Re Ics Computer Distribution Ltd

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES (WINDING-UP) NO. 615 OF 1995

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IN THE MATTER OF ICS Computer Distribution Limited
formerly known as Cheflink Limited

and

IN THE MATTER OF The Companies Ordinance (Cap. 32)

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Coram: The Hon. Mr. Justice Rogers in Court

Dates of Hearing : 6th, 19th-21st, 25th - 27th March and 2nd April 1996

Date of Delivery of Decision : 2nd April 1996

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DECISION

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1. This is an application to strike out a winding up petition on the ground that it is an abuse of process.

2. The petition is based on the ground that the company is unable to pay its debts. In relying upon that ground for winding up the Petitioner relies both upon non-compliance with a statutory demand of the 18th November 1995 as proof of the inability and upon general evidence of insolvency amounting to a failure to pay a large debt over a very substantial period.

3. The ground for seeking to strike out the petition is that the Company claims to have a counterclaim arising out of the same transactions as gave rise to the debt thus constituting a set-off. That cross claim is said to exceed the debt due to the Petitioner': Thus, it is said, in reality there is no debt on which to base the petition and it follows from that that the Petitioner is not a creditor and hence has no locus to present a petition.

4. The Petitioner is a well known personal computer manufacturer. Its case is that the Company was appointed a distributor for its products in China in 1993. There is no dispute that over the period 1993 to 1995 the Petitioner supplied the Company computers and related equipment which were invoiced at a total of over US$70 million. It is also not in dispute that payment for much of those computers and related equipment was not made prior to or at the time of delivery and that as a consequence the account between the Petitioner and the Company showed a substantial balance owing to the Petitioner. For example according to the letter of the 24th January 1995 the Petitioner's statement of account as at 31st December 1994 showed a balance owing of US$41,351,227.00. At the date of the statutory demand the amount said to be owing was US$32,256,258.19. As of to-day the amount is US$29,248, 148.19 without taking into account any element of interest.

5. As I shall come to later, the Company has put forward a number of separate heads on which it bases its cross claims. These are hotly disputed by the Petitioner. The first question which must be addressed is "What approach should the Court take where a debt is disputed?" For these purposes I treat the claims put forward by the Company in this case as amounting to a set-off which if valid would extinguish the debt. I therefore treat this case as being one where the debt is disputed. In the course of argument by Counsel on both sides, to which I am considerably indebted, my attention was drawn to well over 30 cases as well as passages in leading text books. I have every reason to believe that every relevant authority was cited. I trust that I will not be considered to be doing injustice to the industry of Counsel if I summarise what I consider is the approach which I should take in a case such as this.

6. The procedure of winding up a company for "insolvency" by petition is a summary one. The test which the Court applies is whether the debt is bona fide disputed on substantial grounds. These are words which appear time after time in the cases. As a matter of practice, and not it may be noted as a matter of law, where the Court is satisfied that this criteria is satisfied the Companies Court should not embark on a trial to determine the issue of the validity of the debt. The petition is therefore dismissed or "taken off the file" unless there are unusual circumstances about the case or the issues involved can be disposed of very simply. In that event the Companies Court may determine the dispute itself or the Petition may be stayed and left on file pending determination.

7. There are a number of reasons for this practice. Important amongst those are that it is undesirable that a Company should remain with a petition hanging over its head, so to speak, whilst lengthy and complex litigation is conducted. Winding up proceedings can also potentially put too great a pressure on the company concerned which thus might be forced to make an unjust settlement. One of the reasons that previously has been advanced, namely that the procedure on petition in the Companies Court does not lend itself to trials and potentially complex actions, seems to me to be no longer applicable. The advent of extremely long and often involved I litigation following presentation of petitions on the just and equitable ground has demonstrated that a petition in the Companies Court can be disposed of as well as any other litigation. Indeed, I detect in the more recent decisions a leaning towards a robustness of approach evidencing a greater willingness by the Companies Court to look at the claim put forward by the company with a more critical eye.

8. The statement of the test which the Court applies does not of itself answer all the questions. It is clear that it is not sufficient for a company to say "We dispute the claim" or in the context of this case "We have a set off" see for example Jessel M.R. in re Great Britain Mutual Life Assurance Society (1860) 16 Ch. D. 246 @ 253. In some respects it is appropriate to liken the test to that which is required under Order 14 rule 3 on an application for summary judgment. It is said that the test is not whether the company's case is to be believed but whether it is believable. To this extent Mr. Yu Q.C. cast doubt on the full extent of what for example Lord Denning had said in Claybridge Shipping Company S.A. 9th March 1981. In that case a very strong Court of Appeal consisting of Denning M.R., Shaw and Oliver L.JJ had overruled a decision of Vinelott J. who had held that as the debt was disputed the petition for winding up was not to be allowed. Lord Denning said that if the company's case is obviously a "put-up job" - or if it is so insubstantial that a Queen's Bench Master would only give conditional leave to defend- then the petition to wind up should stand. What Lord Denning said has to be looked at in the context of that case and what he was saying was in the context of looking at the bona fides of the defence .

9. The analogy with Order 14 breaks down in a number of respects. As Oliver L.J. said in the Claybridge case the analogy may fair for many purposes but is not perfect. I would note that in the first place the wording of the Order 14 rule 3 is different from the test of bona fide dispute on substantial grounds. One of the distinctions between the 2 tests was brought out in the case of re Welsh Brick Industries Ltd. (1946) 2 AER 197 a decision of Lord Greene M.R., Morton and Tucker L.JJ. The distinction was there drawn between a fair probability of establishing a bona defence which might suffice for leave to defend on a summary judgment application and the Companies Court finding that there was no bona fide defence. As Shaw L.J. said in the Claybridge case there are public policy considerations to be considered in a winding up and, as Oliver L.J. pointed out, in an Order 14 application the claim would be summarily determined whilst in a winding up the company’s claim can still be pursued by the liquidator. This was a point mentioned by Bokhary J.A. at page 6 of the Safe Rich decision.

10. Importantly for this case there is a distinction between a consideration of whether the Company has established a defence on substantial grounds and a consideration of whether the evidence is believable. Taken to the ultimate, the difference is between whether there is evidence and whether that evidence is believable. It seems to me that the onus must be on e company against which a petition is presented to adduce sufficiently precise factual evidence to satisfy the Court that it has a bona fide dispute on substantial grounds. This seems to me to be the proper approach which emerges both from the cases where the petition has been struck out and those for example as the Great Britain Mutual Life to which I have referred and the Janeash Ltd [1990] BCC 250. In that case Browne-Wilkinson V-C said at 252 "That huge weight of material has remained unanswered". He went on to doubt the truth of such material as had been put in by the company, but that does not, in my view, detract from the basic point that the company's evidence must establish a substantial case. If the evidence fails to establish that case the company cannot satisfy the test by arguing hypotheses of fact on which it is said that such a case exists or could exist.

11. Finally on this point I should mention the question of the level of the debt, or, in this context, the quantum of the counterclaim. Again this is a matter of practice and discretion. However, it seems to me that if there is a bona fide dispute on substantial grounds sufficient to extinguish the claim then that should, absent other considerations, be an end of the matter. However, the fact that only part of the debt were disputed may not be sufficient to determine the petition particularly in circumstances where the company was not in a financial position to make any payment.

12. As a matter of practice there does not appear to be any difference in approach between the determination of the validity of a defence to a petition and an application to strike out a petition. Frequently, the 2 are heard and decided at the same time without distinction being drawn. In this case it seems to me that there is a distinction for this reason that on this matter being called on I intimated to Mr. Yu that as the Company had a motion to strike out the Petition I would hear that first. Whilst in other circumstances the decision on the strike out might finally be determinative of the matter, after hearing a large part of the Petitioner's argument Mr. Yu indicated that he wished to put in more evidence. That application not having been made at the beginning of the hearing I indicated that I intended to complete the strike out application on the basis of the evidence upon which the Company had been content to launch it and to consider any application to admit further evidence, if by then it would still be relevant, after the decision on the strike out.

The Petition and the Claims by the Company

13. The Petitioner's case is that the Company was appointed a distributor under a distributor agreement. That agreement is exhibited to the first affirmation of Mr. Lam on behalf of the Company. Although Mr. Lam explains that he had no opportunity to read the document before he signed it, and indeed signed it for a second time, it is not clear what approach the Company is taking in respect of it. In his reply speech Mr. Yu tentatively drew my attention to the Control of Exemption Clauses Ordinance. I therefore have not heard full argument on this but Mr. Yu was not able to explain to me why the Distributor Agreement was not an international supply contract within the meaning of Section 16. The Company seems to me be to trying to take the benefit of the agreement when it suits it and to by-pass the agreement when it feels the occasion warrants it. I will mention some of the terms of the agreement shortly.

14. It is the Petitioner's case that it has supplied goods as I have indicated above and as a result is owed the money claimed in the petition. There is a history of correspondence coming from the Petitioner stating the amount outstanding on the account. Furthermore, at the end of December 1994 Mr. Lam was apparently prevailed upon to sign a guarantee of the Company's indebtedness to the Petitioner to the tune of some US$6 million. In May 1995 the Company signed an audit confirmation addressed to the Petitioner's auditors confirming a balance due by the Company to the Petitioner as at 30th April ofUS$35,354,160.72. The Company says that this was signed with reservations but nevertheless it was signed. Moreover in mid-November 1995 the Company's auditors asked for and obtained confirmation from the Petitioner that as at 31st March 1995 the Company owed the Petitioner an amount in excess ofUS$40 million.

15. It can be noted that legal action in respect of the amount owing was first threatened as long ago as 27th September 1995. A letter from the Plaintiff's solicitors of that date was sent by hand to Mr. Lam threatening action to recover the amount under the guarantee. Despite what would appear to be this rather serious turn of events little direct response seems to have been elicited. During October there were a number of faxes from the Company to the Petitioner complaining of the supply of wrong keyboards and of missing parts and in November a further claim-under what is called the price protection policy was sent in. The statutory demand to which I have already referred was followed by the presentation of the Petition on the 15th December 1995. Even at this stage nothing of very much significance emerged from the Company. The rules with regard to preparation and filing of evidence seem to have been honoured in their breach. Even by the time the petition first reached this Court on the 29th January this year the affidavit on behalf of the Company merely stated that letters had been written to the Petitioner's solicitors, on instructions without affirming the truth of the contents of the letters.

16. The first letter, that after the Statutory Demand, stated that the goods "purportedly sold and supplied" between the 30th April 1994 and the 13th October 1995 were "substantially defective and/or not of merchantable quality". The second letter, after the presentation of the Winding up petition takes issue with the validity of the Statutory Demand as a basis for the petition, reiterates the statement with regard to merchantable quality, refers to the failure on the part of the Petitioner to enforce the price protection policy and adds the statement” … in breach of the said Distributor Agreement ... ( the Petitioner) has purportedly delivered goods to (the Company) in the absence of any continued or verified purchase orders from our client." That last statement may have its antecedent in the word purportedly in the first letter.

17. Whilst dealing with the correspondence the Company has been anxious to rely on a further letter written by Mr. Lam on behalf of the Company to Mr. Pfeiffer, the President and Chief Executive Officer on the Petitioner on the 19th December, that is shortly after the presentation of the petition. There are references in that letter to the Petitioner's staff trying to avoid "our long-term disputes and problems (burden) rather than giving us a practical problem solving solutions to settle all our long term disputes and burden ... " There is also reference to “pending claims to the Compaq products, such as (a) short shipments (b) wrong delivery (c) missing parts (d) manufacturing problems (e) maintenance problems (t) price protecting (g) marketing fund ... etc." In respect of those it was said that there had been no response to many letters that have been written. That letter also contains reference to the Company's new investors and bankers and the fact that a solution had been found and that a proposal for settlement had been due to be provided that week.

18. When the matter was first in this Court on the 29th January the Company sought time to put in further evidence. In view of the fact that the Company had shown no apparent likelihood of having a defence to the winding-up petition I. put the parties under a strict timetable as to ~g of evidence. The matterwas mentioned again on the 12th February and time was allowed for filing evidence in reply to the Petitioner's reply evidence. Eventually the first day of the present hearing when the application to strike out started took place on the 16th March.

19. When the Company's evidence came to be filed on the 6th February in addition to those heads of claim in the 19th December letter there were a number of other heads including in particular damages for delay of shipment in the sum ofUS$18,429,728.00, unmarketable stock of computer products in the sum of US$5,901,176.94, delay claim for spare parts US$1,010,450.00, damages caused by parallel imports in the sum of US$2,144,678.00, unreturned goods sent to the petitioner for repair in the sum of US$1,655,950.00, unpaid sales bonus in the sum of US$857,912.99 and loss of profits as a result of the Petitioner's breach of the Distributor Agreement and misuse of confidential information at that stage unquantified but subsequently quantified at RMB20 million. The total claim comes to something a little in excess of US$40 million as against a total turnover of goods supplied of something over US$70 million. It can be seen that a number of the heads of damages depend for their existence on the Distributor Agreement and far from relying on the allegation in the letter of the 20th December of purported delivery of goods in the absence of any confirmed or verified purchase orders, nearly half the claim is founded upon the proposition that there was delay in shipment of goods.

20. At this stage I should mention a few of the clauses in the distributor agreement. Clause 2.1 makes it quite clear that the Petitioner reserved the right to sell its products both directly and indirectly within the People's Republic of China which was the distributorship territory. No doubt because of that clause Mr. Yu very sensibly all but abandoned the claim for parallel imports in his reply speech.

21. So far as this application is concerned the term of the Agreement is not of crucial importance, nevertheless, it does seem from clause 3 that the Agreement came to an end on 16th August 1995. It is stated that the Agreement cannot be renewed and that it terminates without any notice. It would seem that the Agreement therefore provides a scenario where the distributorship has to be renegotiated and agreed.

22. The provisions for scheduling and ordering the Petitioner's products are set out in Clause 9. Purchase orders which did not have a requested shipping date were to be treated as having a requested date of 60 days. In respect of orders placed less than 60 days prior to the requested shipping date the Petitioner was required to use "reasonable efforts" to ship based on availability. Importantly each purchase order was to be accompanied by an irrevocable letter of credit in a face amount in U.S. dollars equal to the purchase price for the goods ordered as well other charges; the letter of credit had to be in form and content acceptable to the Petitioner in its sole discretion. Clause 9.6 concludes "(The Petitioner) at its sole discretion, may arrange other credit terms without waiving any rights under this section 9.6".

23. It is to be noted that Clause 9 is in terms of the shipping date. This ties in with clause 13 which provides that title passes upon delivery of the goods to the appointed freight forwarder or common carrier at the designated shipping location.

24. For the purposes of this decision it is only necessary to consider 3 of the heads of cross-claim put forward by the Company. I have already mentioned the claim in respect of parallel imports. I cannot at the moment see a valid basis on which this could be sustained and, as I have already mentioned, in his reply speech Counsel for the Company merely indicated that he did not wish to address me on the topic.

25. The major claim is that in respect of delay of shipment of goods. The fact that it takes more than imagination to conceive this as being raised in the solicitors' correspondence, or indeed the letter to Mr Pfeiffer which I have mentioned, is something which in my view, given the massive size at which it now stands, goes as to the bona fides of the claim. Those facts have to be weighed against the allegations that the delay in shipments was the subject of discussions between representatives of the Company and the Petitioner over the years. It is the Company's position that the correspondence in respect of this item of claim is sparse because the matter was discussed with staff of the Petitioner many of whom have left the Petitioner's employment. Furthermore, Mr. Lam's evidence was that the Company had been requested not to put their complaints in writing since they would be circulated to senior management and they would cause and caused difficulties for the persons with whom the Company dealt within the Petitioner's organisation. This point was much emphasised by Counsel for the Company in the course of argument. Nevertheless the fact remains that correspondence relating to claims for late delivery seems to me conspicuous by its paucity. Whatever reticence there might have been about committing such matters to paper would presumably have evaporated after the letter of the 27th September 1995 when the Petitioner made clear through its solicitors that it would be pursuing Mr. Lam under the guarantee.

26. The basis of the claim for shipment delay is said to be encapsulated in a schedule exhibited "LCM-5" to Mr. Lam's affirmation. This was the subject of no small argument in the course of these proceedings but it seems to me that for these purposes it is unnecessary to examine all the points made in respect of it.

27. Crucial to the exhibit and a consideration of the claim which it is said to itemise is the starting point. For this purpose one of the key points of the table is to show the delay in shipment. There are 2 crucial columns one is headed "Order Date" and the other is headed "Receipt Date". It is clear from a consideration of the documents which have been exhibited that the date given in "LCM-5" for the Order Date is the date on which the Company put in an order. For example the order in relation 1st shipment under Letter of Credit LCB39400129 is said with reference to exhibit "LCM-22" to have been May 1994. Again for example items numbers 64 and 68 on "LCM-5" relate to this order. However a copy of the Letter of Credit is exhibited "LCM-23" and that was only issued on the 2nd September 1994. Difficulties do not stop there. Mr. Yu on behalf of the Company attempted to argue that the Letter of Credit was not specific as to the goods. I find myself unable to accept that argument even at this preliminary stage of the proceedings. The document states on its face "Evidencing shipment of Commpaq ( sic) computer 4/33 Quantity: 2000 sets ... ". That is clearly specific as to the items. The Company did undertake by fax dated the 19th September to accept discrepancies as to the amount of the goods to be shipped and as to the description of goods. This however, seems to have been a fax to the Petitioner and not to the bank and the ultimate outcome was clearly non-payment.

28. Nor can I see any validity Mr. Yu's argument that the Petitioner could have shipped goods under any of a number of Letters of Credit which according to the argument were apparently available at the time. This again seems to me to be an attempt to raise an argument without the fundamental evidence to support it.

29. Turning to the delivery date a copy of the Bill of Lading said to be in respect of this shipment is exhibited as part of exhibit CWK -14 to Mr. Chan's 3rd Affidavit on behalf of the Petitioner. That Bill of Lading identifies the Letter of Credit by number. It is dated and shows shipment on the 1st October 1994. Much discussion took place as to whether Concord Express, a trading name of or otherwise connected with CE Logistics (Asia) Pte. Ltd., was the appointed freight forwarder of the Company. From a number of documents it would seem it was, for example in the face of the fax dated the 2nd August 1995 more than a bare assertion would be necessary to establish it was not. Concord Express may have been an organisation that the Petitioner had recommended to the Company and it may also have been a place at which goods were also stored by the Petitioner. Be that as it may the basis on which the relevant date is put as "Receipt date" and not "Shipping date" has not been made clear to me. Neither can I see justification at the moment for the date to be put as 14th October 1994.

30. The chart "LCM-5" shows, as I have said the Order date as May 30th and the receipt date as 14th October. On the basis of that it is said that there was 4.56 months delay. It seems to me that if the Company is to put forward a claim based upon breach of contract then it must show by some prima facie credible evidence what that contract was. The claim put forward in "LCM-5" cannot be based on the Distributor Agreement since the Order could not have taken effect thereunder without the Letter of Credit and the relevant date is the Shipping date and not the receipt date, presumably of the goods either in Hong Kong or in China. It is necessary therefore for the Company to put forward evidence of some other contract if it wishes to make good its point that it has a claim based on delay. It is not sufficient for Counsel to hypothesise, however attractively, that this might have been waived or that might have been varied. The fact that the Petitioner has kept its internal records showing the date of the order as "Transaction Date" does not indicate that the Petitioner agreed to waive the term relating to the provision of a Letter of Credit and therefore agreed to treat the Company's order as an operative order before some semblance of a Letter of Credit was available. It requires evidence to show that was so. The Court must know what it is that the Company says is the contract and when and how it is that it says that contract was made. If as Mr. Yu tried to argue that contracts were made and constituted outside the terms of the Distributor Agreement then it has to be made clear how and when this was done.

31. Both the Letter of Credit LCB39400129 and LCB39400159 contained what on the face are certain peculiarities in that although their intent was to cover a number of shipments each shipment was limited to US$2 million worth of goods, the Letters of Credit had in effect to be renewed after each shipment and each expired in relation to its opening such that it would have been impossible to effect a second shipment thereunder and still keep the required gap of 1 month between any 2 shipments and effect more than 2 shipments under each Letter. It would appear that these Letters of Credit never were extended or renewed and hence it is difficult to see, on the basis of the present evidence, how the 3rd shipments could have ever taken place.

32. The approach of the Company with regard to the dates of Order and shipment dates is sufficient to show that unless and until the Company can provide proper evidence as to what it says the contracts were the claim by the Company is not one that I could or should give credence to as constituting a basis of a bona fide substantial claim which can form the proper basis to strike out the Petition.

33. A further example of the need to provide prima facie evidence is to my mind exemplified by reference to the 3rd shipment under Letter of Credit LCB39400159. There was a great deal of argument as to whether the Petitioner was at fault in relation to this shipment. It was said that it was for this reason that the Petitioner agreed to reimburse the substantial storage charges to the tune of HK$400,000 or whether as Mr. Chan on behalf of the Petitioner said the release of the shipment was delayed due to the non-payment. Again it seems to me incumbent on the Company if it wishes to strike out the Petition to show that there was an agreement which would entail the Petitioner supplying goods to the Company on yet more credit notwithstanding that according to the letter of the 24th January 1995 there was more than US$41 million outstanding at the time.

34. It is not necessary to go through many of the arguments that were put to me so thoroughly. For example in relation to the transactions that were summarised in LCM-24(d) as I have already indicated something more than a bare assertion would be necessary to establish that Concord Express was not the Company's agent, but leaving that aside a comparison of the Bill of Lading dated the 21st May 1995 and the fax 14th July 1994 showing that confirmation of acceptance of the discrepancy in the Bill of Lading was given on the l0th May leads to the prima facie conclusion that shipment was shortly after the Letter of Credit was available. In relation to the transactions summarised in LCM-24(e) the dates of order and "Receipt" for 6 out of the 10 items are within 60 days. Given the approach to the dating which has been adopted by the Company in the preparation of the Schedules these dates have to be approached in the light that I have already indicated. In respect of all these if the Company wishes to show that the Petitioner has been in breach of contract it is necessary to adduce evidence as to what that contract is.

35. It was argued on behalf of the Company that the massive records which they retained and had to brought from the People's Republic of China was prohibitive of a case being presented which set out the basis of the cross-claim to any greater degree than had already been done. It was said that the Company was a small and lean organisation with only a handful employees spread over many different locations. The preparation of the Company' s case was something which would take very much longer to prepare than has been allowed and indeed was something so complex in itself that in effect it required a trial. I do not see that is a valid ground for crediting the Company with a bona fide substantial claim. No doubt those who deal in substantial amounts will have that much more to cope with than organisations that deal in small amounts. That, however, does not relieve them from preparing their case on an adequate basis. As I have indicated it is more than 6 months since a claim under the guarantee looked a realistic probability. Mr. Yu candidly submitted during the course of argument that the Company's case had been badly prepared. That however cannot be a reason for the Court excusing the Company from presenting the standard of case required to support its contentions in Court. Whilst some credence can be given to that argument on the basis of the state of the evidence when the matter first came for hearing on the 29th January, the Court is in no position to decide what is incompetence or otherwise of the legal advisers and what is in fact a case where the Company cannot put forward sufficiently precise factual evidence to satisfy the Court that it has a bona fide dispute on substantial grounds which I have held is required.

Unmarketable Goods

36. Mr. Lam has put forward a claim for unmarketable stock of computer products in the sum of US$5,901,176.94. It is put upon the basis that the products are outdated and therefore unmarketable. The list of items is set out in exhibit "LCM-6" I find it difficult to accept that the items listed here were so outmoded that they were or, indeed, are unmarketable. Some of the computers may not be the latest but I see no reason why they should be unmarketable at any price. Mr. Yu was at pains to say that this was a matter for cross-examination.

37. If the argument were to be used as a defence, I doubt that the proverbial Queen's Bench Master would entertain a claim of this nature unsupported as it is with any evidence other than the barest assertion of the existence of a claim. If he were to consider it as a defence it could in my view only be upon the payment into Court of the full amount. As far as today's application is concerned a claim which includes within it a claim for nearly half a million U.S. dollars on the basis that SVGA colour monitors are unmarketable cannot in my view command the respect necessary to warrant dismissal of a winding-up petition if it is supported as this one is only by the barest of assertions.

38. In summary therefore of the claims put forward by the Company I am not satisfied that the Company has made out a case of a bona fide dispute on substantial grounds in relation to the claims in respect of parallel imports, delay in shipment or unmarketable goods. These were put at US$2,144,678.00 in respect of parallel imports, US$18,429,728.00, in respect of the delay claim and the claim in respect of unmarketable stock of computer products was in the sum of US$5,901,176.94. On my calculation this makes a total of US$26,475,582.94. On my calculation this leaves the remainder of the Company's claim at something in the region of less than US$14 million. I make no comment on those claims at the moment other than to say that in respect of some of them the Company appears to have a substantial claim. For the purposes of to-day it is unnecessary to decide whether there was bona fide defence on substantial grounds to that extent. This may not be so in respect of all the claims but it is unnecessary to go into those aspects.

39. I bear in mind that a claim of US$14 million is itself very significant. But there is no evidence of solvency of the Company. No accounts whether audited or even in draft have been exhibited. The Company has filed no evidence to suggest that even taking into account its cross-claims that it can pay its debts as they fall due. Still less is there any evidence that the Company is able to pay any sum that is found due without taking into account all or any of its cross-claims. Whilst I bear in mind the danger of putting undue pressure on the Company by allowing winding-up proceedings to continue, there is a substantial public interest in not allowing the continuation of trading by entities that are unable to pay their debts. At the moment there is on my holding no bona fide defence on substantial grounds to a claim of at least approximately US$15 million.

40. In the conclusion I am not able to see that it is correct to dismiss this petition.

Mr. Winston Poon and Mr. Michael Winckless instructed by Messrs. Baker & McKenzie for Petitioner.

Mr. Benjamin Yu, Q.C. and Mr. Paul Wu instructed by Messrs. Sung & Co. for the Company.

Miss Denise Hardwick for the Official Receiver.