GLORY SUN LAND GROUP LTD v. KANG NING AND ANOTHER

HCMP 682/2023

[2023] HKCFI 2499

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 682 OF 2023

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D E C I S I O N

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1.  I have before me an application by the Company to enjoin the Defendants from presenting a petition to wind up the Company on the grounds of insolvency relying on statutory demands dated 18 April 2023 that the Defendants have presented in respect of sums due, but unpaid pursuant to bonds that they purchased as subscribers.

2.  In respect of the 1^st Defendant, Ms Kang, the statutory demand refers to:

(1)  Subscription Agreement dated 22 December 2020 and Bond Certificate dated 24 December 2020 (“1^st Bonds”).

(2)  Subscription Agreement dated 2 June 2021 and Bond Certificate dated 16 June 2021 (“2^nd Bonds”).

(3)  Subscription Agreement dated 20 July 2021 and Bond Certificate dated 27 July 2021 (“3^rd Bonds”).

3.  In respect of the 2^nd Defendant, Mr Lin, the statutory demand refers to:

(1)  Subscription Agreement dated 22 December 2020 and Bond Certificate dated 24 December 2020 (“1^st Bonds”).

(2)  Subscription Agreement dated 25 June 2021 and Bond Certificate dated 5 July 2021 (“2^nd Bonds”).

4.  As can be seen the earliest of the subscription agreements relied on is dated 22 December 2020 in the case of both Ms Kang and Mr Lin. There is no dispute that the sums claimed have become payable and the failure to pay them constitutes an event of default under the Bonds. The Company says, however, that it is premature for the Defendants to present a petition relying on the debts, because the terms and conditions of the Bonds require that first the Bondholders consider this proposed action at a meeting of the Bondholders under the relevant series of Bonds and that until this has taken place and 75% of Bondholders have voted to approve the Defendants so doing they are prohibited from issuing a petition.

5.  The Defendants dispute this on three grounds. First, that they had not received the relevant terms and conditions before entering the subscription agreements, secondly, that the relevant term does not extend to presentation of a petition, only proceedings by the Defendants to recover the sums due to them, i.e., a suit rather than recourse to the class right of a creditors of insolvent company to present a petition and, thirdly, that even if the court rejects the first two arguments that there is some overarching public policy principle that overrides the contractual provision and allows them to present a petition.

6.  It is not in dispute that in order successfully to oppose a winding up petition, or in the present case succeed in enjoining presentation of a petition, the Company has to demonstrate a bona fide defence on substantial grounds and in the case of an application for an injunction that the defence was known to the Defendants at the time they threatened to issue a petition. In the present case the latter issue does not require further consideration as the Company’s ground for opposition were clearly brought to the Company’s attention before the statutory demands were issued. If I am satisfied that there is a bona fide defence on substantial grounds I should prohibit presentation of a petition and leave the creditor to prosecute its claim through a suit not determine the dispute.

7.  The relevant provision of the terms of the Bonds are as follows.

“Clause 10: ‘At any time after the Bonds have become due and repayable, and subject to the approval of the Bondholders by a Special Resolution, any Bondholder may by notice and at its discretion as it may think fit, institute such proceedings against the Company to enforce repayment of the Bonds and to enforce the provisions of the Instrument.’”

“Clause 11(A), in relevant parts, provided:

‘MEETINGS OF BONDHOLDERS, MODIFICATION AND WAIVER

(A) MEETING

The Instrument contains provisions for convening meetings of Bondholders to consider any matter affecting their interests (including the sanctioning by Special Resolution of a modification of the Bonds or the provisions of the Instrument). The quorum for any such meeting for passing a Special Resolution will be two or more persons holding or representing at least 50% in principal amount of the Bonds for the time being outstanding. A Special Resolution passed at any meeting of Bondholders will be binding on all Bondholders, whether or not they are present at the meeting. The Instrument provides that a written resolution signed by or on behalf of a holder or the holders of not less than 75%of the aggregate principal amount of Bonds outstanding shall be as valid and effective as a duly passed Special Resolutions.’”

8.  I deal with each of the Defendants’ arguments. As I have explained the earliest subscription agreement relied on by the Defendants is dated 22 December 2020. However, the Company has adduced emails which appear to demonstrate that copies of the Deed Polls containing the relevant terms were sent to the Defendants on 13 July 2020. This being the case it is clearly arguable that the Defendants should have been aware of them prior to signing the relevant subscription agreements. The reason why the Defendants have argued that they were not aware of them is that they had signed earlier subscription agreements, which pre-date the emails. However, the liabilities under the Bonds issued pursuant to the earlier subscription agreements were at least arguably subsumed into the later Bonds as argued by the Company and as would appear to be demonstrated by the way in which the Defendants themselves have framed their claims in the statutory demands.

9.  For the purposes of the Defendants’ second augment the relevant provision is clause 11(B) of the Deed Polls. It provides that:

“Subject to the approval of the Special Resolution of the Bondholders, each Bondholder shall be entitled severally to enforce the said covenants, obligations and conditions against the Company insofar as each such Bondholders Bonds are concerned, without the need to join the allottee of any such Bond or any intervening or other Bondholder in the proceedings for enforcement.”

10.  In my view it is clearly arguable that this provision extends to the presentation of a Petition, which is a means by which a Bondholder seeks to enforce his rights as a creditor of the Company.

11.  So far as the final point is concerned it seems clear to me that the Company has a bona fide defence on substantial grounds in respect of the contention that it cannot rely on the express terms of the Bonds (which for the purposes of this argument must be assumed to apply to a Bondholder issuing a petition) on public policy grounds, which is what the Defendants contend.

12.  I will, therefore, grant the applications unless the Defendants undertake not present a petition.