RE SURE LEAD LTD

HCCW 6/2020 & HCCW 7/2020
(HEARD TOGETHER)
[2020] HKCFI 932

HCCW 6/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 6 OF 2020

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 7 OF 2020

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(HEARD TOGETHER)

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D E C I S I O N

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1.  I have before me applications for validation orders under s182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, in both petition proceedings intended to allow the Company to pay the unpaid debts relied on by the petitioner as proving insolvency. The debts arise from a judgment given on the 2 December 2019 in a High Court Action against the two companies. On 5 December 2019, the Petitioners served two statutory demands in respect of the judgment debts. During December correspondence was exchanged between solicitors in which the Company requested the Petitioners to withhold commencing winding-up proceedings as it proposed to appeal the judgments. On 6 January 2020, the Petitioners presented the petitions. On 14 April 2020, the Company made a proposal to pay the petitioners US$400,000 to hold as stakeholders pending the resolution of the appeals. This was a little less than the amount of the judgment debts and took into account what was anticipated by the Company to be the value of a costs order made in the High Court Action in their favour. On 20 April 2020, the parties having failed to reach an agreement for monies to be held by the Petitioners as stakeholders pending the determination of the appeals, the Company proposed that the Petitioners agree to validation orders being made in order that the amount of the judgment debts could be paid and the petitions, which have been advertised, dismissed. The Petitioners have declined to agree to the validation orders.

2.  The Petitioners are liquidators.  One would have thought that it having been made clear by the Company that it wishes to settle the debts the Petitioners would have been keen to agree and obtain payment.  It would appear from Ms Fong’s skeleton argument and her answers to my questions that the Petitioners’ position is that the Company having failed to pay the statutory demands and, therefore, deemed insolvent, it should not be permitted to pay the Petitioners until it has demonstrated that it is solvent. It appears to be the Petitioners’ case that they do not accept the statements in the unsworn affirmation of Tamer Abou El Ata, who is in Egypt, on behalf of the Company exhibited to the affirmation of Tim Au, the Company’s solicitor, that the Company is solvent, that a bank account statement demonstrating that it has approximately HK$10,000,000 in the bank and no other creditors is incorrect.  However, the Petitioners have no evidence that suggests that the Company has any other creditors or is insolvent.  It is very difficult to see why the Petitioners, rather than trying to assist in obtaining payment of the judgment, are being obstructive.  Ms Fong suggests there is a risk that any payment might be a preference, but the risk of that seems entirely hypothetical.  It seems to me that the likely explanation is tactical; some ill thought through and unhelpfully aggressive tactic to stifle the appeals. It has been an irresponsible waste of money and court’s time.  I will grant the validation orders.

3.  I will now hear the parties on costs.

4.  As I have sought to make clear in decisions such as Re Jessop & Baird (Hong Kong) Limited[1] and Re Asia Fortune Media Group Limited[2] validation orders should, where possible, be agreed.  The presentation of a petition can create genuine problems for a company, which has an on-going business and as a consequence needs to obtain a validation order under s182, and s182 should not be weaponised by a petitioner in an attempt to secure a tactical advantage.  Needless refusal to agree the terms of an order in cases where there is no good reason to suspect insolvency (most commonly in shareholder disputes) results in urgent applications to court, which are a waste of the court’s time and resources.  The inconvenience caused in the present case was made all the greater as the application was made at the end of the General Adjournment Period and adds, in my view, to what I view as the Petitioners’ irresponsible failure to agree an order: an irresponsibility made all the more objectionable by virtue of the Petitioners being liquidators acting in a voluntary liquidation.

5.  I will, therefore, order that the Petitioners shall pay the Company’s costs up to and including 19 April 2020 on a party and party basis, and after that date the Petitioners shall pay the costs on an indemnity basis.