IN RE SIMPSON DEVELOPMENT INVESTMENT (HK) CO. LTD.

HCCW 422/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO.CW 422 OF 1998

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REASONS FOR JUDGMENT

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1. At the hearing of the petition on 23 November 1998, it was ordered that the Company be wound up. The reasons appear below.

2. By Order dated 9 November 1998, the Hong Kong and Shanghai Banking Corporation Limited ("the Petitioner") was substituted as petitioner in place of K. and R. Wong Construction Company Limited (In Liquidation). Leave was also granted to the Petitioner to amended the petition.

3. The amended petition is a creditor's petition. Paragraph 9 of the amended petition set out the text of a letter dated 23 April 1998 ("the Letter") to the Company from the solicitors for the Petitioner demanding repayment of all sums advanced by way of general banking facilities and due under a Mortgage dated 18 July 1996 as well as vacant possession of the properties subject to the Mortgage ("the Properties"). The amount then outstanding was in excess of $47 million. The letter further stated that failing repayment by 28 April 1998, proceedings would be issued against the Company for recovery of all sums outstanding, interest and legal costs as well as possession of the Properties. The amount outstanding and due to the Petitioner as at the date of 6 November 1998 was in excess of $52 million.

4. According to valuations made as at 29 July 1998 the Properties have an aggregate value of $12.6 million. Even if there has been any fluctuation in the value of the Properties between July and the present time, the unsecured portion of the amount owing to the Petitioner is still significant, being of the order of $39 million.

5. Counsel for the Company opposed the petition on the ground that there has been no statutory demand made within section 178(1)(a) of Cap.32. Mr Mui submitted that the Letter was "just a simple demand letter". So far as I was able to understand his submission, for the presumption to arise under section 178(1), there has to be a reference to a period of 21 days for payment. Apart from that, I was unable to discern from Mr Mui's submission the essential features of a statutory demand (i.e. a demand within section 178(1)(a)) said to be absent from the Letter. Regrettably, neither counsel was able to render further assistance to the court on the question whether the Letter constituted a statutory demand for the purposes of section 178(1)(a).

6. Section 178 reads :

"178. Definition of inability to pay debts

(1) A company shall be deemed to be unable to pay its debts-

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding $5,000 then due, has served on the company, by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due, and the company has for 3 weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; or ...."

When one looks at the wording of the statutory provision, there is nothing that requires there to be any reference to 21 days in the demand. The 3 week period is relevant only in the context of the company failing or neglecting to pay a debt that is not disputed on bona fide grounds within that period. The point taken plainly has no substance.

7. For good measure and despite the lack of assistance from counsel, I have considered whether any other point could be taken under section 178(1)(a). I have therefore considered the question whether the Letter which was signed not by the Petitioner but its solicitors was "under [the] hand" of the Petitioner as required by section 178(1)(a). Such an objection would not be valid : the Court of Appeal has held that the personal signature by the petitioner is not necessary. See Cheong Yip Finance (Hong Kong) Ltd. v. Moscow Narodny Bank Ltd. [1979] HKLR 558 at 560.

8. The Company takes no point on quantum and does not dispute the fact that it received a demand in April 1998 for repayment of monies due and owing which was served at its registered office. It has not made any repayment pursuant to that demand. So, here, there is a demand for a debt which is not disputed, service on the Company at its registered office and failure to pay that undisputed debt within 21 days of the demand. Mr Zimmern submitted that in the alternative the Company be wound up on the just and equitable ground. That submission is misconceived.

9. Proof by a creditor that the debt has not been paid within a reasonable time is prima facie evidence that the company is insolvent where the company has no bona fide basis on which to dispute the debt in question. See Re Globe New Pattern Iron and Steel Company (1875) LR 20 Eq.337. Therefore irrespective of whether the Letter constitutes a statutory demand, it is open to the court to infer that the Company is unable to pay its debts within section 177(1)(d) where it was under an undisputed obligation to pay a specific sum and failed to do so. See Re United Strength Limited [1992] 1 HKC 386 and 6 Halsbury's Laws of Hong Kong at 95.0978. Were it necessary to do so, I would draw such an inference.

10. Accordingly, I am satisfied that the Company is unable to pay its debts.