SCANTY INVESTMENT CO AND ANOTHER v. BRILLIANT FUNCTIONS LTD AND OTHERS

HCCW 190/2018

[2020] HKCFI 498

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 190 OF 2018

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D E C I S I O N

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1.  I have two summonses before me. The First is an application by the 1^st to 3^rd Respondents (“Respondents”) to strike-out the Petition on the grounds that there is no prospect of a winding-up order being made. The second is an application by the Petitioners for leave to amend the Petition. The amendment application is not opposed in the event that I dismiss the strike-out summons [1].

2.  The gravamen of the Respondents’ application is shortly stated.  The 7^th Respondent, ACE International (B.V.I.) Limited (“Company”), which is the subject of the Petition, is incorporated in    the British Virgin Islands (“BVI”).  It is solvent and carrying on business.     If a dispute arises between shareholders of a solvent, active company     the normal relief that is granted is a buy-out order pursuant to Part 14, Division 2 (ss723-725) of the Companies Ordinance, Cap 622 (“Ordinance”).  Section 180(1A) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, provides:

“Where the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the court shall not refuse to make a winding-up order on the ground only that some other remedy is available to the petitioners unless it is also of opinion that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.”

The authorities are clear [2] : the presumption is against winding up a solvent company with an ongoing business.  As the Company is incorporated in the BVI and does not have a place of business in Hong Kong the relief under Part 14 is not available to the Petitioner.      In these circumstances even if the Petitioners can demonstrate that there is sufficient connection between the Company and Hong Kong to justify this Court exercising jurisdiction over it (and it is not in dispute that they can), it should not do so as it can obtain a buy-out order under the BVI equivalent of Part 14.

3.  During his address Mr Wong offered an undertaking on behalf of the Petitioners that in the event that this Court declined to make a winding-up order the Petitioners would not commence proceedings in the BVI seeking relief for unfair prejudice.  This took most, if not all, the force out of Mr Maurellet’s argument as clearly there is no need to strike out or stay the Petition on the grounds that the Petitioners should pursue what is in substance an unfair prejudice claim in the place of incorporation in which the type of remedies the Hong Kong Court   would normally grant is available. In the light of the undertaking Mr Maurellet’s clients are in no way prejudiced by the Petitioners’ decision to seek relief in Hong Kong; arguably they are advantaged as if the court cannot be persuaded that this case is one of the few in which a winding-up order is appropriate, as opposed to relief under s725 of the Ordinance, they will lose.  For this reason I will not strike-out the Petition. However, it still remains necessary to consider the substantive argument because costs have to be determined and it also will be useful for practitioners, who may find themselves faced with the same issue in the future.  I do not consider it necessary to consider some of the more detailed arguments raised initially about, for example, the ability of the Respondents to buy out the Petitioners.

4.  In recent years the courts of Hong Kong have considered in a number of authorities the principles that govern the circumstances in which the discretion given to the court to wind up a foreign incorporated company should be exercised.  They have culminated in the decision of the Court of Final Appeal in Kam Leung Sui Kwan v Kam Kwan Lai [3] (“Yung Kee”), which concerned a solvent company.  In summary the principles that emerge from the decision are as follows:

(1)     The starting point is that the most appropriate jurisdiction to wind-up a company is its place of incorporation [19].

(2)      Three core requirements should usually be satisfied before the Court will exercise its exorbitant jurisdiction [20–21]:

(a)   there has to be a sufficient connection with Hong Kong, but this does not necessarily have to consist in the presence of assets within the jurisdiction;

(b)   there must be a reasonable possibility that the  winding-up order will benefit those applying for it; and

(c)   the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.

(3)     In a shareholders’ petition, it is necessary to establish     a “sufficient connection” between the company and Hong Kong, which requires a multi-factor analysis.  Important factors include:

(a)   The whereabouts of the shareholders [30] and the directors [32(5)];

(b)   Where the company’s subsidiaries are incorporated [32(3)];

(c)   Where the underlying assets (including the assets of its wholly-owned subsidiaries) of the corporate group are situate [32(2)];

(d)   Where the company derives its income from [32(4)]; and

(e)   Where the operations of the Company took place [32(7)].

(4)    It is essential that there is a real likelihood that the petitioner will derive some benefit from the winding-up order [35].

5.  The Respondents have filed an affidavit of Nigel Meeson QC explaining to the court the relevant statutory  provisions of the BVI Business Companies Act 2004 and in particular Part XI Members’ Remedies.  Mr Meeson explains (and this is not in dispute) that s184I of the Act provides that if the court is satisfied that a member has, qua member, been unfairly prejudiced it may order by way of relief, amongst other things, that the company or any other person acquire the shareholder’s shares.  Although the provisions are not identical to Part 14 of the Ordinance they are substantively the same.     As a consequence if the Petitioners had issued a petition in the BVI they would have been able to obtain the type of order that I would expect most commonly to be ordered in Hong Kong in the event that court is satisfied that they had been sufficiently prejudiced to justify relief being granted.

6.  In Yung Kee the Court of Final Appeal held that the court had no jurisdiction to make an order under the predecessor provisions to Part 14 (s168A of the Companies Ordinance, Cap 32) if the company did not have a “place of business in Hong Kong”, which Yung Kee did not [4] .  The Company does not.

7.  The Respondent in Yung Kee did not argue at first instance (before me) or in the Court of Appeal that that it was unreasonable for the petitioner to proceed in Hong Kong and seek exclusively a winding-up order (and possibly leave open if unsuccessful seeking relief under s184I) and this was a factor to take into account when the court came to decide whether to exercise its jurisdiction over a BVI incorporated company.  The issue was raised for the first time in the course of submissions  in the Court of Final Appeal.  In their joint judgment Ma CJ and Lord Millet NPJ considered it far too late to raise such a point, which they state ought to have been raised at the earliest opportunity.  Their Lordships say this at [61]:

“61. It is correct that s.327(3)(c) provides only for the remedy of winding-up if the court is of the opinion it is just and equitable to do so. We are however not aware of any case in which after trial a court has, despite being of the view that it is just and equitable to wind up, refused to do so merely on the basis that there is another jurisdiction which may be able to grant what may be regarded as more appropriate relief. If such a point is to be taken at all, it ought to be taken at the earliest possible opportunity, whether on a strike-out application or some other form of preliminary application. In the present case, it is far too late to take such a point. It surfaced for the first time in the course of submissions before this Court. Further, given the spectre of yet another hard fought hearing in the BVI even before any relief can be considered, this possibility must be rejected.”

8.  I am also unaware of any case in which in closing submissions, (in a case in which the petitioner has sought the winding-up of a solvent company with an active business incorporated in another jurisdiction with provisions substantially the same as our Part 14) a respondent has sought to avoid a winding up order on the grounds that the place of incorporation offers a more appropriate remedy.  However, I find this unsurprising.  Lawyers alive to the question and with a client, who wishes the point taken, would be likely to take it early as Mr Maurellet’s client has done.

9.  The Court of Final Appeal give no indication of how they consider this issue impacts on the resolution of the jurisdiction issue before the court.  It seems to me that it is a matter of considerable weight. In my view unless it can be demonstrated that the respondents would be unlikely to be able to finance the purchase of the petitioner’s shares or there is some other compelling reason not to require the petitioner to litigate his complaint in the place of incorporation, the petitioner should be required to do so.  In my view it would generally be unreasonable     for a shareholder, who has agreed to participate in a business using a foreign incorporated company to insist on seeking relief in Hong Kong,      which would not normally be granted for the reasons explained in      Re Wong To Yick [5].

10.  Generally, it will be consistent with the philosophy underlying Hong Kong’s own legislation, that a shareholder dispute should be resolved in a jurisdiction which can grant either a buy-out order or a winding-up order.  It follows that if a company is incorporated in a jurisdiction such as the BVI, which has a similar unfair prejudice regime to Hong Kong and the company does not have a place of business here generally the dispute between shareholders should be litigated in the place of incorporation, because the petitioner is behaving unreasonably in seeking exclusively a winding-up.

11.  I will dismiss the Respondent’s application against the undertaking proffered by Mr Wong and order nisi that the Petitioners pay the costs of the Respondents’ summons forthwith with a certificate for two counsel, such costs to be taxed if not agreed.  I will make an order in the terms of the Petitioners’ summons of 26 November 2018.