Yau Sang Galvanizers (Hot Dip) Co Ltd v. Sum Kee Metal Co Ltd

HCCW 462/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 462 OF 2010

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Before: Hon Harris J in Chambers

Date of Hearing: 7 April 2011

Date of Decision: 7 April 2011

Date of Reasons for Decision: 15 April 2011

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REASONS FOR DECISION

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1.I have before me an application by the Company to strike out the Petition for its winding up on the grounds of insolvency.

2.The Petitioner relies on a statutory demand dated 22 October 2010 in respect of a debt of $17,417,007.04, which includes interest of $5,646,444.29, for goods and services rendered during the period from September 2006 to September 2009.  The Petition is supported, and its contents allegedly proved, by an affirmation of Yan Hing Cheong, who is a director of the Petitioner.

3.The Petitioner is owned by 2 companies, Year Top Enterprise Limited (“Year Top”) and Faith Luck Company Limited (“Faith Luck”).  They are owned respectively by the Mak Brothers and the Yan Family.  The Petitioner carries on business electro-plating and zinc galvanising steel products mostly for infrastructure and building projects. The shareholders are currently in dispute concerning the affairs of the Petitioner.  The dispute is relevant to this application.  It can be summarised as follows.  Faith Luck says that sometime in about 2007 it agreed to purchase Year Top’s shares in the Petitioner for $8,700,000.  Faith Luck was not in a position to pay this sum immediately.  It was agreed that it would be paid by the Petitioner setting this sum off against the amounts due in respect of goods it supplied to the Company, which is owned by the Mak Brothers, with whom it had an existing business relationship.  Faith Luck says that it understood that the reason why Year Top wished to sell its shares was that the Mak Brothers were concerned about the substantial increase in the price of zinc, which they thought would adversely affect the Petitioner’s business prospects.  The shares were not, however, transferred.

4.Year Top does not accept this version of events.  It accepts that there were discussions about Faith Luck selling its shares, but says an agreement was not reached.  Year Top and the Mak Brothers say that the discussions about the sale of Year Top’s shares arose because of their loss of confidence in the Yan Family and proved fruitless largely, as I understand their case, because they were not provided with sufficient financial information to value their interest in the Petitioner.  This led Year Top to issue a section 168A petition seeking an order that Faith Luck purchase its shares at the current market value: HCCW 299 of 2010.

5.The Yan family believe that the Mak Brothers have reneged on their agreement and done so because the market for the Company’s products has improved with the fall in the price of zinc and that on a current valuation Year Top’s shares are worth more than $8,700,000.  The evidence filed by members of the Yan Family states in HCCW 299 of 2010 that they believe that an agreement was reached in 2007 for the sale of the shares and, it follows, for the set-off of the price against the sums due from the Company for the goods supplied by the Petitioner.  On the Yan Family and Faith Luck’s case the reason why a sum of $11,770,562.75 ($17,417,007.04 less interest of $5,646,444.29) was allowed to accumulate was because of the agreement reached in 2007.  It will be appreciated that this appears to be inconsistent with the winding-up petition.

6.I asked Ms Tjia, who appeared for the Petitioner, whether my understanding, namely, that in fact Yan Hing Cheong believes that there was an agreement to purchase Year Top’s shares and an agreement to set-off the purchase price was correct.  She confirmed that it was.  I also asked her what, if such an agreement had been reached, was owed by the Company to the Petitioner.  She told me nothing.

7.The answers to these 2 questions beg a third question: how could it have ever been thought in these circumstances that it was appropriate to issue a winding-up petition and allow Yan Hing Cheong to make the affirmation dated 16 November 2010 stating that he believed the contents of the Petition to be true?  The answer seems to be that the Yan Family take the view that if the Mak Brothers are going to deny the 2007 agreement it follows that the Petitioner is entitled to payment for the goods supplied and interest for late payment.  If, contrary to the Yan Family’s position, there was no agreement reached in 2007 for the sale by Year Top of its shares in the Petitioner for $8,700,000, this may be correct.  However, until the principal issues concerning what agreements were reached by Year Top and Faith Luck have been determined, in my view it is clearly premature to bring a winding-up petition.

8.I should add that the Company says that the reason that payment for goods supplied by the Petitioner was allowed to accumulate was because of the business relationship between the Parties and that when their relationship broke down the Company did proffer payment of the principal amount, which it understood to be outstanding, which was rejected because the Company refused to pay interest.  The Company says that the only issue is whether or not interest is payable and that this turns on what was agreed between the Parties at the time.  At the commencement of the proceedings, and in order to secure an order under section 182 to pay its business expenses, the Company paid into Court the full amount claimed.  On the face of the accounts put before me the Company did appear to be both substantial and solvent.  The Company says it was agreed that no interest was payable because of the running account that was operated.  The Petitioner disputes this, but in my view there must be a bona fide dispute on substantial grounds in respect of this question given the larger factual differences between the Parties and the fact that there must be some explanation for the Petitioner allowing such a large sum to accumulate over 3 years without apparently demanding payment.

9.It seems to me that these proceedings have been thoroughly misconceived and are an abuse of process.  It cannot be right for the Petitioner to present a petition claiming as undisputed a debt, which its controlling minds do not believe is actually payable.

10.I order that the Petition be struck out and the costs paid by the Petitioner on an indemnity basis.  I also order that the money paid into court by the Company be released.

Ms Josephine Tjia, instructed by Messrs Jacqueline Ching Solicitors, for the Petitioner

Mr Brian Wong, instructed by Messrs Kenneth C C Man & Co., for the Respondent

The Official Receiver, excused from attendance