RE SOUTHERN MATERIALS HOLDING (H.K.) CO LTD

HCCW 281/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 281 OF 2007

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J U D G M E N T

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1.   This creditor’s petition to wind up Southern Materials Holding (H.K.) Company Limited (“the Company”) was presented by Steelco Mediterranean Trading Limited of Cyprus.  The petitioner served a demand on the Company under section 178(1)(a) of the Companies Ordinance, Cap. 32 on 3 May 2007 for US$4,890,713.00, being the outstanding balance of purchase price of goods sold and delivered.  The petition was presented on 25 June 2007.

2.   The Company has filed evidence to oppose the petition.  The petition was adjourned to a substantive hearing today.  A week before the hearing, the Company’s solicitors wrote to the court stating that they have just obtained instructions not to oppose the petition and sought to be excused from the hearing.  The Company has not, however, withdrawn its evidence filed in opposition.

3.   Although I would still need to consider the evidence to determine if a winding-up order should be made, it is unnecessary to embark on a thorough analysis of the evidence in view of the stance taken by the Company.

4.   The subject matter of the petitioning debt is made up of the outstanding balance in 3 contracts entered into between the Company and the petitioner from 14 April 2005 to 19 July 2005.  These contracts have been referred to in the evidence as Contracts A, B and C.  There is a 4^th contract between the parties made on 7 March 2005, referred to as Contract D.  There is no dispute that the purchase price in respect of Contract D had been paid in full.  The goods in Contracts A and D were cold rolled steel in coils, and those in Contracts B and C were hot rolled steel in coils.

5.   The outstanding balance for Contract A was due on 2 September 2005.  For Contracts B and C, the balance was payable by 4 equal instalments, and the due date for the last instalment was 31 December 2005.

6.   The Company does not dispute that the outstanding balance was due under the contracts or that the amount due was US$4.8 million odd.  In the evidence filed in opposition, the Company alleged it has cross claims against the Company of US$14,501,861.40, because of alleged defects in the goods supplied under Contracts A to D.  Further, the petitioner is precluded by an arbitration clause in the contracts from presenting the petition.

7.   An arbitration clause was found only in Contracts A and D.  Clause 16 in these contracts provided that any disputes in connection with the contracts, if not settled by amicable negotiations, shall be referred to arbitration in China.  No arbitration proceedings have been commenced so far.  It is clear from the authorities that the court is not obliged to strike out or dismiss a winding-up petition merely because the petitioner and the company have entered into a contract with an arbitration clause, or even if the company has commenced arbitration.  It is a matter for the discretion of the court in each case and Article 8(1) of the UNCITRAL Model Law has no effect in relation to winding-up petitions (Hollmet AG v Meridian Success Metal Supplies Limited [1997] 4 HKC 343 at 347D to I; Re Sky Datamann (Hong Kong) Limited, HCCW No. 487 of 2001, 29 January 2002, Yuen J, paragraphs 7 to 12; Hoo Cheong Building Construction Company Limited v Jade Union Investment Limited, HCCW No. 400 of 2003, 5 March 2004, Barma J, paragraphs 13 to 27).  What the court is concerned to see is whether or not the company is insolvent.  If the petitioning debt is in dispute, the court would first determine whether the debt is bona fide disputed on substantial grounds.  If the company should raise a cross claim exceeding the petitioning debt, the court would need to look at the evidence adduced by the company to ascertain if the cross claim is of substance.  It remains necessary for the company to discharge the burden of establishing a bona fide dispute of the petitioning debt, or that there is a cross claim of substance.

8.   Here, as already mentioned, the Company does not dispute the petitioning debt.  In view of the Company’s stance that it no longer opposes the petition, it is unnecessary to consider the validity or genuineness of its alleged cross claim against the petitioner.

9.   The statutory demand served by the petitioner on the Company was not complied with.  The Company is deemed to be unable to pay its debts.  There is also evidence before the court that the Company is clearly insolvent.  According to the audited accounts for the year ended 31 December 2006, net liabilities of the Company amounted to HK$108 million odd.

10.   I am satisfied that a case is made out under section 177(1)(d) that the Company is unable to pay its debts as they fall due.  I make an order to wind up the Company. The costs of the petitioner are to be paid out of the Company’s assets.