RE CHINA SOLAR ENERGY HOLDINGS LTD (formerly named REXCAPITAL International Holdings Limited)

HCCW 108/2015

[2020] HKCFI 481

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 108 OF 2015

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R E A S O N S   F O R   D E C I S I O N

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Introduction

1.  On 15 January 2020 I heard the Petition to wind up China Solar Energy Holdings Limited (“Company”). The Company is incorporated in Bermuda, listed on the Main Board of the Hong Kong Stock Exchange and was put into provisional liquidation in Hong Kong on its own application on 21 August 2015.  The application was supported by the Petitioner, Ankang Limited (“Ankang”), who on 12 June 2015 had taken an assignment of the debt relied on by   the original petitioner, Crown Master International Trading (“Crown Master”), who had presented the Petition on 26 March 2015 following the Company’s failure to answer a statutory demand for a debt in excess of $36 million. There is no dispute that the Company is insolvent.  On 18 August 2017 I heard an application by Ankang for the winding-up of the Company and the discharge of the Provisional Liquidators.  My decision [1] describes the background to the Petition and the Company’s restructuring exercise up to the time of the hearing.  I will not repeat what is explained in the earlier decision.

2.  On 20 January 2020 I gave my decision following 15 January 2020 hearing.  I held that the Company had not demonstrated that it had a bona fide defence to the Petitioner’s debt.  I adjourned the Petition to 27 April 2020 in order that the Provisional Liquidators could continue with their attempts to restructure the Company’s debt.  These are my reasons for the decision.

Relevant Principles

3.  A statutory demand having been served prior to presentation of the Petition and relied on to prove insolvency, it is for the Company if it wishes to contest the Petition to prove that it has a bona fide defence on substantial grounds to the debt.  What satisfying that test involves is explained in [8] of my decision in Re Yueshou Environmental Holdings Ltd [2]:

“8. It is well established that a winding-up Petition should only be issued if a creditor is clearly owed a liquidated sum and the debtor company does not have any valid ground for refusing payment. If the company has a bona fide defence on substantial grounds to the debt a petition should not be brought and if the court concludes either on the hearing of a strike out application or on the hearing of the petition that the company does have such a defence, the Petition will be dismissed. Many cases consider what constitutes a bona fide defence on substantial grounds and how the court should approach determining whether such a defence has been demonstrated. I will cite three commonly cited authorities which together explain the established principles.

(1) The onus is on the Company to show that it disputes the debt on substantial grounds:

‘Importantly for this case there is a distinction between a consideration of whether the company has established a defence on substantial grounds and a consideration of whether the evidence is believable. Taken to the ultimate, the difference is between whether there is evidence and whether that evidence is believable. It seems to me that the onus must be on the company against which a petition is presented to adduce sufficiently precise factual evidence to satisfy the court it has a bona fide dispute on substantial grounds.

Re ICS Computer Distribution Ltd [1996] 3 HKC, 440 at 444B

(2) I have to be satisfied that the Company’s assertions are believable. The test

‘... is indeed as simple as whether the defendant’s assertions are believable. But it must be recognised – because failure to recognise it would create a debt‑dodgers’ charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.’

Re Safe Rich Industries Ltd (Unreported) CA 81/94, 3 November 1994, Bokhary JA, §13

(3) The relevant principles were summarised as follows by Kwan J (as she then was) at paragraph 6 of her Ladyship’s judgment in Re Hong Kong Construction (Works) Limited (unreported) HCCW 670/2002, 7 January 2003:

‘(1) The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds. In this context, “substantial” means having substance and not frivolous. An honest belief in an insubstantial ground of defence is not sufficient to avoid a winding-up order.

(2) The court should look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye.

(3) The court would caution itself against unsubstantiated and unparticularised assertions, especially where particulars and information have been sought by the other side. It is incumbent on the company to put forward “sufficiently precise factual evidence” to substantiate its allegations.

(4) The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists. In so doing, the court necessarily has to take a view on the evidence, to see if the company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the company. Even where the company has obtained unconditional leave to defend in an application for summary judgment, the Companies Court is not precluded from examining the evidence and taking a view on whether the debt is disputed on substantial grounds.’”

4.  Generally if a company fails to satisfy this test the petitioning creditor is entitled to a winding-up order ex debito justitae.  However, as a winding-up order is a class remedy the Court, which has discretion as to the order to be made, will have regard to the views of other members of the class as to the appropriate order to make.  On occasions, as in the present case, views differ.  Ankang seeks an immediate liquidation.  Other creditors wish the Company to remain in provisional liquidation in order that the attempts to restructure the debt (in practice sell the Company’s listing status) can be pursued as they think this is the best prospect of recovering part of what is owed to them.  For the reasons explained in [9] I have concluded that the Provisional Liquidators should be allowed further time to conclude a restructuring of the Company.  As there are creditors, which the Company cannot repay and they are not suggesting (or indeed the Company proposing) that the Petition be dismissed, whether or not the Company has a defence to the Debt is largely academic.

Company’s defence

5.  By an assignment dated 12 June 2015 Ankang acquired from Crown Master 224,100,000 shares in the Company and, among other things, it also took an assignment of a convertible note issued by the Company on 15 April 2011 in the sum $36,667,800 (“Debt”).  By the time of the assignment the Petition had been presented and the Company had filed a defence in HCA 21/2015, in which Crown Master had claimed repayment of the Debt.  Pursuant to the terms of the assignment Ankang obtained control of the Board of the Company.  On 26 June 2015 the Action was discontinued and a consent summons filed for the dismissal of the winding-up Petition when it came on for hearing on 8 July 2015.

6.  Ankang applied to be substituted as petitioner.  In its evidence made by Felix Wong, the owner of Ankang, it alleged that it had not been aware until 26 June 2015 that Crown Master intended to have the Petition dismissed and believed that the Debt was due and undisputed.  Certainly the former statement is inconsistent with the terms of the Assignment in which Ankang expressly acknowledges that Crown Master is to arrange for the dismissal of the Petition.  Mr Wong says that Ankang’s position has changed because of a change of circumstances since July 2015.  Understandably Mr Sussex on behalf of the Company made much of this in his submissions, but it does not of itself give rise to a defence.

7.  The defence is said to be this.  The convertible note represented part of the consideration paid under an acquisition agreement with Yeung Ngo dated 7 February 2011, whereby the Company agreed to purchase from Mr Yeung Stream Fund High-Tech Group Corporation Limited.  In the Company’s defence in the Action it argued that a number of the representations contained in the acquisition agreement were false and fraudulent.  Whatever may have been pleaded in the Action the Company has been unable to file any evidence to substantiate the allegations in the Defence.  I recognise that this is a result of the way in which matters have progressed with control of the Company passing to Mr Wong in June 2015 and subsequently to the Provisional Liquidators.  Such evidence as was filed in opposition to the Petition in 2015 and which disputed the Debt is limited to the affirmation of Peter Larm dated 20 October 2015, a shareholder, who had been a director of the Company prior to Mr Wong taking control of it, who refers to the Defence in the Action.  Mr Larm does not appear to have any firsthand knowledge of the Defence.  He simply repeats what he has read in the Defence and various announcements and certain passages in an interim report of the Provisional Liquidators.  It is rather difficult to see how if Ankang were to sue for recovery of the Debt the Company could hope to defend the claim successfully.  It seems to me that the Company has not demonstrated that it currently has a bona fide defence on substantial grounds.  The artificiality of the debate is illustrated by the fact that after the Provisional Liquidators were appointed they have procured audited financial statements for the purposes of the resumption proposal, which resulted in audit confirmations being sent to Ankang recording the Debt as payable.

8.  Ankang also argues that it has a further claim for payment of interest on a loan made to the Company. This lead to a debate before me as to whether or not the loan was caught by s182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.  It seems to me that this issue does not require determination. Given the small amount involved I would not have ordered the Company to be wound up on the basis of such a small debt in the face of opposition from other creditors.

9.  It would appear from the Provisional Liquidators’ reports that if the Company were to be wound up the creditors would recover zero.  This invites the question as to why Ankang is throwing good money after bad arguing that the Company should be wound up rather than just allow the restructuring to take its course as it offers some prospect of a recovery, however small, particularly as Ankang originally supported a restructuring. There is reason to think it is because Ankang originally thought it could acquire the listing status and now it has lost that opportunity Mr Wong in a fit of spite is trying to have the Company wound up as if he cannot acquire the listing status he does not want anybody else to do so.  Be that as it may, it seems to me quite clear that given the history of this matter, the Provisional Liquidators should be given the opportunity to complete the current attempts to restructure the Company in order to realise something, however small, for creditors.

10.  Given my decision I will make a costs order nisi that there be no order as to costs, which seems to me both fair and practical in the circumstances.