repayment of the amount outstanding under the facility letter, being US$5 million, with interest thereon.  Todaytech failed to repay the said sum and was wound up by this court on 30 June 2004.  The liquidation of Todaytech constituted an event of default under the Share Mortgage.

7.  On 11 October 2004, the principal amount outstanding from Todaytech to the Bank was reduced by US$302,931.05 through the realization of 700,000 shares in another company charged by the Company to the Bank.  As at the date of this application on 21 October 2004, the principal sum of US$4,697,068.95 with interest was and is due and owing from Todaytech to the Bank.

8.  The Bank is unable to exercise its rights regarding the FIHL Shares unless and until they are transferred to the Bank.

9.  Since July 2004, correspondence has been exchanged between the Bank’s solicitors and the provisional liquidators and their solicitors in relation to a request of the Bank that the provisional liquidators should sign and execute instruments of transfer of the FIHL Shares in accordance with the Share Mortgage.  The provisional liquidators have sought further information and documents relating to the facility granted to and the security held by the Bank.

10.  It is well settled that property which has been mortgaged to a creditor as security does not form part of the assets available to the general body of creditors on winding up and a secured creditor is entitled to enforce the mortgage as of right notwithstanding any order for winding up.

11.  By letter dated 7 January 2005, the solicitors for the provisional liquidator withdrew his earlier notice of intention to oppose this application and solicitors on both sides have since entered into correspondence on the form of the draft order to be placed before the court.  The parties have also reached agreement on costs.

12.  I grant the relief sought in paragraph 1 of the summons.  I make an order in terms of the final draft submitted to me as amended.