THE JOINT AND SEVERAL LIQUIDATORS OF DAYS IMPEX LTD (IN LIQUIDATION) v. MAHESH NANIK DAYARAM

HCCW 298/2011 & HCCW 299/2011
(HEARD TOGETHER)

[2025] HKCFI 4661

HCCW 298/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 298 OF 2011

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AND

HCCW 299/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 299 OF 2011

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(HEARD TOGETHER)

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D E C I S I O N

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Introduction

1.  The Respondent seeks a stay of execution of judgements dated 22 November 2024 (“Principal Judgement”), 24 January 2025 and 1 April 2025 (collectively “Judgments”) pending determination of the Respondent’s appeal by Notice of Appeal dated 29 April 2025.  The Respondent and Applicant were represented by Toby Brown and David Chen respectively.

Background

2.  The background to the applications is comprehensively explained in the Judgments.

Legal Principles

3.  The principles that guide the Court in determining an application for a stay are not controversial.  Counsel summarised them as follows in their Skeletons:

“In India Oversea Bank v Seabulk Systems Inc & Ors [2023] 4 HKLRD125, the Court of Appeal recited (at §23) the well-known principles set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84, per Ma J (as he then was) at §§9-10 (not provided):

a. The applicant is required to demonstrate a “good reason” for a stay of execution.

b. Generally speaking, the existence of merely an arguable appeal cannot by itself amount to a sufficient reason to justify a stay. It is the minimum requirement before a court would even begin to consider granting a stay.

c. In other words, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted however exceptional the circumstances may otherwise be justifying a stay of execution.

d. On the other hand, the existence of a strong appeal or a strong likelihood of success will usually by itself enable a stay to be granted because this would constitute a good reason for a stay.

e. In most cases, where the court is faced with simply the existence of an arguable appeal (i.e. one with reasonable prospects of success), it becomes necessary for the applicant to provide additional reasons as to why a stay is justified.

f. Commonly, this is done by demonstrating that without a stay the appeal would be rendered nugatory, for example, because of an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal against a money judgment, or because the failure to grant a stay would have a serious deleterious effect on the applicant.

g. In considering an application for a stay pending appeal, it would be impractical and even undesirable for the court to go deeply into the merits or strengths of the appeal, although the court must still form a preliminary view of these aspects.”

4.  In essence, the applicant must demonstrate a “good reason” for a stay of execution.  This means:

(1)  The existence of a strong appeal (i.e. strong likelihood of success); or

(2)  An arguable appeal coupled with additional reasons, e.g. the appeal would be rendered nugatory, or there will be a serious deleterious effect without a stay.

It follows that the existence of an arguable appeal is the minimum threshold to justify a stay of execution.[1]

The Argument

5.  The principal issue in the appeal is described in [41] of the Principal Judgment.  In short whether any order for payment pursuant to section 275 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32, is limited to the amount of the increase in an insolvent company’s deficit following the occurrence of the matters for which the Respondent is found liable.  The Principal Judgment follows the approach of Kannan Ramesh J in Tendcare Medical Group Holdings Pte Ltd v Gong Ruizhong[2], namely, “once fraudulent conduct and the casual link between the conduct and the debts and other liabilities of the company are established, it seems to me that the liability ought to follow to the full extent of such and other liabilities.”  There is no authority in Hong Kong considering this issue.  I accept there is an arguable appeal on this point of law, but not a strong one.  However, it does not follow that because the court’s understanding of the application of section 275 was incorrect the quantification was wrong.  This would depend on whether the full amount of the debts and other liabilities of the subject companies exceeded the deficit and there are grounds for finding that a proportion of the amount adjudged to be payable can be characterised as punitive rather than compensatory and results in either creditors (possibly shareholders depending on the financial state of the company in question) receiving more than they would have received had the fraud not taken place, i.e., more than the loss caused.  This is said to be relevant because some of the payments obtained from banks as a result of the fraud were paid back to the banks.

6.  It seems to me that if section 275 operates as the Respondent contends, given the breadth of the language of section 275 (without any limitation of liability, for all or any of the debts or other liabilities of the company….), it is a matter relevant to the exercise of the court’s discretion under section 275 and in practice operates as possible defence to an applicant’s quantification.  In other words, an applicant can claim all the debts and liabilities of a company.  If a respondent to such a claim believes that an order for all debts and liabilities incurred because of a fraud perpetrated on creditors will result in payment of a sum, which exceeds the loss caused by the fraud, it is for a respondent not just to assert it but prove it, or at least adduce evidence that suggests that the applicant’s quantification is inappropriate.  The Respondent did not do this.  I was alive to the argument, but the Respondent proved nothing, which in my view justified the court quantifying the amount to be paid by him differently even if the Respondent is correct in his contention that the court should have regard to the extent to which the debts and liabilities exceed the loss caused.  The applicant does not at the outset (as the Respondent’s argument seems to require) have to prove the total debts and liabilities exceed the loss.

7.  The other grounds of appeal are no stronger.  Grounds 7 to 11 concern a preliminary issue summons.  To the extent that the grounds challenge my decision not to deal with the preliminary issues until the trial, they seek to overturn a case management decision and in my view are without any merit.  I decline leave to appeal.  This, however, seems largely academic because the substantive issues sought to be raised on a preliminary basis were dealt with at the trial.  It does not seem to me that leave is required to appeal them. In case I am wrong about that, I will grant leave to appeal.

Detriment

8.  The Respondent asserts that he cannot pay the judgment and that if it is enforced, he will be bankrupted.  I accept that this is likely.  The Respondent has adduced a contract of employment dated 1 April 2025 with TV Anywhere Ghana Ltd.  This will involve him being appointed a director of a local subsidiary.  His salary is US$120,000 per year.  He has also signed a Transaction Advisory Engagement dated 25 April 2025 to raise US$3 million in capital, with the Respondent being entitled to 5% of the sum raised as a transactions fee: potentially US$150,000.  He says that if he is bankrupted, he will by virtue of section 480 of the Companies Ordinance, Cap. 622, have to resign as a director and lose his job.  He does not address in his evidence the consequences for the Transaction Advisory Engagement.  Given his circumstances he will, he suggests, have great difficulty in obtaining comparable alternative employment.

9.  It seems to me incumbent on a party seeking a stay in circumstances such as the present to give a full and candid explanation of his financial position including job opportunities; which was the principle which guided Lok Jin Re Lee Chee Ho[3]:

“21. It is well-established that if a debtor’s reason for a stay pending appeal is that the levying of execution would have a serious deleterious effect on him, the court will require good and cogent evidence, such as production of documentary proof, in support of such a contention (see: Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 §9, Ma J (as he then was); and Leo Innotech (Holding) Ltd v Lee Shung Chi, HCA 474/2015, unrep, 13 October 2016, §4).”

10.  In the present case the Respondent should have filed evidence explaining what attempts he had made to find alternative employment, what he told TV Ghana about his circumstance and his family’s financial position.  The facts of this case are extreme.  The Respondent was convicted of a serious fraud.  I would have expected him to have discussed his position with TV Ghana.  It is difficult to envisage TV Ghana if they had been given an accurate description of the outcomes of both the criminal proceedings and the current Actions, not assuming that the Respondent would lose his appeal and, given what he has told the court, be bankrupted.  Evidence about this should have been filed.  In addition, as the Applicants point out, the Respondent clearly has access to money as he continues to live with his family in Villa Monte Rosa in Stubbs Road and his family was able to continue financing his children attending an international school during his imprisonment, possibly from a family trust.  I can see no reason to assume that the consequences for the Respondent are as he describes them.  It is clear that in conducting this case during his imprisonment he was playing for time, he told me (when he was appearing in person) of evidence he was seeking to obtain that would cast the case in a different light and hinted at conspiracies between the banks and the Liquidators to fabricate a case against him.  Nothing came of anything he told me.  Given his conviction and his conduct of the case before me, before ordering a stay I would have needed comprehensive and compelling evidence to demonstrate that his retention by Ghana TV was genuine, that Ghana TV was properly appraised of his circumstances and a detailed explanation of his finances.

11.  In my view, the Respondent has failed to demonstrate that if enforcement of the judgment is not stayed the financial consequences for him will be draconian and cause damage which cannot be remedied if he is successful.  Given the weakness of the appeal, this is not an appropriate case in which to stay enforcement pending an appeal of the Judgments.

Conclusion and Order

12.  I dismiss the stay application.  The Respondent is to pay the costs of the application forthwith, such costs to be taxed if not agreed.  The leave to appeal application I grant.  The costs be costs in the appeal.