Re Awp Group Ltd

HCCW 96/2020

[2021] HKCFI 352

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 96 OF 2020

________________

________________

________________

D E C I S I O N

________________

1.I have before me a petition issued on 12 May 2020 by Sigma Engineering AB (“Sigma”) seeking a winding-up order on the grounds of insolvency against AWP Group Limited (“Company”). The Petitioner relies on a statutory demand dated 28 February 2020 seeking payment of EUR208,641 plus interest pursuant to a sales order confirmation dated 18 May 2017, for a unit referred to as Mecer SX/17.5 CuC12.

2.Although both counsel managed to produce substantial skeleton arguments and in the case of the Company identify various arguments that the Company has a bona fide defence on substantial grounds to payment of the debt, and in the case of the Petitioner counter-arguments, as I explained to counsel of the outset of the hearing, it seems to me that for the purposes of determining the petition, the issue was quite narrow and certain of the arguments, for example, Mr Ho’s argument that there was an arbitration agreement incorporated in the relevant sales confirmation and that the dispute should be referred to arbitration, was not an argument I thought sufficiently substantial to spend time on.  What is in my view material is the proper construction of a share sale and purchase agreement (“sale and purchase agreement”) which is central to the Company’s suggested defence.

3.The sale and purchase agreement is dated 23 November 2018.  Pursuant to this agreement, Mr Robert Pacholik and Mr Glenn Mattsson, both of whom are Swedish, and the Company, which they jointly owned called MaPa Industrier AB (“MaPa”), sold their interests in various companies all of which are named AWP.  Principally the companies were AWP Germany and the Company. Although the companies are associated they did not form part of a group by which I mean, for example AWP Germany does not own AWP Hong Kong, which is the Company the subject of this petition.  Mr Pacholik and Mr Mattsson did not own the entire shareholding of the Company, they owned 51% of it.  They were agreeing to part with a controlling interest, at least in terms of the passing of ordinary resolutions, of the Company to the Purchaser—GreenSource Fabrication Holdings LLC.

4.The agreement contains a number of provisions which are directly relevant to the issue which is whether or not by virtue of the terms of this agreement, it must be taken that Mr Pacholik, who owns 100% of the Petitioner, was waiving a claim on behalf of the Petitioner to the balance of the purchase price for the equipment that I have described.  The Company contends that he did so, and pointed to particular clauses in the sale and purchase agreement as supporting this conclusion.  In my view the clauses that are relevant are as follows.

5.The first is Clause 8, which contains representations and warranties.  Pursuant to that clause, the sellers (a defined term which includes MaPa, Mr Pacholik and Mr Mattsson) warrant and I quote Clause 8.1(xii):

“The financial statements of AWP Germany and AWP Hong Kong attached hereto as Schedule 8.1(xii) accurately and fairly present the financial position, results of operations and cash flows of such entities as of and for the periods presented, and since the last date of such financials no event has occurred that has had or could have a material adverse effect on the business, operations or financial prospects of AWP Germany or AWP Hong Kong.”

Clause 8.2 provides as follows:

“Each of the Sellers hereby represents to have no receivables or claims of any kind, and there are no agreements, guarantees, indemnity arrangements or other rights, obligations with any member of the AWP Group, except for the Loans listed in Schedule 3.2(a).”

6.Schedule 3.2(a) consists of a schedule of loans, made by MaPa, as Lender, and respectively drawn by AWP Germany.  The loans were not made to the Company.  I should, at this juncture, note two matters.  First, that the consideration for the purchase of the shares at the various companies was divided into tranches.  In the case of the Company, the Purchaser was paid only EUR1,000.  Secondly, there is no suggestion that the financial statements which are appended to the sale and purchase agreement were inadequate.  The financial statement for the Company expressly refers on page 4 in Note 6 under the heading—“Trade creditors” to the debt, claimed by the Petitioner as justifying presentation of the present petition.

7.The Company argues that taken as a whole the agreement, and in particular Clauses 8.2 and 9.2, indicated that it was the intention of the parties that on completion of the transaction, namely, the acquisition of the seller’s shares, there would be a clean break between the parties and that nothing further would be payable by the Company to either Mr Pacholik, Mr Mattsson or any corporate entity that they controlled.  In other words, it must be taken that the Petitioner had by virtue of Mr Pacholik’s agreement contained in the sale and purchase agreement waived any right it might otherwise have had to claim the outstanding payment shown in the financial statement as due to it in respect to the equipment that it had provided.

8.The agreement is governed by Swedish law and a dispute concerning various provisions, in particular warranties and representations, is apparently being litigated by the Purchaser under the sale and purchase agreement in Sweden.  It is suggested that the dispute relating to the debt is one most appropriately dealt with in Sweden.  In my view, the position is quite straight forward.  I have no evidence before me which demonstrates for example, that the Company or the Purchaser under the sale and purchase agreement, has a possible defence to the claim for payment of the debt based on any representations made at the time the sale and purchase agreement was negotiated, but not incorporated in it.  I note in passing that there is an entire contract clause in the agreement.  However, assuming that the clause would not prevent either the Purchaser or the Company relying on a representation, it would still be necessary in order to satisfy the bona fide defence on substantial grounds criteria for there to be some evidence adduced by the Company, which demonstrated that there was an argument based on some form of representation available to it.  There has not been.  If therefore, seems to me that the bona fide defence on substantial grounds is limited entirely to the extent that on a construction of the language of the sale and purchase agreement, it could be said that there is a substantial argument that the debt has been waived.  I indicated to counsel of the outset of the hearing that if I conclude the answer to that question is yes, I would take the view that there is a bona fide defence on substantial grounds despite the fact that there would be a further argument that would need to be explored at some stage, namely, as to whether or not the sale and purchase agreement was capable of amounting to a defence to the claim for the debt given the fact that the Company is not a party to the share sale and purchase agreement.

9.I recognise that the argument that the agreement was intended to create some kind of financial clean break is not clearly unsustainable. However, in my view, it is not substantial.  It is, in fact, in my view fairly easy to construe the agreement and determine what on its face it demonstrates the parties agreed.  It seems to me that what it does show is that the parties had focused their minds on particular financial transactions relevant to the companies whose shares were being sold, which required special treatment.  These are the loans, and also the payment owed to Sigma by AWP Germany dealt with in Clause 9.2.

10.Clearly it either was or should be known to the Purchaser that it was acquiring shares in the Company which owed the debt to the Petitioner because this was expressly stated in the financial statement attached to the agreement in respect of which a warranty as to accuracy and completeness have been provided.  It follows in my view that if it had been the intention of the parties that that debt was to be waived, one would have expected that this would have been recorded in the agreement just as the parties had dealt with separately other transactions which they had agreed needed to be dealt with specifically.  It seems to me that in the circumstances, the obvious interpretation of the agreement is that the amount shown as a receivable in the financial statement of the Company remained payable to the Petitioner.  It may be that this was in fact a mistake.  It may be that those negotiating the agreement on behalf of the Company intended that the debt be waived.  But the Company has not adduced evidence, or advanced a defence, that suggests there was a mistake.  It seems to me I am capable of construing this document, which although governed by Swedish law, is written in English and in conventional language for an agreement of its sought.  In my view, a defence on substantial grounds has not been demonstrated.

11.I have told the parties that the way I intend to proceed is to list the petition for hearing of 22 February 2021.  If the Company pays EUR139,094 to the Petitioner before that date (I should note that this is less than the debt but I have proceeded on the basis, as I indicated to counsel during the hearing, that there is an arguably defence in respect on the final 10% payable under the purchase agreement), I will dismiss the petition.  If this sum is not paid, then I will make the normal winding-up order unless some good reason for doing otherwise is demonstrated on or before the hearing of 22 February.  The normal costs order on a winding-up order will be made.

12.If the petition is to be dismissed, I assume that the Company will still pay the Petitioner’s costs and I will so order unless the parties notify me that they have agreed something different or the issue of costs is raised before me on 22 February.

Mr Lai Chun Ho, instructed by Oldham, Li & Nie, for the petitioner

Mr Martin Ho, instructed by Stevenson, Wong & Co, for the company

The attendance of the Official Receiver was excused