RE MINLOY LTD AND OTHERS

HCCW 229/2019

[2020] HKCFI 2215

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 229 OF 2019

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D E C I S I O N

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1.  By a petition presented on 26 July 2019 (“Petition”) the petitioner, Kwok Hon Ming Dennis (“Petitioner”), seeks a winding up order against 3 companies namely, Minloy Limited (“Minloy”), Top Master Development Limited (“Top Master”) and Wealth Island International Limited (“Wealth Island”) (collectively “Companies”) under section 177(1)(d) of the Companies (Winding-up and Miscellaneous Provisions) Ordinance (Cap 32) (“Ordinance”) on the ground that they are insolvent and unable to pay their debts.

2.  There are 2 summonses before the Court both issued by the Companies:

(1)  The summons dated 2 September 2019 for a validation order in respect of a proposed sale of certain “non-core” land owned by Minloy, and to apply the proceeds to pay its costs and expenses and the costs of the Companies in these proceedings (“Validation Summons”). 

(2)  The summons dated 18 September 2019 to strike out the Petition on the grounds that it constitutes an abuse of process of the Court and that section E of the Petition is “scandalous, frivolous or vexatious” (“Strike out Summons”). 

A.  Preliminary matter

3.  Although no point has been taken by Mr Victor Joffe (appearing with Mr Justin Ho), counsel for the Companies, it seems to me that the Petition, insofar as it seeks a winding-up order in respect of the Companies, is irregular[1]. I am not aware of any precedent (none has been cited by the Petitioner) where a petitioner can present one winding up petition in respect of 3 companies and ask the Court to make a winding-up order against such companies. 

4.  This is unsurprising, given that each company is a separate legal entity with different assets and liabilities.  In considering whether a company should be wound up, the Court has to consider the financial position of that company, and the views of the creditors of that company. It is a misconception to think that the Companies can be considered as a whole, whether for the purpose of seeking a winding-up order from the Court or in administering their affairs after they have gone into liquidation.  The latter has been explained as a principle against intromissions, which prohibits a liquidator seeking to charge the expense of one liquidation against the assets in another liquidation, even when the first liquidation is undertaken with a view to securing a benefit for the creditors in the second liquidation (Re Zhu Kuan (Hong Kong) Company Ltd [2007] 4 HKLRD 1, at §§30-31, per Kwan J (as she then was)).

5.  That a petitioner shall present a winding up petition in respect of each company is also reflected in the Companies (Winding-up) Rules (Cap 32H), which envisage a separate and distinct winding up proceeding being commenced in respect of each company to which it relates.  See, in particular, rules 3(1), 9(1)-(2), 22 and Forms 2 and 3 in the Appendix. 

6.  Indeed, when questions by this Court as to how the Petitioner can present one petition in respect of 3 companies, Mr Lai Chun Ho, counsel for the Petitioner, informs the Court that a requisition has already been raised by the Master in this respect, which remains unanswered.  This is despite the fact that the Petition was presented more than a year ago. 

7.  As matter now stands, the Petitioner has not indicated whether he intends to rectify the irregularity or how he goes about dealing with it.  However, as Mr Joffe considers that this is a “technicality” to which the Companies do not take any issue at this stage, I will proceed to consider the applications on the basis of the matters pleaded in the Petition and the arguments put forward by counsel. 

B.  Background fact

8.  The parties have been embroiled in litigations since 2013.  The following fact is taken from the Judgment in CACV 9, 74 and 169/2017 dated 24 April 2019 (“CA Judgment”), which were appeals against the Judgment of Deputy High Court Judge Ismail SC given in relation to 3 “unfair prejudice” petitions presented by the Petitioner in respect of the Companies under section 168A of the former Companies Ordinance (Cap 32), seeking orders that his shares be bought out by the “Majority Shareholders” (as defined in §9(2) below) (“UP Proceedings”). 

9.  The parties’ shareholdings were (and still are) the same in respect of the Companies.  They were divided into 2 camps:

(1)  The Petitioner (through his nominees) held 10.714%.  Helen Law, against whom no allegation was made and no relief was sought, held (through her nominee) 17.857%. 

(2)  Albert Poon held 21.429%, Irene Tsang/Asian Adventure Ltd (her corporate vehicle) held 35.714%, Enchantment Properties Ltd (corporate vehicle of Norris Yang) held 7.143% and China Funds Development Ltd (corporate vehicle of William Lo) held 7.143% (collectively “Majority Shareholders”)[2]. 

10.  In 1991, the Petitioner and Helen Law identified an opportunity to acquire 900,000sf of land on Lantau Island at HK$7 million.  They identified the Majority Shareholders as co-investors and, together, entered into an undated agreement in January 1992 to set out the terms of their investment (“Shareholders Agreement”).  Although the Shareholders Agreement only referred to Minloy, it was accepted by all shareholders that the Shareholders Agreement governed the relationship of the investors in respect of the Companies[3].

11.  The Shareholders Agreement provides, inter alia, that[4]:

(1)  HK$7 million is to be funded by paid-up capital as to HK$70,000 (1%) and shareholders’ loans as to HK$6,930,000 (99%) (“Loans”), which shall be advanced by the shareholders in proportion to their shareholdings.  The Loans bear interest at 2% per month compounded monthly (clause 2);

(2)  the objective of the project is (i) in the short term, to allow shareholders to recoup their initial investment with interest on the Loans through the sale of “non-core” land; (ii) in the medium term, to provide land for shareholders to enjoy as recreational facility; and (iii) in the long term, to realise the appreciation in land value (clause 3);

(3)  all shareholders agree to appoint Irene Tsang, Helen Law and the Petitioner as managers responsible for liaising and monitoring the progress of all relevant matters.  When the cumulative cash receipts from sale of land/assets reach HK$7 million, the managers are entitled to receive a bonus of 15% (to be shared equally) on perpetual basis of any future cash receipt from sale of land/assets (clause 4);

(4)  the managers will use their best effort to dispose of the “non-core” land as soon as possible, with the aim of allowing the shareholders to recoup their investment and interest thereon in full.  When an “outside buyer” submits an offer, the shareholders will have to approve the sale first and had the first option to match the offer (clause 6);

(5)  the shareholders agree to pay 5% commission to any agent for successful sale of land to any external buyer (clause 7); and

(6)  shareholders’ approval is required for, inter alia, (i) sale of any land asset, (ii) raising debt, (iii) payment of principal and interest of Loans.  Before the Loans are fully repaid with interest, the above decisions require 100% agreement amongst shareholders.  After HK$7 million has been recouped from land sale, a 60% vote is sufficient to approve any decisions (clause 8).

12.  In September 1997, there were 2 offers to purchase part of the “non-core” land for HK$17.3 million, which were not approved by the Majority Shareholders.  In November 1997, there was a further offer to purchase a larger part of the “non-core” land for HK$27 million, which was also not approved by the Majority Shareholders.  Thereafter, in early 2008, the shareholders had disagreement over whether to accept the compensation offered by the Government in respect of certain land held by Top Master, which was eventually paid to Top Master following a board resolution passed by the Petitioner and Helen Law (qua directors) to accept the same.  The Petitioner and Helen Law were removed as managers and directors by a resolution passed by the Majority Shareholders at the EGM held on 7 April 2008[5].  Top Master was unable to distribute the compensation proceeds to the shareholders owing to the objection of the Majority Shareholders[6]. This was followed by Albert Poon making a complaint to the police against the Petitioner for theft from Top Master of the amount he used to purchase cashier orders for distribution to the shareholders, which came to an end after investigation by the police[7].

13.  From mid-2008 onwards, the 2 camps of shareholders reached an impasse and unable to work together in relation to the Companies affairs.  In the second half of 2012, the Petitioner pressed for compensation for his removal as manager, followed by his request that the Majority Shareholders buy out his shares and arrange for repayment of his share of the Loans.  On 20 June 2013, the Petitioner commenced the UP Proceedings[8].  In his petitions, the Petitioner complained of the conduct of the Majority Shareholders in (1) seeking to usurp his powers as manager and depriving his entitlement to bonus under the Shareholders Agreement; (2) removing him as manager and director and excluding him from management after May 2008; (3) failing to pay compensation for his removal as manager; (4) frustration or breach of the short term objective in clause 3 of the Shareholders Agreement and failing to pay the resumption proceeds to the shareholders and failing to pursue the sale of “non-core” land after 2008; and (5) making criminal complaint against the Petitioner[9].

14.  After a full trial, the learned Deputy Judge gave judgment on 14 December 2016 (“Main Judgment”), finding that the Majority Shareholders had been guilty of unfairly prejudicial conduct which warranted a buy-out order against them.  Such conduct consisted of:

(1)  breach of clause 6(2) of the Shareholders Agreement which required the shareholders to agree to sale of “non-core” land to outside parties recommended by the managers or to match such offers by purchasing such land;

(2)  breach of the Shareholders Agreement by removing the Petitioner (and Helen Law) as managers without an unanimous resolution and not paying compensation to them;

(3)  failing to make repayment of the Loans to shareholders from 2008 when there were available funds for such purpose; and

(4)  reporting the Petitioner to the police in respect of the issue cashier orders to distribute the resumption proceeds to the shareholders of Top Master[10].

15.  The Judge ordered the Majority Shareholders to buy out the Petitioner’s shares in the Companies, on the following bases[11]:

(1)  the date of valuation was the date of the Main Judgment;

(2)  all the Loans were, notionally, fully repaid by September 1997, on the footing that had the Companies accepted the offers recommended by the managers, the sale proceeds could have been used to settle the Loans;

(3)  without any discount for the Petitioner’s minority shareholding, and on a going concern basis; and

(4)  the Companies should pay remuneration to the Petitioner in his capacity as manager until the buy-out (subsequently agreed at HK$592,967.47), and an account should be taken of the amounts due to the Petitioner for the Loans repayments or dividend payments not paid to him, and of the HK$1.1 million owing from the Petitioner to Top Master (being the proceeds of the cancelled cashier orders paid into his personal account in January 2013).

16.  In her Decision dated 21 February 2017 (“February Decision”), the Judge held that (1) she had already determined (at §263 of Main Judgment) that the Petitioner “is not entitled to recovery of his shareholder loans in addition to a buy-out of shares to be valued on the basis that the shareholder loans were repaid in 1997; and (2) the Petitioner’s entitlement to bonus would cease as at the date of the buy-out order[12]. 

17.  The Judge further held, in her Decision dated 15 March 2017 (“March Decision”), that (1) Colliers, as proposed by the Petitioner, would be appointed to value the land owned by the Companies, while Deloitte would be appointed to value the Companies’ shares; and (2) the Petitioner was not entitled to re-argue the question of his entitlement to manager’s bonus[13].

18.  In another Decision dated 6 April 2017 (“April Decision”), the Judge said (at §30(d)) this:

“It seems to me that if the Majority Shareholders’ appeal is successful in setting aside the buy-out order, then [the Petitioner] will be in the position of being a creditor of the Companies in respect of shareholder loans plus interest. Although such loans with interest may exceed the value of the Land assets, the shareholders will be able to recover their loans plus interest to the extent that the Companies’ assets allow. On a rough basis, using the 2016 Land valuation, the shareholders should be able to recover HK$163 million less realization costs in proportion to their shareholding. Mr Joffe estimated approximately HK$150 million. [The Petitioner’s] asset (in the form of the shareholder loan claim) would be valued at approximately HK$15 million on that basis.” (underlined added)

19.  For the purpose of the valuation, the Majority Shareholders submitted a set of “Briefings” to the valuers which stated, inter alia, that:

(1)  the “core” land is held by Minloy, whereas the “non-core” land is held by Top Master and Wealth Island;

(2)  apart from holding the land, the Companies have “little business activities in their 25 years of past operations”;

(3)  only Top Master has a bank account, which has been used by the Companies;

(4)  from the incorporation of the Companies up to January 2008, the Companies only sold 2 pieces of land and received HK$4,532,911 as compensation from the Government for the land resumed. Between September 2015 and the date of the buy-out order, 43 pieces of “non-core” land were sold for HK$11,217,354;

(5)  the Companies have been subject to 3 claims for adverse possession of the lands owned by them;

(6)  on the basis of the Judge’s holding at §69 of the Main Judgment, the “notional sale” of the land (as recommended by the managers) would yield a net cash receipt of HK$14,407,177.5;

(7)  since 1992, the Companies have paid HK$10,515,355 to the shareholders.  The shareholders have advanced a further HK$500,000 to the Companies in February 1993 in proportion to their shareholdings;

(8)  Attachment 7 sets out the Companies’ records of the Loans and interest from 1992 without the notional repayment, which shows that as at 31 December 2016, the Loans owed by the Companies to all the shareholders and to the Petitioner were as follows:

Company	Total Loans	Petitioner’s share
Minloy	HK$759,811,171	HK$81,451,758
Wealth Island	HK$506,540,781	HK$54,301,172
Top Master	HK$550,280,772	HK$58,990,099
TOTAL	HK$1,816,632,724	HK$194,743,029[14]

(9)  Attachments 8 set out the amounts with the notional repayment, which shows that as at 31 December 2016, the Loans owed by the Companies to all the shareholders and to the Petitioner were as follows:

Company	Total Loans	Petitioner’s share
Minloy	HK$60,927,444	HK$6,527,766
Wealth Island	HK$157,446,943	HK$16,868,866
Top Master	HK$193,213,717	HK$20,700,918
TOTAL	HK$411,588,104	HK$44,097,549

20.  Pursuant to the March Decision:

(1)  Mr Faulkner of Colliers in his report dated 24 May 2017 assessed the market value of the lands held by the Companies at HK$206.4 million. 

(2)  In his report dated 29 August 2017, Mr Edwina Tam of Deloitte did not accept the “Briefings” submitted by the Majority Shareholders.  Instead, he treated the Loans as having been fully discharged in September 1997.  On that basis, he assessed the value of the Companies at HK$208.5 million and the value of the Petitioner’s shares at HK$22.3 million.

21.  The hearing of the valuation of the Petitioner’s shares has not taken place owing to the appeals. 

22.  In their appeals, the Majority Shareholders succeeded in setting aside the Judge’s 2 principal findings of unfairly prejudicial conduct arising from the breach of the Shareholders Agreement (described in §14(1)-(2) above), the buy-out order and the order for payment of compensation[15]. The Court of Appeal dismissed the UP Proceedings. 

23.  As to the Majority Shareholders’ appeal against the Judge’s decision in ordering a buy-out with valuation to be made on the assumption that the Loans had been fully repaid without making it a condition that the Petitioner should assign his share of the Loans to the Majority Shareholders, the Court of Appeal noted that the Petitioner did not seriously dispute the point, and held that had it been necessary to do so, it would have varied the buy-out order to cater for this[16]. 

24.  By a notice of motion filed on 22 May 2019, the Petitioner applied for leave to appeal against the CA Judgment on the grounds that the Court of Appeal erred in reversing the principal findings made by the Judge and setting aside the buy-out order.  The application remains pending at the Court of Appeal.

25.  Two days later, on 24 May 2019, the Petitioner served statutory demands on Minloy, Top Master and Wealth Island demanding them to pay HK$144,645,671, HK$210,895,010 and HK$96,430,447, being the shareholders loans owed to him as in May 2019 (collectively “SDs”) . 

26.  Following the Companies’ failure to comply with the SDs, on 26 July 2019, the Petitioner presented the Petition.  In the Petition, the Petitioner relies on, inter alia:

(1)  the Shareholders Agreement in particular, clause 2 which deals with funding and the 3 shareholders loans advanced by the Petitioner to Minloy, Top Master and Wealth Island in the amounts of HK$222,750, HK$371,250 and HK$148,500 respectively;

(2)  the “Briefings” submitted by the Majority Shareholders to the valuers in April 2017 in respect of the amounts of the Loans owed by the Companies to the shareholders (described in §19 above);

(3)  as at the date of the SDs, the Companies owed the amounts stated in the SDs to the Petitioner;

(4)  according to the valuation of Deloitte, as of December 2016, the values of the Companies were HK$112,358,338 (Minloy), HK$32,116,019 (Top Master) and HK$64,045,022 (Wealth Island) and, as such, the Companies do not have enough assets to pay off the loans owed to the Petitioner;

(5)  the Companies failed to satisfy the SDs and are insolvent;

(6)  the directors have conducted the affairs of the Companies in breach of the Companies Ordinance (Cap 622) and the Shareholders Agreement, which include (i) failing to keep proper books of accounts for the year 2015; (ii) concealing the Loans in the audited accounts of the Companies for the years 2015 to 2017; (iii) disposing “non-core” lands without the unanimous consent of all the shareholders in 2015 and 2016; and (iv) misapplying the Companies’ funds to settle their own legal costs on 1 December 2015 and 24 May 2016 (collectively “Alleged Misconduct”); and

(7)  it is necessary to appoint provisional liquidators if the Companies pass resolution to sell some of their lands. 

C.  Strike out Summons

27.  It is well established that the Court will only exercise its power to strike out a petition in a plain and obvious case.  The burden is on the party making the application to demonstrate that the petition is bound to fail or that it constitutes an abuse of process.   

28.  Mr Joffe submits that the complaint about the Alleged Misconduct should be struck out, as the Petition is presented under section 177(1)(d) of the Ordinance, not on “just and equitable” ground (under section 177(1)(f)).  As such, the relevant part in the Petition should be struck out on the ground that it is scandalous, frivolous or vexatious.  Mr Lai does not dispute this.  I agree that Section E of the Petition, which concerns the Alleged Misconduct, should be struck out.  It seems to me that the conduct or misconduct of the shareholders or directors is irrelevant to the question whether the Company is insolvent and should be wound up.  Allowing the Petitioner to pursue such complaint would only complicate the proceedings by introducing allegations which have no bearing as to whether the Companies should be wound up.   

29.  Mr Joffe submits that it is an abuse of process for the Petitioner to adopt a position which is plainly inconsistent and incompatible with the position he adopted in previous proceedings (Re Shun Tak Holdings Ltd [2009] 5 HKLRD 743 §§83-90 (per Kwan J, as she then was); Yang Foo-Oi v Wai Wai Chen [2020] HKCFI 235 §217 (per Anthony Chan J)).  The principle can be seen as an extension or flexible application of the orthodox doctrine of abuse of process to a case where inconsistent positions are advanced by a party in 2 pending actions (Yang Foo-Oi at §§218, 220). 

30.  On the other hand, Mr Lai submits that the principle is confined to inconsistent factual allegations.  He contends that Shun Tak is a case dealing with factual inconsistency, as can be seen from §85 where Kwan J said the petitioner “is asking the Court to determine the petition on a factual basis it has not found and contrary to the position of the petitioners as presented in legal proceedings elsewhere”.  Reliance is also placed on Chan Chun Chuen v Kao, Lee & Yip (a firm), HCA 597/2015, 12 October 2017 where DHCJ Anson Wong SC held (at §32) that “a distinction has to be drawn between a party admitting an allegation made by his opponent in previous proceedings, and a party taking the initiative to advance a diametrically inconsistent allegation in previous proceedings”.  In that context, the Judge said (at §33):

“In the former scenario, the allegation was not positively put forward by the party, and once admitted, would become a non-issue. However, in the latter scenario, the allegation was positively advanced by the party, and once advanced, would require the opponent and the Court to look into the allegation. When the party advances an inconsistent allegation in subsequent proceedings, the latter scenario (but not the former) would result in a negative effect on the administration of justice and may, in the circumstances of a particular case, lead to an abuse of process”. (underlined added)

31.  In my view, the principle is not confined to inconsistent factual allegations but applies to inconsistent positions or assumptions adopted by a party in different proceedings.  The “mischief” to which the principle is directed is to prevent a litigant from adopting inconsistent positions on the same issue in different proceedings.  It is no less abusive for a litigant to take inconsistent positions or assumptions on the same issue in different proceedings than when he makes inconsistent allegations in such proceedings.  In either case, the Court has to determine the issue insofar as it is in dispute between the parties.  This can be seen from the following authorities. 

32.  In Berthier Godown Ltd v E Wah Realty Ltd [1986] HKC 8 (a case referred to at §88 in Shun Tak), when the plaintiffs in earlier proceedings applied for a vesting order in respect of the premises, they made a fundamental assumption that they had not been entitled to remain in occupation of the premises, and obtained such an order.  It was held by Mortimer J (as he then was) that it was not open to them to raise in another proceedings a matter inconsistent with the assumption and the approach which they had made in separate proceedings (14A-C).  After referring to Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581 and Henderson v Henderson (1843) 3 Hare 100, 115, the Judge said (at 14H-15A) this:

“It is that if the party seeks to raise new matters in separate proceedings or seeks to reverse a previous assumption that has been the basis of earlier proceedings in new proceedings, that amounts, first of all, to an abuse of the process and second, he is estopped from doing so. A fortiori, this must be so if the earlier proceedings are still in existence and the party can raise those matters in the proceedings which have already been started and in which orders have already been made. He certainly cannot seek to raise factual and legal issues in conflict with his earlier stance and the earlier order of the court. He must pursue all the remedies available to him and raise all arguments that are available to him in the first proceedings.” (underlined added)

33.  In Shun Tak, the inconsistency lied on the position adopted by the petitioners in the complaint relating to Interdragon in that in the “unfair prejudice” petition, the petitioners contended that the acquisition of Interdragon’s shareholding in STDM was valid whereas in the Macau proceedings, one of the petitioners contended that the acquisition of the same shares was invalid under Macanese law and STDM’s articles of association (see §§14, 84).  The inconsistent positions adopted by the petitioners were not confined to inconsistent factual allegations but also  inconsistent legal positions.

34.  In Mystar Holdings Ltd v 247037 Alberta Ltd [2009] ABQB 480 (referred to in §§27-29 of Chan Chun Chuen), Brooker J stated the principle as follows:

“[44] I agree that an applicant who alleges that certain pleadings constitute an abuse of process bears a heavy burden. I also agree with the Court’s comments in Brewers Distributors that it must be plain and obvious that the claim amounts to an abuse of process of the court before it can be struck [out].

…

[46] I agree with the Ontario Court of Appeal that ‘abuse of process is essentially a fairness doctrine’. The Court must also ask itself whether, in the circumstances, it would be fair to allow the action in question to proceed.

…

[49] In general, I am persuaded that a party is not free to deliberately argue diametrically inconsistent facts in various actions, thus knowingly advancing irreconcilable positions which are not articulated as alternative claims. Whether this pronouncement has any application to the facts of this case remains to be determined.

…

[53] I am in agreement with the Court’s finding in Chevron that in certain circumstances, taking contrary positions on the same issue in separate proceedings may constitute an abuse of process and that ‘what constitutes an abuse of process may vary with the circumstances of each case’.

…

[62] The doctrine of abuse of process assists in promoting the ‘integrity of the administration of justice’. On the facts before me, [the plaintiff], with full knowledge of the facts, should not be able to advance a claim that is diametrically opposed to its earlier position. In these circumstances, the integrity of the justice system would be no less compromised simply because the initial claim was not followed th[r]ough to judgment.

[63] This does not mean, as [the plaintiff] suggests, that a factual pleading will forever and irrevocably bind a party in all subsequent pleadings. Rather, it means that, if a party, with full knowledge of the facts (thus distinguishing itself from a Potter scenario) chooses to argue irreconcilable facts in its pleadings, and where such pleadings are clearly not made in the alternative, allowing such a party to continue pursuing an incompatible claim may constitute an abuse of process.” (underlined added)

35.  Mr Joffe submits that the Petitioner’s position in the Petition and in the UP Proceedings “are diametrically opposed and wholly irreconcilable” in that:

(1)  The Petition is premised on the factual basis that the Loans owed by the Companies to him exist, whereas in the UP Proceedings, the Judge ordered the Majority Shareholders to buy out the Petitioner’s shares on the basis of a valuation that all the Loans were fully repaid shortly after September 1997.

(2)  If the Main Judgment stands, its legal effect will be to estop the Petitioner from seeking to put forward a claim which is inconsistent with the factual basis that the Loans were treated as having been fully repaid.  The Judge made clear in the February Decision that the Petitioner is not entitled to recovery of the Loans in addition to a buy-out of his shares to be valued on the basis that the Loans were repaid in 1997.

(3)  By seeking leave to appeal against the CA Judgment, the Petitioner is seeking to reinstate the Main Judgment including the buy-out order and the bases upon which his shares should be valued.  If he succeeds in the appeal, the position would be that all the Loans were fully discharged shortly after September 1997, such that the Petitioner would no longer have any locus standi to present the Petition.

(4)  The Petitioner “cannot blow hot and cold”.  By seeking leave to appeal against the CA Judgment, his position is that the Main Judgment is correct.  It is an abuse of process for him to adopt an inconsistent position in the Petition. 

(5)  If the Petitioner is allowed to pursue the intended appeal and the Petition, he would in effect be able to get “double recovery” as it means that he can rely on the Loans in seeking winding-up orders against the Companies and, at the same time, seeking to restore the buy-out order made by the Judge.

36.  On the other hand, Mr Lai contends that the Petitioner did not adopt diametrically opposite factual cases in the UP Proceedings and in the Petition, given that:

(1)  The Petitioner’s position has all along been that the Loans exist and remain enforceable against the Companies unless and until a buy-out order is granted and not set aside. 

(2)  In the February Decision, the Judge held that the Petitioner was not entitled to double recovery. 

(3)  In the April Decision, the Judge noted that if the buy-out order is set aside, the Petitioner “will be in the position of being a creditor”. 

(4)  The continued existence of the Loans was never in dispute between the parties in the UP Proceedings.  Indeed, the Majority Shareholders relied on this “common factual premise” when seeking to overturn the Judge’s holding in refusing to make it a condition for the Petitioner to assign the Loans to the Majority Shareholders, which the Court of Appeal agreed.

37.  In my judgment, the Petitioner has not adopted inconsistent positions in the UP Proceedings and in the Petition. 

(1)  As is clear from the Main Judgment, the position adopted by the Petitioner in the UP Proceedings was that the Loans existed.  As a matter of fact, even after the Main Judgment, the Petitioner continued to argue that he was entitled to recover the Loans, which was rejected by the Judge in the March Decision. 

(2)  The existence of the Loans was not in issue between the parties in the UP Proceedings.  Indeed, it was precisely because the Loans existed that the Judge considered it necessary to order valuation of the Companies to be conducted on the basis that the Loans were notionally repaid in September 1997 so as to avoid double recovery. 

(3)  Even after the trial, it can be seen from the “Briefings” submitted by the Companies to the valuers that as a matter of fact, the Loans existed and remained in the books of accounts  of the Companies. 

38.  As the Petitioner had never in the UP Proceedings raised any issue about the existence of the Loans, the Court was not required to determine such issue.  There can be no compromise on the “integrity of the administration of justice”.  Nor is there any basis to suggest that the Petitioner has abused the process by adopting inconsistent positions in respect of the existence of the Loans. 

39.  In relation to Mr Joffe’s contention that in seeking leave to appeal against the CA Judgment, the Petitioner is seeking to uphold the Main Judgment and the buy-out order, which is inconsistent with his position adopted in the Petition.  I am unable to agree.  At the time the Petitioner presented the Petition, the buy-out order had already been set aside by the Court of Appeal and the UP Proceedings dismissed.  The order is binding upon the Petitioner (and the Majority Shareholders).  Unless and until the Petitioner succeeds in obtaining leave to appeal against the CA Judgment and succeeds in such appeal, the position remains that the buy-out order has been set aside.  The present position is, as the Judge observed in the April Decision, that the Petitioner is a creditor of the Companies. 

40.  Lastly, I do not think that the Petitioner would be able to get “double recovery” as submitted by Mr Joffe.  In my view, by seeking winding up orders against the Companies, the Petitioner is in effect seeking to put an end to the UP Proceedings including his extant application for leave to appeal against the CA Judgment.  This is because if the Court orders the Companies to be wound up on the ground that they are insolvent:

(1)  It would be said against the Petitioner that the intended appeal against the CA Judgment has been rendered academic, if not impossible, given that the fundamental bases upon which the Judge ordered the Majority Shareholders to buy out his shares, viz., (i) the Companies remain a going concern; (ii) the Majority Shareholders will be able to sell the lands at their current market value after they buy the Petitioner’s shares; and (iii) the Loans should be treated as notionally repaid in September 1997, no longer exist.

(2)  It might also be said against the Petitioner that it would be unfair or inequitable to require the Majority Shareholders to buy out the Petitioner’s shares as ordered by the Judge. This is because the winding-up orders bring into operation the statutory scheme for administering the assets of the Companies, which requires the assets of the Companies to be realised and distributed to all creditors in proportion to their claims.  As the assets are not sufficient to pay the Loans, the shareholders will not receive any distribution for their shares.  As to this, Mr Joffe has drawn the Court’s attention to 2 authorities where the English court held that even if the company in question is insolvent, it is open to the petitioner to seek unfair prejudice remedy if he has suffered prejudice in some capacity connected with his shareholding: Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] 4 All ER 164, at §§32-33, per Lord Scott; In re Tobian Properties Ltd [2013] Bus LR 753, at §§11-12, per Arden LJ.  However, this issue does not arise as the Petitioner has pursued the UP Proceedings without any suggestion by the Majority Shareholders that he does not have sufficient interest in the Companies by reason of their insolvency. 

(3)  It may even be said against the Petitioner that by putting the Companies into liquidation, the Petitioner has by his conduct estopped from appealing, or has in equity or at law released his right of appeal (Lissenden v CAV Bosch Ltd [1940] AC 412 at 420, per Lord Maugham, cited in Hong Kong Civil Procedure 2020, §59/0/34).

41.  Mr Lai does not really dispute that the relief sought by the Petitioner in the UP Proceedings and in the Petition are “inconsistent with each other”[17]. He submits that this does not constitute an abuse of process, as “the parties will be put to an election at the time of entering the judgment” (Tang Man Sit (deceased) v Capacious Investments Ltd [1996] AC 514 at 521D-522C, per Lord Nicholls; United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 30, per Lord Atkin).  He submits that the Court needs not be concerned at this stage as to whether the relief sought is inconsistent, as it is a matter for the judge hearing the Petition or the Court of Final Appeal hearing the appeal against the CA Judgment.   

42.  I do not agree with Mr Lai’s latter submission, which is inconsistent with the well established principle that winding-up proceedings are summary in nature and the Court will normally dispose of a winding up petition expeditiously.  In the ordinary course of event, if the company has mounted an application to strike out the petition but fails in its application, the Court would order the company to be wound up unless the company is able to pay or secure the debt in question.  In the present case, it is hard to see on what basis the Companies can dispute the amounts of the Loans (which emanated from the Companies’ records) or the fact that the Companies do not have sufficient assets to pay the loans owed to the Petitioner.  As matter now stands, it is indisputable that the Companies are insolvent and unable to pay their debts. 

43.  Having said that, I consider that for the reasons stated in §41 above, it would be a waste of  time and costs to allow the Petitioner to pursue both the UP Proceedings and the Petition.  This is particularly so, as the Petitioner has never said that if he succeeds in obtaining winding-up orders against the Companies, he will not pursue the UP Proceedings, a point heavily relied upon by Mr Joffe.   

44.  It seems to me that this is a case which warrants the Court exercising its “case management” power, under Order 1B rule 1(2)(e) of the Rules of High Court and inherent jurisdiction of the Court, to order a stay of the Petition until the final determination of the UP Proceedings, save for the purpose of rectifying the irregularity identified in §3 above.  While it is unusual for the Court to grant a stay of a winding-up petition presented by a creditor, as an unpaid creditor is entitled to seek a winding-up order against the company ex debito justitiae.  I consider that this is a case which warrants such a stay, given that it is not in dispute that the Companies’ liabilities to third parties consist only of (1) the costs which may be payable to the plaintiffs in the adverse possession proceedings, (2) the fees payable to company secretary and auditors, and (3) the costs of the solicitors for the Companies in these proceedings, and the amounts are not substantial. 

45.  The possibility of a “case management” stay was raised by this Court at the hearing.  Mr Joffe submits, as a fallback position, that if the Court does not strike out the Petition, it should order a stay of these proceedings as the parties need certainty on the stance adopted by the Petitioner.  Mr Lai does not seriously dispute that it would be a waste of time and costs for the Petitioner to maintain both proceedings. 

46.  For the above reasons, I dismiss §1 of the Strike out Summons.  I order a stay of the Petition until the final determination of the UP Proceedings, save for the purpose of rectifying the irregularity identified in §3 above.

D.  Validation Summons

47.  At the hearing, I made an order to sanction (1) the intended sale of the land at Lot No 60, 62-65 and 67 in Demarcation District 331 (“Subject Land”) held by Minloy to Rosy Radiant Holdings Ltd (“Rosy”), a third party independent of the shareholders, at the price of HK$3,724,200 (“Sale”); and (2) the use of the proceeds of the Sale and the money deposited in Top Master’s bank account to pay the costs, disbursements and commission in respect of the Sale and the costs of the appeal in CACV 404/2018.  I ordered the costs of the Validation Summons to be in the cause of the Petition and I allowed the Companies to use their assets to pay the costs of and occasioned by the Validation Summons in the first instance, pending determination of the Petition.  I said I will give brief reasons of my decision which I now do.

48.  The applicable principles are not in dispute.  Where, as here, there are doubts as to the solvency of the Companies, the Court would not sanction the proposed transactions unless it is satisfied by affirmative evidence that they would be beneficial and advantageous to the Companies and their unsecured creditors (Re Luen Cheong Tai Construction Co. Ltd [2004] 1 HKLRD 735 at §6, per A Cheung J, as he then was).   

49.  In my view, the Companies have demonstrated that there are good grounds to sanction the Sale and the payment of the costs in CACV 404/2018, having regard to the following matters:

(1)  In HCA 31/2014, a squatter made a claim against Minloy for adverse possession of 46 lots of land (with 46,882 sf) owned by it.  The squatter obtained judgment from the Court on 23 July 2018, which extinguished Minloy’s paper title to the lots. 

(2)  According to the Colliers Report, the market value of these 46 lots as at 14 December 2016 was HK$15.5 million.  Taking into account the increase in the rate of ex gratia compensation for resumed agricultural land between 2016 and 2019, the current market value of these lots is around HK$20.3 million. 

(3)  Minloy has obtained legal advice that there is a reasonable prospect of success in the appeal.  Other than the Petitioner, all shareholders agreed that Minloy should pursue the appeal.  On these bases, Minloy lodged an appeal against the judgment in CACV 404/2018.  The appeal is scheduled to be heard on 22 September 2020.  In light of the value of the 46 lots, it must be in the interest of Minloy to pursue the appeal. 

(4)  Although the Companies have tried to raise HK$3 million from the shareholders for the purpose of funding the appeal, all shareholders, with the exception of the Petitioner, voted in favour of selling the Subject Land to meet the funding requirement.  There is no reason not to follow the view of the overwhelming majority of the shareholders, particularly when such consent satisfy the requirement of clause 8 of the Shareholders Agreement, which remains binding upon all shareholders.   

(5)  According to Colliers Report, the Subject Land had a market value of HK$1.86 million as at 14 December 2016.  Taking into account the increase in the rate of ex gratia compensation, the current market value of the Subject Land is HK$2.42 million.  The price offered by Rosy, which remains the only offer available to Minloy, is above the current market value of the Subject Land. 

(6)  Even if one were to add into the valuation a “marriage value” between the Subject Land and the land owned by Rosy (on the basis that there is synergy benefit for Rosy to own both lands), the latest valuation of the Subject Land is between HK$3.22 million and HK$4.3 million.  The price offered by Rosy is still above the lower bracket of this higher valuation.  

50.  The only point of substance made by Mr Lai is that there is still a sum of HK$858,464 in Top Master’s bank account, which can be used to pay the costs of the appeal.  However, this ignores the fact that on the evidence available to the Court, the Sale represents the best offer which Minloy has been able to obtain for the Subject Land.  There is no reason why Minloy should not be allowed to take the opportunity to sell the Subject Land at its market price.  This is particularly so when sale of land falls within  the long-term objective of the Companies, as stated in clause 3 of the Shareholders Agreement.

51.  As for the Companies’ application for sanction in respect of the payment of the costs incurred by the Companies in the Validation Summons and in the Petition, I made an order that such application be adjourned sine die.  It seems to me that it would be appropriate to determine the question of costs at the time when the Petition is heard, as there may be arguments on whether it is appropriate for the Companies to bear the costs of the Petition, having regard to the fact that they have been under the control of the Majority Shareholders and it is their decision to cause the Companies to oppose the Petition. 

E.  Disposition

52.  I make the following order:

(1)  §1 of the Strike out Summons is dismissed. 

(2)  Section E of the Petition is struck out. 

(3)  The Petition be stayed until the final determination of the UP Proceedings, save for the purpose of rectifying the irregularity identified in §3 above.

(4)  The Sale of the Subject Land by Minoly be sanctioned.

(5)  The use of the proceeds of the Sale and the money deposited in Top Master’s bank account to pay the costs,  disbursements and commission in respect of the Sale and the costs of the appeal in CACV 404/2018 be sanctioned. 

(6)  The costs of the Validation Summons be in the cause of the Petition.

(7)  The Companies are allowed, in the first instance, to use their assets to pay the costs of and occasioned by the Validation Summons insofar as it concerns the Sale in the first instance. 

All other costs including the costs of the Strike out Summons be reserved, as there are various permutations about costs, depending on the outcome of the Petition.