RE LUEN CHEONG TAI CONSTRUCTION CO. LTD.

HCCW 190/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 190 OF 2002

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REASONS FOR JUDGMENT

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1. This petition to wind up Luen Cheong Tai Construction Company Limited ("the Company") is presented by Hennabun Resources Limited on the ground that the Company is unable to pay its debts. The debt allegedly owed to the petitioner is in the sum of HK$12,250,000.00, being a debt due from the Company to Mr Young Pui York and assigned by Mr Young to the petitioner under a deed of assignment made on 17 January 2002 ("the Deed of Assignment"). On 23 January 2002, the petitioner served a statutory demand for the debt by leaving this at the registered office of the Company. On 18 February 2002, this petition was presented by the petitioner.

2. When the petition first came before me on 10 June 2002, I adjourned the hearing with directions for the petitioner and the Company to file evidence. At the adjourned hearing on 15 July 2002, Mr James Collins, who appeared for the Company, sought a further adjournment for the Company to file evidence to deal with the antecedent transaction relating to the debt being the subject of the assignment. I refused leave to do so. I am satisfied that the Company had had sufficient opportunity to file evidence on this as I had given directions earlier for evidence to be filed and the Company had in fact, by the first affirmation of one of its directors, Mr Chan Man Chuen, deposed to the alleged antecedent transaction. After hearing submissions, as I am satisfied that the Company does not have a substantial dispute of the debt on bona fide grounds, I made a winding-up order and these are the reasons for my judgment.

3. I will first go to the antecedent transaction as this really is the crux of the matter. It was contended by Mr Collins that although money had passed between certain companies or parties, the upshot of this was that Mr Young was not a creditor of the Company and hence Mr Young had no debt to assign to the petitioner. For this reason and for other reasons, it was contended that the petitioner does not have the required locus standi to bring a creditor's petition against the Company.

4. It is not in dispute that in late June or early July 1999, Mr Chan Man Chuen had a discussion with Mr Young, as a result of that three cheques totalling HK$11,000,000.00 were sent to the Company, the details of which are as follows:

5. New Luck was and is owned by Mr Young and his wife and they are the only directors. It is not in dispute that Mr Young was effectively in control of New Luck at all times.

6. It was contended by Mr Collins that in respect of the first and second cheques, as the drawer of these cheques was New Luck, the money advanced by these two cheques was advanced by New Luck, not by Mr Young, to the Company. In respect of the third cheque, although the drawer was Mr Young, the cheque was payable to Well Joint, not to the Company. Hence, the money advanced by the third cheque was not advanced to the Company, but to Well Joint. Mr Collins submitted that when it came to assigning the debt in the Deed of Assignment, as there was no debt due and owing from the Company to Mr Young, Mr Young had no debt to assign to the petitioner.

7. One has to go back to the evidence filed by the parties to see whether the first two cheques were indeed advances made by New Luck to the Company or that the third cheque was an advance by Mr Young to Well Joint, as submitted by Mr Collins.

8. Mr Chan dealt with this in paragraph 3 of his first affirmation. He stated that he had a discussion with Mr Young, who is his old friend, regarding "certain loans totalling $11,000,000.00 to be made available to the sub-contractors of the Company for the purposes of financing a building project in Tsim Sha Tsui, Kowloon". He said that he was expecting "a personal cheque from Mr Young" made payable to Mr Chan himself instead of to the Company because "it was simply more convenient for [Mr Chan] to distribute the loan money to the Company's sub-contractors directly". For reasons not known to him, the three cheques as stated above totalling HK$11,000,000.00 were sent to the Company. Mr Chan added in his affirmation that he doubted whether Mr Young could be said to have lent HK$11,000,000.00 to the Company. Mr Chan went on to say that after the cheques were cleared, the money was paid out to the Company's various sub-contractors on various dates.

9. On Mr Chan's affirmation alone, it is clear that Mr Chan had approached Mr Young, not Mr Young's company New Luck, for a loan not for the personal purpose of Mr Chan, but for the purpose of the Company. The purpose given to Mr Young for requiring the loan was to enable the Company to pay its sub-contractors and that indeed was how the money was actually spent, as admitted by Mr Chan. Whether the money lent was provided by a personal cheque of Mr Young or by a cheque he had caused to be issued by a company controlled by him is entirely immaterial. Whether the cheque was made payable to the Company or to another entity as directed by Mr Chan on behalf of the Company is equally immaterial, as there is no dispute that the monies advanced were for the benefit of the Company in that the proceeds of the cheques were used to pay off the Company's various sub-contractors. There is no merit at all in Mr Collins' submission that there was no debt of HK$11,000,000.00 due and owing from the Company to Mr Young before the Deed of Assignment.

10. I have come to the views stated above without regard to the evidence filed by the petitioner, being the first affirmation of Mr Young. Mr Young dealt with the circumstances in which the loan was made in paragraph 2 of his affirmation. He stated that Mr Chan and another director of the Company, Mr Vong Pak Cheong are his good friends and they requested him to make a loan of HK$11,000,000.00 to the Company as the Company had a temporary cash flow problem and they promised that the loan would be repaid within a short time. It was agreed that in consideration of Mr Young advancing this sum to the Company, the Company would pay a fixed interest of HK$1,250,000.00. Mr Young further stated that he issued the three cheques to the Company and Well Joint on the instructions of Mr Chan. I have no doubt that Mr Young's version is to be preferred. However, as I have indicated earlier, there is no need to resolve any dispute as to fact between the affirmation of Mr Chan and the affirmation of Mr Young on this, as I am satisfied on Mr Chan's affirmation alone that Mr Young had advanced HK$11,000,000.00 to the Company.

11. Subsequent to the oral agreement in June or July 1999 and the advances by the three cheques as stated above, in December 2000, there was executed a deed between Mr Young and the Company ("the Loan Deed") whereby the Company confirmed and acknowledged receipt of the loan of HK$11,000,000.00. It was further provided in the Loan Deed that the Company should pay a fixed interest of HK$1,250,000.00 to Mr Young and that the Company was to repay the loan and interest by five instalments in the amounts as stipulated between 15 December 2000 and 15 April 2001. The Company also agreed to deliver to Mr Young five post-dated cheques for the five instalment payments upon the execution of the Loan Deed for repayment of the loan and interest. Lastly, it was provided that in the event that the Company should make default in payment of any instalment, the entire balance of the loan and interest then outstanding should immediately become due and payable.

12. The Loan Deed was executed by Mr Chan on behalf of the Company. It was submitted by Mr Collins that the Loan Deed was not validly executed and was not enforceable for two reasons. Firstly, according to the minutes of a meeting of the board of directors of the Company, it was resolved that the Company was to execute a loan agreement for the amount of HK$11,000,000.00 advanced by Mr Young and the board of directors authorised "any two directors" to execute and sign the agreement for and on behalf of the Company. As the Loan Deed was executed only by Mr Chan instead of by two directors, the Loan Deed was not executed with the proper authorisation of the board of directors. Secondly, the Loan Deed was expressly stated to be executed as a deed. According to the Articles of Association of the Company, the company seal should be affixed to any instrument in the presence of two directors who shall sign such instrument. As the Loan Deed was executed by Mr Chan alone, it was not in compliance with the Articles of Association.

13. It is not necessary for the petitioner or Mr Young to rely on the Loan Deed as I am satisfied on the evidence that Mr Young had advanced HK$11,000,000.00 to the Company and the debt was outstanding. It is therefore unnecessary for me to deal with Mr Collins' submissions here or the cases he cited on due execution of a deed by a Company.

14. I turn to the Deed of Assignment. The only point taken by Mr Collins on this is that it was asserted by Mr Chan in paragraph 6 of his first affirmation that he did not know Mr Young had executed the Deed of Assignment in favour of the petitioner and that the Company "did not have any notice of the assignment until after the petitioner presented its petition on 18 February 2002". In reply, Mr Young exhibited a letter dated 22 January 2002 from the petitioner's solicitors to the Company enclosing a "Notice of Assignment" dated 17 January 2002. The Notice of Assignment was signed by Mr Young and addressed to the Company, notifying the Company that by the Deed of Assignment, Mr Young had assigned and transferred the loan in the amount of HK$12,250,000.00 to the petitioner and the Company was requested to direct any further correspondence and payments to the petitioner at the address as stated. The letter of the petitioner's solicitors was sent by fax and by post to the Company. The address of the Company as stated is correct. There is no suggestion that the fax number is incorrect. I am satisfied that notice of the Assignment in writing was given to the Company.

15. For the above reasons, I am of the view that there is no substantial dispute of the debt in the petition on bona fide grounds. I made a winding-up order against the Company and I ordered that the petitioner's costs are to be paid out of the Company's assets.