KJF INTERNATIONAL COMPANY LTD v. BELGRAVIA PROPERTIES LTD

HCCW 305/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 305 OF 2013

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D E C I S I O N

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1.  I have before me a summons issued on 13 June 2014 for the validation under section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance of the transfer of 6,000 ordinary shares in the company by the Standard Bank Offshore Trust Company Jersey Limited which holds them as trustee for Access Smart Enterprises Limited.

2.  The sale and purchase agreement bought and sold notes and instruments of transfer were all executed on 24 February 2014.  It, therefore, follows that in order to complete the intended sale all that is required is the registration of the new shareholders in the share register.  The company, or in practice its new shareholder, wishes the court to approve the share transfer in order that it can proceed with its annual general meeting.

3.  The application has been resisted. Initially it was resisted by the petitioner.  The petitioner has now reached a settlement with the company in respect of its debt.  An application has been made for substitution by Huizhou Shi Saxon Properties Management Co. Ltd, and they also object.

4.  The grounds of objection as I understand them are this.  Huizhou, just as was the case with the petitioner, are not satisfied that Access Smart Enterprises Limited has sufficient experience or assets to satisfactorily take over the operation of the company which is a special purpose vehicle intended to develop a hotel on Hainan Island.

5.  It is not in dispute that the ordinary shares in question are fully paid up.  It seems to me difficult to see in those circumstances how the transfer can prejudice the interest of creditors in the event of a winding-up order being made. 

6.  In my view, the correct approach to determining whether or not to grant an application for validation of a share transfer, is to ask whether or not the creditors might be better or worse off in the event of a winding-up order being made, and the transfer not having been sanctioned.

7.  In Rudge v Bowman at page 696, Blackburn J made the following observations when dealing with a similar application pursuant to section 153 of the then Companies Act which was in the same terms as section 182.

“The object of this section is obvious, inasmuch as when a petition has been filed any shareholder might transfer his shares to an insolvent person, and get him registered, so as to get rid of his own liability, and the register might thus be made to consist of persons who had nothing to lose, the legislature intervenes, and says, that between the petition and the order no transfer of shares shall take place, unless the court otherwise orders. The clause as to the alteration of the status of members I do not quite understand; for instance, death or marriage is rather beyond the power of the legislature. But whatever this may mean, a transfer may be made even in the interval if the court chooses to sanction it; and I have no doubt the court would allow a transfer from a pauper to a rich man to be registered, although not the converse.”

8.  I agreewith these observations, which it seems to me bring out the point that, generally, a transfer of fully paid up shares cannot be objectionable. 

9.  The criteria which Huizhou has suggested the court should apply in assessing the application, namely, whether or not the company might be better off if a different investor was found to finance the project in my view is simply not the correct one.  It seems to me that generally an application for the validation of the transfer of fully paid up shares will be unobjectionable and should be straightforward. 

10.  I will make an order that the costs of the application be in the cause of the petition, which is what the company sought in its summons.