RE CDCP INTERNATIONAL LIMITED

IN THE HIGH COURT OF JUSTICE

HONG KONG

COMPANIES WINDING-UP

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JUDGMENT

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1. This is a petition by Asian Hardwood Limited (the petitioner) for a winding-up order against CDCP International Limited (the company) on the grounds that it is insolvent and unable to pay its debts and upon the just and equitable ground.

2. The company was incorporated under the Companies Ordinance in March 1979 with a nominal capital of US$20,000,000 divided into 175,000 ordinary shares of US$100 each, 20,000 A class shares of US$100 each and 5,000 B class shares of US$100 each. The amount of capital paid up or credited as paid up is US$2,024,700. The company was established to carry on the business of a construction company.

3. By a letter dated the 22nd March 1983, the Swiss Bank Corporation (Swiss Bank) made available to the company loan facilities of US$2,100,000. The loan was secured on the 9th April 1985 by a mortgage debenture. On the 18th March 1986, the Swiss Bank assigned to the petitioner the overdraft and other credit facilities which at the date of the assignment amounted to US$1,787,813.25 together with interest. Notice in writing of the assignment was given by the petitioner to the company on the 15th April 1986.

4. On the 7th November 1986, the petitioner served a statutory demand on the company, demanding payment of the sum of US$1,877,235.86 by the close of business on that day. The demand was made pursuant to default in payment under clause 11A(1) of the debenture. As no payment was made within three weeks of the demand the company was deemed, by virtue of section 178(1)(a) of the Companies Ordinance to be unable to pay its debts. The petition to wind up the company was presented on the 18th December 1986. An affirmation verifying the petition pursuant to the provisions of Rule 26 of the Companies (Winding-up) Rules was made by Anita Cheng in which she says that she is authorised to make the affirmation on behalf of the petitioner, but does not set out in what capacity she is entitled to do so.

5. Rule 26 provides:

"        Every petition for the winding up of a company by the court, shall be verified by an affidavit referring thereto. Such affidavit shall be made by the petitioner, or by one of the petitioners, if more than one, or, in case the petition is presented by a corporation, by some director, secretary, or other principal officer thereof, and shall be sworn after and filed within four days after the petitioner is presented, and such affidavit shall be sufficient prima facie evidence of the statements in the petition."

Although the affirmation was affirmed on the 20th January 1987, leave was granted by Master McInnes to file the affirmation out of time.

6. Mr Scott who appeared on behalf of the company submitted that the affirmation was defective for there was no evidence of the deponent's authority and did not specify the source of her information. Although he conceded that hearsay evidence was admissible he contended that Anita Cheng was merely a cipher. In an affidavit sworn on the 5th February 1987, Mr N S. Ezequiel who is currently a consultant of the Philippines National Construction Corporation (PNCC) and a former director of the company which is a subsidiary of PNCC said that Anita Cheng was the Secretarial Department Manager of the firm of Deloitte Haskins & Sells (Deloittes), certified public accountants and that on their behalf and on the instructions of PNCC, had personally dealt with the affairs of the company. She acted as the petitioner's secretary on behalf of Secretaries Limited a company provided by Deloittes to perform secretarial services. Corazon del Mundo Raquedan, the former general manager for finance and administration of the petitioner also made an affidavit confirming that Anita Cheng had full authority to make the affirmation verifying the petition.

7. Upon the facts Anita Cheng in her capacity as secretary had full authority to make the affirmation with the result I am quite satisfied that there was no merit in the argument that it was defective. I am satisfied that she was not a cipher.

8. The main ground of opposition, however, that has been advanced is that a substantial dispute has been raised by the company with regard to the debt. It is trite law that the Companies Court is not the appropriate forum to decide the validity of a debt that is he subject of a bona fide dispute based upon substantial grounds, see Mann v. Goldstein ⁽¹⁾ and Stonegate Securities Limited v. Gregory⁽²⁾.

9. The evidence shows that Gopal Murugasu of Kota Kinabalu, Sabah, Malaysia was appointed on the 12th May 1986 to be the receiver to take control of the assets secured under the debenture. C.H. Williams, Talhar and Wong (Sabah) Sdn. Bhd. a firm of chartered surveyors and international property consultants were appointed by the receiver in June 1986 to make a valuation of the assets seized under the debenture. In a report dated the 1st August 1986 the Open Market Value of the goods was assessed to be $301,500 (Ringgit) which is equivalent to about US$118,000 and the Forced Sale Value $163,500 (Ringgit) which is the equivalent of about US$64,000. The report described the plant and machinery to be mainly road construction equipment, most of which was in a poor state of maintenance or in scrap condition. A detailed valuation was made of each individual item.

10. The plant and machinery was subsequently advertised for sale in local newspapers in Sabah, and sales amounting to a total of $170,600 (Ringgit) were made. Other items have since been sold subject to receipt of payment.

11. The company complains that the petitioner has given no notice of credits for the proceeds of sale and that when the statutory demand was made the petitioner had not given full credit for assets that had been sold. However, at the time when the statutory demand was made the petitioner was not aware that other goods had been sold whilst it is clear that the company has been informed of credits in the sum of US$46,772.59. Further there was no merit in the suggestion that some equipment and machinery seized by the receiver had not been taken into account.

12. The crux of the company's resistance is based upon an allegation that the goods seized were sold at a price that was substantially below the market value. The company asserts that if the goods had been sold at the market value together with other goods seized, the amount realised would have extinguished the debt. In support of this contention Mr Ezequiel in his affidavit of the 25th March 1987 refers to a letter written to the receiver by PNCC on the 3rd September 1986 that the company and PNCC made an offer to find buyers for the equipment and submitted a draft Deed of Modification, but that the proposal was not acceptable to the petitioner unless PNCC included other machinery and equipment as an additional means of settling the company's liability. By this refusal, the company contends that it was deprived of selling the goods at its proper market value. It is also said that the receiver insisted that PNCC buy the goods without giving them an opportunity of finding buyers. Another argument that was put forward was that the receiver had made no attempt to sell the assets outside Sabah where the market value, according to the company, for the equipment is limited. Mr Ezequiel considered that the equipment and machinery could have been sold in the Philippines, Indonesia, Malaysia or Hong Kong where PNCC had connections which would have resulted in a higher price being paid than in Sabah. I find this suggestion to be wholly unrealistic. There was indeed no evidence to show that a higher price was likely to have been obtained.

13. Mr Scott made a submission that as the petitioner holds 10,247 class A preferred shares in the company the petition had not been presented by reason of the debt, but to resolve internal shareholders disputes for he conceived that the petitioner would not have taken the assignment of the debt from the Swiss Bank if there had been a genuine belief that the equipment and machinery charged by way of security for the debt was worth substantially less than the amount of the debt. I am unable to accept that this argument has any relevance.

14. Although a receiver acts as the agent of the borrower and this is expressly set out in clause 5(D) of the debenture Mr Scott submitted that in this case he acted as agent for the petitioner by reason of the petitioner's interference in the conduct of the receivership and by so doing failed to obtain a reasonable price for the machinery. Mr Scott relied upon Standard Chartered Bank Limited v. Walker ⁽³⁾, where it was held in that a receiver realising assets under a debenture owed a duty both to the borrower and to the guarantor of a debt, to take reasonable care to obtain the best price that the circumstances permitted and that despite the receiver being deemed to be the company's agent, the bank as debenture holder might be attached with responsibility for the receiver's action if it were shown that he had interfered with his conduct of the receivership. In support of his argument, Mr Scott referred to certain telexes that had been written by the petitioner to the receiver which may be found exhibited to the affidavit of Miss Raquedan at "CMR-7". In particular, the telex of the 28th August 1986 states that PNCC requested the petitioner to stop the receiver from selling their equipment as they expressed a preference to sell it themselves at a better price. The petitioner agreed provided that the proceeds of sale were passed onto the receiver. A second telex of the same date reads:

"........Have advised PNCC that we cannot stop receiver from selling equipt until receipt of their proposal W/C we have asked them to submit to you directly. Acceptance of proposal subject to FF:

 

In another telex dated the 29th August 1986, the receiver informed the petitioner that if the company are confident of a better price, they may offer to buy the equipment from him at the stated price for cash or retain them or sell them to another third party. A letter from PNCC dated the 3rd September 1986 to the receiver with regard to the proposed Deed of Modification was, as I have already said, refused by the petitioner. This evidence in no way supports Mr Scott's contention that there was any interference by the petitioner with the receiver in his conduct of the sale of the assets. In fact the evidence reveals that the petitioner took into account the requests of the company when they communicated with the receiver. The receiver on the evidence acted independently with no interference by the petitioner. The facts in the Standard Chartered Bank case were vastly different from the present case. Accordingly, I reject the submission made on behalf of the company that the receiver acted as the agent of the petitioner. Even if I had held otherwise, no evidence was adduced that the receiver had acted negligently in the conduct of the sale nor was there any evidence to show that he did not receive a reasonable price for the assets that were sold. The company's argument that the proceeds from the sale of the assets would have extinguished the debt was quite without foundation. It is indeed significant that the company placed no valuation on the assets, but relied on a bare assertion.

15. In re Tweeds Garages Limited ⁽⁴⁾ which was cited to me by Mr Bell who appeared for the petitioner, is authority for the proposition that a dispute as to the precise sum owed by a debtor is not a sufficient answer to a petition to wind-up the company. Mr Scott's reliance upon In re A Company (No. 003729 of 1982⁽⁵⁾ as authority to the contrary is erroneous for in that case the company paid a sum which they considered was sufficient to discharge the amount claimed, but disputed liability for the balance. The dispute was not as to quantum, but on the grounds of liability. The petition was therefore dismissed as there was a substantial dispute with regard to the debt made in good faith.

16. In the instant case, the company has not disputed liability for the debt and it is abundantly clear that the only dispute is as to quantum. The receiver acted as agent on behalf of the company and any complaints that the company has with regard to his conduct are not relevant to the petition. However, upon the evidence adduced, there are no grounds to show that the sale was not conducted properly nor was there any evidence that the goods were sold at a substantial under value. The optimism expressed on behalf of the company that the sale of the assets would have extinguished the debt was plainly quite ludicrous. As the issue raised only relates to quantum the company is not entitled to resist the making of a winding-up order. The company has failed to establish that there is a substantial dispute concerning the validity of the debt. As a result, the petitioner is entitled to the usual compulsory order with costs.

(1)    [1968] 1 W.L.R. 1091

(2)   [1980] Ch. 676

(3)    [1982] 1 W.L.R. 1410

(4)    [1962] 1 Ch. 406

(5)    [1984] 1 W.L.R. 1090