Re Au Kiang International Co. Ltd.

HCCW 635/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.635 OF 1999

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J U D G M E N T

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1. This is a creditor's winding up petition presented on 16 July 1999. The petitioner is Guangdong International Trust & Investment Corporation Hong Kong (Holdings) Limited ("GITIC") which is itself in creditor's voluntary liquidation. The petition has been brought by its joint and several liquidators.

2. The debt upon which the petition is founded is a loan of US$3 million which was drawn down pursuant to the terms of a Loan Deed entered into between the Company and the petitioner on 16 September 1997 ("the Loan Deed").

3. Ten days before the Loan Deed was executed, a letter was sent by the Company to the petitioner requesting the petitioner to apply the US$3 million loan in the manner specified in that letter. The letter is described as an application letter for loan drawdown and the gist of the letter is that US$1 million be applied to repay a loan made to the Company by Wah Sin Company, that a further HK$5 million be applied against a debt owed by the Company to the petitioner and the balance which, according to the letter, was US$1,354,858.71, credited to the Company's account with the Hang Seng Bank.

4. The Company's solicitors ceased to act yesterday. The Company is not present today although previously it has filed various affirmations in opposition to the petition. The ICAC had removed documents from the Company's offices prior to the service of the statutory demand and presentation of the petition. When the petition first came before this court, the Company sought an adjournment on the ground that it needed to inspect the documents that had been removed by the ICAC because it did not have documentation in its possession to show any drawdown of this loan.

5. The affirmations on behalf of the Company have been made by Ho Siu Hon Henry who asserted that whilst he was a director, the management and control of the Company rested with his father who had for some years been having business dealings with GITIC.

6. The evidence shows that the petitioner implemented the instructions given on 6 September 1997. There are internal vouchers to that effect and the evidence is incontrovertible that a cash sum of US$1,284,679.95, representing the balance of the loan was paid into the Company's account by telegraphic transfer on 18 September 1997. Reading the application letter and the Loan Deed together, it is reasonable to draw the inference that there was an oral arrangement between the parties for a US$3 million loan, and it is by reference to that arrangement that the application letter was written. The terms of the loan are evidenced by the Loan Deed.

7. It is also relevant to refer to two letters written by the Company subsequent to the Loan Deed. On 3 September 1998, almost a year after the drawdown, the Company wrote to the petitioner in the following terms :

"In relation to our borrowing from your company of US$3,000,000.00 with due date on 18 September, our company is currently having cashflow difficulties and is unable to raise capital to repay the debt due to the economic downturn of the Asian Financial Crisis. Our company respectfully asks your company to postpone the repayment date of the principal sum by one year. We will first pay the interest sum of USD365,000 from 18 September 1997 to 18 September 1998 to your company."

On 22 January 1999, the Company wrote to the liquidators in the following terms :

"In relation to the US$3 million loan from 'GITIC' to us and the interest of US$365,000,00 as of 18 September 1998, with the principal plus interest sum of US$3,365,000.00, with respect to further interest calculations, we hereby request the Joint Liquidators of 'GITIC' to grant us a grace period of one year within which no further interest will accrue. We shall pay to you a sum of HK$60,000 per month, from January 1999 to repay the above debt by instalments."

There can be no clearer acknowledgement of the debt. In the face of those letters, the Company cannot inconceivably dispute that the loan was duly drawn down. I am satisfied that a loan was made and that the only repayment by the Company was of the sum of HK$100,000 made after the statutory demand had been served.

8. The petition refers to an indebtedness in the amount of US$3,610,738.49 which did not take into account the repayment of HK$100,000. This error does not in any way affect the validity of the petition. It is not the case that the debt has been repaid. In fact the HK$100,000 has been taken into account in reckoning the amount now outstanding.

9. I should mention that the Company sought to raise another ground of opposition and it was on some general allegation that because there had been a course of dealings between the Company and GITIC that there should be some sort of set-off. However, there is no evidence whatsoever that any amount is due from GITIC to the Company or that the Company has substantial and valid claims against GITIC. So this general allegation of a claim to set-off is unsubstantiated.

10. For these reasons, I am satisfied that the petitioner has demonstrated that it is entitled to a compulsory winding-up order. The costs of the petitioner is to be a liquidation expense.