RE COURAGE DEVELOPMENT (HK) CO. LTD.

HCCW 818/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.818 OF 1999

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J U D G M E N T

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1. These are creditors' petitions seeking winding-up orders based on the Companies' inability to pay their debts. A common issue arises in the two petitions.

The facts

Galaxy Electro-Plating Factory Limited ("Galaxy")

2. In the first of the petitions which relates to Galaxy, the petitioner obtained a judgment against Galaxy on 15 February 1999 in the sum of $863,939 together with interest. A demand was served on 18 March 1999 on Galaxy requiring it to pay the debt within 21 days. No payment was ever received. The demand was served by ordinary and registered post. In the affirmation of Cheung Ka Mang dated 3 December 1999, it was stated that they were never returned by the post office. At the further hearing on 13 December 1999, leave was granted to the petitioners to adduce further evidence relating to the delivery of the registered letter containing the statutory demand. Pursuant to such leave, a further affirmation of Cheung Ka Mang dated 12 January 2000 was filed from which it appears that the Post Office has no record of the registered letter and no receipt that it had been delivered.

3. Galaxy neglected to comply with the demand. On 13 September 1999, the petitioner presented the winding-up petition. There is an affidavit of service of Cheung Ka Mang that on Friday, 15 October 1999 at 12:35 p.m., he attended the registered office of Galaxy but found that it was closed and no member, officer, or servant could be found. He left a sealed copy of the petition at that registered office. The petition was duly advertised. Galaxy did not appear on the return date before the Master which was on 1 December 1999. At that hearing, the Official Receiver objected to the making of a winding-up order on the basis that the demand was not a statutory demand for the purposes of section 178(a) of the Companies Ordinance. The petition was accordingly adjourned for hearing on 6 December 1999. Galaxy did not appear at that hearing.

Courage Development (HK) Co. Ltd ("Courage")

5. In the case of Courage, the facts are substantially identical save as to dates and in the following respects : the registered letter was returned to the petitioner by the Post Office on 12 April 1999 and service of the petition was effected at 11:30 a.m. rather than at 12.35 p.m.

The issues

6. The issues which arise are :

(a) whether the demands were duly served so as to be statutory demands within section 178(a); and if not, then

(b) whether a winding-up order should nevertheless be made pursuant to section 177(1)(d).

Section 178(1)(a)

8. The deeming provision in section 178(1)(a) arises where the creditor

"had served on the company, by leaving it at the registered office of the company, a demand ..."

There are two conflicting authorities. In Re YS Lee & Sons Jewellery Co. Ltd. [1984] HKC 470, Mayo J (as he then was) held that the specific provisions contained in section 178(1)(a) would supercede the general provisions relating to the service of documents on a company contained in section 356 of the Ordinance. In other words, service by post allowed by section 356 is precluded. In Re Tung Fung Hong Forwarding Agents Ltd. [1984] HKC 406, Jones J, whilst holding that there must be strict compliance with section 178(a), held that the demand may be served either by registered or ordinary post sent to the registered office, or by personal service at the registered office upon a person authorized to accept service or by leaving it at the registered office.

9. Section 356 of the Ordinance provides that :

"a document may be served on a company by leaving it at or sending it by post to the registered office of the company."

10. This section contemplates two methods of service : by leaving it at the registered office, or sending it by post. The view taken in Re YS Lee & Sons Jewellery Co. Ltd appears to have been that the selection of one method, i.e. leaving it at the registered office, precludes the other, i.e. sending it by registered post. But as appears from the judgment of Morritt J in Re a Company (No.008790 of 1990) [1991] BCLC 561, the two alternatives are not necessarily mutually exclusive. In that case, the statutory demand was served by registered post. The company contended that any petition based on it would inevitably be demurrable. It was not disputed that the statutory demand was left at the company's registered office. It was contended that there was no good service because of the way in which it was left. The reasons for holding that it was served in accordance with the statutory provisions appear in the following passage :

"...It was not contended, of course, that if the creditor left it personally that would not be good service. It was not suggested that if his employee on his specific instructions left it at the registered office that would not be good service. When one extends the possible analogies a little further, counsel was not disposed to accept that, if I employ a security firm to leave it at the registered office and who was merely my agent for that purpose, that that would be leaving it at the office. But it seems to me that it necessarily would be, and I cannot see any sense in a distinction which says that if it is proved that the document was left at the registered office that it should not be deemed or treated as adequate service because it was left by the postman rather than by a creditor, his employee, agent, or some perhaps independent third party. It seems to me that the alternatives posed by s 725 are alternative facts which have to be established to prove service. The draftsman of s 123, for the reasons indicated by Nourse J, namely the potentially serious consequences of service of a statutory demand, has required the creditor seeking to rely on it to prove that it was left at the office, not merely that he put it in the post box. But, once it is accepted as having been left at the office, although transmitted by means of the Royal Mail, it seems to me that it is served within s 123 perfectly properly."

I respectfully adopt that reasoning which accords with good sense.

11. To satisfy the statutory requirements, the burden is on the petitioner to prove that the statutory demand arrived. In the case cited above, there was no difficulty because that was common ground. In the present case, there is evidence that the letters containing the demand were posted. But that is not sufficient. There is also evidence that the registered offices of Galaxy and Courage did not change between March (when the demands were sent) and October (when the petition was served) and remained unchanged as at 7 December 1999. Also the letters sent by ordinary post were not returned. As to the registered letters, in the case of Galaxy, surprisingly, the Post Office has no trace of any record of the registered letter. In the case of Courage, the letter sent by registered post was returned to the petitioner on 12 April 1999.

12. Is that sufficient evidence of receipt?

13. In my judgment, it is not. Whilst confirmation of delivery of a packet which has been sent by registered post obtained from the post office would in my view be sufficient evidence of receipt, this was not the case in either Galaxy or Courage. In these circumstances, absent an admission of receipt by the relevant company, I have to conclude that service of the demand in each case did not comply with the requirements laid down in section 178(1)(a). The petitioners are therefore unable to rely on the deemed inability to pay debts.

Inability to pay debts

15. It is of course still open to the petitioner to prove inability to pay debts in other ways.

16. On the facts, a judgment was obtained against the Company. There is evidence that Galaxy was served with a demand in accordance with section 356 of the Companies Ordinance. Galaxy neglected to respond to this demand. The annual return of the Company dated 22 January 1999 but filed on 24 August 1999 showed the same registered office. As at 7 December 1999, no notice in accordance with section 92(2) of the Companies Ordinance had been filed by the Company showing any change of registered office. Nevertheless, on 15 October 1999, when the petition was served at the registered office of Galaxy at 12:35 p.m., it was closed.

17. In the case of Courage, the evidence is similar save that service of the petition was effected at 11.30 a.m.

18. The court was invited to infer that Galaxy and Courage had "moved" in order to evade payment. Counsel relied on the fact that the petitions had been advertised but that the companies failed to appear in addition to the fact that the office was "closed" during normal office hours.

19. It is to be noted that in each case the affirmation of service merely stated that the office was "closed" and that nobody could be found there. There was no suggestion that the premises had been abandoned or that there were other suspicious surrounding circumstances to suggest that it was not just simply a case of the door being locked. It is not that unusual for the door of office premises to be locked at some point in the course of an ordinary business day especially near the lunch hour. It is also a fact that there was only one visit to each of the premises and not several, made on different days and at different times.

20. In my judgment, the evidence as it stands is insufficient for the court to infer that the premises had been abandoned which could conceivably have led to a further inference of an inability to pay debts.

21. To persist in non-payment of an undisputed debt might suggest an inability to pay : see per Ungoed Thomas J in Mann v. Goldstein [1965] 1 WLR 1091 at 1096, cited in Cornhill Insurance PLC v. Improvement Services Ltd [1986] 1 WLR 114 at 118 C-D. However, unlike the facts in Cornhill, there is no evidence of any communication between the petitioners and the relevant company regarding the debt. True the statutory demand was sent by post but there is no evidence of receipt of the demands. In the circumstances, there is no evidence which would support an inference that the companies were persisting in non-payment.

22. Finally it is true that the failure of a company to appear at the hearing of a petition to wind it up on the ground of its inability to pay its debts may be evidence that it is unable to pay its debts : Re Vendas (Wholesale) Pty Ltd (1991) 5 ACSR 447. But in that case there was evidence of service of a demand, that the defendant offered to enter into an arrangement to pay the debt due by instalments which was rejected and the defendant's solicitors wrote to the plaintiff acknowledging receipt of the summons. Against that background, the court concluded that the defendant was unable to pay its debts when it did not appear at the hearing of the petition. The mere fact of non-appearance at the hearing is insufficient. There must be facts to warrant the inference of inability to pay. There are no such facts before me. Re Vendas is thus distinguishable.

23. Had there been evidence of abandonment, a different conclusion might have been reached.

24. In the circumstances, the petitioners have failed to show that the companies are unable to pay their debts within section 177(1)(d) of Cap.32. Accordingly both petitions are dismissed.