WINLOK INVESTMENT LTD. v. NICELINE CO.LTD.& OTHERS

HCCW 423/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS

NO. 423 OF 2002

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REASONS  FOR DECISION

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1. This is an application for a validation order under s.182 Companies Ordinance. At the conclusion of the hearing, I gave an order in terms of paragraph 1 save as to sub-paragraph (a), and in view of time constraints, said that I would give the reasons for my decision in writing later. I do so now.

2. The 1st Respondent company Niceline Co. Ltd ("the Company") is held as to 30% by the Petitioner and as to 70% by the 2nd Respondent, Sinclair Profits Ltd ("Sinclair"). Sinclair is itself owned by the 3rd Respondent, Cheung Kong Holdings Ltd ("CKH") and the 4th Respondent, New World Development Co Ltd ("NWD") through their respective subsidiaries.

3. The Company is interested in certain joint venture companies ("the JV Companies") in the PRC which carry on the development of various sites in Beijing.

4. On 18 April 2002, the Petitioner presented a petition, alleging that the affairs of the Company were being conducted in a manner unfairly prejudicial to it. The relief sought is the winding- up of the Company on the just and equitable ground, alternatively, an order that CKH and NWD be ordered to purchase the shares of the Petitioner in the Company.

5. On 3 May 2002, the Company, together with Sinclair and CKH, made the present application for an order in the usual form that notwithstanding the presentation of the petition, (a) all payments made into or out of the bank accounts of the Company in the ordinary course of business of the Company and (b) all dispositions of the property of the Company made in the ordinary course of its business for proper value shall not be void by virtue of s.182 CO. The application was supported by the 4th Respondent.

6. The application was supported by two affirmations of Chung Sun Keung, a director of Sinclair. There was no evidence from the Petitioner in answer to these affirmations.

7. In relation to sub-paragraph (a) of paragraph 1 of the summons, it was common ground before me that to date, the Company did not have any bank accounts, nor was there evidence of any present intention on the part of the Company to operate any bank accounts of its own. In those circumstances, I took the view that sub-paragraph (a) was academic, and leading counsel for the 1st-3rd Respondents did not press the matter.

8. In relation to the rest of paragraph 1 of the summons, there was evidence in the affirmation of Mr Chung that funds had to be regularly advanced by the Company to the JV companies for the purpose of the development of the sites. Sinclair in turn advanced funds to the Company, under a contractual obligation in the Shareholders Agreement. The document under which the Company undertook an obligation to advance funds to the JV companies was not before the Court, but Mr Chung deposed on affirmation that there were terms in the JV contracts under which the Company was required to pay the costs incurred by the JV companies in respect of the sites. There was no evidence to contradict this.

9. Although funds were directly transferred from a subsidiary of CKH to the JV companies without passing through any bank accounts of the Company (the Company having no bank account of its own), the payments were booked by Sinclair as a credit to the CKH subsidiary and as a debit to the Company's loan account with Sinclair, and booked by the Company with a matching credit to Sinclair and a matching debit to the JV companies. This is supported by the Audited Accounts of the Company which show a substantial indebtedness to the Company by its JV subsidiaries.

10. Counsel for the Petitioner submitted that there was no disposition of the property of the Company in the above arrangement. With respect, I cannot agree. What is important for the purposes of considering what constituted the Company's property is not the method by which funds were physically transferred, but the various parties' rights in the funds. When these transfers were effected, the money became the property first of Sinclair, then of the Company and then of the JV companies. It is clear therefore that every time funds were transferred , the property of the Company is disposed of to the JV companies. If authority is needed, that can be found in the decision of the Court of Appeal in Chevalier (HK) Ltd & anor v Joint Liquidators of Right Time Construction Co Ltd (in liquidation) [1990] 1 HKC 35.

11. Counsel for the Petitioner further submitted that it has been alleged in the petition that a number of recent events have shown that CKH and NWD intend to sell the project, and that has been verified on affirmation by a director of the Petitioner. Accordingly, he submitted, there is no course of business to provide for.

12. The short answer to this is that in the event that the Company ceases business, any dispositions of the Company's property then would not be in the ordinary course of its business for proper value, and the validation order simply would not apply, and s.182 would have its usual effect.

13. Finally, as a matter of completeness, I would record that it was submitted on behalf of the 1st-3rd Respondents that the Company was commercially solvent in that Sinclair was under an obligation to support it, and there has been no evidence or submission from the Petitioner to challenge this.

14. In the circumstances, I made an order in terms of paragraph 1 save for sub-paragraph (a). I also gave an order that the costs of and occasioned by the application be costs in the cause of the petition. This was the costs order sought in the summons and the fact that the 1st-3rd Respondents did not abandon sub-paragraph (a) of paragraph 1 until the hearing shows that the Petitioner would have been justified in attending the hearing in any event to oppose the order.