HUA NAN COMMERCIAL BANK LTD v. KELVIN EDWARD FLYNN

HCCW 622/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 622 OF 2004

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D E C I S I O N

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1.  This is an application taken out by Hua Nan Commercial Bank, Limited (“the Bank”) against the provisional liquidator of Forefront International Limited (“the Company”).  The Bank seeks the following relief:

(1)	a declaration that the Bank shall be entitled to have the 50 million shares of Forefront International Holdings Limited under share certificate No. 0006572 to 0006576 (“FIHL” and “the FIHL Shares”) transferred to and registered under the name of the Bank or its nominee;
(2)	an order that the provisional liquidator shall sign and execute such documents to effect the transfer and registration of the FIHL Shares;
(3)	an order that in the event the provisional liquidator fails or refuses to do so, the Bank shall be at liberty to request the Registrar of the High Court to sign and execute such documents; and
(4)	costs of the application on an indemnity basis.

2.  The Bank was incorporated in Taiwan and is a licensed bank carrying on banking and financial services in Hong Kong.

3.  The Company was also incorporated in Taiwan and was wound up by an order of this court on 14 July 2004 on a creditor’s petition presented on 27 May 2004.  Provisional liquidators were appointed for the Company on 7 June 2004.

4.  FIHL is a company listed on the main board of the Hong Kong Stock Exchange Limited.  Trading in its shares was suspended on 14 May 2004.

5.  By a share mortgage dated 24 July 2002 (“the Share Mortgage”) made by the Company as the mortgagor, Forefront Motors (Hong Kong) Limited as the borrower, and the Bank as the lender, it was agreed inter alia that the Bank was to grant general banking facilities to the borrower and the Company was to pledge with the Bank securities, as continuing securities, for the discharge and fulfilment of the terms and conditions of the Share Mortgage.  It was further provided that the Bank shall be entitled to require from time to time to have the title of the securities transferred or vested in its name or the name of its nominee.  An event of default is deemed if a petition is presented or an order made for the winding up of the Company or the borrower.  If an event of default should occur, the Bank shall have all the powers and rights which may be exercisable by the registered holder of the securities and shall be entitled to receive dividends and to sell or dispose of the securities.

6.  The Share Mortgage was registered at the Companies Registry on 31 July 2002.

7.  Pursuant to the Share Mortgage, the Bank granted to the borrower a long term loan of HK$16 million and a short term loan of HK$4 million and the Company pledged with the Bank the FIHL Shares. 

8.  Events of default have occurred with the presentation of the winding-up petition and the order made against the Company on the petition.  In further default of the Share Mortgage, the Company and the borrower have failed to settle the short term loan due on 26 June 2004.  The Bank made demands for repayment on 12 July 2004 of the short term loan and the outstanding balance under the long term loan which was approximately HK$10 million.  No payment was made of the principal sums due in the amount of HK$14 million, only interest was paid up to August 2004.

9.  The Bank is unable to exercise its rights in relation to the FIHL Shares unless and until these shares are transferred to the Bank.  The share registrar has declined to register a transfer of these shares to the Bank without the consent of the provisional liquidator.

10.  Since July 2004, correspondence has been exchanged between the Bank’s solicitors and the provisional liquidator and his solicitors in relation to a request for the consent of the provisional liquidator to effect the transfer of the FIHL Shares to the bank.  The provisional liquidator sought further information and documents relating to the facilities granted and the security documents held by the Bank and requested for time to review the matter.

11.  This summons was issued on 25 October 2004.

12.  By a letter dated 7 January 2005, the solicitors for the provisional liquidator withdrew his earlier notice of intention to oppose this application.

13.  I grant the relief sought in paragraphs 1 to 3 of the amended summons. 

14.  The Bank seeks an order for costs on an indemnity basis.  In view of clause 18 of the Share Mortgage which provided that the Company shall indemnify the Bank all costs occasioned for the enforcement of the terms and provisions of the Share Mortgage, I order costs to be awarded to the Bank on an indemnity basis.