Re Zpmc-red Box Energy Services Ltd

HCCW 368/2021

[2022] HKCFI 3256

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 368 OF 2021

____________________

____________________

Before:  Hon Cheng J in Court

Date of Hearing of the Petition:  14 June 2022

Date of Hearing of the Evidence Summons:  10 October 2022

Date of Decision of the Evidence Summons:  10 October 2022

Date of Judgment and Reasons for Decision:  21 October 2022

_________________________________________

J U D G M E N T    A N D

R E A S O N S    F O R    D E C I S I O N

_________________________________________

A.  INTRODUCTION

1.By a petition presented on 30^th September 2021 (“the Petition”), the Petitioner, Shanghai Zhenhua Heavy Industries Co, Ltd (“the Petitioner”) seeks a winding-up of ZPMC-Red Box Energy Services Limited (“the Company”) on the ground that it is insolvent and unable to pay its debts.

2.On 7^th July 2021, a statutory demand (“the Statutory Demand”) was served on the Company in respect of the Debt (as defined below). The Debt was not paid within 21 days from the date of service of the Statutory Demand.

3.The Petition is opposed by RBF HK Limited, a contributory holding 32.5% of the Company’s issued shares (“RBF”), on the grounds that:

3.1  there is a bona fide dispute as to the Debt;

3.2  the Company has a genuine cross-claim against the Petitioner which equals or exceeds the Debt;

3.3  the Petition is an abuse of process.

4.RBF seeks, in the alternative to a dismissal of the Petition, an adjournment of the Petition.

5.Subsequent to the hearing of the Petition, RBF issued a summons of 31^st August 2022 for leave to file further evidence (“the Evidence Summons”). I refused leave for the reasons given below.

B.  THE BACKGROUND

6.Unless otherwise indicated, the following is not in dispute.

7.The Company is a Hong Kong joint venture company established on 26^th March 2014. Its shareholders are ZPMC Offshore Services Company Limited (“ZPMC Offshore”) (a wholly-owned subsidiary of the Petitioner) as to 51%, RBF as to 32.5%, and Lihua Logistics Co, Limited (“Lihua”)[1] as to 16.5%.

8.In August 2015, the Company’s directors and shareholders resolved that the Company would obtain a US$30m loan (“ICBC Loan”) from the Industrial and Commercial Bank of China, Paris Branch (“ICBC Paris”).

9.On 14^th September 2015, the Company entered into a loan agreement with ICBC Paris for a loan of US$30m (“the Loan Agreement”).

9.1  Under clause 2.1, US$20m was to be used to repay existing loans, and US$10m was to be used for daily operations.

9.2  Under clause 8.1, the SBLC (as defined below) was to secure all liabilities of the Company under the Loan Agreement.

10.On 16^th September 2015:

10.1  the Petitioner procured a standby letter of credit to be issued by the Industrial and Commercial Bank of China, Shanghai Branch (“ICBC Shanghai”) in favour of ICBC Paris in the amount of US$25,551,000 (“the SBLC”). The SBLC was to secure the obligations due and payable by the Company to ICBC Paris under the Loan Agreement;

10.2  the Petitioner in turn entered into a guarantee agreement with ICBC Shanghai in relation to the SBLC (“the Petitioner’s Guarantee”).[2]

11.The ICBC Loan matured in March 2017. ICBC Paris demanded payment in full from the Company. The Company failed to repay the ICBC Loan.

12.According to the Petitioner, on or about 30^th March 2017, ICBC Paris called on the SBLC.

13.On or about 27^th April 2017:

13.1  ICBC Shanghai demanded payment of US$25,117,792.28 from the Petitioner pursuant to the Petitioner’s Guarantee;

13.2  the Petitioner, through its subsidiary Shanghai Zhenhua Port Machinery (Hong Kong) Company Limited (“ZPMC HK”), paid ICBC Shanghai US$25,117,792.28 pursuant to the Petitioner’s Guarantee;

13.3  ICBC Shanghai paid US$25,117,792.28 to ICBC Paris pursuant to the SBLC.

14.It is the Petitioner’s case that by reason of the aforesaid:

14.1  the Company became liable to indemnify the Petitioner for US$25,117,792.28 plus interest, and

14.2  the Petitioner became subrogated to the rights of ICBC Paris against the Company under the Loan Agreement to the extent of US$25,117,792.28 plus interest;

14.3  alternatively, to the extent that the Company became liable to ZPMC HK and/or ZPMC HK became subrogated to the rights of ICBC Paris against the Company, ZPMC HK has assigned such rights to the Petitioner pursuant to a deed of confirmatory assignment dated 5^th July 2021 (“the Deed of Assignment”), and the Petitioner is entitled to US$25,117,792.28 by way of assignment.

15.The Petitioner says that as at 6^th July 2021, interest due from the Company to the Petitioner amounted to US$2,988,457.92, so that the total amount due from the Company was US$28,106,250.20 as at 6^th July 2021 (“the Debt”). The Debt is the subject of the Statutory Demand.

16.Mention should also be made of the history of disputes between the ZPMC camp and the RBF camp over control of the Company. The shareholders agreement of 23^rd April 2014 (“the SHA”) provided that:

16.1  the Company would have seven directors, with four appointed by the ZPMC camp, one by Lihua, and two by RBF;

16.2  the CEO was to be nominated by RBF;

16.3  “Reserved Matters” (as defined in cl.8.8 of the SHA) required a 75% vote to be passed.

17.It is RBF’s case that the ZPMC camp has been aggrieved by its inability to circumvent RBF regarding Reserved Matters and has taken various steps to cement its control of the Company. As described in RBF’s skeleton submissions, “a plethora of litigation continues to remain extant between the parties”.

C.  GROUND 1: WHETHER BONA FIDE DISPUTE AS TO DEBT

18.RBF says that:

18.1  there is no evidence that ZPMC HK acted as the Petitioner’s agent when paying ICBC Shanghai. There was no transfer of value from the Petitioner to the Company, so that there is no basis to suggest that the Company was enriched at the Petitioner’s expense and that the Petitioner can claim subrogation;

18.2  as regards the Petitioner’s alternative case, ZPMC HK’s payment to ICBC Shanghai was entirely voluntary, so that there is no basis to suggest that the Company was unjustly enriched at ZPMC HK’s expense and that ZPMC HK can claim subrogation. Furthermore, the alleged assignment of rights under the ICBC Loan by ZPMC HK to the Petitioner was invalid as it failed to comply with the conditions of assignment under the ICBC Loan;

18.3  as regards both of the Petitioner’s cases, subrogation is barred due to lack of clean hands, as well as laches and acquiescence.

C1.  Petitioner’s right to subrogation

19.There is no dispute that subrogation is the process by which, either by contract or by operation of law but without an assignment, a claimant may take over, or be treated as having taken over, some or all of a person’s former or present right against another person. Subrogation by operation of law is an equitable remedy to reverse or prevent unjust enrichment. See Burrows, A Restatement of the English Law of Unjust Enrichment, article 36(1). The availability of subrogation therefore depends on the questions of whether the defendant has been enriched, whether the enrichment is at the plaintiff’s expense, whether the enrichment would be unjust, and whether there are any defences available to the defendant. See Kingsway Finance Ltd v Wang Qingyi [2015] 1 HKLRD 260 at [13] to [15].

20.RBF accepts that where the plaintiff and defendant did not have direct dealings, but the substance of their dealings was such that the law would treat them as direct, the “at the expense of” requirement would be satisfied. This would include the situation where the agent of one of the parties was interposed between them, and where the right to restitution is assigned.[3]

21.RBF submits, however, there is no evidence that ZPMC HK paid ICBC Shanghai as the Petitioner’s agent, so that it could not be said that the Company was enriched at the Petitioner’s expense.

22.However, I note that:

22.1  the preamble to the Deed of Assignment between the Petitioner and ZPMC HK records that “ZPMC HK, acting upon the instruction of [the Petitioner], and on behalf of [the Petitioner], authorized [ICBC Shanghai] to deduct USD 25,117,792.28 from its bank account pursuant to the ZPMC Guarantee”. In other words, the Petitioner and ZPMC HK both confirmed that the payment was made from the funds of ZPMC HK acting as the agent of the Petitioner;

22.2  RBF itself took the position at the time of repayment of the ICBC Loan that it was the Petitioner[4] which had made the repayment on behalf of the Company. At the time it took the stance that the Company was insolvent. The letter from RBF’s solicitors Baker & McKenzie of 27^th April 2017 stated that:

“We note that the ZPMC-nominated CFO has failed to properly manage the company’s liquidity needs, specifically the re-finance of the ICBC USD 30 million unsecured loan which fell due on 21 March 2017. We understand that the standby letter of credits of both ZPMC and ZHLG have been called. [The Petitioner] and ZHLG are now creditors of the Company and in the absence of an agreement between [the Petitioner] / ZHLG and the Company stating otherwise, they are now in a position to serve a demand for immediate repayment of the USD 30 million loan from the Company at any time.”

Baker & McKenzie’s letter of 5^th May 2017 further stated that:

“In the absence of an agreement from [the Petitioner] and ZHLG to refrain from demanding repayment of the US$30 million loan they have repaid to ICBC on behalf of the Company (“the Loan”), they are entitled to call in the Loan at any time.”

22.3  in a term sheet signed by ZPMC Offshore, RBF and Lihua, regarding the parties’ agreement in the light of the intention of ZPMC Offshore and [Lihua] to sell their shares in the Company, it was agreed that US$30,000,000 of the proceeds of the intended sale were to be used “to repay all funds advanced to ICBC by the Petitioner and [Lihua]”;

22.4  in the Company’s Consolidated Financial statements for the years ending 31^st December 2017 and 2018, which were approved and signed by Philip Jeffrey Adkins (“Mr Adkins”) and Christiaan Pieter Muilwijk (both directors of the Company appointed by RBF), it was stated that during 2017, the ICBC Loan was repaid by the Petitioner and Lihua.

23.It seems to me that the evidence establishes that ZPMC HK paid ICBC Shanghai as the Petitioner’s agent. Applying the principles which are not in dispute, the Company was enriched at the Petitioner’s expense, and the Petitioner became subrogated to the rights of ICBC Paris against the Company under the Loan Agreement to the extent of US$25,117,792.28 plus interest.

C2.  Assignment of ZPMC HK’s right to subrogation

24.The Petitioner’s alternative case is that ZPMC HK, being the party which paid ICBC Shanghai, was entitled to subrogation, and that it then assigned its rights to the Petitioner. RBF says that ZPMC HK’s payment to ICBC Shanghai was entirely voluntarily and gratuitous, so that the Company was not unjustly enriched. RBF cited Goff & Jones, The Law of Unjust Enrichment, 9^th ed., paragraph 5-73 and The Toronto-Dominion Bank v Johnny Mondesir [2022] HKCFI 504 at [68] to [69] for the propositions that a defendant’s obligation to a creditor is not discharged if the creditor is paid by an unauthorised intervener acting voluntarily, and does not engage the doctrine of subrogation.

25.In the light of my views in the previous section, I need not deal with this argument in detail. I would simply briefly note that if I am wrong in my assessment of the evidence in the previous section, then the Petitioner’s alternative case would not avail it either. The Petitioner does not dispute that a voluntary payment would mean that the Company was not unjustly enriched (and indeed, that the ICBC Loan was simply not discharged at all). Rather, it says that on the facts, ZPMC HK’s payment could not have been voluntary and gratuitous.[5] I agree, for the same reasons as set out in the previous section, and also because, as pointed out by the Petitioner, RBF accepts that the Company’s debt to ICBC Paris has in fact been discharged, so that ZPMC HK’s payment could not, in fact, have been “entirely voluntary and gratuitous”.

26.However, it would follow from this analysis that it was the Petitioner, rather than ZPMC HK, which was entitled to be subrogated to the rights of ICBC Paris, since ZPMC HK’s payment was made on behalf of the Petitioner, and not that ZPMC was subrogated to the rights of ICBC Paris, which rights it then assigned to the Petitioner.

C3.  Whether subrogation defeated by lack of clean hands or laches and acquiescence

27.RBF argues that the Petitioner should not be entitled to rely on subrogation due to a lack of clean hands and laches and acquiescence.

28.These complaints are based on the complaints that:

28.1  the Petitioner dishonestly assisted the ZPMC-appointed directors of the Company in committing breaches of fiduciary duty, principally, in failing to provide a funding plan to refinance the Company’s payment of the ICBC Loan, and in failing to proceed with the Company’s IPO which was the shareholders’ original plan to pay the ICBC Loan. These complaints are addressed by RBF in more detail under the second ground of its opposition to the Petition;

28.2  the Petitioner’s presentation of the Petition is an abuse of process, with the aim of thwarting RBF’s impending control of the Company. These complaints are addressed by RBF in more detail under the third ground of its opposition to the Petition.

29.As explained below, I do not consider the second or third ground of RBF’s opposition to the Petition to have any merit. It follows that the Petitioner is not barred from relying on subrogation by virtue of a lack of clean hands, or laches and acquiescence.

D.  GROUND 2: WHETHER GENUINE CROSS-CLAIM EQUAL OR EXCEEDING DEBT

D1.  The applicable principles

30.There is no dispute between the parties as to the applicable principles. The Petitioner accepts that even where the debt owed by a company is undisputed, if the company has a genuine and serious cross-claim for a sum exceeding the debt, normally the court will not order a winding up: Re Yueshou Environmental Holdings Ltd, unreported, HCCW 142/2013, 16^th July 2014, at [15].

31.However, the mere fact that the Company has commenced an action against the Petitioner does not mean that the Petition will be dismissed. It is still necessary to show that the claim is a genuine and serious cross-claim: Re Yueshou Environmental Holdings Ltd at [15].

32.Where there has been delay in the prosecution of the cross-claim, the delay must not be such as to throw real doubt on the genuineness of the cross-claim. However, whilst delay in prosecuting a cross-claim may be relevant to the assessment of its credibility, it is not generally a bar to reliance on it. Re Sinom (Hong Kong) Ltd [2009] 5 HKLRD 487 at [13] to [14]; Re Alpha Building Construction Ltd, unreported, HCCW 283/2014, 20^th May 2015 at [8].

33.The company has the onus of establishing that its cross-claim is genuine, serious and of substance. There must be supporting relevant details to demonstrate that the cross-claim is based on substantial grounds. The test is very much the same as the test for a disputed debt petition for deciding whether a debt is disputed in good faith and on substantial grounds. See Re Sinom (Hong Kong) Ltd at [12].

D2.  The Company’s cross-claim

34.One of the pieces of litigation between the ZPMC camp and the RBF camp is HCA 1772/2020, a common law derivative action originally commenced by RBF against the ZPMC-appointed directors of the Company. RBF claims that these directors are guilty of various breaches of fiduciary duties owed to the Company.

35.The Writ in HCA 1772/2020 was issued in October 2020. The Statement of Claim was served on 8^th October 2021, at a time when the Statutory Demand had already been served on 7^th July 2021 and the Petition had already been presented on 30^th September 2021. At that stage the Petitioner was not a defendant in the proceedings, nor were there any allegations of dishonesty against the other defendants. An application to join the Petitioner as 6^th Defendant was subsequently made, but has yet to be determined.

36.The claims made against the Petitioner and relied on as the cross-claim in opposing the Petition are set out in a draft Amended Statement of Claim (“Draft ASOC”) exhibited to the Affidavit of Philip Jeffrey Adkins filed on 20^th December 2021 (“Adkins 1^st”). They are essentially claims that the Petitioner dishonestly assisted the 1^st to 4^th Defendants, the directors of the Company appointed by the ZPMC camp, in their breaches of fiduciary duties owed to the Company. Prior to the Draft ASOC, there had been no express allegations of dishonesty against the directors either.

37.Leading counsel for RBF, Mr Victor Joffe SC (appearing with Mr Justin Ho and Mr John Leung), submitted that the Petitioner has no answer to the cross-claim, and that at least for present purposes, there are genuine, serious and substantial grounds for the claim. The key aspects of the cross-claim were summarised[6] as follows, Mr Joffe submitting that it was not necessary, for the purposes of determining the Petition, to go into the “nitty gritty” details of the claims.

37.1  Three of the Company’s ZPMC-appointed directors, Mr Chen, Mr Li and Mr Liu, occupied key and high-level managerial positions within the Petitioner. Their state of mind should be attributed to the Petitioner.

37.2  Section D of the Draft ASOC deals with Mr Chen’s and Mr Liu’s unauthorised use of the Company’s BOC HK Account. In particular, it is said that there was an unauthorised payment from the account to the Petitioner of at least RMB19,687.15 (paragraph 22.3A). The Petitioner dishonestly assisted in the breach by Mr Chen and Mr Liu in making the payment of RMB19,687.15, this being “inferable from the very fact that [the Petitioner] was a recipient of the payment” (paragraph 23A.1). The Petitioner’s dishonest state of mind was attributable from that of Mr Chen and Mr Liu, who were the Petitioner’s directing minds by virtue of their positions within the Petitioner (paragraph 23A.2). Further or alternatively, the Petitioner was aware that the payment (of RMB19,687.15) represented property which was the “subject of fiduciary duties” owed by Mr Chen and Mr Liu to the Company, and knew that Mr Chen and Mr Liu effected the payments in breach of their fiduciary duties, so that it was unconscionable for the Petitioner to retain the benefit of the receipt, who holds the amount on constructive trust for the Company.

37.3  There is also a related allegation (expanded upon in the Second Affidavit of Philip Jeffrey Adkins filed on 26^th May 2022 (“Adkins 2^nd”), paragraphs 8 to 22) that the Petitioner dishonestly assisted the ZPMC-appointed directors in obscuring their general unauthorised use of the BOC HK Account. In breach of the Company’s board resolution of 14^th August 2015, Mr Adkins was never added as an authorised signatory of the BOC HK Account, so that he did not have access to the account. He was told that the account was dormant with no movements, but in fact that account had been the subject of unauthorised use by the ZPMC-appointed directors.

37.4  Section F of the Draft ASOC sets out a number of breaches of duties by the Company’s four ZPMC-appointed directors. It is said that the Petitioner dishonestly assisted in them.

37.4.1  There are three complaints that the directors failed to facilitate the financing or refinancing of the Company, the first two instances of which were to give ZPMC Offshore negotiating leverage in amending the SHA.

(a)  The first complaint is that the directors failed to arrange the necessary proof of financing for certain polar vessels, and Mr Adkins had to do this instead at an above-market interest rate.

(b)  The second complaint is that the directors failed to provide a funding plan to refinance the ICBC Loan, causing the Company to suffer liability for interest under the terms of the ICBC Loan between the time it matured and the time it was fully repaid.

(c)  The third complaint is that the directors failed to arrange a funding plan to enable the Company to exercise certain fixed price purchase options (“FPPOs”) over two semi-submersible heavy lift vessels (“the RED ZEDs”) which were bareboat chartered from Jiahua Shipping (Hong Kong) Co Limited (“Jiahua”). The directors diverted the value of the FPPOs, worth approximately US$20m, away from the Company.

37.4.2  There is a complaint that the directors thwarted the Company’s plans to proceed with an IPO, which was necessary to ensure that the Company had an appropriate capital structure and/or sufficient liquidity to meet its future financial obligations. As a result, the Company lost the opportunity of raising funds through a public offering.

37.4.3  The last complaint relied on is that the directors failed to cause the Company to prosecute claims against International Marine Containers (Group) Co Ltd in Yantai for poor workmanship in constructing certain vessels. The warranty claims were valued at US$27m by August 2019. The Company suffered a loss of this amount, were it to have been successful in the claims.

38.Leading counsel for the Petitioner, Mr José Maurellet SC (appearing with Mr Richard Zimmern and Mr Tom Ng) submitted that there is no valid or sufficiently particularised cross-claim against the Petitioner.

38.1  Had there been a genuine claim against the Petitioner, it would have been included in the original Statement of Claim of October 2021, particularly given that RBF would have been aware by then that the Petition had been served, so that the Company would have had to demonstrate a cross-claim for an amount in excess of the Debt in order to defeat it, and given that the complaints relate to events that happened a number of years prior to October 2021 in the first place.

38.2  The amendments in the Draft ASOC added bare allegations of dishonesty against the 1^st to 4^th Defendants to provide a pretext for the addition of claims against the Petitioner.

38.3  The particulars of dishonest assistance made in order to add the Petitioner as a defendant are demonstrably bad.

38.4  There is no evidence to support the serious allegations of conspiracy and dishonesty by the Petitioner. The only basis for what are said to be unwarranted and scandalous allegations pleaded in the Draft ASOC are circular inferences from RBF’s own “case”.

38.5  The attribution of dishonesty violates the principle of corporate personality, and is circular.

38.6  The Draft ASOC did not refer to any liquidated sum that was shown to be in excess of the Debt.

D2.1  Claim of dishonest assistance in making unauthorised payment from Company’s BOC HK Account to the Petitioner

39.As Mr Maurellet points out, the only liquidated claim in the Draft ASOC is the claim for RMB 19,687.15, which is said to have been an amount paid out to the Petitioner without authorisation from the Company’s BOC HK Account. RBF relies on a value-added-tax reversal invoice of 9^th December 2020, issued by the Petitioner to the Company, for this sum, to draw the inference that there must have been a (prior) transaction and payment of money between the Petitioner and the Company.

40.The Petitioner’s evidence is that the invoice was to reverse an invoice for the same amount which had originally been mistakenly issued by the Petitioner. The reversal was necessary for accounting purposes as the Petitioner had already made an accounting record in its own books in respect of the mistaken invoice. In fact, no payments were made from the BOC HK Account to the Petitioner (whether of RMB 19,687.15 or otherwise). Furthermore, by August 2021, RBF had been provided with statements for the BOC HK Account from April 2014 to March 2021, but it has not put forward evidence of any payment from the account to the Petitioner.

41.The amount of the cross-claim for RMB 19,687.15 of course does not exceed the Debt. Insofar as there is a suggestion that there may have been other payments to the Petitioner from the BOC HK Account (paragraph 22.3A of the Draft ASOC pleads “at least” RMB 19,687.15), the Draft ASOC also pleads payment to “at least 118 different recipients” from the BOC HK Account and contains an analysis of the top 15 recipients by aggregate amount, but the only payment to the Petitioner alleged is the one for RMB 19,687.15. There is no substantial basis put forward in support of any allegation of other payments to the Petitioner from the BOC HK Amount.

D2.2  Claim of dishonest assistance in ZPMC-appointed directors’ use of Company’s BOC HK Account

42.As regards the allegation, expanded upon in Adkins 2^nd, that the Petitioner dishonestly assisted the ZMPC-appointed directors in obscuring their general unauthorised use of the BOC HK Account, it is not clear what breach of fiduciary duty by the directors is complained of in the first place.[7] It is accepted that the directors who did operate the account were themselves authorised signatories, so that their operation of the account was not in breach of the authorisation granted by the Company. As Mr Maurellet submitted, the complaint is in truth a complaint of a breach of shareholders’ agreement.

43.It is also not clear what assistance is said to have been given by the Petitioner as regards the ZPMC-appointed directors’ use of the BOC HK Account. None is pleaded in the Draft ASOC (save for the allegation in relation to the RMB 19,687.15). None is identified in Adkins 2^nd.

44.I agree with Mr Maurellet that the complaint about breach of the Company’s corporate approval structure is not one of dishonesty. Simply asserting that payments into and out of the BOC HK Account were “dishonestly” facilitated[8] does not constitute substantial grounds that this was the case. Mr Joffe submitted that the original pleading, even prior to the attempt to introduce the word “dishonestly” by amendment, disclosed dishonesty, since paragraph 22 of the Draft ASOC had pleaded that the payments into and out of the BOC HK Account were “knowingly” facilitated by Mr Chen and Mr Liu. However, the unauthorised use complained of in paragraphs 22 and 23 of the Draft ASOC related to the receipt of income earned from various vessel charters (also said to be unauthorised) and payments made to third parties for services and expenses. Whilst it is complained that Mr Adkins was wrongfully excluded from being a signatory to the account and that he was kept in the dark about its usage, it does not follow that the use of the account was dishonest.

45.This dishonesty in any event would be that of the ZPMC-appointed directors and not the Petitioner. It is not clear why it is being said that the Petitioner was dishonest in the assistance that it gave (whatever that assistance might have been). Insofar as RBF might seek to say that the ZPMC-appointed directors’ dishonesty should be attributed to the Petitioner similarly to the other claims made in the Draft ASOC, I deal with this below.

46.Finally, as to the quantum of the loss, there is no suggestion that the Petitioner’s alleged dishonest assistance in the unauthorised use of the BOC HK Account caused a loss giving rise to a cross-claim (whether or not liquidated) in excess of the Debt.

D2.3  Claim of “general” breaches of duties

47.The common features of the claims in section F of the Draft ASOC are that:

47.1  the amendments allege that the Petitioner dishonestly assisted the ZPMC-appointed directors in their breaches of duty by “directing [them] to commit [the breaches]” and that this was “inferable from the fact that the [ZPMC-appointed directors] would themselves have no interest to do so unless they were instructed by [the Petitioner]”;

47.2  the amendments in the Draft ASOC allege that the ZPMC-appointed directors acted dishonestly in their breaches of duty to the Company;

47.3  the amendments allege that “the Petitioner’s dishonest state of mind was attributable from that of Mr Chen, Mr Liu and/or Mr Li, who were [the Petitioner’s] directing minds by virtue of their positions within [the Petitioner] as pleaded at paragraph 7 above, and whose dishonesty is pleaded at paragraph … above.”

48.In my view, the complaints of dishonest assistance pleaded are inadequate to support a genuine and serious cross-claim of substance.

49.I leave aside for present purposes the question of whether the breaches of duty on the part of the ZPMC-appointed directors which are complained of amount to breaches of fiduciary duty. Even assuming that they were, the complaint as to the Petitioner’s assistance is circular. The only act of assistance relied on consists of the allegation that the Petitioner directed the directors to commit the breaches; and it is said that this is inferable from the fact that the directors would themselves have no interest to do so unless they were instructed to do so by the Petitioner. This is simply a bare (and circular) assertion, not a claim of substance based on specific facts.

50.As to dishonesty on the part of the Petitioner, I accept Mr Joffe’s submission that he is not seeking to lift any corporate veils; rather, he is seeking to attribute the state of mind of Mr Chen, Mr Liu and Mr Li to the Petitioner. The concept of attribution does not involve piercing the corporate veil: Bilta (UK) Ltd (in liquidation) and others v Nazir (No.2) [2016] AC 1 at [65].

51.What I do not accept is that a serious or substantial basis for the attribution has been put forward. The Draft ASOC pleads that Mr Chen was Vice General Manager (Vice President) of the Petitioner from April 2015 until July 2021, that Mr Liu occupied the same position from May 2011 until July 2021, and that Mr Li was an Assistant General Manager from 2014 to around October 2017. It is said that they occupied key and high-level managerial positions within the Petitioner. However, the evidence of the Petitioner, a company listed on the Shanghai Stock Exchange, is that it is governed by a board of directors of thirteen individuals; Mr Chen and Mr Liu were not members of the board of directors between 2014 and 2021, and Mr Li has never been a member of the board of directors or a management member of the Petitioner; decisions of the board are taken collectively by majority votes; the management stratum are required to follow decisions approved by the board of directors. Mr Joffe submitted that there is no authority to say that middle-ranking officers cannot be the directing mind and will of a company. That may be so, but the difficulty for RBF in the present case is that the only matter relied on for the attribution of the serious allegation of dishonesty is the positions of Mr Chen, Mr Liu and Mr Li.[9] In the light of the evidence as to how decisions were taken within the Petitioner, there is no serious or substantial basis advanced to explain how, despite the fact that under the formal constitution of the Petitioner, their state of mind would not be attributed to the Petitioner, their alleged dishonesty should, nevertheless, in the circumstances of this case, be so attributed for the purpose of the claims of dishonest assistance against the Petitioner in section F of the Draft ASOC.

D2.3  No cross-claim in excess of the Debt

52.I therefore do not consider that RBF has discharged the onus of establishing that the Company has a cross-claim which is genuine, serious and of substance.

E.  GROUND 3: WHETHER PETITION ABUSE OF PROCESS

53.RBF asks the court to exercise its discretion to refuse to make a winding-up order, as it is an abuse of process for the Petitioner:

53.1  to prosecute the Petition when the Debt is disputed on substantial grounds;

53.2  to present the Petition for the collateral purpose of thwarting RBF’s impending control of the Company.

54.Given my findings in section C above, I need only address the second of these arguments.

E1.  Applicable principles regarding court’s discretion to refuse a winding-up order

55.The court’s power under s.177(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32) to make a winding-up order is discretionary. The fact that one or more of the circumstances set out in s.177(1)(a) to (f) exists does not mean that a winding-up order will be made as a matter of course. See Re Power Point Engineering Ltd, unreported, HCCW 555/1999, 10^th July 2000 at p.19.

56.It will be an abuse of process to pursue insolvency proceedings in respect of a debt which is otherwise undisputed[10] where:

56.1  the petitioner does not really want to obtain the liquidation or bankruptcy of the company or individual at all, but issues or threatens to issue the proceedings to put pressure on the target to take some other action which the target is otherwise unwilling to take; or

56.2  the petitioner does want to achieve the relief sought, but he is not acting in the interests of the class of creditors of which he is one or where the success of his petition will operate to the disadvantage of the body of creditors.

See Glenn Maud v Aabar Block SARL and another [2015] EWHC 1626 at [29].

57.At the same time, the jurisdiction of the court to dismiss a petition based on an undisputed debt on the grounds of collateral purpose must be exercised sparingly. Bankruptcy proceedings cannot be allowed to become the forum for a detailed investigation into past and present relationships or an exploration of what the petitioner hopes to gain from the insolvency of the company or individual, in financial or personal terms and a consideration of whether those hopes are legitimate or not: See Glenn Maud at [29].

58.It is an abuse of process to petition for the compulsory winding up of a company otherwise than for the purpose of providing for all of the company’s creditors and contributories the benefits that the liquidation will produce, although no doubt self-interest will be the petitioner’s primary concern. See French, Applications to Wind Up Companies, 4^th ed., at [2.113].

59.If proceedings are brought both for a collateral purpose and a proper purpose, the proceedings must serve the petitioner’s interests as a creditor to a material or substantial extent, and achievement of the collateral purpose must not cause any detriment to other creditors. It is not necessary that a proper purpose should be a petitioner’s principal purpose. See French at [2.118]; Ebbvale Ltd v Andrew Lawrence Hosking [2013] UKPC 1 at [33(d)].

60.The motive of a petitioner, consisting of the reasons which lead a petitioner to embrace his purpose, is irrelevant if he has standing to petition and has established the existence of a circumstance in which the court has jurisdiction to order winding up. See French at [2.127]; Ebbvale Ltd at [28].

61.A petitioner is invoking a class right, and his petition must be governed by whether he is truly invoking that right on behalf of himself and all of his class rateably, or whether he has some private purpose in view. The question to be asked is not “does the petitioner genuinely wish to wind up this company”, but rather, “for what purpose does the petitioner wish to wind up this company”. The court has to decide whether the petitioner is for the benefit of the class of which the petitioner forms a part, or is for some purpose of his own. If the petitioner can show that he and his class stand together and will benefit or suffer rateably, then his ill motive is nothing to the point. See Re a company [1983] BCLC 492 at 495b-i.

E2.  Whether abuse of process by reason of collateral purpose

62.RBF asks the court to draw an inference that the Petition is being presented for the collateral purpose of thwarting RBF’s impending control of the Company, from:

62.1  the suspicious timing of the Statutory Demand and Petition. By a letter of 31^st May 2021, RBF’s then solicitors confirmed that RBF would be serving a notice under cl.18.7 of the SHA to require ZPMC Offshore to sell its shares in the Company to it, subsequent to two Partial Awards in RBF’s favour in proceedings before an arbitral tribunal (“the Arbitral Tribunal”). The Statutory Demand was served two days after ZPMC Offshore’s application to set aside the awards was dismissed by the court, and the Petition was presented a few weeks after ZPMC Offshore’s application for leave to appeal was dismissed;

62.2  the 5-year delay in calling for repayment of the Debt. It is said that if the Petitioner was serious about recovering the Debt, it would have taken action earlier, so that there was no genuine intention to pursue the claim against the Company;

62.3  the lack of utility of the Petition in advancing the Petitioner’s interest as creditor, given that any investigation into the Company’s affairs, or the commencement of recovery proceedings against third parties, can be initiated by the Company.

63.It is said[11] that the true purpose of the Petition is to stall the independent valuation of the Company’s shares, which was a prerequisite to RBF buying out ZPMC Offshore’s shares under cl.18 of the SHA, although this did not succeed as the independent valuation was given on 23^rd March 2022 (and is being challenged by ZPMC Offshore).

64.The Petitioner says that the real motive of RBF and Mr Adkins in opposing the Petition is to attempt to discontinue legal proceedings in HCA 1510/2020 commenced by the Company against them for recovery of millions of US dollars misappropriated by them, including using the Company’s funds to pay for litigation undertaken by RBF and Mr Adkins in relation to the joint venture. Indeed, Mr Adkins has admitted as much in Adkins 1^st paragraph 60. It is further said that the Company’s business has been wrongfully transferred by RBF, Mr Adkins and Mr Muilwijk to their new Singapore companies, in breach of their fiduciary duties to the Company. Despite the court’s order in HCMP 928/2020 and various requests to Mr Adkins and Muilwijk, the plaintiffs, and accordingly the Petitioner, have not been supplied with various financial documents which would enable the Petitioner to have a fair picture of the true financial position of the Company and extent of misappropriation.[12]

65.The Petitioner’s evidence is that recovery of as much of the Debt as is feasible is its primary intention. It says that it did not call for earlier repayment of the Debt as the Company continued to operate for some time despite the shareholders’ disputes, and the Petitioner had hoped that the Company might be able to repay the Debt in due course. An earlier call for repayment would likely have been a termination event under finance leases for two polar vessels which were leased and operated by the Company, which would have hindered the Company’s ability to operate and earn money, and hence hinder repayment of the Debt. Once the Company lost the ability to operate the polar vessels and the RED ZEDs, there was no longer any reason for the Petitioner to withhold enforcement of repayment of the Debt, and the only hope of recovery was to petition for winding up of the Company, and for the Company’s affairs to be properly investigated by independent liquidators in the hope of obtaining recovery for the benefit of the Petitioner and all other creditors.[13]

66.In response, RBF says that the Petitioner’s explanation of its delay is unconvincing, since the ZPMC camp has been seeking to sabotage the financial well-being of the Company. Had it wished to be repaid, it could have caused the Company to do so, since the Company was under the majority control of the ZPMC camp. The Petitioner controls the Company, which has not even convened a board meeting to address the Petition.

67.Furthermore, it is said that the Petition would not in any material or substantial way advance the Petitioner’s interests as creditor, but rather, it would disadvantage the Company’s other creditors. To the extent that the Petitioner needs to carry out investigations, it is able to do so as it is in control of the Company and can initiate proceedings. The appointment of liquidators would only incur substantial costs, to the detriment of creditors.

68.I do not consider that the present case falls into either type of abuse described in Glenn Maud.

69.The current situation is not one where the Petitioner seeks to use the Petition to put pressure on the Company to take action without genuinely seeking to put it into liquidation (the first type of situation described in Glenn Maud).

70.As to the second type of situation described in Glenn Maud, it may be that the Petitioner is motivated by the desire to prevent majority control over the Company from falling into the hands of RBF, as the timing of the presentation of the Statutory Demand and the Petition would suggest. It may be that in seeking a winding up of the Company, the Petitioner’s collateral purpose is to obstruct RBF from buying out ZPMC Offshore’s shares in the Company.

71.However, such a motive or collateral purpose does not seem to me to make the winding up of the Company, and appointment of liquidators to investigate the affairs of the Company (and to take follow up action), an abuse of process which seeks to benefit the Petitioner at the expense of other creditors.

71.1  Both the ZPMC and RBF camps have accused each other of improper conduct in relation to the Company, and of hiding documents so that the other side does not have a full picture of the true state of affairs of the Company. There is a question as to whether proceedings against either camp have been properly brought in the interests of the Company.[14] Whether or not the Company has a claim against anyone, what has become of its assets, and whether its funds are being properly used in its best interests to pursue various sets of proceedings against RBF or members of its camp, or members of the ZPMC camp, are matters which independent liquidators could properly assess, and which would benefit the body of creditors as a whole.

71.2  Cf. Ebbvale at [29] to [33], where the Privy Council noted that whilst the petitioner probably considered it advantageous to wind up the company, so that the company’s directors would be replaced by liquidators who might be more amenable to a settlement of the petitioner’s separate action against the company (which had been set down for a seven to eight-day trial), a winding-up order was also, objectively, likely to be of substantial advantage to him in his capacity as the petitioning creditor. It was in the interests of the company, and therefore the creditors (including the petitioner) that before it incurred further indebtedness to fund its defence in a seven to eight-day trial, a professional decision should be taken as to the conduct of defence, including whether a settlement with the petitioner might be commercially sensible.

71.3  In the circumstances, it seems to me that the Petitioner and its class would stand together and benefit or suffer rateably, so that any ill motive is nothing to the point.

71.4  Even if the collateral purpose of the Petition is to prevent majority control over the Company from falling into RBF’s hands, the Petition would still serve the Petitioner’s interests as a creditor to a material or substantial extent, without causing detriment to other creditors. As the Petitioner has pointed out, no other creditors have come forward to oppose the winding up of the Company or to otherwise suggest that they would be worse off on a winding up. RBF says that the ZPMC camp would be able to carry out its own investigations, or bring recovery proceedings, without incurring liquidators’ costs, but the evidence is that the ZPMC camp’s requests for documents has been rejected, and there is clearly resistance to (at least) the bringing of proceedings against members of the RBF camp. It would be in the interests of the creditors as a whole for independent liquidators to take a professional view as to whether such proceedings should be continued.

F.  ALTERNATIVE REQUEST FOR ADJOURNMENT

72.RBF seeks an adjournment of the Petition in the event that the court finds that the Debt is valid and owing, on the grounds that:

72.1  the ZPMC camp has concealed the Company’s true financial position, so that the Company might in fact be “abundantly solvent”, and it would be undesirable to wind up the Company only for the liquidators to subsequently find that its assets have been hidden, which assets “could well have been used to pay off” the Petitioner;

72.2  the Company will have the chance, once it is controlled by RBF, to raise funds to repay the Petitioner.

73.An adjournment is sought until RBF and/or Mr Adkins has carried out some form of investigation into the Company’s financial position, either by inspecting the Company’s BOC HK Account documents pursuant to its application in HCMP 206/2022, or by carrying out an investigation after RBF has bought out ZPMC Offshore’s shares in the Company.

74.As to this, it is mere speculation that the Company might be “abundantly solvent” and in fact have substantial assets which could be used to repay the Debt. RBF points to the fact that the Company was able to put up HK$788,800 as security for costs in HCA 1510/2020, but this makes it no less speculative as to whether the Company has US$28m to repay the Debt.

75.It is also said that an adjournment would allow the Company to raise funds to pay the Debt. In Adkins 2^nd at paragraphs 26 and 46, Mr Adkins stated that he believed the Company would have assets to repay the Debt after six months, and sought an adjournment for this period.

76.Where a company seeks an adjournment of a petition in order to restructure its debts, it is necessary for the court to consider the adjournment application by reference to at least some reasonably precise timeline based on the proposals which the company seems most confident are likely to prove successful and which there is reason to think would result in an arrangement more beneficial to creditors than an immediate winding up order: Re Aether Ltd [2021] HKCFI 1143 at [6].

77.RBF says that it is imminent and inevitable that RBF will secure majority control of the Company, having served a notice under cl.18.7 of the SHA to require ZPMC Offshore to sell its shares in the Company to RBF. As the new majority shareholder, RBF would put the Company on a solvent footing so that it can repay its debts. Adkins 2^nd says that the RBF personnel have professional skills and experience in the marine heavy transport field.

78.The only concrete plan put forward by RBF to revitalise the Company relates to the two RED ZEDs, which were bareboat chartered from Jiahua.[15] It is said that the Company had the irrevocable right to exercise FPPOs (fixed price purchase options) over the RED ZEDs in accordance with the purchase terms of the respective bareboat charters of the two vessels, and that the value of the FPPOs was approximately US$20m. However, the Company’s right to exercise the FPPOs was frustrated by the ZPMC-appointed directors, who diverted the value of the FPPOs for the benefit of the Petitioner. It is said that RBF intends to remedy the failure to exercise the FPPOs by causing the Company to purchase the RED ZEDs or to recover damages for the diversion. It is also said that exercising the FPPOs is “important to unlocking the value of the Company”.

79.In particular, it is said that RBF only learnt from the 2021 annual report of the Petitioner, released in April 2022,[16] that the Petitioner had orchestrated the sale of the title to the RED ZEDs to a controlled third party in December 2015, so that Jiahua was unable to sell the RED ZEDs to the Company. It is said that the Petitioner and the ZPMC Group have deliberately hidden the illegal purchase of the RED ZEDs from the Company and RBF.

80.This version of events is contested by the Petitioner.[17]

80.1  The valuation of the FPPOs at US$20m is disputed. It is said that no evidence has been put forward in support.

80.2  The Company did not have the funds to pay Jiahua to exercise the FPPOs. It was Mr Adkins who had responsibility for financing.

80.3  Adkins 2^nd exhibited an incorrect version of the side letter signed by the Company and Jiahua. The side letter in fact allowed the transfer of the title of the vessels for financing purpose without the consent of the charterers, provided that this did not restrict their right to exercise the option to purchase the vessels. The transfer was therefore not a breach of any agreement.

80.4  Mr Adkins has been aware of the transfer of title for financing purposes since 2015. Furthermore, the annual reports of the Petitioner for at least 2015, 2016 and 2020, referred to by Mr Adkins in other evidence, had also made the same disclosure as in the 2021 annual report.

80.5  Mr Adkins had himself sought to terminate the bareboat charters with Jiahua in April 2016. ZPMC had obtained an interlocutory injunction restraining Mr Adkins from doing so, which was subsequently made permanent by consent.

80.6  Before Mr Adkins was dismissed as CEO of the Company in February 2017, he never gave notice to Jiahua to exercise the FPPOs.

81.The pleadings in HCA 1772/2020 raise the complaint that the directors of the Company appointed by the ZPMC camp failed to arrange funding to enable the Company to exercise the FPPOs, and diverted the value of the FPPOs, and that the Petitioner dishonestly assisted in these directors’ breaches of fiduciary duty. However, the claim for damages will clearly not be determined within six months. Nor is there any concrete plan put forward for exercising the FPPOs to acquire the RED ZEDs. The fact that RBF personnel have relevant professional skills and experience to “set the Company back on the right course” does not amount to a proposal, with a reasonably precise timeline, which could be considered by the court as an arrangement more beneficial to creditors than an immediate winding up. Indeed, Adkins 2^nd frankly acknowledges that RBF does not know whether it will be able to recover the RED ZEDs.[18]

82.Mr Joffe submitted that the distinctive feature of the present case was that the ZPMC camp had refused to disclose the financial position of the Company, so that RBF was unable to put forward any scheme of arrangement as it had no knowledge of the financial situation of the Company. However, Mr Maurellet pointed out that in HCMP 928/2020 and HCMP 971/2020, two applications brought by the camps against each other for inspection of accounting records of the Company, Linda Chan J had observed (see at [35]) that Mr Adkins and Mr Muilwijk have had control over the accounting records of the Company and its subsidiaries, other than the BOC HK Account documents. See [2021] HKCFI 618 at [35]. I therefore do not agree that any lack of information justifies the absence of a concrete proposal for payment of the Company’s debts.

83.In the circumstances, the plan proposed by RBF for “unlocking the value of the Company” through the FPPOs simply involves further disputes between the camps, which cannot be resolved within six months. There is no concrete proposal to enable the Company to raise funds which could result in an arrangement more beneficial to creditors than an immediate winding up of the Company. There is therefore no basis to grant the adjournment sought.

G.  THE EVIDENCE SUMMONS

84.After the hearing of the Petition concluded, RBF issued the Evidence Summons, seeking to adduce into evidence the Third Affidavit of Philip Jeffrey Adkins (“Adkins 3^rd”). I refused to grant leave, and ordered that RBF pay the costs of and occasioned by the summons to the Petitioner.

85.There was no real dispute as to the applicable principles. The court has the jurisdiction to allow a party to re-open his case to adduce further evidence. It is a matter of discretion as to whether such an exceptional course should be taken. The parties were in agreement that the term “exceptional” should not be construed as a straitjacket and that the relevant considerations were the cogency and relevance of the new evidence, its probative value, whether it would have an impact on the outcome, and the underlying objectives in RHC O.1A r.1. See Chinachem Charitable Foundation Ltd v Chan Chun Chuen, unreported, HCAP 8/2007, 10^th July 2009, at [7]; Fins Development Ltd v Hong Kong Huaming Co Ltd, unreported, HCA 542/2009, 18^th March 2011, at [35].

86.RBF sought to rely on Adkins 3^rd for two matters. First, that a decision of the Arbitral Tribunal was pending as to whether RBF could proceed with its purchase of shares from ZPMC Offshore at the valuation given on 23^rd March 2022 or whether some other course should be taken. Second, that the ZPMC camp has been concealing the use of the Company’s BOC HK Account as the Company has failed to comply with an order for disclosure.

87.The Petitioner accepted that the matters addressed could not be said to be irrelevant, but submitted that relevance was a matter of degree (citing Re Estate of Nina Kung (No.2) [2009] 4 HKLRD 157 at [33]). In the present case, the evidence sought to be adduced was to support points which had already been made by RBF (that it was imminent that RBF would obtain majority control of the Company and that the ZPMC camp had been withholding records of the Company). The Petitioner would want to adduce evidence in rebuttal.

88.I was not persuaded that sufficiently exceptional circumstances existed to justify the admission of Adkins 3^rd. There has been ongoing litigation between the two camps in various sets of proceedings. Were it the case that every time a step in one of these sets of proceedings had to be reported back to the court by way of additional rounds of evidence, there would be no end to the filing of new affidavits, which would not be a cost-effective, expeditious or proportionate way of proceeding, contrary to the underlying objectives in O.1A r.1. It seems to me that the points which RBF seeks to make in reliance on Adkins 3^rd have in essence already been made by reference to evidence already filed, so that there is no unfairness in declining to admit the further affidavit.

H.  DISPOSITION

89.In the light of my finding that there is no bona fide dispute on substantial grounds in respect of the Debt, the Company is deemed unable to pay its debts. The Company has no cross-claim for an amount which equals or exceeds the Debt. No ground for an adjournment of the Petition has been made out.

90.I therefore order that the Company be wound up.

91.I further make a costs order nisi that the costs of and occasioned by the Petition be paid to the Petitioner and the Official Receiver out of the assets of the Company, to be taxed if not agreed, with the Petitioner being entitled to certificate for two counsel.

In respect to the Petition,

Mr José Maurellet SC leading Mr Richard Zimmern and Mr Tom Ng instructed by Lau, Horton & Wise LLP, for the Petitioner

Mr Victor Joffe SC leading Mr Justin Ho and Mr John Leung, instructed by Shearman & Sterling, for the Opposing Contributory, RBF HK Limited

Attendance of the Official Receiver was excused

In respect to the Evidence Summons,

Mr Richard Zimmern instructed by Lau, Horton & Wise LLP, for the Petitioner

Mr Victor Joffe SC leading Mr John Leung, instructed by Shearman & Sterling, for the Opposing Contributory, RBF HK Limited

The Company was not represented and did not appear (in both Applications)