HYON HI HUN v. SIBERIAN MINING GROUP CO LTD

HCCW 282/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 282 OF 2014

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DECISION
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1.  There are before me this morning two applications. First, a summons dated 8 December 2014, taken out by the company Siberian Mining Group Company Limited to strike out a petition presented by Mr Hyon Hi Hun to wind it up, dated 10 October 2014; secondly, a summons dated 10 February 2015 taken out by the petitioner for an order, inter alia, allowing one Mr Zhi, Charles, to be joined as the 2^nd petitioner in the petition.

2.  The applications raise the question of the standing of the petitioner and Mr Zhi to seek a winding-up of the company.  The petitioner has not appeared before me and I have heard Mr Zhi de bene esse, although there are questions regarding his standing. 

3.  I shall deal with the company’s summons first. The company is a company incorporated in the Cayman Islands and registered in Hong Kong under Part XI of the previous Companies Ordinance, Cap 32, and Part 16 of the new Companies Ordinance, Cap 622, with its principal business being coal mining and mineral resources and commodities trading.  Its shares are listed on the Hong Kong Stock Exchange with the stock code 1142, although trading in those shares has been suspended since April 2013.  It has an issued share capital of slightly over HK$100 million.

4.  Since the company is not a company incorporated in Hong Kong, the jurisdiction invoked by the petitioner is that to wind up unregistered companies in section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.  The ground for winding up the company as stated in the petition is that it is unable to pay its debts – that is, section 327(3)(b) – although there is also an allegation that the company has ceased to carry on business – that is, section 327(3)(a).

5.  The basis for alleging inability to pay debts is that, according to the petition, the company has, despite demands, failed to pay the petitioner a sum of US$2 million due and payable under a promissory note issued by the company.

6.  Section 179(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, which is applicable to the winding-up of an unregistered company by virtue of section 327(1), sets out the persons who may present a winding-up petition.  It reads as follows: 

“An application to the court for the winding up of a company shall be by petition, presented subject to the provisions of this section either by the company, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories or the trustee in bankruptcy or the personal representative of a contributory, or by all or any of those parties, together or separately.”

7.  As Ungoed-Thomas J said in Mann v Goldstein [1968] 1 WLR 1091 at 1094: 

“The presentation of a petition is governed by statutory provision. Section 224 of the Companies Act 1948 ...”

- which is equivalent to section 179 of the Hong Kong Ordinance -

“...provides that an application to wind up a company shall be by petition presented, so far as material for present purposes ‘by any creditor or creditors …’ The section seems to me plainly, on the face of it, exhaustive, so that a person not within its ambit cannot petition ... Of course, a person not named in section 224 as a person entitled to present a winding-up petition, does not become so named because the company is insolvent. Therefore, so far as material to our case, if the defendants are not creditors they are not entitled to present or advertise their petitions or apply for a winding-up order; they have no locus standi, and their petitions are bound to fail even though the company be insolvent. So if a creditor’s petition is not restrained by such an application as is now before me and comes before the Companies Court, that court will, in limine, before proceeding further, consider the petitioner’s claim to be a creditor. As stated in Buckley on the Companies Act, 13th ed, (1957) p. 451, in a passage quoted with approval by Lord Greene, M.R., in In Re Welsh Brake Industries [1946] 2 All ER 197 at 198:

‘Some years ago petitions founded on disputed debt were directed to stand over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed.’

And then it goes on:

‘The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial ground, the court may decide it on the petition and make the order.’

What the Companies Court will not do is to proceed any further at all on a petition founded on a debt which is not thus shown in limine to exist, for in such a case there is not, of course, the necessary creditor required by section 224 to apply for a winding-up order.”

8.  Similar statements may be found in Re Hyundai Engineering & Construction Company Limited (No 2) [2002] 2 HKLRD 354 at paragraphs 27 to 29, per Kwan J (as she then was).

9.  So the petitioner must be a creditor, including a contingent or prospective creditor, of the company or the petition is liable to be struck out. 

10.  The company has applied to strike out the petition on the ground that the petitioner is not a creditor, or at least that his claim to be a creditor is disputed on substantial grounds.  There are several contentions raised in support. 

11.  The first thing to note is that the promissory note, which, though not specifically identified in the petition, can be ascertained from the demand letters referred to in the petition, is a promissory note payable to one Cordia Global Limited or to its order.

12.  The petitioner alleged in his demand letter of 30 July 2014 that Mr Lim Hosok, the then chairman of the company, personally delivered the promissory note to him in 2010 and acknowledged that it was assigned to him by way of pledge to secure certain debt owed by one Mr Choi Sungmin, or by a company of his, to the petitioner.  Mr Choi was also a director of Cordia Global Limited.

13.  The promissory note is not a bearer’s note.  It is made payable to Cordia Global Limited or its order.  If it had been endorsed by Cordia, the petitioner might be a holder in due course of the note within the meaning of the Bills of Exchange Ordinance, Cap 19, the provisions of which apply to promissory notes (see section 95) with the maker of the note being deemed to correspond with the acceptor of a bill of exchange.  But there is no evidence of any endorsement of the promissory note which, by section 32, must be written on the instrument itself.  Indeed, Mr Zhi said this morning that Mr Choi had promised to endorse it but had never done so.

14.  Likewise, the alleged assignment of the note could not be an assignment of a debt in law, not being in writing and being by way of charge only:  see section 9 of the Law Amendment and Reform (Consolidation) Ordinance, Cap 23.  Taking the petitioner’s case at its highest, he is claiming to be an equitable chargee of the debt.

15.  Assuming an equitable assignee of a debt by way of charge can in principle present a petition to wind up the debtor, there are nevertheless a number of disputed issues raised by the company as to why, in this case, nothing is payable to the petitioner.

16.  First, the assignment, pledge or charge of the note to the petitioner is disputed.  Mr Lim Hosok has filed an affidavit stating that he merely delivered to the petitioner a reprint of the note which he signed and stamped with the company’s chop, at Mr Choi’s request and to facilitate Mr Choi’s discussions with the petitioner, without acknowledging any assignment or pledge to the petitioner.  There is also hearsay evidence that Mr Choi has denied having assigned or pledged or transferred the note to the petitioner.  Mr Choi has also subsequently on behalf of Cordia agreed to the replacement of the promissory note and extension of the new note, a matter I shall come to in a moment.

17.  No evidence has been filed by the petitioner at all to contradict what has been said on behalf of the company, albeit Mr Zhi has filed an affirmation that goes into a wide range of matters, not all of which are relevant for present purposes.  Indeed, quite wrongly, even the verifying affirmation has been made by Mr Zhi, not by the petitioner himself.

18.  Secondly, the company says that the promissory note delivered to the petitioner was merely a copy of the note (albeit signed by Mr Lim, the chairman, and sealed and stamped with the company’s chop) and that the original of the promissory note is now in the hands of the company. Mr Zhi said it is odd that the company could issue a second copy of the promissory note and now deny the validity of that second copy.

19.  In my view, while there may be arguments as to whether the company is estopped from denying that what Mr Lim delivered was in fact the promissory note, that question has to depend on the factual circumstances including what Mr Lim knew at the time, and it is not a clear matter that can be resolved in these winding-up proceedings.  In any event, the petitioner has recently, on 19 January 2015, instituted an action in the High Court in HCA 168/2015 against the company, Mr Lim, Cordia and Mr Choi, seeking compensation for issuing a “false” instrument to him and for fraud.  That, it seems to me, is the appropriate forum in which to resolve the relevant questions.

20.  Thirdly, and this may to an extent depend on the first point, Cordia and the company have since agreed to cancel the promissory note in July 2011 and replace it with two new promissory notes of US$1 million each, issued to Cordia.  The maturity of these two notes has been extended by agreement between the company and Cordia to 25 August 2016.

21.  Fourthly, even if one is to focus on the original promissory note, it has a maturity date of 25 May 2015 and so no debt is yet payable in any event on that note.  As to this, the petition refers to paragraph 4(6) of the note which states that:

“If any of the following events occurs and the holder gives notice to the Company that this Note has become due and payable, all outstanding amounts under this Note shall thereupon become immediately due and payable, notwithstanding the provisions of paragraph 1 herein.

…

(6) The Company and its subsidiaries as a whole ceasing to carry on its business to a material extent.”

22.  The petition alleges that the company and its subsidiaries have ceased to carry on business and the demand letter purported to give notice under paragraph 4(6) of the note to the company.  It is said that the event of default has therefore been triggered.  The company however disputes that it has in any way ceased to carry on business.  The petitioner’s allegation appears to have been based, at least in part, on an allegation that the mining licences of the company have expired, but this has also been refuted on oath.  The second affirmation of Hong Sang Joon, a director of the company, stated that the mining licence of lot 1 of the Lapichevskaya Mine had already been extended from December 2014 to November 2017 and that the licence for the Lot 1 extension and Lot 2 of the same mine is already valid until October 2035.

23.  While the company is clearly facing challenges, in terms of getting the audit of its accounts completed, holding an annual general meeting and procuring the resumption of trading in its shares, there is little evidence apart from Mr Zhi’s assertion to show that it has ceased business altogether and that, therefore, the promissory note has become due and payable despite its express tenor with the maturity date of 25 May 2015.  It has to be borne in mind that the company is still a listed company without having been de-listed.  At the very least, the matter seems to me to be bona fide disputed.

24.  It is well established that winding-up proceedings is not the appropriate forum for resolving issues on an alleged debt bona fide disputed on substantial grounds.  As I have stated, the petitioner himself has not filed any evidence in these proceedings.  He did not appear before the master at the call-over hearing of the petition, nor did he appear before Harris J on 23 February 2015 in relation to the application of Mr Zhi to join as a co-petitioner.

25.  In the circumstances of the present case, it seems to me the company’s summons must therefore succeed, subject to the cross-application by the petitioner to add Mr Zhi as a co-petitioner, which I shall presently come to.

26.  The company has also separately taken the point that the petition has failed to aver the three core requirements which must be satisfied in order for the court to exercise its jurisdiction to wind up a foreign company, namely: 

(1) that there is sufficient connection with Hong Kong;

(2) there is a reasonable possibility that the winding-up order would benefit those applying for it; and

(3) the court must be able to exercise jurisdiction over one or more persons interested in the distribution of the company’s assets.

On that footing, relying on the decision of Harris J in Re Grand China Logistics Holding (Group) Company Limited, HCCW 130/2013, 19 August 2013, Mr Kwok submitted that the petition should be struck out for this reason alone.

27.  However, having reached the conclusions I have in relation to the standing of the petitioner, it is unnecessary for me to rely on this technical defect in the petition, which is perhaps potentially curable, to order a strikeout.  Nor is it relevant or necessary for me to enter into a general discussion of the company’s solvency.

28.  Turning to the petitioner’s summons, it is, as I have already stated, an application for leave to have Mr Zhi Charles joined into the petition as the 2^nd petitioner.  That, in substance, is the same application made by Mr Zhi himself before Harris J, which his Lordship refused on 23 February 2015.  The evidence shows – and it has not been disputed – that Mr Zhi only acquired the shares in respect of which he claims to be a contributory of the company on 9 October 2014, one day before the petition herein.  Section 179(1), proviso (a), stipulates that a contributory shall not be entitled to present a winding-up petition unless -

“(ii) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least 6 months during the 18 months before the commencement of the winding up, or have devolved on him through the death of a former holder.”

29.  It seems to me clear that that requirement has not been satisfied and therefore Mr Zhi has no standing, even as a contributory, to petition for the winding-up of the company.  But the petition, of course, is a creditor’s petition alleging inability to pay debts.  For that reason also, it would be inappropriate to join Mr Zhi, who claims only to be a contributory, as a co-petitioner in that petition.

30.  The petitioner’s summons also seeks leave to amend the typographical error in the name of the company in the petition.  But for the fact that I have decided to strike out the petition, I would have granted leave to amend but, as it is, no order need be made on that paragraph.

31.  There are other orders sought by the petitioner’s summons which seem to me to be clearly groundless and since the petitioner has not appeared to move his application before me, they will also be dismissed.

32.  I shall therefore make an order for the striking out of the petition and dismissing the petitioner’s summons dated 10 February 2015.