Re Cheong Yip Finance (Hong Kong) Ltd

HCCW000049/1978

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Coram: Li, J. in Court

Date of Judgment: 21st December, 1978

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JUDGMENT

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1. This is a motion to stay all proceedings in the winding up of the Cheung Yip Finance (Hong Kong) Limited (hereinafter referred to as the company) by two of its contributories namely Gregson Limited and Dredson Limited. The fact giving rise to this motion may be summarized as follows:-

2. On 25th July, a statutory notice or a bankruptcy notice was served on the company demanding payment of a debt of over HK$12,000,000 due to the Moscow Narodny Bank. No compliance was made and a petition was issued on 15th August, 1978 together with an affidavit to verify such petition of even date.

3. On 25th August, 1978, the time for filing an affidavit in opposition or to give notice to oppose expired.

4. On the hearing on 25th September, the company appeared by counsel and asked for leave to oppose the petition. Having heard counsel for both parties I adjourned the hearing for three weeks to enable the company to file affidavits or affirmations to explain the delay why no notice was given to oppose in time and to show cause for opposing the petition. Affidavits and affirmations were duly filed by both parties and the hearing was resumed on 16th October, 1978. Having read the affidavits and heard arguments from counsel for both the petitioners and counsel for the company, I was not satisfied that the company had shown sufficient cause for its delay in filing the notice to oppose or filing affidavit to oppose. Further, I was not satisfied that the ground to oppose the petition was well-founded. For this reason, I made the winding up order on 16th October. The order was perfected on 3rd November, 1978, but ex-parte leave was obtained by the company to appeal against the order I made on 16th October. Leave was granted on 6th November 1978, on the condition that the appellant, the company, should pay security for costs before setting down the date for the hearing of the appeal.

5. On 15th November, 1978, the time for setting down the date for the hearing of the appeal pursuant to Order 59, Rule 5 had expired. However, on the same date, the two contributories of the present motion filed their notice of motion to stay all the proceedings of the winding up of the company.

6. On 4th December, 1978, one Wong Kim-chan, a director of the company, filed an affirmation giving reasons why he support the motion by the two contributories. The motion is founded mainly on two grounds. The first is one of law, the other is one of fact.

7. The first reason for applying for the stay is that the contributories have a substantially arguable case, if I understand the leading counsel for the applicant correctly, in that they are more or less certain of success before the Court of Appeal. The reason is founded on the ground that the statutory notice, the bankruptcy notice does not satisfy the requirements of section 178 and that the affidavit in support or verifying the petition is not in compliance with Rule 26 of the Companies Winding-Up Rules.

8. The second ground is based on facts which is slightly more complicated. But it can be analysed very generally on the affidavit of Mr. Wong Kim-chan dated 4th December. It mainly amounts to this: that the company owns a 10.2 interest in a Singapore company known as the Goldhill Property (Private) Limited (hereinafter referred to as the Goldhill) and Goldhill owns a block of building in Singapore in a very good situation by the name of Goldhill Plaza. The estimated value of that block is some 32 million Singapore dollars generating a net annual income of three million Singapore dollars. By the same affidavit or affirmation, it is admitted that Goldhill owed the Chung Khiaw Bank of Singapore some 15 million Singapore dollars. The Goldhill Plaza is the property mortgaged as a security for this deed. One clause in the mortgage deed provides that if in the opinion of the Chung Khiaw Bank that the subject matter of security namely, the Goldhill Plaza or the business of Goldhill is in jeopardy, then the whole sum, the whole debt of 15 million Singapore dollars will be immediately due and repayable.

9. The second item in the affirmation is that Goldhill also is the parent company of a wholly owned subsidiary company by the name of Goldhill Development (Private) Limited (hereinafter referred to as Goldhill Development). It is said that Goldhill Development is in the process of developing a valuable site in Singapore in the cost of some 50 million Singapore dollars. The value of the site is some 170 million Singapore dollars.

10. According to Mr. Wong, when the development is completed, the estimated profit would come to the amount of about HK$20,000,000. The Post Office Savings Bank is prepared to finance the project to the extent of 24 million Singapore dollars. However, the agreement Goldhill Development has with the Post Office Savings Bank contains a similar clause as that of the mortgage with Chung Khiaw Bank, namely that if in the opinion of the Post Office Savings Bank that the finance of Goldhill Development or Goldhill is in jeopardy, then the whole sum will be repayable and the finance facilities will at once determine.

11. The affirmation goes on to allege other developments for which the Chung Khiaw Bank of Singapore is prepared to finance Goldhill Development. However, in the same affirmation, it is admitted that the Official Receiver who is now in the process or taking steps to wind up the company is claiming a debt due from Goldhill to the amount of HK$21,000,000. According to the affirmation of Mr. Wong, if the Official Receiver is allowed to proceed with the winding up process and proceed with the claim against Goldhill, then the whole financial structure of Goldhill and Goldhill Development will collapse and that affect the 10.2% interest of the company in Goldhill. I shall deal with these two grounds one by one.

12. Learned counsel for the contributories contends that the statutory bankruptcy notice has not satisfied section 178 of the Companies Ordinance. Section 178 of the Companies Ordinance provides that:

13. It is argued that the creditor, the Moscow Narodny Bank served a notice not under its hand. He develops his argument by reference to section 36 of the Companies Ordinance which provides that:

14. It is admitted that the bankruptcy notice is issued by a firm of solicitors acting for Moscow Narodny Bank. Therefore, it is argued that this notice was not under the hand of a creditor, namely, the Moscow Narodny Bank. Pursuant to this argument, the case of Cartwright v Barker is cited in support. In this case, Mr. Justice Goulding said that:

15. At first sight, this case seems to be on all fours. However, I must observe that in this case the court was dealing with a debtor who are individuals, private individuals, rather than with a limited company. Secondly, the defect in a bankruptcy notice went to the root of the notice, in that, the creditor failed to cite that court order which was the foundation of the debt. In its place was cited the quantum of the debt in the form of a certificate issued by the Taxing Master.

16. Set in opposition to this argument, Mr. Dicks, learned counsel for the petitioner, has drawn my attention to the case of re Tomkins. In that case the company served a bankruptcy notice signed by an authorised person rather than by a director, secretary. In other words, it was signed by an authorised officer of the company. At page 479, Lord Justice Rigby said,

17. Thus, there are two opposing authorities.

18. Coming to the provisions in section 36 of the Ordinance, I am of opinion that it was a provision for the convenience in execution of his affairs by a company and is not meant to restrict the activities of a company to its directors and secretary. This is so, particularly having regard to the decision in re Tomkins' case. Thus, although the bankruptcy notice was signed by a solicitor acting for and on behalf of the Moscow Narodny Bank, the Company, in my opinion, has complied with the provisions of section 178 of the Ordinance. I would not have repeated all these because when I made the order I have already considered this point and I do not wish to say anything further to the prejudice of either party when the matter goes before the Court of Appeal. It is needless to say if I am wrong, the Court of Appeal would correct me.

19. I now come to the question of verification. The same applies to the question of verification. It is said that it has not complied with rule 26 of the Companies Winding-up Rules. Rule 26 provides that:

20. Again in this instance, the affidavit, verifying the petition, was signed and sworn by one Mr. Cotterill, a solicitor acting for the Moscow Narodny Bank.

21. Similar objections are raised because it is contented that Mr. Cotterill is not an officer of the company. In the case of re African Farms Limited the headnote reports that:

22. My direction has also been drawn to the forms of precedent in Akins Court Form in which the form allowed verifying affidavits being filed by agents or attorneys or authorised persons of the petitioning creditor. This can be found in Form 280 and 281 of Volume 11 of the Akins Forms. I have checked the wordings of these requirements and the Winding-up Rules in England to be found in Statutory Instruments in 1949 Pt.I at page 843, at page 794-5. I have also checked the 19th Statutory Instrument No. 1. That was Statutory Instrument No. 330 of 1949, and I have also read the amendments of such Company Ordinance in Statutory Instrument 1967 No. 1341. The wordings are similar with our Companies Winding-up Rules.

23. Having regard to these authorities and the forms and having regard to the provision in Rule 209 of the Winding-up Rules, I have come to the conclusion that the contributories appeal or the companies appeal to the Court of Appeal is not as water tight as suggested by learned counsel for the applicants in this motion. I say no more than this for the obvious reasons.

24. I come now to the fact as contained in the affirmation of Mr. Wong Chim-chan. I must also observe that an affidavit has been filed on behalf of the petitioner. At least two detailed reports have been made at my request by the Official Receiver. Mr. Litton, learned leader for the contributories, suggested to me that the affidavit of Mr. Dennis Lee, solicitor for the Moscow Narodny Bank in Singapore, contained a lot of hearsay evidence and in fact has given no factual arguments. As such it should be ignored. My observation of that affidavit is that it is generally that of typically, commentary, rather than factual matters. However, it does contain a fair number of documents which gives a great deal of information regarding the affairs of Goldhill and Goldhill Developments.

25. As to the Official Receiver's report, Mr. Litton contends that in dealing with this motion, I am acting in a judicial capacity rather than sitting in a bankruptcy court. Therefore I should ignore the Official Receiver's report as such. To this argument, I need only cite one provision of the Companies Ordinance. Section 209 of the Companies Ordinance gives me a discretion to stay any winding up proceedings on the application of either a liquidator or the Official Receiver or the creditor or a contributory. It gives me a discretion to do so from time to time. However, sub-section 2 of the same section provides that:

26. If I were to accede to Mr. Litton's contention, I would be failing my duty in ignoring the provision of sub-section 2 in section 209. I must take the Official Receiver's report into consideration.

27. First of all, the Official Receiver's report gives me good reason to have serious doubt as to whether the company holds in fact a 3.3 million shares, interest in Goldhill. I will not refer to the report in detail. Suffice it to say that I have read it in open court to counsel for the petitioner as well as counsel for the contributories. They know the reason why. They know that for the past four years, Goldhill had not filed an annual return to the Companies Registry in Singapore. They also know that the auditors of the company had so seriously qualified his audit that, at one stage, they resigned as auditors and resigned from representing Goldhill as their tax representative. A considerable doubt is casted on the fact whether the company indeed hold such number of shares and interest in Goldhill.

28. It is conceded by the Official Receiver that in one annual return of Goldhill the company is shown in a return to have held some 3.3 million shares of Goldhill. But Mr. Wong, in his affidavit, has not been able to, or to Mr. Jolly who files an affidavit in support of, supplementle to Mr. Wong's affidavit, in support of this motion, so exhibiting a fair number of documents, has failed, in any event, to exhibit one single document in the Company Registry or the register of the company of the Goldhill to show that the company has owned so many shares. No account has been exhibited at all. Assuming that I am wrong in casting any doubt as to the holding of the company in Goldhill, I have to observe that no account has been given as to the affairs of Goldhill, how much they have borrowed apart from the company and how much Goldhill or Goldhill Development have borrowed from various other sources in connection with other projects other than Goldhill Plaza and the site that was to be developed, estimated to the value of 170 million Singapore dollars. None of these has been exhibited, no calculation has been given. No details has been given as to how that a project to the estimated value of 170 million Singapore dollars would expect a profit of only HK$20,000,000. In other words, to spend or to incur to the expenditure of some $350,000,000 in order to earn $20,000,000 which is less than 10%, there is no indication as to when such development will come to fruition. When it comes to the question of Goldhill Plaza, there is no statement as to how much of the 15 million Singapore dollars have been repaid to Chung Khiaw. There is no indication as to the net profit of 3 million Singapore dollars is really a net profit after deduction of all expenses, interest payable and repayment of the capital loan.

29. On the other hand, in the Official Receiver's report, it has shown to my satisfaction that some US$5 million, said to have been lent by the Moscow Narodny Bank to the company, never went to the company at all but instead went directly, with the consent of the directors of the company, to Goldhill and Goldhill Development. Such loan must be deemed as a loan by the company to Goldhill and Goldhill Development. It contains no terms for the loan. There is no knowledge as to what rate of interest is payable to the company. If no rate of interest is payable to the company, why the loan should be made in that way, to borrow from one hand to lend to the other?

30. Having regard to the Official Receiver's report, my impression as far as the company's affairs is concerned, my be assimilated to one quotation that 'All is not well within the state of Denmark'. I am of course not concerned with the welfare of Goldhill or Goldhill Development provided it doesn't affect the company. Assuming the company holds approximately 10% of the Goldhill interest, and the whole project earns, say, 3 million Singapore dollars which can be converted in Goldhill Plaza. If that were true, if dividends were payable annually to the full to the company, then the company will stand to earn about $600,000 per annum, that is 10% of the 6 million. As to the other project, it is expected that Goldhill Development, when the huge project come to fruition would earn something like HK$20,000,000. Assuming that Goldhill would pass on the benefit of Goldhill Development directly to the company, what the company can expect is 10%, namely HK$2 million. This, to my mind, bears no proportion to a debt that is owed to the sum of some HK$21,000,000 without interest being paid. For this reason, I am unable to say that even if Goldhill or Goldhill Plaza were to collapse, the balance of interest of the company is such that it is not better for the company now to demand payment of the 21 million. Even if they can get half of it, the company would still be better off.

31. Finally, I am asked by counsel for the contributories that if I do not stop the winding-up proceedings, there will be irreparable damage in the sense that it would take the contributories a long time to obtain a hearing from the Court of Appeal. Mr. Litton freely conceded that the practice in England is against him, practice in the sense that winding up proceedings should not be stayed for a long time. He very properly cited to me the case of B.A. & B.C. Chewing Gum Ltd., reported in 1975 I Weekly Law Reports. I shall not cite that case in any form or in any detail. Suffice it to say that, in England, the practice is not to grant a stay. It is argued to distinguish that case from the practice in Hong Kong that because in England in winding up matters, if there is an appeal, the appeal would be put in the interlocutory appeal list and can be assured of a quick hearing. Here in Hong Kong, we have no interlocutory appeal list and in normal cases, the appeal would have to take its turn together with other appeals. That is so and that might have caused some hardship because of the delay in having a hearing on appeal not soon enough to, in case the contributories are right and to be vindicated. As I have pointed out in the course of the hearing that although we have no nterlocutory appeal list, there is nothing to bar those who are acting for the contributories to apply to court or to the appeal court on a matter of urgency, justifying the urgency and obtain an earlier hearing. This method is a far better method than any other way of obtaining a quick hearing. Indeed, the parties would have to justify the matter of urgency. I suppose, in this instance, having regard to the chronological order or events that obtained, counsel for the contributories might well have difficulty of persuading the Court of Appeal that this is a matter of great urgency having regard to the company's conduct of affairs throughout the process in this case. By referring to the conduct, I must not be misunderstood that is the conduct of the Official Receiver. I mean those who represent the contributories and for the company before the winding up. Having regard to the aforesaid reasons. I am not disposed to stay the proceedings of this winding up and the motion must be dismissed.

32. Before me however, there is yet another motion by the Official Receiver. The motion is that the contributories should give good and sufficient security for all costs of incidental to the hearing of the appeal in a name of the above company in the winding up matter of this court dated 16th October and for which notice of appeal had been filed on 6th November, and in all other proceedings ancillary thereto, and that the costs incidental to this application be paid by Gregson & Dredson Limited, and that until such security have been given and notice thereof given to the Official Receiver and liquidator, all proceedings on the said appeal be stayed.

33. I am informed by Official Receiver and indeed learned counsel on behalf of the contributories that of the three it listed in the affidavit of Mr. Duckworth for the Official Receiver have been agreed subject to a slight variation. That is in paragraph 15 of Mr. Duckworth's affidavit dated 2nd December, 1978. It is not conceded that item 2 of the fees is no longer required. Item 3 of the fees amounting to $25,000 has been argreed by the contributories to be reasonable. But in item 1, the Official Receiver asks for security of $35,000 itemised as Official Receiver's party and party costs of an incidental to the appeal $10,000, leading counsel's fee $15,000, counsel's fee $10,000. The contention is that in a matter of appeal, the Official Receiver is adequately represented by counsel without leading counsel and therefore the $15,000 should be cut down. However, Mr. Eddis has quite rightly pointed out that although that may be so, but the proceedings involving the other motion, the motion to stay the winding up proceedings which was listed, in the first instance, of not exceeding half a day and then change to not exceeding half an hour has in fact lasted more than 2 ½ days. That is a proceedings ancillary to. Although originally, the proceedings incidental to the appeal was charged as $25,000, required security of $25,000, that amount has enormously increased because of the other motion to stay. Accordingly, the leading counsel's fee even though is deleted would have to be utilised to augment the other $25,000. I find Mr. Eddis' contention reasonable. Accordingly, I will make an order in terms of the motion by the Official Receiver and specify the sum secured to be a total sum of $60,000.

34. Now, I am opened to hear arguments as to matter of costs.

35. I see no reason why the costs for the motion to stay be treated as a part of the costs for the appeal. This is a separate matter. I will award costs of the motion to stay to both the petitioner and to the Official Receiver against the contributories. The cost of motion by the Official Receiver will be awarded to the Official Receiver against the contributories in any event. I will grant liberty to the parties to apply.

Representation:

Litton, Q.C., and Faulker(Deacons) for the applicant or company

Dicks(H.W. and Glynn) for petitioner

Eddis for O.R.