China Zhongzhan Group Co Ltd v. Apastron Holdings Ltd and Others

HCMP 1510/2020

[2020] HKCFI 2846

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1510 OF 2020

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BETWEEN

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DECISION

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APPLICATION

1.By a summons dated 22 September 2020 (the “Summons”), China Zhongshan Group Company Limited, the Plaintiff, applies for an interim injunction to restrain Apastron Holdings Limited, the 1^st Defendant, Apastron Group Limited, the 2^nd Defendant, and Binnacle Holdings Limited, the 3^rd Defendant, collectively, the Defendants, from presenting a winding-up petition  against the Plaintiff on five statutory demands (the “Statutory Demands”) all dated 31 August 2020 pending the determination of the Plaintiff’s Originating Summons dated 18 September 2020 for a permanent injunction to the same effect.

2.This matter was listed for hearing before this Court on 25 September 2020. This Court granted an interim interim injunction pending the substantive hearing of the Summons today. This Court also gave a set of directions to the parties in relation to filing of evidence.

3.At the hearing, Ms Wong for the Plaintiff informed this Court that the directions made by this Court were served on the Defendants both by hand and by email on 25 September 2020.

4.On 6 October 2020, the 1^st and 2^nd Defendants by email informed the Plaintiff that “Ms. Vien Liu has resigned as director of both Apastron Holdings Limited (“AHL”) and Apastron Group Limited (“AGL”) with immediate effect.”

5.On the same date, the 3^rd Defendant also informed the Plaintiff that “Mr. Andrew Forbes has resigned as director of Binnacle Holdings Limited with immediate effect.”

6.Since then, the Defendants have not filed any affirmation evidence to oppose the Plaintiff’s present application or to challenge the evidence filed by the Plaintiff.

7.At the conclusion of the oral hearing, I made an order that:

(1) There be an interim injunction that all the Defendants, whether by itself, its servants, agents, employees, representatives or otherwise, be restrained from presenting any petition to wind up the Plaintiff pursuant to the Statutory Demands dated 31 August 2020 until further order or the determination of the Originating Summons dated 18 September 2020; and

(2) Costs to be summarily assessed to HK$150,000 to be paid by the Defendants to the Plaintiff forthwith.

8.Now I give my reasons.

MATERIAL FACTS

9.The Plaintiff is a financial service company. In July 2019, it was searching for opportunities to acquire companies with 4 types of SFC licenses, namely, Types 1, 4, 6 and 9 so that it may begin to offer securities and financial services in Hong Kong.

10.In late 2019, the Plaintiff was introduced to Mr Daniel Kan (“Kan”) and Mr Amdrew Forbes (“Forbes”), who represented the 2^nd and 3^rd Defendants.

11.At Kan and Forbes’ suggestion, the Plaintiff intended to acquire Apastron Investment Limited which has Types 4 and 9 licenses and the 3^rd Defendant which has Types 1 and 6 licenses. On the Plaintiff’s case, Kan and Forbes also assured the Plaintiff that they would assist in handling potential business referred to Apastron Investment Limited and the 3^rd Defendant by the Plaintiff before completion of the intended acquisition.

12.The parties thereafter entered into two memorandums of understandings (“MOUs”), two agreements dated 28 February 2020 which varied the terms of the MOUs (the “1^st Variation Agreement”) and two “2^nd Supplemental Agreements” dated 29 May 2020 which further varied the terms of the MOUs (the “2^nd Variation Agreement”).

13.The Plaintiff’s case is that all the above agreements are conditional upon the parties entering into a formal Sale and Purchase Agreement (the “SPA”) which never materialised because the Defendants have breached their duty of good faith to negotiation with the Plaintiff to have the SPA signed and executed.

14.It is also stipulated that if not SPA can be agreed within the stipulated time frame or is terminated, the MOUs will cease to have effect and the Plaintiff will be able to get a refund of reimbursement of its costs and expenses (Clause 1.3 of the MOUs).

15.Pursuant to the MOUs, the Plaintiff paid HK$1.5 million to Apastron Investment Limited and HK$2.4 million to the 3^rd Defendant.

16.The parties also reached an oral agreement to the effect that the Plaintiff would pay 50% of the companies’ overhead. Thus, the Plaintiff further paid additional sums of HK$267,810 and HK$492,750 representing 3 months of the Plaintiff’s shares for Apastron Investment Limited and the 3^rd Defendant.

17.Further, the Plaintiff also paid HK$1 million and HK$1.6 million as stage payment to Apastron Investment Limited and the 3^rd Defendant respectively.

18.Ms Wong for the Plaintiff first submitted that as no SPA was concluded and executed, the Plaintiff has not acquired any shares in companies with the four types of licenses. The consideration of the transaction has failed totally. As such, the Defendants are not entitled to rely on the promissory notes which were issued under the 2^nd Variation Agreement.

19.Secondly, the Plaintiff is entitled to counterclaim for the refund of all the payments made to the Defendants in the aggregate sum of HK$7,260,560 which exceeds the sums claimed under the Statutory Demands.

20.Thirdly, there are substantial disputes as to the quantum of the alleged expenses of Apastron Investment Limited and the 3^rd Defendant. It is the Plaintiff’s case that Kan and Forbes have misrepresented the expenses by inflating figures in their financial statements.

21.Fourthly, the Defendants have breached the duty of good faith to negotiate and agreed on the terms of the SPA. Kan and Forbes were unwilling to negotiate on the terms and in fact refused to consider any amendments of the draft SPA proposed by the Plaintiff’s legal team.

22.Fifthly, Ms Wong for the Plaintiff also submitted that the Defendants have repudiated the MOUs by serving a notice of termination on the Plaintiff on 31 August 2020.

23.All the above assertions are not refuted by the Defendants as they chose not to file any evidence in opposition.

APPLICABLE LEGAL PRINCIPLES

24.The legal principles in this area are fairly well settled. Chow J in Re Grande Holdings Ltd, HCMP 2369/2017, unreported, 22 December 2017 at §14 said:

“(1) The court will grant an injunction to restrain the presentation of a winding-up petition which it considers would be an abuse of the court’s process.

(2) It is an abuse of process to present a winding-up petition based on a claim of which there is a bona fide dispute on substantial grounds.

(3) The threshold for resisting a petition (requiring proof of a bona fide defence) is higher than that for resisting an application for summary judgment (requiring proof of a fair probability of establishing a bona fide defence), but the difference between the two tests is, in most cases, likely to be more a matter of semantics than substance.

(4) Petitions are not meant for the purpose of debt collection and the winding-up jurisdiction of the court would be exercised only in clear cases. Where oral evidence is required to decide a real and substantial dispute of fact, the court will generally dismiss the petition.

(5) The onus is on the company to put forward credible evidence that demonstrates sound reasons to think that the asserted facts may be proved at the trial.”

25.The court’s approach where a debt is said to be bona fide disputed on substantial grounds is also well established. (For example, see Re Hong Kong Construction (Works) Ltd, HCCW 670/2002, unreported, 7 January 2003) at §10). The court does not try disputes on affidavit but will take a view to assess whether, on the evidence, there are disputes which needs to go to trial.

ANALYSIS 

26.First, applying the above legal principles to the facts of the present case, I am of the view that Ms Wong for the Plaintiff is right that there are bona fide disputes to the alleged debts as set out in the Statutory Demands. It is a not a matter that this Court can determine purely on affidavit evidence, less just on the Defendants’ Statutory Demands.

27.Secondly, the Defendants chose not to appear in this hearing to assist the Court. In the circumstances, the Court cannot safely determine at this stage that there are no merits in the Plaintiff’s submissions as outlined above.

28.Thirdly, Ms Wong for the Plaintiff informed this Court that just few days before the present hearing, it appears that the Defendants have assigned their alleged debts under the Statutory Demands to one Sequedge International Limited and one XG Investment Limited on 2 November 2020. As such, without admitting the validity of the assignments, there is a real issue as to whether the Defendants have the relevant locus standi to present any winding up petition. I agree.

29.The assignments may also be a reason as to why the Defendant chose not to contest the present application.

30.Fourthly, as a matter of exercise of this Court’s discretion, I am of the view that fairness and justice dictate that in the interim period, an injunction should be granted to protect the status quo and the interest of the Plaintiff in view of the substantial and bona fide disputes to the alleged debts as set out in the Statutory Demands.

DISPOSITION

31.For all the reasons stated above, I make an order as set out in paragraph 7 above.

32.Finally, this Court will like to thank Ms Wong for the Plaintiff for her able assistance.

Ms Crystal Wong, instructed by Franki Ho & Associates, for the plaintiff  

The 1^st defendant was not represented and did not appear

The 2^nd defendant was not represented and did not appear

The 3^rd defendant was not represented and did not appear