RE MAU YING PROPERTIES COMPANY LTD

HCCW 464/2023
HCCW 465/2023
HCCW 466/2023

[2024] HKCFI 492

HCCW 464/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO 464 OF 2023

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HCCW 465/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO 465 OF 2023

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HCCW 466/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO 466 OF 2023

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(Heard together)

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REASONS FOR JUDGMENT

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1.  There are before the court 3 Petitions presented by Bank of China (Hong Kong) Limited (“Petitioner”) seeking to wind up Mau Ying Properties Company Limited (“Mau Ying”), Marsen Investment Limited and Mau Wing Industrial Limited (collectively “Companies”) on the ground that they are insolvent and unable to pay their debts. At the hearing, I made the usual winding up orders against the Companies. These are the reasons for my judgment.

2.  The Companies are incorporated in Hong Kong. They are borrowers of various revolving loans, import financing facilities and mortgage loans granted by the Petitioner. The Companies failed to pay the amounts fallen due which led to the Petitioner commencing a mortgagee action in HCMP 131/2021 against the Companies.

3.  On 11 November 2021, after a contested hearing, the Petitioner obtained judgment against the Companies, Mr Li Mau Yam (“Mr Li”) and Ms Ke Pi Chen (“Mrs Li”) which required them to (1) pay the sums of HK$47,589,221.50, US$7,084,859.28 and HK$984,339.13 together with interests and costs, and (2) deliver possession of 6 properties (collectively “Properties”) which had been mortgaged to the Petitioner as security for the loans (“Judgment”).

4.  The Companies appealed against the Judgment and applied for stay of execution of the Judgment which were scheduled to be heard before Cheng J and Master on 14 March 2022 and 4 March 2022 respectively. Upon the consent summons filed by the parties, on 3 March 2022, the appeal and the stay application were discontinued with costs in favour of the Petitioner and the defendants were ordered to deliver vacant possession of the Properties to the Petitioner by 16 May 2022.

5.  Subsequently, the Properties were surrendered to the Petitioner and were listed for sale in the open market through 8 estate agencies[1]. Amongst them:

(1)  The first 4 properties were sold in August 2022 at a total price of HK$29,780,000; and

(2)  The remaining 2 properties (“Properties 5-6”) were sold in April 2023 at the total price of HK$41,010,000.

6.  After deducting the proceeds realized from the sale of the Properties, as at 11 August 2023, the Companies remained indebted to the Petitioner in the sums of HK$33,934,050.82 and US$2,425,735.08, being outstanding principal and interest accrued up to that day (“Debt”).

7.  On 7 September 2023, the Petitioner served a statutory demand on each of the Companies requiring them to pay the Debt. The Companies failed to comply with the statutory demands and are deemed insolvent by virtue of s.178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32).

8.  On 18 October 2023, the Petitioner presented the Petitions against the Companies.

9.  The Companies filed an affirmation of Mr Li on 22 December 2023 (“Li 1^st”) in each proceedings as evidence in opposition to the Petitions. On 3 January 2024, Master Lai granted retrospective leave to the Companies to file Li 1^st out of time[2].

10.  In Li 1^st, the Companies raised the following grounds in opposition to the Petitions:

(1)  The Companies seek a short adjournment of the Petitions pending applications (HCSD 46-47/2023) (“HCSD Applications”) to set aside the statutory demands served upon Mr Li and Mrs Li on 11 September 2023 in which the Petitioner relied on the Debt.

(2)  The Companies were founded by Mr Li and engaged in the business of manufacturing and distributing knitwear. The Debt arose out of the financing obtained by the Companies from the Petitioner and were secured by the Properties. Due to the outbreak of COVID, from late 2019, the Companies began to experience financial difficulties which led to the Petitioner commencing HCMP 131/2021 and obtaining the Judgment against the Companies on 11 November 2021.

(3)  The Companies rely on 2 grounds in opposition to the Petitions:

(a)  “Misrepresentations made by the bank staff of [the Petitioner] to induce [the Companies] to enter into a settlement agreement in HCMP 131/2021 in breach of the promise made to sell the mortgaged properties at the guaranteed amounts” (“Representations”). The Representations were made by Mr Lee Man King (“LKM”) of the Petitioner in February 2022 during phone calls (Representation Ground); and

(b)  “Negligence on the part of [the Petitioner] in which [the Petitioner] had sold the mortgaged properties at an unreasonable low price in breach of its common law duty as a mortgagor” (Negligence Ground).

(4)  The Petitioner has in HCSD Applications filed an affirmation of Lin Yi Feng on 15 November 2023 (“Lin 1^st”) to which valuation reports were exhibited in support of the Petitioner’s contention that the Properties had been sold at reasonable prices. The Companies intend to file a valuation report to disprove the contentions made by the Petitioner. For this purpose, the Companies had signed engagement letter dated 16 November 2023 with Merryshine Surveyors Limited (“Merryshine”) and were awaiting its valuation report.

11.  Shortly before the hearing, by summonses filed on 1 February 2024, the Companies applied for leave to file the 2^nd affirmation of Mr Li (“Li 2^nd”) to which he exhibited his 2^nd affirmation filed on 31 January 2024 in HCSD Applications and made the following assertions:

(1)  On Representation Ground, he asserts that the withdrawal of the appeal and the application for stay were:

“all based on the Representation, promises and/or assurances (alternatively the undue influence by [the Petitioner] inducing us to the entering of the out-of-court settlement in HCMP 131/2021). In the end, however, [the Petitioner] had breached its promises to have failed to sell the Mortgaged Properties 5 and 6 at the Property 5 and 6 Guaranteed Prices, and also deny us from repaying the remaining debt by the Potential Repayment Plan as represented if not promised”;

(2)  On Negligence Ground, he asserts that the Petitioner (a) failed to sell the Properties 5-6 by July 2022 “when the market atmosphere was not too bad”; (b) the Petitioner has not adduced any evidence to show that it had only received few offers after listing these properties for sale in June 2022 and why it did not follow up on the offers immediately; (c) it is inexplicable that the Petitioner first listed the Properties for sale through the agents, then obtain potential buyers and lastly obtain valuation reports before selling, but not the other way round; (d) the selling prices of the first 4 properties were higher than the external valuations obtained by the Petitioner, and it is inexplicable why the Petitioner still proceeded to sell Properties 5-6 when the external valuations were higher than the actual selling prices; and (e) the independent valuation report obtained from Grandmax Surveyors Ltd (“Grandmax”) shows that the market price of Properties 5-6 was HK$47.4 million but the Petitioner sold them at HK$41.01 million.

(3)  There was no delay on the part of the Companies in filing Li 2^nd as Merryshine had not produced the report as promised, and the Companies had to engage Grandmax to prepare the report, which was only available on 31 January 2024.

12.  It is clear from Li 2^nd that the Companies have not provided any justification as to why they should be allowed to file a further affirmation in opposition to the Petitions in circumstances where:

(1)  the Companies had since 18 October 2023 been aware of the Petitions and the ground relied upon by the Petitioner in seeking winding-up orders against them. They failed to file their affirmations in opposition within the time limit prescribed by rule 32.

(2)  The court has already given indulgence to the Companies by allowing the Companies to file Li 1^st without imposing the usual condition that the Companies shall pay the Debt into court (Re Sun Sang Kong Yuen Shoes Factory Co Ltd [2015] 4 HKLRD 52 §§2-6). The practice applied even if the Company had made known its ground of opposition before the first hearing, but failed to file any affirmation (Re Chinaplus Wines Ltd, HCCW 220/2016, 21 November 2016).

(3)  The Companies were aware that the burden was on them to demonstrate that there is a bona fide dispute on substantial grounds in respect of the Debt, and mere assertions not substantiated by documents or cogent evidence would not be sufficient for that purpose. However, other than referring to HCSD Applications and the filing of affirmation in those proceedings, no explanation has been provided by the Companies as to why they did not set out all the evidence they wish to rely on in Li 1^st or why the court should allow the Companies to file and rely on Li 2^nd (which, in turn, exhibited another 2^nd affirmation made by Mr Li in support of HCSD Applications) filed at the eve of the hearing. On this ground alone, the summonses should be dismissed.

(4)  It is unfair and prejudicial to the Petitioner to allow the Companies to file and rely on Li 2^nd when (a) the Petitioner has already filed the affirmation of LMK on 17 January 2024 in reply to the grounds raised by the Companies in Li 1^st; and (b) the Companies are insolvent and do not have the means to pay the Debt. Any delay in the proper determination of the Petitions would only result in further depletion of the assets available for distribution to the creditors as the costs incurred by the Petitioner would ultimately be paid out of the assets of the Companies.

13.  It is well established that the Petitioner whose debt is not in dispute is entitled ex debito justitiae to an order for the compulsory winding up of the company. The burden is on the company to demonstrate that there is a bona fide dispute on substantial grounds in respect of the debt or that there is some other reason for the court not to make a winding up order against the company. Where, as here, the debt is derived from the Judgment made after a fully contested hearing and the Judgment has not been stayed or suspended, the Companies Court would normally require the company to pay or secure the debt by paying an amount equivalent to the debt into court within a very short time if it wants to avoid a winding up order.

14.  As stated above, the Companies do not have the means to pay the Debt, nor have they offered to pay any amount into court.

15.  I do not see why the pending HCSD Applications by themselves constitute a ground for the court to adjourn the Petitions. Ms Lilian Ip, counsel for the Companies, have not in her written or oral submissions articulated any basis or justification as to why the Petitions should be adjourned.

16.  In my view, the Companies have failed to discharge the burden of showing that there is a bona fide dispute on substantial grounds in respect of the Debt.

17.  As regards the Representation Ground, it is not supported by any credible evidence and has no substance.

18.  First, the alleged Representations are no more than bare assertions. Not a single document has been adduced by the Companies to show that the Petitioner had made the Representations, let alone in February 2022. The absence of document must be seen against the fact that at the time the alleged Representations (subsequently changed to “promise”) were made, both parties were represented by Messrs. Huen & Partners (“HP”). Had the alleged Representations been made by the Petitioner, there was no reason why the Companies or HP did not put them in writing. At the very least, one would expect HP to state the alleged Representations in correspondence having regard to their importance. This has never been done and no explanation has been provided by the Companies.

19.  Second, the alleged Representations are contradicted by contemporaneous documents.

(1)  In HP’s letter dated 1 March 2022, after stating that the Companies considered that the costs should be agreed at HK$110,000 and should not be paid upfront, said as follows:

“One of the reasons that [the Companies] agreed to withdraw their applications was the lack of financial sources to proceed with the legal proceedings. It is also [the Companies’] contention that the value of the Properties in question is sufficient to cover all the outstanding debts owed by [the Companies] to [the Petitioner], it is reasonable for [the Petitioner] to claim the outstanding legal costs from the proceeds of sale. Even if the rateable value of the Properties at the moment is slightly lower than the outstanding debts, [the Petitioner] is at liberty to sell or dispose of the Properties at any time when the value of the Properties rise.”

(2)  In the same letter, HP set out the terms for vacating the hearings on 4 and 14 March 2022 on the basis that “both parties have reached their consensus in not proceeding with the substantive hearings” which only referred to withdrawal of the appeal and the stay application and payment of costs by the Companies to the Petitioner. The contents of this letter contradict the Companies’ assertion that the withdrawal of the appeal and the stay application was due to the alleged Representations or any reliance thereon.

(3)  By another email dated 2 March 2022, HP on behalf of the Companies referred to the without prejudice letter and the various telephone conversations between the respective solicitors, and informed the Petitioner that their client “consented to the following terms proposed by [the Petitioner]”, which included “[the Companies] shall unconditionally withdraw the application for stay of execution and the appeal application” and other detailed terms concerning how the Properties were to be handed over to the Petitioner. Again, there was no reference to the alleged Representations.

20.  Had the alleged Representations been made in February 2022, the Companies would have insisted on including them as the terms set out in HP’s letter and email dated 1 and 2 March 2022 respectively. This was particularly so when the Companies’ defence based on an alleged oral standstill agreement had already been rejected by Master in HCMP 131/2021 on the ground of lack of evidence.

21.  Third, the allegation that the Petitioner represented to or promised the Companies not to sell the Properties below the Petitioner’s internal valuations is contradicted by:

(1)  LMK’s evidence that during the period from 21 September 2021 to 3 March 2022, he only communicated with Mr Li through WeChat, and it was only after the appeal had been disposed of that Mr Li began to text LMK on 3 April 2022[3]. Again, other than bare assertion of Mr Li, the Companies are not able to refute this evidence; and

(2)  LMK’s reply to Mr Li through WeChat on 7 April 2022 (at 11:51) where LMK made clear that the internal valuation was for reference only (“現時股價只供參考”) and specifically reserved the Petitioner’s rights (“注-不影響我行任何權益”).

22.  Nor do I think there is any merit in the Negligence Ground for the following reasons.

23.  First, it is not in dispute that the Petitioner engaged 8 real estate agents, which included all major real estate agents in Hong Kong, to market and sell the Properties through the open market. There is no suggestion or evidence that these agents did not try to sell the properties at the highest prices which could be obtained from the prospective purchasers. That being the case, there is simply no basis to suggest that the prices realized through the sale of Properties 5-6 (or indeed any property) did not represent the market prices.

24.  Second, the allegation made by the Companies is inherently implausible as there was no reason why the Petitioner would sell Properties 5-6 at an undervalue which was against its interests. It is also contradicted by the fact that the Petitioner did sell the first 4 properties at the prices above the external valuations.

25.  Third, according to Lin 1^st [4], all the Properties were sold in accordance with the Petitioner’s standard procedure. They were listed for sale in open market through 8 real estate agents; valuation reports were obtained from 2 estate surveying firms when the Petitioner received purchase offers; and the offers were accepted only when they were higher than the market value under repossession as assessed by the valuers.

26.  Lastly, as submitted by Mr Wong, even if the court were to take into account the new evidence contained in Li 2^nd, the difference between the valuation assessed by Grandmax and the actual selling price of Properties 5-6 was only HK$6.4 million, which is far less than the Debt owed by the Companies. It does not provide a valid ground in opposition to the Petitions.