Re Fameway Finance Ltd

HCCW 620/2024

[2025] HKCFI 1477

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 620 OF 2024

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REASONS FOR JUDGMENT

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I.  INTRODUCTION

1.Having considered counsel’s submissions, I made a usual winding up order against Fameway Finance Limited (the “Company”), a limited company incorporated in Hong Kong, at the first hearing of the Petition before the Companies Court. These are the reasons for my judgment.

II.  BACKGROUND

2.On 28 March 2022:-

(1)  Double Winner Asia Limited as borrower (the “Borrower”);

(2)  Revelry Gains Limited and the Company as corporate guarantors;

(3)  The Petitioner and Apollo Credit Funds ICAV, Apollo Helius Loan Fund as original lenders (the “Lenders”); and

(4)  Alter Domus Agency Services (UK) Limited as agent and Alter Domus Trustees (UK) Limited as security agent (the “Security Agent”);

entered into a Facility Agreement dated 28 March 2022 (the “Facility Agreement”), whereby the Lenders made available to the Borrower a loan facility in an aggregate amount equal to HK$250,000,000.

3.The Facility Agreement contained the following terms:-

(1)  Clauses 1.1 and 6.1 provided that the Borrower shall repay the loan and the interest thereon in full on 28 March 2024 (the “Original Repayment Date”);

(2)  Clause 2.2(b) provided that the rights of the Petitioner shall be separate and independent, and that the amount advanced by the Petitioner contributing to the loan shall be an independent and separate debt owed to the Petitioner;

(3)  Clause 3 provided that the loan under the Facility Agreement shall be applied by the Borrower to finance the proposed acquisition of the a property known as House B together with Car Parking Spaces, 28 Middle Gap Road, Hong Kong (the “Property”) owned by Joy Rich Development Ltd (“Joy Rich”), a wholly-owned subsidiary of the Borrower;

(4)  Clause 8.2 provided for default interest;

(5)  Clause 16.1 provided, among others, that each Guarantor (including the Company) irrevocably and unconditionally, jointly and severally, shall guarantee to, among others, the Petitioner punctual repayment of the loan by the Borrower and in the event of default by the Borrower, shall immediately on demand pay the amount due as if it was the principal obligor; and

(6)  Clause 16.2 provided that the guarantee shall be a continuing guarantee and shall extend to the ultimate balance regardless of any intermediate payment or discharge in whole or in part, other than a release and discharge under Clause 16.10.

4.On 1 April 2022, the Lenders advanced a loan of HK$100,000,000 (the “Loan”) to the Borrower. The Petitioner’s contribution was HK$78,000,000, representing 78% of the Loan.

5.Also on 1 April 2022, the Company executed a sub-mortgage dated 1 April 2022 (the “Fameway Sub-mortgage”) in favour of the Security Agent for, among others, the Company’s repayment obligations due to the Petitioner. By the Fameway Sub-mortgage, security was created over the Company’s rights granted by a mortgaged dated 9 September 2010 (the “Fameway Mortgage”) executed by Joy Rich over the Property in respect of, among others, a loan advanced by the Company to Joy Rich in the sum of HK$81,000,000 under a loan agreement of even date (the “Fameway Loan Agreement”). The Company took the view that by the Fameway Sub-mortgage, it had the authority to conduct a mortgagee sale of the Property, and it was this envisaged mortgagee sale of the Property which the purpose of the Loan was to finance set out in Clause 3 of the Facility Agreement set out above.

6.The Fameway Sub-mortgage was not free from problem. The long and short is that DHCJ Jonathan Wong, in his Decision dated 28 August 2024 in HCA No 510 of 2012 ([2024] HKCFI 2204) (the “HCA 510/2012 Decision”), found that Joy Rich (the defendant therein) raised a defence of a real prospect of success in respect of the validity of the Fameway Mortgage and the Fameway Loan Agreement, and thus the Company’s rights over which the Fameway Sub-mortgage was executed over are, put mildly, in doubt. As a result, the Petitioner herein cannot readily enforce and realise the Fameway Sub-mortgage.

7.The Borrower defaulted repayment of any part of the Loan (including the interest thereon) on the Original Repayment Date.

8.On 26 September 2024, the Petitioner’s solicitors served the Statutory Demand on the Company based on the Company’s obligation as a guarantor for 78% of the Loan and the interest and default interest thereon. The total amount as at that date was HK$150,710,604.51, and 78% means HK$117,554,271.52.

9.On 1 November 2024, the Petitioner presented the Petition.

10.During the hearing of the Petition before me:-

(1)  Mr Jason Yu, leading Ms Regina Yip, counsel for the Petitioner, sought a usual winding up order immediately;

(2)  Mr Jonathan Ng, counsel for Chen Muhua and Chan Yuen Wa (who are supporting creditors in respect of a costs order for HK$500,000 made in HCA No 1497/2022 on 19 December 2024, for which a statutory demand was served on the Company on 24 February 2025 and which is still outstanding) supported the Petitioner;

(3)  Mr Calvin Ng, counsel for Chinese Strategic Holdings Limited (which is an opposing creditor, details of which I shall return later), opposed the Petition; and

(4)  Mr Timothy Lam, counsel for the Company, opposed the Petition.

III.  COMPANY’S GROUNDS OF OPPOSITION TO THE PETITION

11.The Company raised two grounds of opposition to the Petition:-

(1)  The parties entered into the Facility Agreement based on the premise that the Fameway Loan Agreement and the Fameway Mortgage were valid and therefore the Company had the authority to conduct the mortgagee sale of the Property. However, given the HCA 510/2012 Decision where it was held that the validity of the Fameway Loan Agreement and the Fameway Mortgage was an arguable issue, the premise was a common mistake and therefore, before this arguable issue is finally determined, the Petitioner should not pursue the Petition;and

(2)  The debt is question had been secured by the Fameway Sub-mortgage to the reasonable satisfaction of the Petitioner.

12.For convenience, I shall refer to these two grounds as “Ground (1)” and “Ground (2)” respectively.

IV.  GROUND (1)

13.Under Ground (1), the Company essentially raised that there was a common mistake about the Company’s authority to conduct the mortgagee sale of the Property and the validity of the Fameway Loan Agreement and the Fameway Mortgage, and that as a result of this common mistake, the Facility Agreement is void and/or unenforceable.

14.I agreed with Mr Yu, counsel for the Petitioner, that there was no common mistake.

15.To establish a common mistake, the Company had to prove:-

(1)  The parties entered into the contract in question under a shared and self-induced mistake as to fact or law affecting the contract;

(2)  The parties had not taken any risk of the situation being as it really is;

(3)  The parties were not responsible for, or should not have known, the true state of affairs; and

(4)  The mistake was so fundamental as to make the contractual adventure impossible or performance essentially different to what the parties anticipated.

See Chitty on Contracts (35^th ed) §5-017.

16.To determine whether the above elements exist, an important consideration is the allocation of risk under the contractual provisions. As Steyn J (as he then was) put it in Associated Japanese Bank v Credit du Nord [1989] 1 WLR 255 at 268B:-

“Logically, before one can turn to the rules as to mistake, whether at common law or in equity, one must first determine whether the contract itself, by express or implied condition precedent or otherwise, provides who bears the risk of the relevant mistake. It is at this hurdle that many pleas of mistake will either fail or prove to have been unnecessary. Only if the contract is silent on the point, is there scope for invoking mistake… it is next necessary to determine whether, on true construction of the contract, one or other party has undertaken responsibility for the subsistence of the assumed state of affairs. This is another way of asking whether one or other party has undertaken the risk that it may not prove possible to perform the contract…”

17.In the present case:-

(1)  By Clause 2.1(b) and (f) of the Fameway Sub-mortgage, the Company represented, warranted and covenanted that the Fameway Loan Agreement and Fameway Mortgage are “now good valid and subsisting” and “in nowise void and voidable”;

(2)  By Clause 22.4 of the Facility Agreement, a Company’s representation that was or would prove to “have been incorrect or misleading in any material respect” would amount to an “Event of Default”;and

(3)  By Clause 22.18(a)(iii), upon an “Event of Default”, the Loan may be declared immediately due and payable.

18.The above clauses clearly showed that the Company contractually agreed to take the risk that the Fameway Loan Agreement and Fameway Mortgage were invalid. This also clearly meant that the parties were not under any mistake about the Company’s authority to conduct the mortgagee sale of the Property and the validity of the Fameway Loan Agreement and the Fameway Mortgage. On the contrary, they expressly agreed to how the risk should be allocated in the event that the Company did not have the authority and/or the Fameway Loan Agreement and the Fameway Mortgage were invalid.

19.Mr Lam, counsel for the Company, referred me to The Cooperative Bank PLC v Hayes Freehold Limited and others [2016] EWHC 2-68 (Ch) for the proposition that the failure of the substratum would infect the whole contract, and submitted that in the present case, if the mortgagee sale could not happen, then the substratum of the Facility Agreement would fail and so the Facility Agreement would be void and unenforceable. With respect, that case did not assist the Company. While in that case, as a matter of contractual construction, the Court found that the failure of the substratum would affect the contract, in the present case, it was clear to me that the contractual provisions mentioned in §18 above embodied the parties’ contractual agreement on the allocation of risk to the Company in the event that the substratum would fail.

20.Mr Lam also submitted that the Court cannot determine how to construe contractual provisions summarily because the factual matrix should also be considered. That the factual matrix commonly known to the contractual parties should be considered is well established. However, it is only when the words of the contract are not clear or when somehow the contractual parties would like to mean “A” by “B”, then such factual matrix would be relevant. For the sake of argument, I was even prepared to take Mr Lam’s bold submissions that with appropriate factual matrix, a provision expressly put into the body of a contract (as opposed to a recital) was actually not meant to be a binding contractual provision but just some record of understanding with no legal effect. However, the difficulty Mr Lam had was that in the affirmation evidence filed by the Company, it did not suggest what factual matrix it was and how the factual matrix (if any) would flip the meaning of the contractual provisions in the Company’s favour.

21.During the hearing, I asked repeatedly Mr Lam (for the Company) which part of the evidence and how such evidence of factual matrix would affect the contractual construction or make a contractual provision a non‑binding understanding. In answer, Mr Lam submitted that the Petition was not an occasion for this exploring matter but a writ action would be more appropriate so that the procedural devices such as discovery would be available for the parties to explore what the factual matrix was. Such submissions were completely unacceptable. It is always incumbent upon the Company to file sufficient evidence before the first hearing of the Petition (if it would rely on factual matters) so that the Companies Court could determine, at the first hearing, whether it should dismiss it right away, or it should adjourn the matter for more time for argument, or it could make a usual winding up order immediately. The Company cannot just tell the Companies Court that there is some factual dispute and/or a need for investigation and so the Petition should be adjourned or dismissed. I add that even in a writ action, a defendant cannot resist a summary judgment application by simply pleading or deposing that there are factual matters to be investigated, without any particulars.

22.Therefore, elements (1) and (2) requisite for a common mistake were not made out. There was no mistake established. There was nothing to investigate or explore. There was no bona fide dispute on substantial grounds on Ground (1).

V.  GROUND (2)

23.Ground (2) was stated to be rejected.

24.First, it is “well established that a secured creditor may petition for the winding-up of the debtor company”: see Re Synergy Lighting Ltd [2020] HKCFI 2490 at §§5 and 8.

25.Second and in any event, if the Fameway Loan Agreement and the Fameway Mortgage would be determined invalid, the value of such mortgaged rights would be nil. Even assuming that these two documents would be determined valid, such determination would not happen in the near future. Thus, the valuation report filed by the Company in respect of the value of the Property did not give the Company any mileage.

26.During the hearing, Mr Lam (for the Company) submitted that the Petitioner should wait for the determination. By such submissions, I take Mr Lam to mean that the Court should adjourn the Petition until the determination. However, the question to ask was whether the Petitioner was reasonably secured as the Company alleged. In my view, given the uncertainty (as explained in the preceding paragraph) of the value of the mortgaged rights and the uncertainty of the time when such mortgaged rights could be realised (if it could be), the Petitioner was perfectly entitled in the circumstances to conclude, and I also find, that it was not secured reasonably or at all.

VI.  OPPOSING CREDITOR’S OPPOSITION AND SEEKING ADJOURNMENT FOR FILING AFFIRMATION

27.As mentioned at the outset, Chinese Strategic Holdings Limited appeared at the hearing purportedly as an opposing creditor (the “Opposing Creditor”).

28.The Opposing Creditor was a connected creditor. It was an indirect parent company of the Company, or as it had been put, the Company was “an indirect, wholly owned subsidiary” of the Opposing Creditor. It was not in dispute that it shared a common director with the Company, namely, Mr Mok Tsan San, who made the affirmation on behalf of the Company in opposition to the Petition. In the circumstances, the Opposing Creditor must have been kept abreast of the situation the Company had been faced with the proceedings of the Petition presented on 1 November 2024. However, in its skeleton submissions filed on 3 April 2025, it was stated that the Opposing Creditor’s solicitors were only instructed on the evening of 2 April 2025. The Opposing Creditor did not file any affirmation to explain the delay, the debt in question, and/or any factual matters to oppose the Petition.

29.According to the Opposing Creditor’s submissions, the debt due and owing from the Company to it amounted to more than HK$190,000,000. However, as mentioned above, there was no evidence on this alleged debt. In other words, there was no evidence to establish the Opposing Creditor’s locus before me. Therefore, I disregarded the Opposing Creditor’s submissions.

30.In any event, assuming that the Company was indebted to the Opposing Creditor, the Opposing Creditors raised grounds of opposition essentially the same as Ground (1) and (2), which I have rejected above.

31.The Opposing Creditor also raised, through counsel’s submissions not based on any evidence, that the Company was a key operational arm within the Opposing Creditor’s group, and a winding up order would have adverse impact on the Company’s operation and business, its profitability and value as well as its ability to recover receivables which the Company would be in a better position than liquidators to negotiate over and recover. It further raised that a winding up order would do no good to the Petitioner, while not making a winding up order immediately would not do any harm to the Petitioner. Mr Calvin Ng, counsel for the Opposing Creditor, therefore sought an adjournment for it to file affirmation within 28 days.

32.During the hearing, in answer to my question what the proposed affirmation would depose to, Mr Ng submitted that it would be affirmation about the effect of a winding up order on the Company and the group. In other words, it would be an affirmation essentially to verify the counsel’s submissions on the effect. As I have found above, the Opposing Creditor must have been kept abreast of the Petition. It follows that the Opposing Creditor should have filed affirmation earlier, and I found no reason for it not to have done so.

33.In any event, even if I were to take counsel’s submissions at their face value, this would not take the Opposing Creditor and the Company any further. First, as a matter of common sense, the view taken by the Opposing Creditor as a connected creditor should usually be accorded less weight, if any, than that for an independent creditor’s view: see Re Dangdai International [2023] HKCFI 1347 at §18(3) per Linda Chan J. Second, the principles upon which the Court would adjourn a winding up petition are trite. In short, the Court has to be convinced with precise and credible evidence that there are good prospects that upon a reasonably short adjournment, the Company would be able to pay: see Re Trinity (Management Services) Ltd [2021] HKCFI 2207 at §§6-7 per Harris J. The counsel’s submissions were not made to that effect.

34.In the circumstances, I refused to grant any adjournment and leave for filling affirmation.

VII.  CONCLUSION

35.In the circumstances, I saw fit to make a usual winding up order at the end of the hearing.

36.It remains for me to thank counsel for their assistance.

Mr Jason Yu and Ms Regina Yip, instructed by Karas So LLP, for the Petitioner

Mr Jonathan Ng, instructed by Johnnie Yam, Jacky Lee & Co, for the supporting creditors (Chen Muhua and Chan Yuen Wa)

Mr Timothy Lam, instructed by Philip K.H. Wong, Kennedy Y.H. Wong & Co., for the Company

Mr Calvin Ng, instructed by CLKW Lawyers LLP, for the opposing creditor (Chinese Strategic Holdings Limited)

Ms Rebecca Leung, of Official Receiver’s Office, for the Official Receiver