RE 北京精准溝通傳媒科技有限公司 (Formerly known as北京精准溝通傳媒科技股份有限公司)

HCCW 477/2022

[2024] HKCFI 1091

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 477 OF 2022

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JUDGMENT

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INTRODUCTION

1.  This is a hearing of a winding-up petition presented by Longisland Investment Group Limited (“the Petitioner”) against 北京精准溝通傳媒科技有限公司[1] (“the Company”).

2.  The basis of the petition is an unpaid loan of HK$10,000,000 made by the Petitioner to the Company. The Company does not dispute liability on the debt and takes a neutral stance on the petition, and its appearance at this hearing has been excused. The petition is opposed by Changgang Dunxin Enterprise Company Limited (in liquidation) (“the Opposing Creditor”). The Opposing Creditor is acting through its joint and several liquidators and is a judgment creditor of the Company.

3.  The Company is incorporated in the PRC. At the hearing, the Opposing Creditor opposed a winding-up order being made on the basis that the threshold requirements for winding-up a foreign company were not established. Specifically, out of the three threshold requirements, the Opposing Creditor submitted that the Petitioner had failed to establish that the present case had a sufficient connection with Hong Kong to justify winding-up the Company. No issue was taken with the other two requirements. There is no dispute that there is a currently a sum of HK$9,700,000 held by a law firm in Hong Kong on behalf of the Company. The principal issue is whether the presence of those assets in Hong Kong, coupled with the other factors relied upon the Petitioner, amount to a sufficient connection with Hong Kong.

FACTUAL BACKGROUND

4.  The Company was incorporated in December 2009 in the PRC, with a registered capital of RMB 22.5 million. Its registered office and latest correspondence address are in Beijing.

5.  On 24 December 2018, the Company entered into a restructuring agreement with the Opposing Creditor (“Restructuring Agreement”).

6.  At the time, the Opposing Creditor was a listed company in Hong Kong and the Company intended to invest in the Opposing Creditor by way of a reverse takeover. To raise funds for the investment, the Company entered into a loan agreement dated 24 December 2018 with the Petitioner under which the Company borrowed HK$10,000,000 (“the Loan Agreement”). The maturity date of the loan was 23 December 2019, and it is not disputed that the Company defaulted on repayment.

7.  The Petitioner advanced the loan proceeds by paying HK$300,000 to the Opposing Creditor, and HK$9,700,000 to an HSBC account of Huen & Partners, a law firm in Hong Kong. According to the available evidence, the HK$9,700,000 is still currently held by the firm in an escrow account and it does not claim any interest in the funds.

8.  On 22 January 2021, the Opposing Creditor commenced legal proceedings in HCA 133/2021 against the Company. The basis of the claim was that the Company acted in breach of the Restructuring Agreement. The Company did not contest those proceedings, and as a result, an interlocutory default judgment was obtained by the Opposing Creditor. After an assessment for damages, on 2 September 2022 the Opposing Creditor obtained judgment for HK$7,228,270 (together with interest and costs) against the Company.[2]

9.  On 29 November 2022, the Opposing Creditor commenced garnishee proceedings in respect of the judgment sum, and obtained a garnishee order nisi against Huen & Partners on 1 December 2022. In its evidence filed in the garnishee proceedings, Huen & Partners explained that it took a neutral stance as to how to deal with the funds. It confirmed that it continued to hold those funds, and they would potentially be released to the Opposing Creditor upon the resolution of these proceedings.

10.  The Opposing Creditor later discovered the existence of these proceedings by way of a litigation search. On 28 February 2023, an order was made by consent to stay the garnishee proceedings pending the determination of these winding-up proceedings.

11.  The Petitioner served a statutory demand on 28 November 2022 on the Company in Hong Kong with respect to the HK$10,000,000 loan. After the Company failed to comply with the statutory demand, a petition was presented on 29 December 2022. However, it did not contain any averment addressing the threshold requirements to wind-up a foreign company. As such, it was defective and liable to be struck out.[3]

12.  The Opposing Creditor took issue with this in its evidence filed in March 2023[4] where the defective nature of the petition was pointed out. This led to the Petitioner amending the petition on 4 May 2023 to address the defects in the petition identified by the Opposing Creditor.[5]

13.  In summary, the matters relied upon by the Petitioner to support its case of a sufficient connection with Hong Kong are as follows:

(1) the Company has significant assets in Hong Kong in the form of HK$9,700,000 held in the escrow account of Huen & Partners;

(2) the Loan Agreement and petitioning debt arose out of a business arrangement between the Petitioner and the Company in Hong Kong, and in particular:

(a) the loan proceeds were to be applied by the Company to invest in a Hong Kong listed company by a reverse takeover;

(b) in performance of the Loan Agreement, the Petitioner deposited HK$9,700,000 with Huen & Partners; and

(c) Clause 8 of the Loan Agreement provides for an exclusive jurisdiction clause in favour of Hong Kong.

(3) the Company has a place of business in Hong Kong at Unit A, 17/F Jonsim Place in Wan Chai (“Wan Chai Address”); and

(4) the statutory demand was served on a representative of the Company, one Mr Liu Feng Wei (“Mr Liu”), at the Wan Chai Address which was able to reach the Company and be brought to its attention.

14.  The Opposing Creditor, in its evidence, originally took issue with the service of the statutory demand and petition on the Company, and the fact that no leave to serve the petition out of the jurisdiction was first obtained by the Petitioner. Since these grounds were no longer pursued at the hearing, it is unnecessary to deal with them in this judgment.

RELEVANT LEGAL PRINCIPLES

15.  The statutory jurisdiction to wind-up a foreign incorporated company in Hong Kong under section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) is subject to self-imposed restraints which have been described as “threshold requirements” before the court will exercise that jurisdiction.

16.  As is well-established, these requirements are that (i) there must be a sufficient connection with Hong Kong, but this does not necessarily have to consist in the presence of assets within the jurisdiction; (ii) there must be a reasonable possibility that the winding-up order would benefit those applying for it; and (iii) the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets: Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd (2022) 25 HKCFAR 98 at [3].

17.  If the foreign company is insolvent and the requirements above are satisfied, the court will be prepared to make a winding-up order against the company unless there is evidence that debts will be paid from another source or that there is a viable restructuring proposal with the support of the requisite majority of creditors: Re Up Energy Development Group Ltd [2022] 2 HKLRD 993 at [46].

18.  As to the “sufficient connection” requirement, creditors seek a winding-up order against their debtor in order to obtain payment in or towards satisfaction of their debts. The presence in Hong Kong of significant assets which may be available to the liquidator for distribution among the creditors will ‘usually suffice’: Re Yung Kee Holdings Ltd (2015) 18 HKCFAR 501 at [26]. The presence of local assets is not the only means to demonstrate a significant connection with Hong Kong, though in most cases it would be sufficient: Shandong Chenming at [47].

19.  There is no invariable rule that the presence of assets, irrespective of their nature or value, within the jurisdiction will be adequate to constitute a sufficient connection with Hong Kong. The existence of an asset within the jurisdiction to which the company lays claim is not automatically a reason for the court to exercise its winding-up jurisdiction. The asset may be so small of or such character that the link with the jurisdiction is too tenuous to justify invoking the winding-up jurisdiction: Re OJSC Ank Yugraneft [2009] 1 BCLC 298 at [58], citing Re Real Estate Development Co [1991] BCLC 210.[6]

20.  Ultimately, the question of sufficient connection involves forming a view as to whether there are facts or circumstances which would justify the court setting in motion its winding-up procedures over a company which is prima facie beyond the limits of territoriality: Yung Kee at §24; Up Energy at §45(6); Shandong Chenming at §65.

SUBMISSIONS OF THE PARTIES

21.  On behalf of the Petitioner, Ms Ip submitted that the threshold requirements were satisfied on the facts. Understandably, her major emphasis was on the fact that the Company had significant assets in Hong Kong in the form of the HK$9,700,000 which was remitted by the Petitioner on the instructions of the Company on 2 January 2019. This sum was held in Hong Kong by a law firm based here. Moreover, she relied on the fact that the Loan Agreement was executed in Hong Kong and it contained a Hong Kong governing law and jurisdiction agreement. In addition, she contended that the Company had a place of business in Hong Kong at the Wan Chai Address, though it was fairly accepted at the hearing that this was not her strongest point.

22.  Ms Lee submitted on behalf of the Opposing Creditor that the starting point is that the most appropriate jurisdiction to wind-up the Company was the PRC since that was the jurisdiction of incorporation. Further, the presence of the HK$9,700,000 in Hong Kong is insufficient to justify invoking the winding-up procedure against the Company in Hong Kong. There were no other assets of the Company in Hong Kong. She also submitted that the assets were liquid in nature, and were held in an escrow account in a law firm, as opposed to the Company’s own bank account in Hong Kong.

23.  She also pointed out the Company centre of main interests is based in the PRC, and that apart from the reverse takeover which did not materialise, there was no evidence of any other business activity in Hong Kong. Ms Lee referred to the fact that the shareholders and senior management of the Company appeared to be based in the PRC, and all of its branch offices were based in the PRC with no branch office in Hong Kong. In addition, all the physical meetings with the Company before the signing of the Restructuring Agreement were conducted in the PRC. Ms Lee also submitted that it is highly doubtful whether the Wan Chai Address was truly a place of business of the Company in Hong Kong, as opposed to merely a correspondence address.

DISCUSSION

24.  In my view, this is a clear case where there is a sufficient connection with Hong Kong. The principal reason for this is the undisputed fact that there is HK$9,700,000 in funds belonging to the Company currently held in the escrow account of Huen & Partners in Hong Kong. On the evidence available, this is the only known asset of the Company.

25.  The value of the sum is not insignificant or trivial, especially when compared with the debt asserted by the Petitioner of HK$10,000,000 or with the judgment debt of the Opposing Creditor of HK$7,228,270. With the value of these debts in mind, it cannot be said that the HK$9,700,000 is an asset which is “so small” that the link with the jurisdiction is too tenuous to justify winding-up. On the contrary, I take the view the presence of assets of such a significant amount in Hong Kong is a powerful factor to support the existence of a significant connection to the jurisdiction. I appreciate the funds are held in an escrow account, and that they are liquid assets. However, the funds have remained in Hong Kong since December 2019, and will be available for distribution if a winding-up order is made especially since the Opposing Creditor has obtained a garnishee order nisi.

26.  One also needs to approach this matter with a dose of reality. This dispute, in substance, is a contest of who has an entitlement over the HK$9,700,000 which is located in Hong Kong. This is evident by the action taken by the Opposing Creditor in commencing garnishee proceedings in Hong Kong against Huen & Partners. As it was perfectly entitled to, the Opposing Creditor wished to recover that sum - located in Hong Kong and invoking Hong Kong court procedures - for the purpose of fully settling the judgment which it had obtained. Against this background, it strikes me as difficult for the Opposing Creditor to maintain in these winding-up proceedings that there is no sufficient connection with Hong Kong.

27.  Ms Lee submitted that the evidence overwhelmingly showed that the Company carried on business in the PRC, and therefore, that the Company had a “more substantial and clearer connection” with Mainland China. However, this is not a forum application where the court is concerned with which jurisdiction is more appropriate to determine a dispute. It may be said that, in that context, a ‘comparison’ between jurisdictions is often necessary. However, in the present situation, what is necessary to be shown is only a sufficient connection with the jurisdiction in order to justify invoking the winding-up process. As confirmed by the CFA in Yung Kee and Shandong Chenming, the presence of significant assets within the jurisdiction is usually sufficient. This is so even if the primary business operations of the company are out of the jurisdiction.

28.  Moreover, it is not a mere coincidence that the HK$9,700,000 is located in Hong Kong. The sum was paid to Huen & Partners by the Petitioner as part of its loan proceeds to the Company in respect of an intended investment in a Hong Kong listed company by way of a reverse takeover. The Loan Agreement was also governed by Hong Kong law and contained a jurisdiction clause in favour of the Hong Kong courts. The funds were therefore in Hong Kong as a result of an intended commercial transaction with a clear nexus with the jurisdiction.

29.  While it was suggested that it was unusual that the Company itself did not take an active stance in opposing the petition, there was no suggestion that the Petitioner and the Company were acting in collusion.

30.  Further, although I agree with Ms Lee that the Company’s main business operations and management appears to be based in the PRC, and not in Hong Kong, in my judgment this does not detract from the reality that the only known asset of the Company, which is of a significant value, is now located here and is subject to a garnishee order nisi. Once a winding-up order is granted, the HK$9,700,000 can be released from the escrow account and be used to satisfy the debts which are owed by the Company. That is a practical and meaningful purpose of the courts exercising its winding-up jurisdiction over the Company despite it being incorporated in the PRC and having conducted business there.

31.  In my analysis on sufficient connection, I have not placed any weight on the existence of the Wan Chai Address or the fact that the statutory demand was apparently served on Mr Liu there. I do not consider that the Petitioner needs to rely on these facts to establish sufficient connection with Hong Kong. Were it necessary to do so, I am inclined to say that the evidence clearly suggests that the Wan Chai Address was only a correspondence address. Despite a letter from the Company’s solicitors purporting to confirm that it was a business address in Hong Kong, there was no concrete evidence before court, with particulars, to establish what business activities were actually conducted there. However, my views on this does not alter my overall conclusion on the sufficient connection issue.

CONCLUSION

32.  There is no dispute that the HK$10,000,000 debt relied upon by the Petitioner is owed by the Company. Having regard to the applicable legal principles, I find that there is a sufficient connection with Hong Kong, and there is no dispute that the other threshold requirements to wind-up the Company are satisfied. Accordingly, I am satisfied that a winding-up order against the Company should be made.

33.  I heard the parties on costs. Although the Petitioner was successful, the petition as originally drafted was seriously defective and displayed a basic disregard of what needs to be set out in a petition of this nature. Even though it was unsuccessful at the end of the day, the Opposing Creditor acted reasonably in opposing the petition and raising the point in its evidence in opposition. For the Petitioner, Ms Ip did not object at the hearing to an appropriate costs order being made to reflect this. Lastly, since the Company took a neutral stance in these proceedings, none of the parties sought costs against the Company. For these reasons, I make the following costs orders:

(1) the costs of the Opposing Creditor in the petition up to 4 May 2023 (the filing date of the amended petition) be paid by the Petitioner to the Opposing Creditor, to be taxed if not agreed;

(2) there be no order as to costs as to the Petitioner’s own costs in pursuing the petition up to 4 May 2023;

(3) the Petitioner’s costs in the petition after 4 May 2023 up to the date of the hearing be paid by the Opposing Creditor to the Petitioner, to be taxed if not agreed;

(4) there is no order as to costs with respect to the Company’s costs in these proceedings; and

(5) the Official Receiver’s costs be paid out of the assets of the Company.