Re Pioneer Iron and Steel Group Co Ltd
Read the full judgment text of HCCW 322/2010 on BabelCite. This High Court CFI judgment was delivered on 6 March 2013.
1. Pioneer Iron and Steel Group Company Limited (“ Company ”) was incorporated in the British Virgin Islands (“ BVI ”) on 16 October 2003. As its name suggests it traded iron and steel and was, prior to 2008, very successful. The Company was able to declare a dividend of US$1,208,814,200 for its 2007 financial year. The Company has one shareholder, Chen Ningning (“ Ms Chen ”). She had been the Company’s sole director from 12 November 2003 until 20 December 2009. Although relatively young, s
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HCCW 322/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) NO 322 OF 2010 ______________________
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_______________________ D E C I S I O N _______________________ Introduction 1.Pioneer Iron and Steel Group Company Limited (“Company”) was incorporated in the British Virgin Islands (“BVI”) on 16 October 2003. As its name suggests it traded iron and steel and was, prior to 2008, very successful. The Company was able to declare a dividend of US$1,208,814,200 for its 2007 financial year. The Company has one shareholder, Chen Ningning (“Ms Chen”). She had been the Company’s sole director from 12 November 2003 until 20 December 2009. Although relatively young, she is a well known businesswoman and is originally from the Mainland in which she is well connected. I understand from her evidence that she resides in Hong Kong and that her office is here. 2.Ms Chen says that as a result of the economic disruption caused by the financial crisis in 2008 the Company’s business declined very substantially leaving it with significant claims from a number of its suppliers. On 8 June 2010 judgment was entered in London in favour of BHP BILLITON Marketing AG against the Company for US$37,655,884.50 plus interest of US$2,551,079.53. On 25 June 2010, faced with the imminent prospect of a similarly substantial arbitration against in favour of Mount Gibson Mining Limited (“Mount Gibson Mining”), resolutions were passed by Ms Chen and Mr Wang, in their capacities as shareholder and director respectively, to place the Company into liquidation and for Roderick Sutton and William Tacon appointed liquidators (“BVI liquidators”). Ms Chen acknowledges in her evidence that the voluntary liquidation was instigated on the basis of legal advice, which she was subsequently informed was wrong[1], to avoid an arbitration award in favour of Mount Gibson Mining. The presently available information suggests that the Company has a deficit of US$521,316,128. The Company has thus undergone an extreme change of fortunes in a relatively short period of time and owes its creditors very large sums. 3.The BVI liquidators quickly formed the view that Ms Chen and Mr Wang were not cooperating in providing them with documents and information about the Company’s affairs and assets. On 3 August 2010 they presented a Petition to this Court for the winding up of the Company in Hong Kong in order to be able to avail themselves of the investigatory powers of a Hong Kong liquidator. Ms Chen lives in Hong Kong and has an office here and the Company had a bank account with Standard Chartered Bank in Hong Kong. The BVI liquidators’ attempts to carry out their duties energetically seem to have come as an unwelcome surprise to Ms Chen. On 3 September 2010, 6 creditors[2] with connections with Ms Chen indicated that they would oppose the Petition and on the following day Ms Chen filed an application to the BVI Court to terminate the liquidation. The Petition came on before me on 6 September 2010 and I made directions for filing of evidence as to the background to the winding up and adjourned the Petition to 10 September 2010. On 10 September 2010 I was informed by counsel for Ms Chen that she had filed an interim application for a stay of the liquidation in the BVI, which was to be heard before Mr Justice Bannister on 15 September 2010, pending determination of the application on 10 October 2010. I adjourned the Petition pending determination of the interim application and gave leave for the Petition to be relisted before me on an urgent basis having indicated that if the BVI Court did not grant an interim stay I would probably wind up the Company. 4.Ms Chen’s application for an interim stay in the BVI failed. Bannister J indicated that the affairs of the Company cried out for investigation and that the presentation of the Petition in Hong Kong was clearly a proper course for the BVI liquidators to take. He refused leave to appeal and applications by Ms Chen and the opposing creditors for a stay pending appeal. 5.The Petition came on for a 3rd time before me on 21 September 2010. Given my previous indication my initial view was to order that the Company be wound up. However, I was told by counsel for the opposing creditors that they had just filed a summons to strike out the Petition in Hong Kong and were themselves making various applications in the BVI including challenging the appointment of the BVI liquidators and their authority to instigate proceedings in Hong Kong. It also transpired that Ms Chen had issued on 16 September 2010, but not served, a summons to strike out the Petition. It was submitted that I could not properly wind up the Company until such time as the strike out applications had been heard. I made it clear that I felt that to wait until the hearing of the Petition before informing the Petitioners and the Court of the strike-out applications smacked of an ambush and that I was unhappy with this tactic. 6.Counsel for the opposing creditors then proposed that as an interim measure provisional liquidators could be appointed. Counsel for Ms Chen told me that his client was “neutral” on this proposal. My impression, as I have already stated in my judgment of 11 November 2010, is that the proposal was made to deflect the annoyance of the Court by giving the impression of cooperation but in the expectation that the provisional liquidators would be unable to achieve very much before either one of the applications being made in the BVI or Hong Kong proved to be successful and bring the liquidation to an end or at least remove the current liquidators. The BVI liquidators, although initially unhappy at this compromise, accepted that faced with the strike out applications and evidence in support of it to which they needed to reply the Petition could not be determined immediately, agreed. The BVI liquidators were appointed provisional liquidators and given, without objection by the opposing creditors or Ms Chen, extensive powers to investigate the affairs of the Company. 7.On 11 November 2010 I ordered, for reasons explained in my decision of that date, that the strike out summons should be heard after the determination of what, at that time, was the contested BVI liquidation. The opposition to the BVI liquidation by Ms Chen and the opposing creditors was subsequently withdrawn, but no steps were taken by the BVI liquidators or the opposing creditors or Ms Chen to restore either the Petition or the strike out applications. This came to my attention in March 2012 and I ordered that the Petition be restored for hearing before me on 23 April 2012 in order that the inactivity could be explained. As a consequence the Petition and the strike out applications were listed for hearing before me in January 2013, which was the first date all Parties’ counsel were available. It is relevant that at the hearing on 23 April Counsel for the opposing creditors and Ms Chen mentioned a new ground for striking out the Petition, namely, that the BVI liquidators did not have locus to present the Petition as they did not come within section 179 of the Companies Ordinance. Until that time the objection had been that the Petition did not satisfy the criteria by reference to which the Court assesses whether or not to exercise its discretionary jurisdiction under section 327 of the Companies Ordinance to wind up a foreign incorporated company, which is referred to in the Ordinance as an “unregistered company”: see section 326. 8.On 21 May 2012 the BVI liquidators issued a summons to re‑amend the Petition[3]. The proposed re-amendments are to the 2nd introductory paragraph to the Petition and read as follows:
Consequential re-amendments are proposed to the subsequent paragraphs of the Amended-Petition to change the references to “Petitioners” to “Liquidators”. At the commencement of the hearing before me Mr Charles Manzoni SC, who appeared for the BVI liquidators, handed up an alternative draft, which he thought was more appropriate. The 2nd introductory paragraph of the Petition read as follows:
Consequential amendments to this revised draft were not necessary. 9.On 21 December 2012 a further creditor, Clever Advance Limited (“CAL”)[4], issued a strike out application on the same grounds as the other opposing creditors with whom it is aligned. The strike-out applications 10.Ms Chen was represented at the hearing by Mr Winston Poon SC. The opposing creditors were represented by Mr Wong Yan Lung SC. They challenge the Petition largely on the same grounds. The grounds for applying to strike-out can be summarised as follows:
11.I shall deal with these issues in the above order. Locus 12.Section 179(1) provides:
13.I accept, and I do not understand it to be in dispute, that this is an exhaustive list of those persons who may present a petition for the winding up of a company whether that company be incorporated in Hong Kong or an unregistered company[5]. The description of the Petitioners in the Petition, which I have quoted above is in my view not of a person who comes within section 179(1). It seems to me quite clear that the Petition should, and could have been, issued naming “the Company (in liquidation)" as the Petitioner[6]. 14.Mr Poon argued[7] that this must have been a conscious, albeit erroneous, decision for the following reasons. First, on the final page of the Petition it is stated that it is proposed to serve the Petition on the Company, which would not have been necessary if it was thought by the drafter that the Petitioner was the Company or its agent. Secondly, the body of the Petition talks in terms of the purpose of the Petition being to assist the BVI liquidators obtain information about the Company’s affairs, see for example paragraph 19, not the Company seeking an order that it be wound up in Hong Kong in order that its assets can be collected in and distributed to creditors. Thirdly, this is repeated in the evidence filed by Mr Sutton including his 8th affidavit filed after the BVI liquidators were notified of the locus point in which he states in paragraph 12 “…Mr Tacon and I presented the Amended Petition in our capacity as liquidators of the Company, on behalf of the Company…”. Fourthly, in counsel’s submissions filed at the hearing of the Petition on 23 April 2012 and after the locus issue had been raised it says this:
This, submitted Mr Poon, is not an acceptance that a mistake was made in the drafting of the Petition, but rather suggests that persons described as the Petitioners do have locus. 15.Mr Manzoni argued that it cannot possibly have been Clifford Chance’s intention in drafting the Petition that the Petitioners were the BVI liquidators rather than the Company by its liquidators. It must, he said, always have been understood by all involved what was intended otherwise it would not have taken almost 2 years for one of the many experienced counsel who have been involved in this case on behalf of Ms Chen and the opposing creditors to have taken the point. Whilst there is an immediate common sense force to this point it is rather damaged by the way in which the BVI liquidators’ own lawyers initially responded when the issue was first raised. When it was drawn to Clifford Chance’s attention that the persons identified as the Petitioners in the Petition did not have locus I would have expected them, if they had intended the Company to be the Petitioner rather than liquidators, to have appreciated that a mistake had been made been made and responded that they had intended, of course, that the Company, acting through its liquidators, was the Petitioner. They did not. Instead, as I have already mentioned, in the skeleton filed on behalf of the BVI liquidators for the hearing before me on 23 April 2012 it is expressly asserted in paragraph 9 that the liquidators had locus to present the Petition. 16.On 21 May 2012 the BVI liquidators’ stance changed. A summons was issued for leave to re-amend the Petition in the form I have quoted in paragraph 8 above. These proposed re-amendments sought to change the identity of the Petitioner. Mr Manzoni’s proposed alternative re-amendment does not do so. Whilst the first proposed re‑amendment would, if allowed, cure the locus problem by making the Company (which has locus under section 179) the Petitioner, it does not seem to me that Mr Manzoni’s revised version does do so. Rather in an attempt to avoid explicitly conceding that a mistake was made in the original version of the Petition it continues to cast doubt on whom at the outset was intended to be the Petitioner. The relevance of this is as follows. If, as in my view is the case, the BVI liquidators did not have locus to present the Petition in order for the Petition to be saved a person who does have locus has by some means to be introduced. This cannot be done by substitution under Rule 33 of the Companies (Winding‑up) Rules as this only provides for substitution of a creditor or contributory. Mr Manzoni argued that such mistake as may have been made came within Rule 209 of the Companies (Winding-up) Rules:
The Companies (Winding-up) Rules do not themselves deal with amendment to a Petition to remedy a formal defect or irregularity but this can be done, argued Mr Manzoni, under the provisions of the Rules of the High Court, namely, O20 rr5, 7 and 8 and O15 r6. 17.It seems to me that whether or not this is correct depends on, amongst other things, the nature of the mistake, which it is sought to remedy by the re-amendment and whether it can be properly be characterised as a formal defect or irregularity. In order to understand how these terms are to be understood in the present context it is necessary to consider in some detail the provisions of the Companies (Winding‑up) Rules and the Rules of the High Court, which deal with amendments to originating process. 18.RHC O1 r2(2) provides that the Rules of the High Court do not apply to winding-up proceedings. The procedural regime governing winding-up proceedings is to be found in the Companies Ordinance and the Companies (Winding-up) Rules. A qualification to this general rule is to be found in the Companies (Winding-up) Rule 210:
Mr Poon argues that Rule 210 does not justify applying the Rules of the High Court in the present case, because the Companies (Winding‑up) Rules provide a procedure for dealing with cases in which a petitioner is not entitled to present a petition, namely, Rule 33. He referred me to the judgment of Fuad JA in Re Perak Pioneer Ltd[8] in which he held in paragraphs 21 and 22:
19.Thus, says Mr Poon, the circumstances in which a new petitioner can be introduced because the original petitioner did not have locus are limited to the circumstances and parties referred to in Rule 33. As the Company is not a party, which can be substituted pursuant to Rule 33 the lack of locus cannot be resolved by the BVI liquidators in these proceedings. I accept that the Company cannot be substituted pursuant to Rule 33, but it does not follow that if the need to make the Company the Petitioner arises as a result of, to use the language of Rule 209, a technical defect or irregularity, such defect or irregularity cannot be resolved unless Rule 33 is applicable. Rather it seems to me that in these circumstances reference should be made to the Rules of the High Court to see if those Rules provide a means to remedy the defect or irregularity. 20.RHC O20 r5(1)[9] provides that subject to O15 r6, 7 and 8 a petition may be amended. Rule 5(3) allows an amendment to correct the name of a party notwithstanding that it is alleged the effect will be to substitute a new party “if the Court is satisfied that the mistake sought to be corrected was a genuine mistake …”. Rule 5(4) allows an amendment to be made under Rule 5(2) to alter the capacity in which a party sues if he had that capacity at the time proceedings were commenced. Order 15 r6 deals with misjoinder and nonjoinder of parties. The rule allows, amongst other things, a party to apply to be joined as a party on the grounds that he should have been a party and whose presence before the Court is necessary in order that matter before the Court may be completely determined. 21.The BVI liquidators argue that these Rules give the Court power to order the amendment of the Petition to introduce the Company as the Petitioner if it is necessary. Mr Poon disputed this. He accepted that Rule 209 can be used to correct formal defects such as an inaccuracy in the description of a company’s name[10]. I did not understand him to dispute that O20 r5(2) and(4) allowed a change in the capacity in which a party sued, for example, where a plaintiff has erroneously been identified as a firm as opposed to a sole proprietor[11]. However, he argued that the mistake that had been made was not a formal defect. The wrong party had been chosen as the Petitioner and for that reason an application to amend could not properly be characterised an application to change the capacity in which the Petitioner presented the Petition, because the BVI liquidators themselves do not come within section 179 and adding the words “on behalf of the Company” after their names does not alter the position. 22.The correct approach to determining whether or not a mistake has been made that is remediable under O20 r5 is considered in International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corp of India[12]. Evan LJ explains at page 1026b:
23.It is not disputed that the BVI liquidators issued the Petition in order to advance the liquidation of the Company and the interests of its creditors. What is being said, to paraphrase from the above quote from the judgment of Judge Diamond QC, is that it was still necessary for the BVI liquidators, or probably in practice their legal advisers, to decide who was the proper party to issue the Petition. They decided that it should be Mr Tacon and Mr Sutton and they were correctly named. This was a mistake, which cannot be remedied under O20 r5(3). I agree. I also accept that the mistake cannot be remedied under r5(4) because the proposed re-amendment (in its original form, not that proposed by Mr Manzoni, which in my view does not address the problem) is not to change the capacity in which the person identified as the petitioner brings the proceedings, it is to change the identity of the Petitioner. 24.There remains the application under O15 r6, the relevant parts of which provide:
25.Mr Manzoni argued that if the Court takes the view, as I do, that the wrong person was made the Petitioner this Rule allows the Court to remedy the problem and substitute the Company for the BVI liquidators. There are, however, two difficulties with this argument. First, the decision of Fuad JA in Re Perak Pioneer Ltd states that insofar as substitution of a petitioner is concerned, and it is substitution rather than addition that we are here concerned with, Rule 33 of the Companies (Winding- up) Rules provides “a complete statement of the circumstances in which the substitution of a petitioner can be ordered so that there is no need to resort to the RSC, via r210 of the Rules”. Rule 33 expressly applies to circumstances in which a petitioner is not entitled to present a petition. Accepting that Fuad JA’s judgment is correct, as I do, it follows that the BVI liquidators’ application to substitute the Company falls to be determined solely by reference to Rule 33. As I have explained above Rule 33 only allows substitution by a creditor and contributory in circumstances in which a petitioner is not entitled to present a petition. Secondly, the Petition will not be defeated by a finding that the Petitioners’ did not have locus to present it and a dismissal of the application to amend. On 28 January 2013, Mount Gibson Mining, issued a summons to be substituted for the Petitioner. The intention is that in the event that I find that the Petitioners did not have locus to present the Petition (as I do), dismiss the application to amend (as I do) but find that but for the lack of locus the Court should exercise its power to wind up the Company in Hong Kong, the summons will be brought on and Mount Gibson substituted for the Petitioner. 26.I, therefore, turn to the issue of jurisdiction. Jurisdiction 27.Section 327(1) and (3) give the Court a discretionary jurisdiction to wind up an unregistered company. As I explain in my judgment in Re Yung Kee Holdings Ltd[13]this jurisdiction is exercised if the following three core requirements are satisfied:
28.The significance of each requirement will vary from case to case. An exceptional case may arise in which the connection with Hong Kong is so strong and the benefits of a winding-up order for the creditors of a company so substantial that the Court will be willing to exercise its jurisdiction despite the third criteria not being satisfied, but that is not a matter of principle that I need to decide here. 29.Understanding how these requirements are to be applied involves understanding the legal framework within which the Court’s discretionary jurisdiction under section 327 arises. As a general principle the domiciliary law of a company, namely that of its State of incorporation, governs its status[15] and would be the appropriate law and system under which to liquidate a foreign company. Section 327 provides a statutory exception to this principle. As Morritt LJ observes in paragraph 22 of his judgment in Stocznia Gdanska SA v Latreefers Inc (No 2) [2001] 2 BCLC 116 this jurisdiction is “exorbitant” and the connection relied on by a petitioner must be “sufficient to justify the court setting in motion its winding-up procedures over a body which prima facie is beyond the limits of territoriality”. A petition to wind up an unregistered company if successful engages the same statutory regime for winding up as that which applies to a Hong Kong incorporated company. The Companies Ordinance contains no qualification or limitation to the application of that regime in the case of an unregistered company. As in the present case an unregistered company can be ordered to be wound up by a court in its State of incorporation and, potentially, Hong Kong. This can lead to possible conflicts between two different insolvency regimes. Lord Hoffman explains in Re HIH Casualty and General Insurance Ltd[16], how the English courts deal with this problem:
30.We have no equivalent of section 426(4) of the Insolvency Act 1986 in Hong Kong. The position in Hong Kong is that a liquidator appointed pursuant to the Companies Ordinance to wind up an insolvent unregistered company is required, whatever the practical position may be, to collect in its assets in Hong Kong and overseas and settle a list of creditors worldwide who submit proofs of debt in accordance with Hong Kong law[17]. If an unregistered company is already in liquidation in its State of incorporation, a liquidation in Hong Kong will generally be treated as ancillary to it in the sense that the functions of the liquidator would be framed by Court order to provide that he is to collect in the Hong Kong assets, to settle a list of Hong Kong creditors and to transmit the assets and the list to the principal liquidators to enable a dividend to be declared and paid. Mr Wong submitted that a petition to wind up an unregistered company is an application to put in motion this process and that whether or not sufficient connection to Hong Kong has been demonstrated involves the Court asking whether it has been established that it is worthwhile setting in motion this process. I accept that in considering whether or not to exercise its discretionary jurisdiction to wind up an unregistered company the Court should be satisfied that setting in motion this process is justified and that the consequences of making a winding-up order informs a consideration of whether or not sufficient connection with Hong Kong had been demonstrated. With this framework in mind I turn to consider whether the core requirements referred to above have been satisfied. 31.Mr Poon submitted that in assessing whether sufficient connection has been demonstrated regard can only be had to the matters stated in the Petition. An order will not be made if a sufficient case is not stated on the petition, even if such a case is proved in evidence[18]. If a petitioner wishes to rely on matters not stated in his petition he must first amend his petition[19]. I accept that these are correct statements of principle and they were not disputed by Mr Manzoni. The grounds on which sufficient connection is asserted are contained in paragraph 22 of the Petition:
32.The assets referred to are detailed in paragraph 17(a) to (c) of the Petition:
33.As a result of the delay in the Petition being brought on for hearing and the appointment of provisional liquidators the position is not as it was at the time the Petition was presented. The provisional liquidators have taken control of the assets referred to and, in the case of the cars, realised them. Standard Chartered Bank has abandoned its claim apparently because of an arrangement made between it and Ms Chen. It does not seem to me that this of itself is necessarily fatal to the Petition although it has a bearing on how the Court should now exercise its discretion. 34.I did not understand Mr Poon or Mr Wong to dispute the accuracy of the facts asserted in paragraph 17(a) to (c) at the time the Petition was presented. What they argue is that they do not demonstrate sufficient connection with Hong Kong. They submit that the value of assets that have been identified are so small that they do not justify putting in motion the costly process of liquidation to realise them. The other assets referred to in paragraphs 17 and 18 of the Petition are not assets in Hong Kong and are not, therefore, relevant. Mr Sutton refers in paragraph 11 of his 9th affidavit to further interests in Hong Kong, which are not referred to in the Petition, but putting to one side that difficulty, Mr Poon submits that in the case of two of the companies these are indirect interests and therefore do not constitute assets in Hong Kong, which I accept[20]. In the case of the third, Pioneer Metals Company Limited, Mr Sutton explains that a beneficial interest in the company “as the result of a series of share transfers which took place between August 2008 and May 2010 appears to have been transferred to Chen and her mother for nil consideration – transactions which clearly require investigation”. Mr Poon argued that this may suggest a matter that needs, viewed from the perspective of the BVI liquidators, further investigation, but it does not demonstrate the presence of an asset in Hong Kong. I agree. 35.I accept that if the matter relied on by the Petitioners was the presence of assets in Hong Kong alone a sufficient connection would not have been demonstrated, but they are not. Paragraph 13 of the Petition states that Ms Chen “is a well known public figure both in Hong and China, and considered to be the key person in respect of the operations of the Company”. Paragraph 22(a) of the Petition states that the Company has offices in Hong Kong in the Lippo Centre. In their submissions the Petitioners develop these simple assertions into the following argument on connection:
36.Mr Poon argued that it is not correct that the Company had an office or place of business in Hong Kong. It is Ms Chen’s evidence that the Company operated from an office in Beijing and that Mr Wang, who replaced her as a director on 20 December 2009, assisted her prior to that date in running the Company. At all times he was resident in Beijing. The offices in the Lippo Centre were the offices of Pioneer Metals Resources Company Ltd, which ceased operations by at least August 2010. However, prior to 20 December 2009, by which time the Company was experiencing the financial problems that eventuality led to its insolvency, Ms Chen was not only its sole shareholder, but also its sole director. Prior to the global economic problems of 2008 and 2009 the Company was active and profitable. Ms Chen lived in Hong Kong. She had through companies she owned and controlled an office in Hong Kong, which had staff, which it is reasonable to assume assisted her with her business interests. Ms Chen does not suggest in her evidence that she had any other significant business interests other than the Company and other companies in which it either had an interest, direct or otherwise, or which carried out associated business activities. As I mentioned at the beginning of this judgment the Company’s operations were sufficiently large and profitable that it was able to declare a dividend of US$1,208,814,200 for its 2007 financial year. The only sensible inference that can be drawn is that Ms Chen made major business decisions concerning the Company’s affairs from her base in Hong Kong; probably at the office in the Lippo Centre or her house in Deep Water Bay Road. 37.Mr Poon submitted that even if this is so such matters are not capable of constituting sufficient connection and referred me to paragraphs 47 to 57 of Yung Kee Holdings supra. The issue discussed in those passages concerned a different issue, namely, whether or not the company had established a place of business in Hong Kong. It does not follow that because a company has not established a place of business here that it does not have a substantial connection with Hong Kong. The considerations are different as illustrated by paragraphs 24 to 42 of the judgment. 38.In my view the fact that the controlling mind of a commercially active company, which as is clear from the judgment Yung Kee Holdings was not, is based in Hong Kong and makes business decisions here about the company constitutes a substantial, and relevant for the purposes of section 326, connection with Hong Kong. The fact that the Company carried out some of its activities in Beijing does not dilute the substance of that connection. In my view the Company did have a substantial connection with Hong Kong. 39.The second core requirement is that a winding-up order will benefit those applying for it. Mr Poon takes a preliminary point that if the Court finds, as I have, that the Petitioners do not have locus to present the Petition it must follow that this requirement cannot be satisfied. This, however, is an unusual case. The lack of locus arises from a mistake by the drafter of the Petition. The Petition could quite properly have been issued by the Company and the same grounds advanced for satisfying the second requirement, namely, that it will be to the benefit of the Company in liquidating itself and the creditors who will benefit from a properly conducted investigation of its affairs; which is in substance what paragraph 22(b) of the Amended Petition says. Mount Gibson would no doubt argue, if it were the Petitioner, the same thing. The material question is whether or not there are any further benefits to be gained from a winding-up order. Mr Poon argues that there is not for the following reasons:
40.I accept that these are all reason why a winding-up order should not be made unless the Court is satisfied that the benefits to be obtained from winding up the Company outweigh these additional costs; and I note that Mr Manzoni did not dispute that the duplication and additional costs identified by Mr Poon would probably be caused. This is an unusual case because if the Petition had come on earlier as it should have done, it would have been clearer that there were investigations that needed to be undertaken. As it is there remains the examination of Ms Chen to be completed. It commenced before a Master and lasted 5 days, but I was persuaded to extend the length of the examination and have it take place before me because I was satisfied Ms Chen was not being sufficiently cooperative and there remained matters on which to examine her. Apart from this the Petitioners are only able to point to the possibility that they may be able to bring claims for fraudulent trading or unfair preferences against her, although Mr Manzoni did not identify any particular transactions in respect of which it was anticipated this would occur. 41.It seems to me that if the Petition had come on for hearing within a normal time frame it would have been clear that there was a benefit to be obtained by granting a winding-up order, namely, the investigation through the use of the procedures provided for in the Companies Ordinance, such as examinations under section 221, of the affairs of the Company and in particular transfers through which it was divested of its beneficial interests in apparently valuable assets. The fact that the force of this argument is diluted as a result of the delay in bringing on the Petition and the unusual fact that the Provisional Liquidators have been able to use those procedures to a considerable degree already is not a reason to refuse an order that might otherwise have been made if some of the procedures are not yet completed. I am satisfied that it is in the interests of the liquidation that the examination of Ms Chen is completed and liquidators have the opportunity to consider whether any action should be taken pursuant to the Companies Ordinance for remedies that might not otherwise be available to the Company. 42.As for the third core requirement, Mr Poon submitted that the persons interested in the Company’s assets, namely the creditors whose claims have been admitted by the Petitioners, are all outside the jurisdiction:
43.The Petitioners dispute this. Mr Sutton says in his evidence that there are 6 local creditors with claims totaling US$50,600,000 including Ms Chen. Mr Sutton has included Mount Gibson on, I assume, the basis that having registered its arbitration award in Hong Kong it has submitted to the jurisdiction and is, therefore, capable technically of satisfying the third core requirement. Although Mount Gibson’s position was not addressed before me, I have reservations about the submission that by registering an arbitration award here a creditor becomes a person over whom the Court can exercise jurisdiction in the distribution of a company’s assets. As I have already discussed above once a winding‑up order is made in Hong Kong against an unregistered company its liquidator should, absent direction from the court, proceed to liquidate its assets for the benefit of all its creditors wherever located. In this sense any creditor of a company becomes subject to the jurisdiction of the Hong Kong Courts in relation to the distribution of a company’s assets, and in my view it must follow that something more than this is required. In the large majority of insolvency cases the requirement will be satisfied by a creditor who is an individual resident here or a foreign company which is registered under Part XI of the Companies Ordinance or which has a place of business here. In my view what the authorities from which this requirement emerge[21] intended is more accurately described as a person who is concerned with the proper distribution of assets and over whom the Court can exercise jurisdiction other than by virtue of him being a creditor of the company. It is not, however, necessary for me to decide this issue for the purposes of this case, because it seems to me that as Ms Chen asserts that she has a significant claim against the Company this is sufficient to satisfy it. 44.As I explain in paragraph 10 Mr Wong also submitted that in the event that I did not find, as I have, that the three core requirements had been satisfied there was no independent basis for the Court to proceed to order an ancillary liquidation. This argument was advanced in response to the Petitioner’s submission that the requirements did not apply with the same stringency in a case such as the present where the Petition had been issued by the liquidators of a company in liquidation in its State of incorporation. Although it is not necessary for me to address this issue I think that it is desirable that I say something about it. As I understand the argument Mr Manzoni suggested the Court should take into account the desirability of this Court assisting the liquidation in the Company’s State of incorporation. I was referred to a number of authorities, which it was suggested support this approach. First, the decision of Re Irish Shipping Limited[22] in which Jones J was influenced in favour of exercising the Court’s discretionary jurisdiction by judicial comity[23]. It does not seem to me that the fact that in a particular case it is demonstrated that viewed objectively a liquidation in Hong Kong of an unregistered company will assist a foreign liquidator in carrying out his duties is a reason for making a winding-up order if the three core requirements have not been established. In my view it would be inconsistent with the principles discussed earlier in the judgment to make an order which commenced the statutory regime for the liquidation of companies in order to enable a foreign liquidator to use that regime’s investigatory procedures to obtain information about the affairs of a company, which had little connection with Hong Kong other than the presence here of one of its officers. It seems to me relevant that Hong Kong has not enacted an equivalent to section 426 of the Insolvency Act 1986 and is not a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, which would have enabled orders to be made for the purpose of assisting liquidators of unregistered companies investigate in Hong Kong matters concerning their affairs despite the fact that the three core requirements referred to in paragraph 27 cannot be satisfied. 45.The second was Re Information Security One Limited[24]. In that case a petition had been presented by a company in liquidation in the Cayman Islands, where it was incorporated. The petition was commenced in order to recover assets within the jurisdiction and to invoke the procedure under section 221 to examine directors. It is clear, however, from the short judgment (the petition was unopposed) that Kwan J, who heard the petition, proceeded to making a winding-up order on the basis that that three core requirements were satisfied. The case is not authority for a proposition that those requirements are applied less stringently where the petitioner is the company itself. The third case was Re Zhu Kuan Group Company Limited[25]. Barma J discusses in some detail the application of the three requirements to the facts of that case in his judgment, but I do not read the judgment as suggesting that they applied with any less force because the company was already in liquidation in its State of incorporation. 46.In conclusion, it seems to me that there is no basis for adopting a less stringent approach in assessing whether sufficient connection with Hong Kong has been demonstrated in cases in which a petition is presented by an unregistered company which is in liquidation in the State of its incorporation. 47.As a parting shot the opposing creditors submit that if the Court orders a winding up of the Company it should appoint different liquidators in order to avoid any conflict in determining how any inconsistency in the statutory regimes in the 2 jurisdictions, or in the interest of creditors in the different jurisdictions, should be addressed. This is a surprising submission for the opposing creditors to advance at this stage given the fact that it was they who proposed that the BVI liquidators be appointed provisional liquidators. Given their obvious siding with Ms Chen in circumstances in which one would expect a bona fide creditor to be troubled both by the insolvency of the Company and Ms Chen’s reluctance to assist the BVI Liquidators it sounds very much as if this is an attempt simply to place another barrier in the way of the efficient progress of the liquidation by increasing costs and delay. In any event even if conflicts arose this can be dealt with simply by appointing an additional liquidator in one or both of the jurisdictions, as is commonly done, who can deal with any contentious matters. In the present case I can see no substantive reason for thinking that if a conflict between the two regimes arises it cannot sensibly and fairly dealt with in this manner. Conclusion 48.I will adjourn the Petition to a date to be fixed in consultation with Counsel’s diaries in order that the application for substitution can be heard and the necessary consequential orders can be made.
Mr Charles Manzoni SC & Ms Rachel Lam, instructed by Clifford Chance, for the Joint & Several Provisional Liquidators Mr Wong Yan Lung SC & Mr Victor Dawes, instructed by Wilkinson & Grist, for the 6 Opposing Creditors of the Company and Clever Advance Limited Mr Winston Poon SC & Ms Linda Chan SC, instructed by Tang & So, for Chen Ningning Mr Paul Carolan, instructed by Latham & Watkins, for Mount Gibson Mining Limited Attendance of the Official Receiver was excused [1] During the hearing Mr Winston Poon SC, who appeared for Ms Chen, suggested that the advice may have been correct, but nothing currently turns on this. [2] Consisting of Advance Move Investments Ltd, Harwich Gain Ltd, High Insight Management Ltd, Intellect Joy Group Ltd, Beijing Xiang Hong Xu Technology Co Ltd and Rich Concept. [3] The Petition had been amended on 20 August 2010 to correct a minor typographical error in paragraph 3. [4] CAL is the assignee of Rich Concept, one of the original Opposing Creditors: see footnote 2. By a Deed of Assignment dated 14/12/10, the entire debt owed by the Company to Rich Concept was assigned to CAL. [5] See In re H.L. Bolton Engineering Co. Ltd. 1956 1 Ch 577. [6] There is a difference between English and Hong Kong law in this regard. Section 124 of the Insolvency Act 1986 contains a wider list of persons who can petition to wind up a company, which includes a liquidator appointed by virtue of article 3(1) of Council Regulation (EC) 1346/2000. This illustrates that there is a difference between a company in liquidation petitioning to wind up a company and its liquidators doing so otherwise the section would not be necessary. [7] For ease of reference I shall refer to Mr Poon SC’s submissions, although they were either adopted or repeated with a different emphasis by Mr Wong SC. [8] CACV 62 of 1985 unreported judgment of 22 May 1985 [9] Which by virtue of r7 applies to petitions [10] Buckley on the Companies Acts, 14th ed., vol. 2, #226 [11] Nam Hoi Shoes Factory v Empire Trading Co (HK) Ltd [1960] HKLR 99 [12] [1996] 1 AER 1017 (CA) [13] [2012] 6 HKC 246, see §§66-70 [14] Yung Kee Holdings ibid §70 and Re Beauty China Holdings Ltd [2009] 6 HKC 351 §23. [15] The Law of Insolvency, 4th ed., Fletcher, §30-007 – 010 and the authorities referred to in the relevant footnotes. [16] [2008] 1 WLR 852, paras 6 to 9 and 14. [17] See In re Bank of Credit and Commerce International SA (No 2) BCLC 579 and In re B.C.C.I. SA (No 3) (1993) BCLC 1490 [18] Buckley on the Companies Acts, 14th ed., vol 1, 549. [19] Re Fildes Bros Ltd [1970] 1 WLR 592 at 597G-598C. [20] Yung Kee Holdings supra §80 [21] See Real Estate Development Co 212i to 217d & Stocznia Gdanska §§20 - 33supra [22] [1985] HKLR 437 [23] Ibid 445f-h [24] [2007] 3 HKLRD 780 [25] HCCW 874/2004, unreported judgment of 2 August 2004 Please refer to HCMP1362/2011 for the relevant appeal(s) to the Court of Appeal. |
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