C&A INVESTMENT (INT'L) CO LTD v. CGF EN BIO TECH INTERNATIONAL CO LTD

HCCW331/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 331 OF 2010

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BETWEEN

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DECISION

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1.  This is a winding-up petition brought by C&A Investment (Int’l) Company Limited (“the Petitioner”), seeking the winding up of CGF EN Bio-Tech International Company Limited (“the Company”).

2.  The basis of the petition is that the Petitioner has the benefit of a judgment dated 21 January 2010 of the High Court of the Hong Kong SAR in proceedings HCCT56/2009 under which the Company is indebted to the Petitioner in the sum of HK$5,381,000 pursuant to an award dated 2 August 2009 rendered by the China International Economic and Trade Arbitration Commission (“CIETAC”), together with interest on that sum of some HK$207,000-odd and the Applicant’s costs of the arbitration proceedings, amounting to some RMB 142,000-odd, which works out at about HK$170,000 at current rates of exchange.  The total amount of the debt therefore is about HK$5.75 million.

3.  The petition was served following the service of a statutory demand on 6 July 2010, and the petition was brought just over a month later on 9 August 2010.  Initially, three points were raised in opposition to the petition in an affirmation filed by Mr Marcus Chan, a director of the Company.  The first related to the validity or enforceability of the judgment, it being suggested that the judgment or the arbitration award on which it was based was in some way affected by fraud or obtained by fraud.  That ground is not pursued at today’s hearing.  It is therefore not necessary to go into it.

4.  However, two other grounds are pursued by Mr Kwan, who appears for the Company.  The first point is that the company has cross-claims which in total would exceed the amount of the debt on which the petition is based.  The second point is an argument that the company is in fact solvent and is able to pay its debts, and so notwithstanding that it has failed to respond to the statutory demand and is therefore deemed to be prima facie unable to pay its debts, it can nonetheless demonstrate that it is solvent so that the deemed insolvency is displaced by the actual financial position of the Company.

5.  I shall deal first with the cross-claims.  There are two cross‑claims that have been raised.  The Respondent is a shareholder in a Chinese joint venture company that is said to own certain land in Xinxie in China, and what is said is that the joint venture company had been making profits over a period of time with an accumulated undistributed profit of RMB 2 million, and as the Respondent is the 55 per cent shareholder of the joint venture company, it is entitled to received a distribution or dividend of some RMB 1.1 million.

6.  The evidence in relation to this is to be found in Mr Marcus Chan’s first affirmation, and it is dealt with in paragraphs 17 and 18 of that affirmation.  What Mr Chan says is this.  In paragraph 17, he says:

“Up to this time, the joint venture company has undistributed profits totalling 2 million RMB. The company is entitled to receive 55 per cent thereof, i.e. 1.1 million RMB, which I verily believe should be allowed to be set off against the judgment debt in these proceedings.”

7.  He then goes on to say in the next paragraph, paragraph 18, that:

“I am advised by Li Por...”

this is the Chinese legal advisers to the company:

“...that under PRC rules, the company is rightfully and can legally require the JV company to distribute its accumulated profits or part of it.”

8.  It is well established that the test for whether or not a bona fide and substantial cross-claim is established is the same as that for determining whether or not the petitioning debt is disputed on grounds that are bona fide and have substance.  It is necessary for the company, if it wishes to resist the making of a winding-up order, to provide sufficiently precise and detailed evidence of its defence or, in this case, its cross‑claim, to enable the court to see that there is a matter of some substance which ought to go to trial.

9.  In the present case, in relation to the question of the alleged dividend, the evidence that the company has been able to put forward is limited to the two paragraphs that I have just mentioned. Both of these consist of no more than bare assertions.  There is no evidence whatsoever as to the actual financial position of the joint venture company and as to its actual level of retained profit, if any.

10.  In those circumstances, it seems to me that the evidence that has been put forward is lacking in the detail and precision that is necessary in order to satisfy the court that there is a genuine cross‑claim that is brought bona fide and has real substance.

11.  Moreover, it seems to me that there is a further difficulty in relation to this particular cross-claim, which is that although the company may be entitled under PRC law, assuming the evidence, which is in very general terms, to be correct, to have the joint venture company distribute accumulated profits or part of them, the position would be that the claim of the company to have a distribution of such profit, if any, would lie not against the Petitioner but against the joint venture company.

12.  It does not, therefore, appear to me that the Petitioner can be said to be liable in respect of this sum, as no basis has been put forward for suggesting that the Petitioner can somehow be liable for the failure of the joint venture company to distribute profits that (it may be) that company should have distributed.

13.  In those circumstances, it seems to me that the first cross-claim that is put forward is clearly one that does not have sufficient substance to permit it to be used in opposition to the winding-up petition in this case.  That conclusion, in fact, is sufficient to dispose of the point based on the cross‑claims, because the second cross-claim is, in any event, for an amount that is smaller than the petitioning debt.

14.  I shall, however, consider the second cross-claim as well.  The second cross-claim is based on an allegation that there was an agreement between Mr Chan and a Mr Feng, who represented the Petitioner, that the Petitioner would pay a sum of RMB 4.5 million to the Company as part of the purchase price for the Xinxie land.  However, RMB 4.5 million comes to approximately HK$5.4 million, and (as I have noted) therefore falls short of the amount in the petitioning debt by some HK$300,000‑odd.

15.  This cross-claim, therefore, even if it were one that could be said to be of substance, would not be one that would be sufficient to justify the court in declining to make the winding-up order that is sought.  But when one looks at the evidence in support of this cross-claim, one sees again that it is, again, a matter of mere assertion, with very little detail or particularity, and no solid evidence of any such agreement having been reached.  All that is said in relation to this is set out in paragraph 19 of Mr Chan’s first affirmation, where he says that when the Xinxie land was injected and had its ownership transferred into the joint venture, it was worth about Renminbi 10 million, and that it was agreed between him and Mr Feng that the Petitioner would pay Renminbi 4.5 million to the company as part of the purchase price of the Xinxie land.

16.  This is a bare assertion.  There is no detail whatsoever as to the circumstances in which the alleged agreement was reached.  It simply is not sufficient to demonstrate the existence of a bona fide dispute of substance in relation to this alleged cross-claim.

17.  For that reason also I would have taken the view that the second cross‑claim, like the first, is not one that is bona fide or of substance, and is therefore not one that is available to the company to use to defend this winding‑up petition.

18.  Finally, there is the point that the Company is in fact solvent, but the only evidence of this is at paragraph 11 of Mr Chan’s affirmation in which he states that the Company wishes to emphasise that its finances are sound and it is a solvent company.  He states that he is informed and believes that the Xinxie land is currently worth about RMB 80 million and states that the Company had requested a PRC surveyor or other authority to value the existing land and prepare a land report, undertaking to provide such valuation or land report when it was obtained.

19.  No such land report has in fact been obtained, and in the circumstances, while the Company, through its shareholding in the joint venture company, might be said to be entitled to about 55 per cent of the land’s value if it were to be sold, it is not possible for the court to be satisfied that the land in question is in fact worth the RMB 80 million that is suggested.

20.  It also has to be noted that apart from that one statement as to an asset of the joint venture, no information whatsoever is given as to the joint venture’s financial position – whether it has any other assets or whether it has any creditors.

21.  In those circumstances, it seems to me that the evidence that the Company has put forward falls again far short of what is required to satisfy the court that it should depart from the deeming provisions of the Ordinance that deem the Company to be insolvent by reason of its failure to satisfy the statutory demand that was served on it.

22.  For those reasons, it seems to me that neither of the grounds that have been put forward by the Company for resisting this petition have merit, and I therefore propose to make the usual winding-up order with costs against the Company.