Re Lehman Bush (HK) Ltd

HCCW 450/2021

[2022] HKCFI 488

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 450 OF 2021

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REASONS FOR JUDGMENT

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1.By petition presented on 24 November 2021 the petitioner, Airboss Defense Group, LLC (“Petitioner”), seeks a winding up order against Lehman Bush (HK) Limited (雷曼布什投資有限公司) (“Company”) on the ground that the Company has failed to satisfy the statutory demand dated 17 September 2021 (“SD”) and, therefore, is deemed to be unable to pay its debts by virtue of section 178(1)(a) of the Companies (Winding-up and Miscellaneous Provisions) Ordinance (Cap 32). At the hearing, I dismissed the petition with detailed reasons to be given later. These are the reasons for my judgment.

2.The basis for seeking a winding up order against the Company is stated in §§5-6 of the petition:

“5. The Company is indebted to the Petitioner in the sum of US$500,000 (the “Outstanding Debt”) pursuant to the Escrow Services Agreement dated 8 June 2021 (the “Escrow Services Agreement”) entered into by the Company and the Petitioner. Pursuant to clause 4 of the Escrow Services Agreement, the Company is required to return the Outstanding Debt to the Petitioner.

6.     On 17 September 2021, Messrs Deacons of 5^th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong, Solicitors for the Petitioner, served on the Company a [SD] by leaving the same at the registered office of the Company requiring the Company to pay the Outstanding Debt.  The [SD] was in the prescribed form…”

3.In the affirmation of Edward Eugene Lehman filed on 8 February 2022 in opposition to the petition  (“Lehman 1^st”), a copy of the Escrow Services Agreement has been exhibited as “EEL-2”.  There is no dispute that this is the same Escrow Services Agreement relied on by the Petitioner. 

4.The Company opposes the petition on, inter alia, the ground that it was not a party to the Escrow Services Agreement. It seems to me that the point is well founded given that:

(1)     in the preamble and the execution page, the only parties mentioned were the Petitioner and Lehman, Lee & Xu (“LLX”), which was described as a company incorporated and existing under the laws of Hong Kong;

(2)     the obligations of the parties under the clauses were described as the obligations of the Petitioner or LLX; and

(3)     none of the clauses referred to the Company, still less any obligation assumed by the Company. 

5.Indeed, clause 4 of the Escrow Services Agreement makes clear that the obligation to return the US$500,000 is on LLX:

“[LLX] hereby covenants and agrees that it shall receive the Buyer’s Deposit via the escrow account at HSBC Hong Kong as named above for use as a deposit paid to the Allocation Holder to secure stock on behalf of [the Petitioner]. Upon recognition of the Buyer’s Deposit, [LLX] will ensure return of the Buyer’s Deposit, in due course and in full, if the goods identified in section 1 of the ICPO and held by the Allocation Holder do not exist, are unavailable for delivery, are sold to another party, or do not satisfy the requirements of Attachments 1, 2 and 3 and Exhibits A and B, (the “Conditions”). For greater certainty, [LLX] hereby covenants and agrees with [the Petitioner] that [LLX] shall take necessary actions to refund the Deposit to [the Petitioner] if the Conditions are not satisfied, including by specifically securing a bank guarantee from the Allocation Holder and returning funds to [the Petitioner], once received by LLX. If there are delays by the Allocation Holder to issue the bank guarantee to [LLX] in timely manner, [LLX] will take immediate legal recourse to secure the bank guarantee or equivalent deposit funds from the Allocation Holder as required to return funds to [the Petitioner]. ” (underlined added)

6.In his skeleton argument, Mr Stefano Mariani, solicitor advocate for the Petitioner, contends that the Company owes the Petitioner US$500,000 “which it is liable to refund to the Company pursuant to the terms of an Escrow Services Agreement between [the Petitioner] and the Company that became effective on 8 June 2021” and the SD served on the Company on 17 September 2021.  Then he complains about Lehman 1^st having been filed out of time and had not been affirmed by the time the petition was heard before the Master on 9 February 2022.  No attempt has been made by the Petitioner to address the point that the Company was not a party to the Escrow Services Agreement. 

7.In the letter dated 11 February 2022 to the parties, this Court observed  that the petition appears to be demurrable as the Company was not a party to the Escrow Services Agreement. 

8.In his supplemental skeleton lodged immediately before the commencement of the hearing, Mr Mariani submits that “there is no doubt that the Company is a party to the Escrow Services Agreement” for 3 reasons viz., (1) the Agreement was signed by Mr Lehman who is a director of the Company; (2) the Company’s chop is next to Mr Lehman’s signature; and (3) the address underneath is the Company’s registered office.  Further, he contends that there is no entity in the name of “Lehman, Lee & Xu” and, although there are 4 other Hong Kong companies bearing the name of “Lehman Lee & Xu”, Mr Lehman is not a director of any such companies.  I am unable to accept the submissions for 2 reasons:

(1)     None of the above matters have been alluded to in the petition.  Nor has the Petitioner applied for leave to amend the petition to include such matters as the bases for suggesting that the Company was liable under the Escrow Services Agreement.

(2)     In any event, I am unable to see how any of these matters would make the Company to become a party to the Escrow Services Agreement or liable to pay the US$500,000 to the Petitioner.

9.Further, Mr Mariani relies on (1) the sale and purchase agreement (signed by the Petitioner on the same day as the Escrow Services Agreement) in which the counterparty was described as “Lehmanbush Hong Kong c/o Lehman, Lee & Xu”; (2) the transfer of US$430,000 (out of the US$500,000 paid by the Petitioner) to DSAK Trading SDN BHD (“DSAK”) which, in turn, issued a pro forma invoice to the Company; and (3) §14 of Lehman 1^st where he referred to the default of DSAK in supplying the products in question, and the legal action commenced in the Company’s name against DSAK.  In his oral submissions, Mr Mariani alleges that LLX was the alter ego of the Company, and it would be a “fraud on creditor” if the Company could escape liability to pay US$500,000 to the Petitioner. 

10.I do not think it is open to Mr Mariani to make the allegation which is not pleaded in the petition or mentioned in the SD and his skeleton.  In any event, even if the Petitioner were to apply for leave to amend the petition to include this allegation, it seems to me that the question whether LLX was the alter ego of the Company is a question of mixed fact and law and cannot be determined summarily through the winding up procedure.   

11.There is no reason why costs should not follow the event.  The Petitioner is ordered to pay the costs of and occasioned by the petition, to be assessed by way of gross sum assessment.  The Official Receiver’s costs in the amount of $5,300 be paid out of the deposit. 

Mr Stefano Mariani (Solicitor Advocate), of Deacons, for the Petitioner

Mr Oscar Tam, instructed by Ravenscroft & Schmierer, for the Company

Mr William Tse, instructed by Official Receiver’s Office, for the Official Receiver