RE EVER HARMONY ENTERPRISES LTD

HCCW 172/2025

[2025] HKCFI 3351

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) NO 172 OF 2025

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R E A S O N S    F O R    J U D G M E N T

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1.  At the hearing of the petition presented by Jovial Paradise Limited (“Petitioner”) against Ever Harmony Enterprises Limited (永鴻企業有限公司) (“Company”), I made a usual winding up order against the Company and dismissed the summons for leave to file an affidavit in opposition to the Petition. These are the reasons for my judgment.

Background

2.  The Company was incorporated under the former Companies Ordinance (Cap. 32) on 28 November 1995. Its paid up capital is HK $584,454,000 divided into 584,454,000 shares[1].

3.  The petitioning debt arose in this way.

4.  The Petitioner (as lender), the Company and Keyne Holdings Ltd (“Keyne”) (as borrowers), and 3 individuals (as guarantors) (“Guarantors”) entered into a facility agreement dated 22 June 2018 (as amended on 28 September 2018) (“Facility Agreement”) whereby the Petitioner agreed to advance a term loan facility of up to US$ 88 million (“Facility”) to the Company and Keyne[2].

5.  Under the Facility Agreement, the Company and Keyne must repay the Facility in full on the final maturity date, being 24 months after the first request for a loan is delivered to the Petitioner[3].

6.  Pursuant to the Facility Agreement, (1) on 25 June 2018, the Petitioner advanced US$43.2 million to the Company; (2) on 25 June 2018, the Petitioner advanced US$5.4 million to Keyne; and (3) on 19 October 2018, the Petitioner advanced US$30.2 million to Keyne[4].

7.  On 30 November 2019, the Company/Keyne failed to make full payment of interest in the amount of US$6,929,803 due and payable to the Petitioner[5]. On 3 February 2020, the Petitioner declared an event of default under the Facility Agreement. This was followed by the acceleration notice dated 20 February 2020 demanding the Company/Keyne to pay all the amount due under the Facility Agreement by 27 February 2020[6].

8.  Between 17 September 2020 and 17 February 2021, the Petitioner received partial repayment totalling US$2,250,000, which was paid by a subsidiary of Keyne and a related company[7].

9.  No further payment was made by the Company/Keyne despite further demand made by the Petitioner’s solicitors on 9 November 2023[8].

10.  On 29 November 2023, the Petitioner commenced HCA 1937/2023 (“HCA”) against the Company, Keyne and the Guarantors (collectively “Defendants”) to recover the outstanding principal and interest due and payable under the Facility Agreement[9]. The Petitioner filed its statement of claim on 27 December 2023 (“SOC”). On 4 March 2024, Master Lai made an unless order that the Defendants do file and serve their Defence by 4:00 pm on 2 April 2024, failing which they would be barred from doing so, and the Petitioner would be at liberty to apply for judgment against them (“Unless Order”)[10].

11.  The Defendants did not comply with the Unless Order.

12.  By summons dated 28 March 2024, the Defendants challenged the jurisdiction of court over the Guarantors (named as the 3^rd to 5^th defendants), and sought a stay of HCA in favour of Nanjing Intermediate People’s Court on the ground of forum non conveniens ground (“Jurisdiction Summons”)[11].

13.  On 3 July 2024, upon the Petitioner’s ex parte application, final judgment was entered against the Defendants for the claims stated in the SOC, being US$192,311,736.71 and interest accrued thereon at 22.2% per annum from 27 December 2023 until payment together with costs (“Final Judgment”). The costs were assessed at HK$97,479 on 10 February 2025 (“Feb Costs Order”)[12].

14.  By another summons dated 12 July 2024, the Defendants sought to (1) set aside the Final Judgment and (2) dispense with filing their Defence and Counterclaim (if any) pending determination of the Jurisdiction Summons (“Set Aside Summons”)[13].

15.  The Jurisdiction Summons and the Set Aside Summons (together “Summonses”) were heard before ST Poon J on 18 July 2024. By Decision dated 4 December 2024 in HCA, [2024] HKCFI 3500 (“Decision”), the learned Judge dismissed the Summonses, holding that[14]:

(1) The jurisdiction challenge failed because the Facility Agreement contained an exclusive jurisdiction clause in favour of Hong Kong courts (“EJC”) and the Guarantors had in the personal guarantees executed in favour of the Petitioner confirmed that they irrevocably submitted to the same jurisdiction[15]. The Defendants failed to demonstrate that there was any strong reasons or exceptional circumstances why the court should allow them to depart from the EJC. There was no place for the doctrine of forum non conveniens to come into play (Decision §§17-27).

(2) The Final Judgment was regularly entered. The Defendants did not put forward any substantive defence against the Petitioner’s claims. Instead, the Defendants only raised some peripheral attacks on the claims namely, that the Petitioner failed to submit any proof of claims to 2 Mainland companies[16] which had gone into liquidation. The attack was misplaced as clauses 14.4 and 14.6 of the Facility Agreement provide that the Petitioner does not have to proceed against other persons before proceeding against the Defendants (Decision §§28-31).

(3) It was indisputable that the Defendants had been in default of filing their Defence and, therefore, an inter partes hearing for the Petitioner’s application for default judgment was unnecessary. Once an unless order is made, a jurisdictional challenge does not stay the deadline for filing a defence. As the Defendants did not file their defence, the Petitioner was entitled to apply for a default judgment (Decision §32).

16.  On 24 January 2025, the learned Judge assessed the costs of the Summonses at HK$400,850 (“Jan Costs Order”)[17].

17.  In January 2025, the Defendants applied for leave to appeal against the dismissal of the Jurisdiction Summons and a stay of the Final Judgment and the Jan/Feb Costs Orders (“Stay Application”)[18].

18.  On 6 March 2025, the learned Judge dismissed the Defendants’ application for leave to appeal against the dismissal of the Jurisdiction Summons and the Stay Application. The Defendants were ordered to pay costs assessed at HK$194,916.[19]

19.  The Defendants appealed against the dismissal of the Set Aside Summons in CACV 3/2025 (“Appeal”) but no hearing date has yet been fixed[20].

Discussion

20.  As at 14 February 2025, the amount due and payable under the Final Judgment were:

(1) US$ 241,646,107.57, being the judgment debt and interest accrued up to 14 February 2025; and

(2) HK$ 401,512.82, being the Jan Costs Order and interest accrued thereon from 8 to 14 February 2025 (“Debt”)[21].

21.  On 14 February 2025, the Petitioner served a statutory demand (“SD”) on the Company requiring it to pay the Debt within 21 days thereof[22]. The Company did not comply with the SD and the Debt remains unpaid[23].

22.  On 25 March 2025, the Petition was presented and verifying affirmation was filed on the next day.

23.  Pursuant to rule 32 of the Companies (Winding-up) Rules (Cap 32H), the Company was obliged to file its affirmation in opposition by 7 April 2025.

24.  On 3 April 2025, the Defendants sought leave to adduce new evidence in the form of an affidavit made by a solicitor[24] sworn on the same day (“Lau Aff”) in the Appeal (“New Evidence Summons”). The gist of Lau Aff is to show that the Petitioner has submitted a proof of claim to the administrator of Gaoyou Jinao[25] (“Administrator”) and, therefore, has submitted to the insolvency process in the Mainland.[26]

25.  On 2 May 2025, the Petitioner applied for security for costs in the Appeal (“Security for Costs Summons”).

26.  On 25 June 2025, the Petition was heard before Master SP Yip and was adjourned upon the Company’s indication that it intended to seek leave to adduce evidence in opposition out of time.

27.  It was only until 15 July 2025 that the Company belatedly issued a summons seeking leave to file a draft 2^nd affidavit of Ms Lau in opposition to the Petition (“Lau 2^nd”). The summons was adjourned by Master to the hearing before this Court.

No good reason to extend time

28.  Where, as here, the Company failed to file evidence in opposition to the petition within the time limit imposed by rule 32, the practice of the Companies Court is to require the company to pay the petitioning debt into court as a condition for granting leave to the company to adduce evidence out of time (Re Dexin China Holdings Company Ltd [2024] HKCFI 1610, §12). The burden is on the Company to show good reason as to why leave should be granted without the usual condition.

29.  I do not see any reason, let alone good reason, as to why the court should grant leave to the Company to file Lau 2^nd:

(1) The summons was only taken out on 15 July 2025, more than 3 months after the time limit prescribed by rule 32 had expired. The only explanation proffered in Lau 1^st filed in support of the summons is a cursory assertion that the directors were allegedly occupied with “corporate and personal affairs in the PRC”[27]. The mere fact that the directors were occupied with some unidentified “corporate and personal affairs” in the Mainland and chose not to instruct solicitors to act for them earlier is not a reason for the court to grant the indulgence sought. This is particularly so when the same firm of solicitors had been acting for the Defendants in HCA and the Appeal. The Company can only blame itself for choosing to ignore the Petition and the time limit imposed by rule 32.

(2) The Company’s contention that the usual condition, if granted, would pre-judge the merits of the Security for Cost Summons[28] misses the point. The burden is on the Company to justify why leave should be granted without the usual condition. No justification whatsoever has been advanced by the Company.

(3) It is clear from the evidence that the Company does not have the financial means to pay the Debt into court. It would be futile for the court to grant leave to the Company to file Lau 2^nd upon such condition.

(4) The contents of Lau 2^nd are objectionable and fall foul of the requirements of Order 41 rule 1. It is made by Ms Lau who has no personal knowledge of the Facility Agreement or the full facts giving rise to the Debt. The entire affidavit is plagued with Ms Lau’s personal views, legal arguments and her opinion on PRC law regarding insolvency process. It is not the function of an affidavit to set out the arguments and personal views of a solicitor.

30.  As the Company has failed to satisfy the court that there is a good reason to grant leave to file Lau 2^nd, it follows that there is no evidence in opposition to the Petition. The Petitioner is entitled ex debito justitiae to seek a winding up order against the Company.

No bona fide dispute on substantial ground

31.  In any event, I do not think that the arguments advanced by Mr Axis Yu, counsel for the Company, constitutes a bona fide dispute on substantial ground in respect of the Debt. His submissions boil down to these:

(1) The learned Judge’s decision in dismissing the Set Aside Summons is wrong because (a) the Final Judgment was obtained on ex parte basis, which was erroneous as the Defendants had all along been represented, and the application for default judgment should have been made inter partes; and (b) the “predominate reason” for the Defendants not putting forward a defence was that there was a jurisdiction challenge, and the court should exercise a “very great degree of caution” given that challenging jurisdiction is “logically the first step”; and

(2) The Companies Court should consider the new evidence which the Company seeks to adduce in the Appeal (i.e. Lau Aff) and forms a view as to whether the Company has a reasonable prospect of succeeding in the Appeal.

32.  I am unable to accept the arguments. The Companies Court cannot ignore the fact that the Debt is based on the Final Judgment, which the Company had applied to set aside but failed after a fully contested hearing. As is clear from the Decision, in dismissing the Summonses, the learned Judge has considered the following facts and matters:

(1) the Defendants had not filed any Defence in HCA, and no explanation has been provided as to why they did not do so;

(2) under the Unless Order, the Petitioner had liberty to apply for default judgment upon the Defendants’ failure to file their defence;

(3) the Defendants had acted in breach of the Unless Order;

(4) in the Set Aside Summons, the Defendants still had not put forward any defence to the Petitioner’s claims;

(5) the jurisdiction challenge by the Guarantors (not the Company) has no merits as they agreed to be bound by the EJC, and the Guarantors failed to show any strong reasons or exceptional circumstances to justify their attempt to depart from the EJC; and

(6) the Petitioner had submitted a proof of claim with the Administrator, but this would not affect its claims against the Defendants given that clauses 14.4 and 14.6 of the Facility Agreement expressly allow the Petitioner to do so.

33.  The arguments advanced by Mr Yu merely repeat the same arguments advanced by the Company and rejected by the learned Judge for the reasons stated in the Decision. Indeed, it is impossible to see how the jurisdiction challenge by the Guarantors could have any bearing on the validity of the Final Judgment as against the Company.

34.  Nor do I think the Companies Court should ignore the fact that the Company has failed to persuade the learned Judge to stay the Final Judgment and the Jan Costs Order pending determination of the Appeal. Mr Yu has not advanced any argument to impugn the dismissal of the Stay Application. I do not see why the Companies Court should entertain what is in effect a third bite of the cherry by the Company under the guise of a belated suggestion, raised only in Mr Yu’s skeleton, that the Petition should be stayed pending determination of the Appeal.

35.  Even if, contrary to my view, there is any good reason for the court to grant leave to the Company to file Lau 2^nd without condition, I do not think that the arguments raised by Ms Lau to have any merits. The arguments may be summarised as follows:

(1) The Companies Court should “go behind” the Final Judgment given that the court, in making the Final Judgment, has not considered the merits of the Company’s defence. The Defendants have not filed their Defence in HCA and, therefore, they are not seeking to have a second bite of the cherry (Lau 2^nd §§8-9).

(2) The Final Judgment is “tainted with procedural defects”. The same argument was advanced by the Defendants in the Set Aside Summons but was dismissed by the learned Judge. In the supplementary notice of appeal filed by the Defendants in the Appeal on 20 January 2025 (“SNOA”), the Defendants contend that the learned Judge erred in law in holding that (a) the Petitioner was entitled to apply for default judgment in HCA even though the Guarantors had applied to challenge the jurisdiction of the court; (b) the Defendants had failed to put forward a positive defence. Accordingly, the Final Judgment and the dismissal of the Set Aside Summons “do not amount to properly conducted judicial process” as they failed to take into account “the procedural irregularities leading to the Final Judgment itself”. In her view, “the potential presence of miscarriage of justice does justify this Court in exercising its discretion to stay the Petition pending the [Appeal]” (Lau 2^nd §§11-15).

(3) The Defendants filed the New Evidence Summons seeking leave to adduce Lau Aff to show that (a) the Petitioner had submitted its proof of claim in the sum of RMB 1,276,852,131 in the liquidation of Gaoyou Jinao; (b) the Final Judgment was obtained by the Petitioner by way of allegations made in 3 affidavits[29] without any notice to the Defendants; (c) the 3 affidavits made no reference to the fact that the Petitioner had already submitted its proof of claim to the Administrator; and (d) the Petitioner “attempted to obtain more in [HCA] in the sum of US$192,311,736.11” with interest at 22.2% per annum. Ms Lau believes that “once a creditor submits to foreign insolvency process, he cannot seek to improve on the amount he receives by way of dividend in the insolvency by taking separate proceedings in another jurisdiction”. On 20 May 2025, the Administrator confirmed the Petitioner’s debt in the amount of RMB 923,024,228, the Petitioner should be debarred from continuing proceedings in Hong Kong against the Defendants (Lau 2^nd §§16-18).

(4) The grounds set out in the SNOA are “strong and substantial” and hence the Company has “a reasonable prospect of succeeding in the [Appeal]” (Lau 2^nd §§21-22).

36.  Mr Yu relies heavily on Re Tam Mei Kam, CACV 87/2012, 8 May 2013, at §§22-27, in support of his contention that the Companies Court should “go behind” the Final Judgment, even though the Defendants had applied for and failed in the Set Aside Summons and the Stay Application. It is necessary to consider what the Court of Appeal actually decided in Re Tam Mei Kam, which may be summarised as follows:

(1) The court will treat a judgment for a sum of money as prima facie evidence that the judgment debtor is indebted to the judgment creditor for that sum (§22.1).

(2) The prima facie evidence may be rebutted by “going behind” the judgment. The rationale for the approach is that (a) insolvency affects a debtor’s legal status; (b) the court’s exercise of the power and/or duty to inquire into a judgment is necessary “to protect the debtor’s real creditors from collusive judgments entered into by the debtor”[30] in order to initiate insolvency proceedings and thereby reduce the funds available for the debtor’s real creditors (§22.2-22.4).

(3) The Companies Court is not conclusively bound by a judgment debt so that in appropriate circumstances, it can inquire whether there was actually a bona fide consideration for the judgment debt. Apart from opposing creditors, the judgment debtor can also seek to impugn the judgment debt, especially if the judgment had been obtained by default. However, this is not to say that in every case, the Companies Court should exercise its power of inquiry simply for a judgment debtor to get a second bite of the cherry and conduct parallel proceedings to review a judgment which it has lost or to avoid its execution (§23).

(4) If the judgment debtor has lodged either an application to set aside the judgment or an appeal, the Court may stay the hearing of the petition to await the result of the application or appeal if the judgment debtor fails to satisfy the court that it has a reasonable prospect of succeeding in the application to set aside or the appeal. An application or appeal falling short of that standard would not be a viable or bona fide one, and would not rebut the prima facie evidence of indebtedness (§25.1-25.2).

(5) If the judgment debtor has not lodged an application or appeal by the petition hearing but intends to do so in the future, it must in addition to satisfying the court of the reasonable prospects of success in his application or appeal, also provide a reasonable explanation why it has failed to act in time. If for procedural reasons the judgment debtor is unlikely to be able to pursue an application or appeal, the court may consider his case to see if he can rebut the prima facie evidence of indebtedness. For this purpose, the court may consider the circumstances in which the judgment was obtained. If the petition based on a judgment obtained after a full trial on the merits, the court would only go inquire into the judgment if the judgment debtor can show fraud, collusion or miscarriage of justice (§26.1-26.2).

(6) If the judgment debtor has already failed in its application to set aside the judgment or its appeal on substantive grounds at the time of the petition hearing, it would be most unlikely in that situation that the Companies Court would find that the judgment debtor could rebut the prima facie evidence of indebtedness, unless it could satisfy the Companies Court that it could impugn the judgment of the court deciding the setting aside or appeal on the grounds of fraud, collusion or miscarriage of justice (§27).

37.  The arguments in Lau 2^nd do not go anywhere near to show that there is a bona fide dispute on substantial ground in respect of the Debt or that the Companies Court should “go behind” or inquire into the validity of the Final Judgment.

38.  First, the reasons set out in §§31-34 above apply equally to the arguments raised in Lau 2^nd.

39.  Second, it is clear from Lau 2^nd that the Company is still unable to put forward any defence to the Petitioner’s claims. This reinforces the fact that there is no bona fide dispute on substantial ground in respect of the Debt.

40.  Third, the mere fact that the petitioning debt is based on a default judgment does not provide a ground for the Companies Court to go behind the judgment. In Lo Chun Cheong v Au Wai Ming, CACV 167/2015, 18 November 2016, §13, the Court of Appeal upheld the bankruptcy order even though the application to set aside the default judgment was dismissed on the ground that the debtor had failed to attend the hearing, rather than on the merits, on the basis that the Companies Court was entitled to take into account the fact that the debtor had chosen not to put forward a defence and was simply trying to delay the hearing of the petition.

41.  Fourth, the so-called “procedural irregularity” and “potential presence of miscarriage of justice” is wholly without merit. As submitted by Mr William Wong, counsel for the Petitioner:

(1) The requirement of serving a notice of intention to enter judgment does not apply where, as here, the court has made the Unless Order which prescribed the time for service of defence. See Order 19, rule 8A(2)(a) of the Rules of the High Court;

(2) The sanction imposed in any unless order takes effect automatically upon a party’s default in compliance. The non-defaulting party need not apply to enforce the sanction (Duracell US Operations, Inc v Matsushima Electric (HK) Co Ltd [2018] HKCFI 347 §25); and

(3) The Company has never applied for relief from sanction.

42.  Fifth, the New Evidence Summons is liable to be dismissed and in any event does not change the analysis. As submitted by Mr Wong:

(1) The Company has not explained why the fact that the Petitioner submitted proof of claim to the Administrator of a different entity (Gaoyou Jinao) would provide the Company with any substantive defence against the Petitioner’s claim, let alone have an important influence on the result (for the purpose of meeting the Ladd v Marshall conditions).

(2) The reliance on Nuoxi Capital Limited v Peking University Founder Group [2021] HKCFI 3817, at §§31-32, where Harris J[31] said “what the creditor cannot do is to attempt to use proceedings outside the foreign insolvency jurisdiction to achieve a result, which is inconsistent with that mandated by the foreign insolvency regime: at its most basic to try and obtain more than he would obtain if he proves in the insolvency proceedings” is misplaced. The principle only applies to a claim made by a creditor against the company in liquidation. It has no application where a creditor has an additional claim against a third party.

(3) As the learned Judge observed, Gaoyou Jinao is not a borrower but a corporate guarantor. The liability of the Defendants would not be affected by any release of any other obligor or any insolvency or similar proceedings (Decision §30).

(4) Insofar as it` is suggested that there is any double recovery (cf Lau 2^nd §17), this does not get off the ground because the very evidence the Company sought to adduce shows that the proof of claim was rejected by the Administrator on 12 November 2024. The confirmation dated 20 May 2025 does not even form part of the new evidence sought to be adduced by the New Evidence Summons.

43.  Lastly, in §24(1)-(2) of his skeleton, Mr Yu contends, for the first time, that there was material non-disclosure “when the Petitioner attempted to obtain the Final Judgment” in that the Petitioner failed to disclose the principle discussed in Nuoxi Capital. It is not open to Mr Yu to raise such allegation, which has never been raised by the Defendants in the Summonses. In any event, it is a bad point for the reason explained in §42(2) above.