RE FIRST OCEAN FINANCIAL HOLDINGS CO LTD

HCCW 345/2021

[2022] HKCFI 331

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 345 OF 2021

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J U D G M E N T

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1.  There is before the Court a summons issued on 29 December 2021 by First Ocean Financial Holdings Company Ltd (“Company”) and its sole shareholder, Sun Legacy Holdings Ltd (“Contributory”) (together “Applicants”) under Order 35 rule 2 of the Rules of the High Court (“RHC”) and rule 210 of the Companies (Winding-up) Rules (Cap. 32H) (“CWUR”) for an order that:

(1)  the winding up order made by Master Lai on 24 November 2021 (“WU Order”) be set aside on the ground that the Company intended to oppose the petition at the hearing but failed to do so due to inadvertent mistake; and

(2)  insofar as is necessary, time be extended for the Applicants to make the application under §(1) above.

2.  The facts relevant to the application are these. 

3.  By a petition presented on 17 September 2021 the petitioner,  First Capital Holding (HK) Co. Ltd (“Petitioner”), sought a winding-up order against the Company on the ground that it had failed to comply with a statutory demand served on it on 26 August 2021 (“SD”). The debt stated in the SD was in the sum of US$60,390,410.97 and HK$83,643,706.85, being the outstanding principal and interest payable under the Bond and 2 other agreements made with the Company. 

4.  There is no dispute that:

(1)  the SD and the petition were duly served on the Company;

(2)  the Company was aware of the existence of the SD and the petition;

(3)  the Company did not file any evidence to oppose the petition as required by rule 32 of the CWUR.  Nor did the Company instruct any solicitors to appear in the petition;

(4)  the Contributory did not file any notice of intention to appear in the petition and, therefore, was not a party to the petition;

(5)  No one appeared at the hearing on 24 November 2021 to oppose the petition, whereupon the Master made the WU Order; and

(6)  the WU Order was perfected and sealed on 7 December 2021.

5.  It is therefore a case where the WU Order was obtained by the Petitioner regularly.  Where, as here, a winding up order has been perfected, the Court does not have jurisdiction to rescind the order (Re Asean Interests Ltd [2001] 2 HKLRD 596, §10, per Yuen J (as she then was)).  This is not disputed by Mr Martin Kok, counsel for the Applicants, who confirms that the Applicants are not applying to rescind the WU Order. 

6.  Mr Kok submits that the Court has jurisdiction under Order 35 rule 2 of the RHC and rule 210 of CWUR to set aside the WU Order on the basis that the hearing on 24 November 2021 was a “trial” and, as the Company did not appear at the “trial”, the Court has jurisdiction to set aside the WU Order.  No authority has been cited in support of his submission.

7.  In my judgment, the application is misconceived as Order 35 rule 2 has no application to winding-up proceedings.

8.  The starting point is that the RHC shall not have effect in relation to winding up proceedings.  This is made clear in Order 1 rule 2(2).  However, some of the rules under the RHC are made applicable by rule 210 of CWUR which provides as follows:

“In all proceedings in or before the court, or any Registrar or officer thereof, or over which the court has jurisdiction under the Ordinance and rules, where no other provision is made by the Ordinance or rules, the practice, procedure and regulations shall, unless the court otherwise in any special case directs, be in accordance with the rules and practice of the court.” (underlined added)

9.  As is clear from the wordings of rule 210, it is only if there is no provision made in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“Ordinance”) or the CWUR to deal with a specific practice, procedure and regulation in relation to application arising in winding-up proceedings that the practice, procedure and regulation under the RHC would  apply to such application. 

10.  Under the Ordinance, there is specific provision, under s.209, which gives the power to the Court to make an order to stay the winding-up proceedings permanently.  Such order has the effect of putting an end to the winding up order made against the company. This is the usual way for a party to apply for an order to stop the proceedings once a winding up order has been entered (Butterworths, Company Law (Winding Up and Miscellaneous Provisions) Handbook, 4^th ed., §209.03).  This is an obvious avenue open to the Contributory to put an end to the WU Order if it wishes to do so.  No reason has been articulated by Mr Kok as to why s.209 has no application to a party who seeks to put an end to the winding up order made by the Court. 

11.  There are 2 further reasons why Order 35 rule 2 does not apply to a winding-up petition presented by a creditor.

12.  First, the nature of winding up petition presented by a creditor, being a class remedy available to all creditors.  The practice of the Companies Court is to hear such petition summarily, without any oral examination or discovery.  Where the petition is unopposed, s.180A of the Ordinance confers the power on the Registrar to make a winding up order against the company.  In either case, there is no “trial” on the petition which requires the Court to determine the lis between the parties.  This is reinforced by the fact that once it has been demonstrated by the company that there is a bona fide dispute on substantial ground in respect of the petitioning debt, the petitioner is not a “creditor” within the meaning of s.179(1) of the Ordinance and the petition will be struck out or dismissed as an abuse of process.  In the absence of a “trial”, there is no basis to contend that Order 35 rule 2 applies. 

13.  Second, Order 35 rule 2 is part of Order 35 which deals with procedure at trial.  It is clear from rule 1 that the entire Order 35 only applies to the trial of an “action”.  It is well established that a winding-up petition is not an “action”.   

14.  Even if, contrary to my view, Order 35 rule 2 applies to the petition, I would still dismiss the application for the following reasons. 

15.  First, Order 35 rule 2 provides that an application to set aside the order must be made within 7 days after the trial.  In the present case, the Summons was only issued on 29 December 2021, more than a month after the WU Order had been made.  The director of the Company was aware that the WU Order was made on 24 November 2021, but failed to make the application within the time stipulated.  The delay was substantial as compares to the 7-day time limit stipulated in Order 35 rule 2(2).  I am not satisfied that the reason provided by the Company, namely that it had changed 3 firms of solicitors, to be a valid reason for seeking an extension of time which is more than 3 times of the prescribed time limit.    

16.  Second, I do not see any purpose in setting aside the WU Order as the Company has not demonstrated by credible evidence that it has a bona fide dispute on substantial ground in respect of the debt stated in the SD.  There is also a belated attempt on the part of the Company in seeking to rely on a further  affirmation which is only provided to the Court at the hearing.  By now, the practitioners should be aware that the Companies Court takes a very strict view on the obligation on the part of the company to file evidence in opposition to the petition before the first hearing of the petition.  This was not done by the Company before the WU Order.  Even after the WU Order was made, the Company still failed to demonstrate by credible evidence that there is any bona fide defence to the debt. 

17.  The application is misconceived and wholly devoid of merit.  It is appropriate to order costs on an indemnity basis to reflect the fact that the application is a waste of costs of the Petitioner and the time of the Court.  As the Company is in liquidation and will not be able to pay the costs to the Petitioner, it is appropriate to order the Contributory to pay the costs to the Petitioner and the Official Receiver. The costs of the Petitioner is assessed at HK$300,000. The costs of the Official Receiver in the amount of $14,000 be paid by the Contibutory.