Re Max Sunny Ltd

HCCW 84/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 84 OF 2014

____________

____________

AND

HCCW 85/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 85 OF 2014

____________

____________

_____________

D E C I S I O N

_____________

1.This is the resumed hearing of an application by a petitioning creditor for the appointment of provisional liquidators for 2 companies.

BACKGROUND

2.Australia and New Zealand Banking Group Limited (“ANZ”) is the lender of bank facilities.  Max Sunny Ltd (“MSL”), a Hong Kong company, is the borrower.  Its holding company, Z-Obee Holdings Limited (“Z-Obee”), is a Bermuda company and the guarantor for the borrower.  MSL and Z-Obee (collectively “the Companies”) defaulted in repayment despite statutory demands being served on them. 

3.The total due to creditors by the Companies is US$78m, of which US$7.5m is due to ANZ and US$6.4m is due to HSBC.

4.Attempts on restructuring the debts were made between the latter half of 2013 and the first quarter of 2014 without success.

5.On 4 April 2014, the Bank petitioned for the winding up of the Companies on the ground that they were insolvent and unable to pay their debts.  The petitions were originally to be heard on 11 June 2014. 

6.Also on 4 April 2014, ANZ took out these applications for appointment of provisional liquidators (“the summons”). HSBC, another creditor, supports the petitions and these summonses.

7.ANZ and HSBC came to terms with the Companies which were eventually embodied in 2 Deeds of Settlement.  By consent, the petitions were adjourned, upon the undertaking of the respective Company:

(a)  not to objecting to restoration of the summonses on the grounds of urgency or the mode of restoration;

(b)  if heard, consent to the appointment of provisional liquidators to it and its assets; and

(c)  not to oppose the respective petition.

8.Under the Deeds of Settlement, the Companies were to repay the debt due to ANZ Bank Ltd and HSBC by 5 instalments.  The Companies failed to pay the 3^rd instalment which was due on 6 June 2014.  The summonses are thus restored for hearing today with amendments to the summonses which are not opposed.  The Companies do not oppose the appointment of provisional liquidators. 

THE LEGAL PRINCIPLES

9.The summonses are taken out under section 193 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 2 (“the Ordinance”). 

10.It involves the court in a 2-stage assessment: Re Boldwin Construction Co. Ltd. & ors [2003] 2 HKLRD 237, per Kwan J at 246G‑247E:

(1)  The applicant must show at least a good prima facie case for a winding up at the hearing of the petition;

(2)  The court would determine whether overall it is just and convenient to appoint the provisional liquidator, taking into account all the circumstances including the commercial realities, the degree of urgency, the need to appoint a provisional liquidator and the balance of convenience.

11.A provisional liquidator will be appointed where a company’s assets are in jeopardy.  It is not dissipation in the sense of  simply deliberately making away with the assets but any serious risk that a company’s assets may not continue to be available to the company: Re a Company ex parte Nyckeln Finance Co. Ltd. [1991] BCLC 539 at 542.

12.In Re Club Mediterranean Pty Ltd (1975) 1 ACLR 36, it has been held that:

“Where the company itself applies for the appointment of a provisional liquidator the appointment is usually made without query, for such an application implies that the board of directors of the company considers that such appointment is necessary or would be beneficial. Where a petitioning creditor applies and the company neither consents to nor opposes the application the court will look at the evidence supporting the application to see if that evidence raises a prima facie case for the appointment, for which purpose in those circumstances relatively slight evidence would suffice. By ‘relatively slight’ I mean to imply a contrast to the relatively strong evidence that would be required in an opposed application.”

Stage 1: good prima facie case for a winding up at the hearing of the petition

13.There can be little doubt of the liability of MSL and Z‑Obee’s to repay the indebtedness to the Bank. They are deemed insolvent under section 178(1)(a) for failing to comply with the respective statutory demand.

14.Although Z-Obee is a foreign company, section 327 of the Ordinance empowers the court to wind it up if 3 requirements are satisfied:

(i) There is sufficient connection with Hong Kong.  In the context of insolvency there is commonly the presence of assets but this is not essential.

(ii) There is reasonable possibility that the winding-up order would benefit those applying for it; and

(iii) The court must be able to exercise jurisdiction over one or more persons interested in the distribution of the company’s assets.

See Re Pioneer Iron and steel Group Co Ltd HCCW 322/2010, at §27, Harris J.

15.With regard to requirement (i), Z-Obee is closely connected to Hong Kong, it being a registered overseas company and ultimate parent of the company group listed on the Stock Exchange of Hong Kong Limited.  Its principal place of business is in Hong Kong.  Its founder chairman and CEO is Mr Wang Shih Zen who holds a Hong Kong identity card, used to reside in Hong Kong and is the statutory authorized representative of Z-Obee.

16.With regard to requirement (ii), the winding-up orders will benefit the creditors in giving them pari passu distribution of Z-Obee’s assets.

17.With regard to requirement (iii), ANZ and HSBC are both based in and operate in Hong Kong.  The court has jurisdiction over them.

18.ANZ has passed the first stage of assessment.

Stage 2: balance of convenience

19.There was difficulty in making contact with Mr Wang who remained in Taiwan since late 2013.  There was a recent high turnover of directors, appointed at the direction of the “white knight”, one China Housing Construction Group Ltd (“CHCG”).  There is evidence that CHCG are putting unwarranted pressure on the Companies’ debtors to withhold payments to put the Companies into further distress.  CHCG is also attempting to apply funds under a loan agreement (supposed to be used for reducing the Companies’ debts) to invest in business and property outside Hong Kong notwithstanding the petitions and without a formal compromise with the creditors.  It was also an attempt to change the nature of business of the Companies. 

20.Business operations of MSL have ceased and the limited employees remaining are idle.  The Companies’ accounting records are not updated and those available are scant.  The Companies are balance sheet insolvent.  There has been inactive management in the pursuit of accounts receivables amounting to over US$135m.  There has been increase in accounts receivable of MSL by 86% (being an increase of HK$409m), which did not appear to be proportionate with the historical sales information. 

21.Z-Obee is a listed company.  The casual manner in which the Companies’ existing board dealt with the Companies’ affairs justifiably gives rise to concerns that the Companies have no effective financial or other management or that due regard has not been paid to the interests of shareholders and creditors. 

22.There is need to preserve the assets of the Companies.  In particular, Z-Obee’s listed status is a valuable asset. Proactive recovery of the accounts receivable requires immediate attention. Any negotiation with creditors or for further restructuring will be better carried out by the provisional liquidators than the current directors who are not in a position to inform shareholders and creditors what the true position of MSL and its business is.

23.It is just and convenient to appoint provisional liquidators.  I make an order in terms of the draft order as further amended this morning. 

24.I thank counsel for their assistance.

Mr Richard Zimmern, instructed by Mayer Brown JSM, for the petitioners

Miss Hou Yung Wah of Hastings & Co, for the companies

Ms Fion Lee of Official Receiver