RE CASANOSTRA LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING UP

NO. CWU153 OF 1988

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J U D G M E N T

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1. I have before me a petition that was presented on the 27th September 1988 by the First Pacific Bank, formerly the Hong Nin Bank Limited ("the petitioner") to wind up Casanostra Limited ("the company") on the grounds that it is unable to pay its debts.

2. The debt claimed by the petitioner exceeds $16,000,000 and arises under a guarantee of the 12th June 1986 made in favour of the petitioner for monies due and owing by a company called Italtrade Limited ("Italtrade"). The petition is based upon a statutory demand served on the company on the 8th June 1988 which was not complied with.

3. Mr Wong, on behalf of the company, has argued three matters in challenging the petitioner's claim to a winding up order : (1) that there is a genuine bona fide dispute as to the existence of the debt; (2) that there has been no neglect to pay any debt that may be due; and (3) the winding up proceedings are not appropriate for there is no evidence to show that by instituting an ordinary action, the petitioner, if successful, would not be able to execute a judgment. Mr Wong abandoned an argument previously advanced that the company had no power to enter into a guarantee for a loan so rendering the guarantee ultra vires and void for this power is contained in the Articles of Association.

4. The evidence for the company is set out in an affirmation of Lily Hong Lai Lai also known as Lily Bendini ("Mrs Bendini"), made on the 22nd October 1988, and affirmations of Mr Duncan Chan made on the 7th and 9th August 1989. I refused leave today for the company to file further evidence as it was far too late.

5. Mrs Bendini was a director and shareholder of the company from the date of its incorporation in February 1979 until she resigned as a director in February 1987, having transferred her shares in the previous year. She said that her husband Alfredo Bendini was also a director and shareholder of the company since its date of incorporation and remained as a director until he died in July 1988, but that he had also transferred his shares at the same time as her own transfer. However, a company search made by the petitioner reveals that both Mr and Mrs Bendini were shareholders of the company until the 25th May 1987.

6. The guarantee in question was signed by Mr Bendini in his capacity as Managing Director of the company and there is imprinted on the guarantee a chop of the company with the words "Managing Director" and "signature of guarantor". However, Mrs Bendini claims that the signature of the guarantor only resembles that of her late husband while she went on to say that no board resolution had been passed to ratify the guarantee nor had the company seal been applied. Nevertheless, it is trite law that a managing director has power to execute a guarantee so that there is no requirement for a board resolution nor was it necessary for the company seal to be applied. Mrs Bendini also asserted that the guarantee was of no benefit to the company as it was not associated with Italtrade. However, it is clear that this statement is not correct, for both she and her husband were also directors and shareholders of Italtrade. Indeed in a letter dated the 1st May 1986 from the petitioner to Mrs Bendini that the company entered into the guarantee as one of three companies to guarantee all outstanding debts due from Italtrade. The relevant parts of that letter read :-

"This letter details the meeting we held on 30 April and the conclusions we reached about Italtrade's outstanding debts to Hong Nin Bank. The points we agreed upon are as follows :

1. Nuform, Bendini Fashions and Casanostra will provide Hong Nin Bank with unaudited monthly profit and loss statements and balance sheets generated by your accountants, starting March 1985.

2. Nuform, Bendini Fashions and Casanostra will execute guarantees of the debt owed by Italtrade in favor of Hong Nin Bank.

3. Alfredo Bendini will guarantee personally all of Italtrade's debts to Hong Nin Bank.

4. ......

5.    You will place the shares of all three companies (above) as well as of Italtrade with the bank as security and will sign transfers in blank for all, as well as execute the relevant pledge agreements. Please provide us with copies of the articles of association and annual reports to the registrar of companies detailing ownership for all companies."

7. Mr Bendini also gave a personal guarantee to the petitioner. Confirmation of the arrangements made with the petitioner was set out in a telex of the 9th May 1986 from Mr Bendini, the relevant parts of which read :-

"Howard, thank you for your letter of 1 May 1986 and as discussed over the phone, I fully agree with the contents of your above letter.

Re Par. 3 of your letter, right now I am sending to you the guarantee form signed in blank, in all good faith. Pls mail me back a photocopy of the complete form.

Re other items of Your above letter, mechanically I need a little more time, as explained."

8. Nevertheless, Mr Wong submitted that the telex could be construed as only referring to a personal guarantee given by Mr Bendini and not by the company. I do not agree with that interpretation. The contents clearly accepted the terms set out in the petitioner's letter of the 1st May. As a result, the company has failed to establish that there is a bona fide dispute as to the existence of the debt or has any substantial ground of defence see Re Welsh Brick Industries Ltd. [1946] 2 All E.R. 197.

9. In respect of the second ground submitted by Mr Wong, complaint is made by Mr Duncan Chan, a director of the company, that when the statutory demand was made the petitioner failed to provide a detailed breakdown of the principal and interest so that the company had not neglected to pay the debt due. Mr Wong cited in support of his argument Re a Company [1984] 3 All E.R. 78 where it was held that a statutory demand for payment could not be made unless the creditor was in a position to make a genuine demand. In that case not only was the amount in dispute, but also the issue of liability. The mere request for details of the sum due in this case by the company in its letter of the 10th June 1988 in reply to the statutory demand did not raise any dispute as to liability.

10. It is common ground that the petitioner obtained judgment by default against Italtrade on the 5th August 1987 for over $7,000,000 while Mr Chan states that according to his calculation over $6,500,000 was outstanding from Italtrade as at the 1st June 1988. From the submission made on behalf of the company today, it is contended that if the assets of the company are realised, there will be sufficient monies available to discharge the company's indebtedness. In other words, the company is not insolvent. However, on the assumption that the assets of the company would be sufficient, this is not the test. Plowman J. in In re Tweeds Garages Ltd. [1962] 1 Ch.D. 406 at p. 410 referred to the meaning of insolvency quoting Buckley on the Companies Acts as follows :-

"Insolvency in the relevant sense is explained in Buckley on the Companies Acts, 13th ed. (1957), p.460 in this way:

'The particular indications of insolvency mentioned in paragraphs (a), (b) and (c) - I interpolate the words of section 223 - are all instances of commercial insolvency, that is of the company being unable to meet current demands upon it. In such a case it is useless to say that if its assets are realised there will be ample to pay 20 shillings in the pound: this is not the test. A company may be at the same time insolvent and wealthy. It may have wealth locked up in investments not presently realisable; but although this be so, yet if it have not assets available to meet its current liabilities it is commercially insolvent and may be wound up.'"

In Re Tweeds Garages Ltd. also held at p. 407 :-

"that the only qualification required of the petitoner was that it was a creditor; and that, where there was no doubt (and there was none here) that the petitioner was a creditor for a sum which would otherwise entitle it to a winding-up order, a dispute as to the precise sum owed was not a sufficient answer to the petition."

The opposition on the basis of its admission of $6,500,000 in June 1988 as opposed to the figure of over $16,000,000 claimed by the petitioner does not therefore assist the company.

11. However, this is not the only evidence of insolvency for the petitioner instituted another action against Italtrade and the company in June 1987 claiming monies due and possession of a property in Wongneichong Road. By a consent order made on the 3rd February 1988, the company agreed to pay the petitioner an interim payment of $20,000 per month for the occupation of the property until final judgment. However, the company has only paid $100,000 under that order. There is therefore ample evidence before me that the company is insolvent and unable to pay its debts. Accordingly, I shall make the usual compulsory winding-up order with costs to be paid out of the assets of the company.

12. Mr Wong, on behalf of the company, seeks a postponement of the advertisement of the order pending an appeal relying on a passage at p.1390 of the 24th edn. of Palmer. In effect, this amounts to a stay. However, the application is opposed by the petitioner. I do not propose to grant a stay or postponement bearing in mind the comments of Plowman J. in the case of In re A & BC Chewing Gum Ltd. [1975] 1 W.L.R. 579 at p.p. 592-593. The application is therefore refused.