RE SILVER BASE (HOLDINGS) LTD

HCCW 20/2023

[2024] HKCFI 586

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 20 OF 2023

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REASONS FOR DECISION

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1.  There were 2 applications before the Court:

(1)  the application of Silver Base (Holdings) Ltd (“the Company”) by summons dated 10 January 2024 (“the Leave Summons”) for leave to appeal out of time from the Decision dated 6 November 2023 (“the Decision”) dismissing the Company’s summons dated 24 October 2023 (“the October 2023 Summons”) for leave to file the 4^th affirmation of Liang Guoxing (“Liang 4^th”); and

(2)  Mr Liang Guoxing’s application by summons dated 23 January 2024 (“the Stay Summons”) for a stay of the winding up order dated 6 November 2023 until final disposal of the Company’s appeal or further order.

2.  At the conclusion of the hearing, the Court dismissed the Leave Summons and the Stay Summons for the reasons set out below.

3.  The relevant background is set out in the Decision to which reference should be made. These Reasons will adopt the nomenclature used in the Decision.

Legal principles

The Stay Summons

4.  In Bright Gold Limited v Mega Well Development Limited [2019] HKCA 1440 (at §13) Lam VP affirmed the principles set out in Star Play Development Limited v Bess Fashion Management Co Limited [2007] 5 HKC 84 at §§6-10 in applications for a stay. In that case, Ma J considered (at §9(6)) that an arguable appeal was a minimum requirement before a court would even consider granting a stay.

5.  In Bright Gold, the CA emphasised that even if arguable grounds exist, there must be other circumstances justifying the deprivation of the successful party of the fruit of the judgment. In all cases where the discretion is engaged, ultimately it is a balancing process with common sense[1].

6.  The court will rarely grant a stay of a winding-up order, and a stay will be an exception: see Re China Silver Asset Management (HK) Ltd [2020] HKCFI 1028 at §10. Further, at §11, Harris J remarked that in order for a company to satisfy the court that its case is exceptional justifying a stay,

“it will be necessary to demonstrate in addition to the normal criteria which guide the court that the interests of creditors will not be harmed by a stay. Commonly this will necessitate a company adducing evidence which shows that it is able to pay its debts as they fall due even if the petitioner is entitled to payment of the disputed debt.”

The Leave Summons

7.  It is common ground that leave to appeal under Order 59, rule 2B is required in relation to the court’s dismissal of the October 2023 Summons.

8.  An appeal from an interlocutory judgment or order shall not be granted unless the court hearing the application for leave is satisfied that (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard: sections 14AA(1) and 14AA(4).

9.  A statement of the general approach for considering an application for leave to appeal out of time be found in Lee Chick Choi v Best Spirits Co Ltd, unrep., HCMP 371/2015, 21 May 2015 at §19 cited in the judgment of G Lam J (as he then was) in Competition Commission v W Hing Construction Company Limited & others [2020] HKCT 6 at §4:

“The legal principles regarding an application to extend time for an appeal are well established. In the exercise of its discretion, the court will take into account the length of the delay, the reasons for the delay, the chances of the appeal succeeding if an extension of time is granted, and the degree of prejudice to the other party if the application is granted. Where the delay is substantial and not wholly excusable, the applicant must show a real prospect of success on the merits, not merely a reasonable prospect of success."

The Stay Summons

10.  Mr Look-Chan Ho and Mr Joshua Yeung, counsel for the Company submitted that the Company has an arguable appeal against the winding up order. Although at the hearing below, the Company had relied on 2 grounds to oppose the Amended Petition, namely, the repayment ground and the security ground, Mr Ho clarified that for the appeal the Company will rely solely on the security ground.

11.  3 grounds were advanced in support of there being an arguable appeal:

(1)  it raises an important point of principle of the court’s winding up jurisdiction in circumstances where there is only one debtor;

(2)  it is arguable that there is sufficient security; and

(3)  the court’s approach to valuation was wrong.

12.  It was submitted that class remedy considerations do not arise where there is only one creditor and one debtor. However, there was no elaboration as to what considerations (if any) should replace class remedy considerations.

13.  On the point as to sufficiency of security, one of the relevant principles that is applicable is set out in §34 (c) of the Decision: that the Property would command the amount of the debt if "put into the market”. The Company was at liberty to come up with a buyer. It failed to do so and made no effort to dispose of the Property: see §§58-59 of the Decision. In those circumstances, I cannot see that the point is arguable.

14.  Ms Audrey Eu, SC, Mr Anson Wong Yu Yat and Mr Xizhen Wang appeared for the Petitioner. Ms Eu submitted that there is no arguable grounds for appeal. The court made the winding up order after it had rejected the Company’s contention that there is a bona fide dispute on the debt.

15.  The Company’s case is that the appeal only relates to the security point and seeks to raise some dispute on the valuation[2]. That is the reason it filed the Leave Summons. If it obtains leave and succeeds on the appeal from the dismissal of the October 2023 Summons, the New Midland Report with the 10 comparables would be part of the evidence in its appeal from the winding up order.

16.  However, the only real defence the Company could possibly rely on is that there is a bona fide dispute on the debt, not a bona fide dispute on valuation.

17.  In the circumstances, I do not consider that the Company has met the threshold established by the authorities for the discretion to grant a stay to be engaged.

The Leave Summons

18.  The Decision dismissing the Company’s application to file Liang 4^th was an interlocutory decision. Leave for an appeal from the Decision has to be made within 14 days of the Decision, namely, on or before 20 November 2023. The application was not made until 10 January 2024.

(1)  Delay

19.  Mr Look-Chan Ho and Mr Joshua Yeung, counsel for the Company, applied for an extension of time. The application is supported by Liang’s 5^th affirmation of 10 January 2024 (“Liang 5^th”) which explained that the delay was caused by their former legal advisors (“TKC”) who never advised that leave to appeal was required.

20.  In outline, the sequence of events deposed to was as follows:

(1)  after the Decision was handed down, Company sought legal advice and instructed TKC to lodge an appeal against the Decision and the winding up order;

(2)  TKC filed a notice of appeal on 1 December 2023 (“NOA”) which included grounds of appeal against the Decision but never advised that leave would be required or that there was a 14-day time limit for the application;

(3)  on 15 December 2023 (for unexplained reasons), the Company changed its legal advisers to its present solicitors (“F & L”);

(4)  thereafter, Liang (having instructed F & L to instruct counsel to advise on the Company’s intended appeal) was away from Hong Kong on holiday between 15 to 27 December 2023 ;

(5)  he had a first preliminary conference with Counsel on 29 December 2023 and on that occasion learnt that there was an error in the NOA that leave to appeal was required;

(6)  the meeting was adjourned and a 2^nd meeting took place on 2 January 2024 when instructions were given for the present application.

21.  The Company submitted that the account in Liang 5^th provided a legitimate explanation for the delay. What prompted the change of legal representation is unknown and on the very day Mr Liang engaged new legal advisers, he left Hong Kong for a 12-day holiday.

22.  That aside, the excuse put forward is TKC’s failure to advise the Company on the correct procedure. Mr Ho cited a number of authorities including PT Bank Pembangunan Indonesia Persero v Tan Eddy Tansil [1997] HKLRD 57 where Bokhary JA’s approach (at 59J-60C) was said to reflect the general principle that the court will not allow a client to suffer for the mistake of his lawyers if it could help it.

23.  But the more recent Court of Appeal cases adopt a different approach. In KNM v HTF unrep., HCMP 288/2011, 7 September 2011 at §18, Fok JA (as he then was) with whom Hartmann JA agreed, held that the fault of the legal representative is not a reason excusing delay[3]. That approach was endorsed by Chu JA (as she then was) giving the judgment of the Court in Tsang Wai Fan v Hui Siu Kwong, unrep., HCMP 409/2016, 12 April 2016 at §23. The present case is therefore one in which the delay is inexcusable.

24.  In the Tsang Wai Fan case, where the defendant’s application for leave to appeal was late by 14 days, the CA held (at §23) that it was “not an insubstantial delay.” 

25.  Where the delay is inexcusable although insubstantial, the threshold for the grant of leave is not simply the test of a reasonable prospect of success but rather the test of a real prospect of success on the merits: see KNM v HTF at §§19-20 and Tsang Wai Fan at §20.

26.  In the present case, the delay between 20 November 2023 and 10 January 2024 is more than 7 weeks. So not only is the delay inexcusable, it is also substantial.  

Merits

27.  As the delay is substantial and inexcusable, at the very least, the Company must show that intended appeal has a real prospect of success. Apart from summarising the Court’s reasons for finding that there was inordinate and inexcusable delay and for concluding that the New Midland Report had been deliberately withheld or was provided to the Company much earlier, the grounds for overturning those findings are not discernible from the Company’s written submissions.

28.  It would appear that the appeal only relates to the comparables Liang 4^th sought to introduce into evidence which goes to valuation rather than the debt. The only defence raised against the Petitioner’s claim was that there was a bona fide dispute on the debt.

29.  At the hearing, the Company’s submissions were directed at criticising the Petitioner for not enforcing the security that it holds and instead, choosing the liquidation route. It sought to suggest that it might be because the debt was not fully due to the Petitioner. Not only is there no basis for this suggestion, one of the defences raised was the repayment point that was not pursued at the hearing.

30.  Rather, it now claims that there is prejudice arising from the Petitioner choosing the liquidation route. It was submitted that if there is a winding up, the Company will be prejudiced because such a sale would be ‘“an irreversible ‘fire sale’ at low value by the liquidators of the Company after it is wound up[4]”.

31.  These complaints ring hollow since it has been and remains open to the Company to sell the property at the price asserted if it is able to find a buyer.

32.  The prejudice the Petitioner will suffer if the liquidation process is delayed is clear: it is a falling market. If, as in the present case, the Company is unable to pay the debt, the Petitioner has every right to seek a winding up order.

Conclusion

33.  The Stay Summons and Leave Summons were dismissed with costs to the Petitioner with certificate for 2 counsel, such costs to be summarily assessed and payable forthwith.

34.  It is further directed that (1) the Petitioner do lodge its statement of costs within 14 days; (2) the Company and  Liang Guoxing do lodge their list of objections (not exceeding 2 pages) within 14 days thereafter; and (3) the Petitioner do lodge the reply (not exceeding 2 pages if any) within 7 days thereafter.