Re Bylamson & Associates (Enterprises) Ltd

HCCW000197/1983

HEADNOTE

Companies Winding Up Petition - Statutory demand for payment pursuant to S. 178A of the Companies Ordinance and demand under guarantee, whether demands should be separate - Oppression - Possibility that if the Company is wound up sufficient assets might become available to discharge indebtedness - Companies court not the proper forum to decide whether a debt is due - Substantial dispute raised by the Company.

COMPANIES  (WINDING- UP )

______________

Coram: The Honourable Mr. Justice Jones in Court

Date: 18th November 1983

Miss Gladys Li instructed by Wilkinson & Grist for Petitioner

Mr. Henry Litton, Q.C. & Mr. Fung instructed by Oscar Lai & Ho for Company.

Mr. Knos for Official Receiver

__________

JUDGMFNT

__________

1. This is a creditors winding-up petition presented by the Bank of East Asia Limited (the petitioner) against Bylamson & Associates (Enterprises) Limited (the Company) on the grounds that the Company is unable to pay its debts, and that it is just and equitable that an order be made. The application to wind up was opposed by the Company at the hearing on the 28th October 1983 when Miss Gladys Li appeared for the petitioner, and Mr.Sussex on the instructions of Lovell, White & King appeared for the Company. After hearing submissions for both parties I reserved judgment until the 31st October 1983.

2. Later on the same day of the hearing Mr. R.S.F. Lam the acting, chairman and executive director of the Company consulted a new firm of sclicitors, Oscar Lai & Ho who obtained advice from Mr. Henry Litton,Q.C.

3. I was about to deliver judgment on the 31st October when a summons which had not been field was placed before me in which the Company asked for a stay of the proceedings on the grounds that there had been no default in liability for the amount of the debt claimed by the petitioner. In view of fresh evidence that was produced I made an order for the Company to file an affidavit and adjourned the hearing for two weeks.

4. I will  first deal with the submissions that were made at the hearing on the 28th October 1983. The Company was incorporated in September 1970 as a property investment Company. The nominal capital was $300,000,000.00 and the paid up capital is $160,875,875.00.

5. Under a mortgage dated the 4th August 1981 between the petitioner and Freneher Limited, a wholly owned subsidiary of the Company, Frencher Limited assigned to the Petitioner the on the 4th floor of Bank of America Tower to secure general banking facilities to the extent of HK$28,000,000.00 On the 31st December 1981 the Company entered into an agreement with the petitioner to guarantee all sums and liabilities up to the principal amount due from Frencher Limited. On the 3rd March 1983 letters from the petitioner's solicitors were sent to the Company and Frencher Limited informing them that arrears of interest under the mortgage as at the 28th February 1983 amounted to $529,315.07.

6. On the 25th July 1983 the petitioner served on the Company a letter of demand pursuant to Section 178(a) of the Companies Ordinance Cap. 32. The letter in fact incorporates two demands and reads as follows:-

"Bylamson & Associates (Enterprises) Limited

Dear Sirs,

By a Guarantee, a copy of which we enclose, dated 31st December 1981 you guaranteed the liabilities of Frencher Limited up to the principal sum of $28 million and all such other debts and liabilities to the date of payment. We write to inform you, despite a demand in writing, Frencher Limited has defaulted in its obligations under a Mortgage age dated the 31st July 1981 and we have therefore issued Originating Proceedings against that company.

8. We therefore demand from you forthwith payment of the sum of $29,805,808.22 and interest from the 8th July 1983 at the daily rate of $10,356.16 until payment

9. Pursuant to Section 178A of the Companies Ordinance Cap.32 if payment is not made within 21 days from the date hereof we shall instruct our Solicitors to serve upon you a Winding-Up Petition.

No payment was made within the statutory Period of 3 weeks. The petitioner obtained an order for vacant possession of the mortgaged premises against Frencher Limited on the 30th August 1983.

10. Mr. R.S.F. Lam in his affirmation dated the 4th October 1983 states that on the 19th September 1983 another subsidiary of the Company sold parts of the 32nd floor of Bank of America Tower at a price of $2,225 per square foot. He avers that if this figure was obtained for the sale of the 29th floor the total price would approximate to the debt due to the petitioner. On the other hand Mr. Anstock in his affidavit filed by the petitioner states that the 29th floor was placed on the market by the Company for Frencher Limited in January 1983 and has been on the market since that time. The petitioner after obtaining possession in August has continued to advertise the premises for sale, but only one offer has been received.

11. Mr. Sussex put forward an argument that he concedes is technical. He submits that a separate demand is required to be made for payment under the guarantee which provides for payment on demand in addition to the statutory demand under s. 178. Therefore in the absence of a demand under the guarantee the debt did not become due and payable. In support of his submission Mr. Sussex cited In re J. Brown's Estate. Brown v. Brown (1893) 2 Ch. 300 where it was held on a matter of construction that a right of action under a mortgage deed did not accrue until the demand for payment was first made. This case was approved and followed in Bradford Old Bank  Limited v. Sutcliffe (1918) 2 K.B. 833. As a matter of construction I agree that a formal demand must be made for payment under the guarantee before the company's liability as guarantor can arise. However, Miss Li submits that it is not necessary that separate demands be made, but that the formal demand and the statutory demand may be contained in one document as provided for in the letter of the 25th July 1983. This letter includes a demand for payment forthwith in accordance with the terms of the guarantee and the statutory demand under s. 178(a) of the Ordinance. Accordingly if the Company failed on demand to pay the amount due forthwith the statutory demand under s. 178(a) would come into immediate effect. I agree with Miss Li that the petitioner was not obliged to write two separate documents for this purpose. In my judgment one letter was sufficient.

12. Mr. Sussex further submitted that the action of the petitioner to wind up the Company was oppressive. He referred to authorities which indicate that a surety has an equity against a creditor to prevent the creditor from pressing his full rights against the surety. In Wolmershausen v. Gullick (1893) 2 Ch. 514 Wright J. said by way of dictum at page 522 that a surety could in equity:-

"be controlled and prevented from enforcing its legal right inequitably against one alone of the sureties

Miss Li in reply drew my attention to Jackson v. Digby(1854) 2 W.R. 540 where it was held. that:-

On analysis the submission of Mr. sussex relates to solvent co-sureties and a solvent principal debtor whereas in these proceedings we are concerned with one surety and the principal debtor. The argument is therefore irrelevant to this case.

13. Mr. Sussex commented that in view of the sale price that might be obtained for the premises the liquidation could result in the Company being found to be solvent. However, this is a hypothetical question. From the evidence available difficulty is being experienced in effecting a sale whilst it is by no means certain that the value of the security will satisfy the indebtedness of the Company. Miss Li referred me to a passage in Buckley on the Companies Acts Volume 1 14th Edition at p. 534 under the heading 'Commercial insolvency:-

"....... it is useless to say that if its assets are realised there will be ample to pay twenty shillings in the pound; this is not the test. A company may be at the same time insolvent and wealthy. It may have wealth locked up in investments not presently realisable; but although this be so, yet if it have not assets available to meet its current liabilities it is commercially insolvent and may be wound up.".

Whether or not the security is sufficient to satisfy the Company's indebtedness is therefore irrelevant. The debt was not in dispute at the first hearing and remained unsatisfied. On that evidence the company was deemed to be unable to pay its debts with the result that I would have made a winding up order.

14. I now come to the, subsequent hearing on the 14th November 1983. Mr. R. S. F .Lam in his affirmation of the 7th November 1983 states that a few days before the 12th July 1981 he approached Mr. David Kwok Po Li the Chief Manager of the petitioner when an oral agreement was made by the Bank to grant a loan to facilitate the acquisition of the 28th and 29th floors of Bank of America Tower with a moratorium on the repayment of principal and interest for 2 years commencing from the date of the mortgage to be executed over the property as security for the loan. Mr. Lam said that details of the oral agreement were not communicated to any of his subordinates or co-directors.

Subsequently the agreement was made between the petitioner and Frencher Limited for the 29th floor and 3 parking spaces to which I have already referred. This agreement was confirmed in a letter dated the 30th July 1981 from P.C. Woo & Co. the Company's former solicitors on behalf of Frencher Limited to the Company which is as follows: -

BY HAND

The Bank of Fast Asia Ltd.,

Head Office,

Central,

Dear Sirs,

Re:	29th floor and 3 car parking spaces of Bank of America Tower

We, supply herewith the following information : -

Yours faithfully,

c.c. Rogerio Lam"

15. An unsigned letter confirming the terms of the loan agreement was sent by the petitioner to Frencher Limited for the purpose of counter signature. It was signed by Mr. R. Chow on behalf of Wooco Nominees Ltd. a nominee of P.C. Woo &Co.as a director for Frencher Limited in the presence of Mr. Lam and witnessed by Miss C. Au-Yang, a solicitor of P.C. Woo & Co. The letter reads as follows: -

"THE BANK OF EAST ASIA, LIMITED

314-324 , Hennessy road,Hong Kong, P.O. Box No. 31, General Post Office, Tel. 5-756611 Telex No. HX73017, Cable Address "BANKEASIA"

PRIVATE & CONFIDENTIAL

M/S:     Frencher Ltd.

Present                                                                  Ref. No.

29th floor of Bank of America Tower with 3 Car

Re:	Parking Spaces, No.12 Harcourt Road,. H. K.

Dear Sir/Madam,

16. With reference to your request for banking finance in connection with the above property, we are prepared to extend you a loan of $28,000.00.- on the following terms and conditions: -

1.	The loan will be secured by a first legal mortgage on the above property to be executed in our favour for General Banking Facilities to the extent of $28,000,000.- subject to approval of title by a solicitor under our designation.
2.	Loan interest which is currently at the rate of 1.5833% per month is subject to fluctuation.
3.	The loan of $28,000,000.- together with interest thereon at the present rate of  1.5833% per month is repayable by 84 monthly instalment of $605,018.40 each, commencing from 30th Aug .,1983. Instalment amount varies as rate of interest changes. Overdue instalment payment will be liable to a late charge.

7. Please confirm your acceptance of the above terms and conditions by signing and returning the duplicate of this letter.

I/We Confirm the above

................................

in the presence of :-

The loan was secured by a mortgage over the premises and by a personal guarantee of Mr. R.S.F. Lam and his brother. Mr. Lam believes that the letter, mortgage and guarantee were sent to the petitioner by P.C.Woo & Co. Mr. Lam sets out in his affirmation the reasons why this issue was not raised at the first hearing. The authenticity of the letter has not been challenged by the petitioner. Proceedings have been instituted by the Company and Frencher Limited against the petitioner for overpayments that have been made by mistake.

16. Mr. Litton submits that in view of Clause 3 of the letter the liability of Frencher Limited did not accrue until the 30th August 1983. Mr. Litton cited Mann v. Goldstein (1968) 1 W.L.R. 1091 where Ungoed-Thomas J. at p.1096 said:-

17. Stonegate Securities v. Gregory (1980) l Ch. 576 held that the Companies Court was not the forum for resolving the question whether a debt was due.

Mr. Litton also referred me to In Re Lympne Investments Limited (1972) 1 W.L.R. 523 where it was held that a petition should in accordance with modern practice be dismissed where a dispute on substantial grounds has been raised.

18. However, Miss Li argued that the true position is that interest became due and payable from the date when the loan was made. She cited Re Welsh Brick Industries Ltd. (1946) 2 All E.R. 197 which held that where a petition is based upon a disputed debt the court is required to consider all the facts before exercising its discretion whether or not the debt is disputed. Miss Li emphasised that Mr. Lam had not in his earlier affirmation denied liability, but this as Mr. Litton said has not been in dispute.

19. The circumstances surrounding the dramatic production of the letter at such a late stage were surprising to say the least. I was urged by Miss Li to take account of commercial realities that it was highly unlikely that a bank would advance monies which in effect would amount to an interest free loan for a period fo 2 years. On the other hand Mr. Litton submitted that at that time banks were queuing up go make loans to customers who were buying real estate. Indeed it is common knowledge that certain banks have made some strange and unwise decisions over the past few years. Be that as it may it is not my function to consider the commercial realities however bizarre they appear or to investigate the bona fides or otherwise of this transaction. Megarry J. at page 527 of In re Lympne Investments Limited said: -

"A real dispute, turning to a substantial extent on disputed questions of fact which require viva voce evidence, and involving charges of fraud or near fraud, cannot properly be decided on petition. Nor is it right, or in accordance with the modern practice to stand over the petition in order that the disputed issues may be resolved in other proceedings. That practice, I may say, seems to stem from In re London and Paris Banking Corporation (1874) L.R. 19 Eq. 444. The Companies Court must not be used as a debt-collecting agency, nor as a means of bringing improper pressure to  bear on a company.".

20. Having regard go the contents of the letter which have not been disputed by the petitioner I am of the opinion that a substantial dispute has been raised by the Company. As the Companies Court is not the appropriate forum to determine the dispute the petition must be dismissed. Costs will be to the Company.

Representation:

Miss Gladys Li instructed by Wilkinson & Grist for Petitioner

Mr. Henry Litton, Q.C. & Mr. Fung instructed by Oscar Lai & Ho for Company.

Mr. Knos for Official Receiver