In re Mezely Trading Ltd.

HCCW14/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO.14 OF 1999

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R E A S O N S

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1. This is a petition to wind up Mezely Trading Ltd. ("the Company") based on an unpaid judgment debt of $16 million plus interest at 12% from 8 August 1996 amounting to approximately another $5 million. At the adjourned hearing on 6 May, the Company's application for further adjournment or stay was refused and a winding up order made. The reasons appear below.

Background facts

2. Prior to judgment being obtained by the Petitioner, a mareva injunction was granted against the Company. Following the judgment in favour of the petitioner, a statutory demand was served pursuant to s.178 of Cap.32. On the following day, the Company filed a notice of appeal against the judgment.

3. The petition was presented on 8 January 1999. The Company's application for a stay of execution pending the appeal on 26 March 1999 was refused by the trial judge. On 19 April 1999, the Company was ordered to provide security for the costs of the appeal by 8 May 1999 which it duly did.

4. On 23 April 1999, the Company's applied to Godfrey JA (sitting as a single judge of the Court of Appeal) for a stay of execution. The application was dismissed, the Company being unwilling to submit to the inclusion in the order for a stay of a term requiring it to bring into court that same afternoon the sum of RMB 8 million.

5. It is relevant to note that in considering the stay application, Godfrey JA had to form a provisional view as to the merits of the appeal. He found them to be "exiguous". He saw "very little hope of success" for the Company on the appeal.

The Company's application for an adjournment

6. At the hearing of the petition on 26 April 1999, a two-week adjournment was granted. At the adjourned hearing, the Company sought a further adjournment or stay of the petition until after the hearing of its appeal. The appeal is unlikely to be heard until November because of the unavailability of counsel for the respondent to the appeal. But for that, the appeal could be heard in mid-July.

7. Counsel for the Company submitted that the court has a discretion whether or not to grant the adjournment and that it would be appropriate on the facts of this case to grant such an adjournment because (1) no one would be worse off since the assets of the Company are subject to a mareva injunction and accordingly there is no risk of dissipation of assets; (2) that the Company is "balance sheet solvent"; and (3) that no other creditors have appeared to support the petition and, but for the judgment debt which is the subject of appeal, the Company appears to be able to survive.

The applicable principles

8. These were considered in my judgment in Goodway Ltd. v. Pirelli Cables Ltd. [1997] 3 HKC 265. At 267G-H, I cited the observations of Sargant J in Re Amalgamated Properties of Rhodesia (1913) Ltd. [1970] 2 Ch.115 at 121 :

"Judgment creditors are prima facie entitled ex debito justitiae to a winding-up order and it seems to me to be impossible to displace that prima facie position without the very strong proof that the petition is being improperly made use of for some ulterior motive."

It is to be noted that whilst fraud or collusion which taints the judgment upon which the debt is based might raise a valid plea of bona fide dispute in relation to the judgment debt, that did not arise in Goodway Ltd. v. Pirelli Cables Ltd. nor does it arise the present case. Further, the existence of an appeal does not affect the right of the judgment creditor as creditor to present a petition unless special circumstances exist nor does an appeal have the effect of rendering the debt a substantially disputed one. See Goodway Ltd. v. Pirelli Cables Ltd. (supra) at 267D, 268A-G.

9. Whilst accepting the basic premise in Re Amalgamated Properties, counsel for the Company relied on Re Esquire (Electronics) Ltd. [1996] 3 HKC 309 at 313B-C and Re Join Ho Knitting Ltd., CWU No.427 of 1997 (unreported) as illustrating the existence of a residual discretion in the court which could be exercised in appropriate circumstances. He also submitted that the reasons stated in the judgment of Godfrey JA in Re Esquire (Electronics) Ltd. regarding the undesirability of long adjournments which render the process of liquidation more complex are absent from the present case because of the existence of the mareva injunction.

10. Counsel for the petitioner submitted that the discretion is normally only exercised where there is a serious counterclaim or an application to set aside a default judgment. Both those situations are very different from a trial on the merits. He relied on the following passage from the judgment of Godfrey JA in Re Esquire (at 312F) :

"... An adjournment will not in practice be granted at the company's request against the opposition of a petitioning creditor, except when the company disputes the debt and seeks time to put in evidence to that effect, or, if the petition is founded on a judgment debt, to have the judgment set aside : see Buckley The Companies Acts (14th Ed) Vol 1 p 545. An unpaid creditor is entitled ex debito justitiae to an order ..."

The statement in Buckley is supported by the case of Re Lanaghan Bros. Ltd. [1977] 1 All ER 265 which is a default judgment case and not a judgment obtained after a full trial.

11. Counsel for the Company acknowledged that the Company is not in a position to pay the judgment debt. Although according to its balance sheet it has assets of $44 million, this is illiquid and consists of inter-company debts which cannot be readily realized .

12. In the present case, it is to be noted that (1) there is no bona fide dispute as to the debt; (2) the Company has no counterclaim against the Petitioner much less a strong one which the English Court of Appeal has recently held is necessary to justify the staying of a petition (see Re Bayoil SA [1999] 1 WLR 147); and (3) and the judgment is not a default judgment which the Company is seeking to set aside but a judgment on the merits. On the authorities, the fact that the Company is pursuing an appeal, of itself, is not a sufficient ground for the exercise of discretion. Further, to describe the Company as being in "deep freeze" is not particularly meaningful. Although a mareva injunction is in place, it does not follow that no one can be adversely affected by the adjournment since under the order, the Company may spend up to $50,000 a week towards its ordinary business expenses as well as on legal representation. It is also in a position to dispose of assets in the ordinary course of its business.

13. As noted above, the Company has failed twice in its efforts to obtain a stay of execution. That is a highly relevant fact in deciding whether winding up proceedings should be stayed or adjourned. See Goodway Ltd. v. Pirelli Cables Ltd. [1997] 3 HKC 269F-G.

14. Having regard to all the circumstances, the adjournment sought is refused.