AI GLOBAL INVESTMENT SPC v. RARE EARTH MAGNESIUM TECHNOLOGY GROUP HOLDINGS LTD

HCCW 81/2021

[2022] HKCFI 2063

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO 81 OF 2021

________________________

________________________

________________________

________________________

DECISION ON COSTS

________________________

1.  On 11 May 2022, this Court handed down its decision on the three applications before it (the “Decision”)  and made the costs order nisi that the Petitioner is entitled to the costs of and occasioned by the applications for the dismissal and adjournment of the Petition and the Company is to pay the same on party to party basis, to be taxed if not agreed with a certificate for two counsel.

2.  The Company now applies to vary the said costs order nisi to the effect that the Company should be entitled to costs as the Petition was subsequently dismissed after the sanction of a scheme of arrangement by Mr Justice Harris on 27 May 2022.

3.  At the sanction hearing on 27 May 2022, Mr Justice Harris remitted the issue of costs to this Court for consideration.

COSTS ORDER NISI

4.  The parties have filed their respective detailed written submissions on costs to which I have duly considered. I am of the clear view that the costs order nisi should be made absolute. First, the short adjournment was granted as a matter of indulgence to the Company so as to facilitate its restructuring. Save any law reform, there is no general moratorium under our current insolvency legal regime. It is, thus, axiomatic that an undisputed creditor, as of right, is entitled to both present a winding-up petition and to press for a winding-up order. There is nothing inherent wrong in any creditors adopting such an approach. Whilst a petitioning creditor may adopt a commercial approach so as to facilitate a restructuring, it is not legally obliged to do so under our current law.

5.  I agree with Mr Maurellet SC that where a company seeks an adjournment, the starting point is that it should bear the petitioner’s costs (see Re Grande Holdings Ltd (unrep., HCCW 177/2011, 21 October 2013)  at §§12-13 per Deputy High Court Judge Le Pichon and Re Advanced Wireless Group Ltd (unrep., HCCW 441/2006, 24 April 2007 at §55 per Kwan J (as she then was).

6.  In seeking an adjournment, the Company sought an indulgence of the Court not to make an immediate winding-up order on the basis of an undisputed debt. As I said earlier, the Petitioner was entitled to a winding-up order ex debito justitiae.

7.  Mr Ho for the Company submitted that the Petitioner totally failed in its attempt to obtain an immediate winding-up order, whereas the Company succeeded in getting time to progress its restructuring. The reality of the case is that the Company was the effective winner. I disagree. The Company obtained further time to restructure its debts because of an indulgence granted by this Court. It has not won a legal battle or vindicated any legal rights.

8.  In relation to the jurisdiction challenge to this Court, whether it is merely an alternative and complementary argument or not, the fact is that it was a discrete and self-contained issue. There is no dispute that if the Company’s jurisdiction challenge were to be successful, the inevitable consequence is that the Petition had to be dismissed. The Company did pursue that application at the hearing before this Court and it failed to prevail. In the circumstances, costs should follow the event.

9.  Mr Ho for the Company submitted that the Company made no application as such to dismiss the Petition. But Mr Ho also fairly agreed that if the Court accepted the jurisdictional challenge, the logical conclusion would be that the Court should proceed to dismiss the Petition. Hence, it is perfectly legitimate for the Petitioner to defend the jurisdictional challenge to which it succeeded. There is no good reason why this Court should deprive the Petitioner of its costs on this discrete jurisdictional challenge.

COSTS OF THE PETITION

10.  I am of the view that, although the Petition has been dismissed as a result of the sanction of a scheme of arrangement, the Company should be entitled to the costs of the same. The starting point again is that an undisputed creditor, under our legal system, is entitled to present a winding-up petition and to press for a winding-up order as of right.

11.  The Petitioner’s undisputed debt was only compromised as a result of a scheme of arrangement which is binding on it as of 27 May 2022. Prior to the sanction of the scheme of arrangement, the Petitioner was entitled to press for a winding-up order. Mr Ho for the Company submitted that it was the Court’s adjournment of the Petition that led to the scheme’s cancellation of the petitioning debt. I am not sure that is correct. It is the sanction of the scheme which involved a basket of considerations which led to the compromise of the petitioning debt. It is analogous to the payment of the petitioning debt upon the presentation of a winding-up petition. In such circumstances, the Petitioner would be entitled to the costs of the Petition.

12.  Mr Ho for the Company also submitted that there was no good reason for a second petition to be presented in Hong Kong given the fact that the Company was already subject to a winding-up petition in Bermuda. I do not need to resolve this issue for the purpose of determining the costs of the Petition because the Company had never sought to dismiss or strike out the Petition on the basis that it was an abuse of the process of the Court to present a second petition in Hong Kong when  the Company was already subject to a winding-up petition in Bermuda. There might be jurisdictional advantages for the Petitioner to present an ancillary winding-up petition in Hong Kong. This was not an issue that was fully argued before this Court.

13.  As I understand it, the Company’s real grievance is that it had used its utmost efforts to achieve a debt restructuring, whilst the Petitioner used the Petition to the fullest to thwart a restructuring. I can well understand the sentiment. However, whilst in an insolvency context, normally a company would understandably use its every effort to restructure its debts, undisputed creditors are, in general, perfectly entitled to present a winding-up petition and to press for a winding-up order if they consider that to be in their best commercial interest. Until our laws introduce a statutory moratorium, a petitioner is entitled to press for a winding-up order and it is for the company to present materials and evidence to persuade the Court why indulgence should be granted to the company in the best interest of all creditors concerned.

DISPOSITION

14.  For all the reasons stated above, I make the following orders:

(1)  The Costs Order nisi becomes absolute forthwith;

(2)  The Costs of and occasioned by the Petition be paid by the Company to the Petitioner, out of the Company’s assets and to be taxed on a party to party basis.

15.  I also make an order that the Petitioner is entitled to costs of these applications to be paid by the Company, on a party to party basis, if the parties fail to reach any agreement.

16.  Finally, I thank counsel for their helpful written submissions.