HUA NAN COMMERCIAL BANK LTD v. KELVIN EDWARD FLYNN

HCCW 622/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 622 OF 2004

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D E C I S I O N

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1.  This is an application taken out by Hua Nan Commercial Bank, Limited (“the Bank”) against the provisional liquidator of Forefront International Limited (“the Company”).  The Bank seeks the following relief:

(1)	a declaration that the Bank shall be entitled to have the 50 million shares of Forefront International Holdings Limited under share certificate No. 0006572 to 0006576 (“FIHL” and “the FIHL Shares”) transferred to and registered under the name of the Bank or its nominee;
(2)	an order that the provisional liquidator shall sign and execute such documents to effect the transfer and registration of the FIHL Shares;
(3)	an order that in the event the provisional liquidator fails or refuses to do so, the Bank shall be at liberty to request the Registrar of the High Court to sign and execute such documents; and
(4)	costs of the application on an indemnity basis.

2.  The Bank was incorporated in Taiwan and is a licensed bank carrying on banking and financial services in Hong Kong.

3.  The Company was also incorporated in Taiwan and was wound up by an order of this court on 14 July 2004 on a creditor’s petition presented on 27 May 2004.  Provisional liquidators were appointed for the Company on 7 June 2004.

4.  FIHL is a company listed on the main board of the Hong Kong Stock Exchange Limited.  Trading in its shares was suspended on 14 May 2004.

5.  By a share mortgage dated 24 July 2002 (“the Share Mortgage”) made by the Company as the mortgagor, Forefront Motors (Hong Kong) Limited as the borrower, and the Bank as the lender, it was agreed inter alia that the Bank was to grant general banking facilities to the borrower and the Company was to pledge with the Bank securities, as continuing securities, for the discharge and fulfilment of the terms and conditions of the Share Mortgage.  It was further provided that the Bank shall be entitled to require from time to time to have the title of the securities transferred or vested in its name or the name of its nominee.  An event of default is deemed if a petition is presented or an order made for the winding up of the Company or the borrower.  If an event of default should occur, the Bank shall have all the powers and rights which may be exercisable by the registered holder of the securities and shall be entitled to receive dividends and to sell or dispose of the securities.

6.  The Share Mortgage was registered at the Companies Registry on 31 July 2002.

7.  Pursuant to the Share Mortgage, the Bank granted to the borrower a long term loan of HK$16 million and a short term loan of HK$4 million and the Company pledged with the Bank the FIHL Shares. 

8.  Events of default have occurred with the presentation of the winding-up petition and the order made against the Company on the petition.  In further default of the Share Mortgage, the Company and the borrower have failed to settle the short term loan due on 26 June 2004.  The Bank made demands for repayment on 12 July 2004 of the short term loan and the outstanding balance under the long term loan which was approximately HK$10 million.  No payment was made of the principal sums due in the amount of HK$14 million, only interest was paid up to August 2004.

9.  The Bank is unable to exercise its rights in relation to the FIHL Shares unless and until these shares are transferred to the Bank.  The share registrar has declined to register a transfer of these shares to the Bank without the consent of the provisional liquidator.

10.  Since July 2004, correspondence has been exchanged between the Bank’s solicitors and the provisional liquidator and his solicitors in relation to a request for the consent of the provisional liquidator to effect the transfer of the FIHL Shares to the bank.  The provisional liquidator sought further information and documents relating to the facilities granted and the security documents held by the Bank and requested for time to review the matter.

11.  This summons was issued on 25 October 2004.

12.  By a letter dated 7 January 2005, the solicitors for the provisional liquidator withdrew his earlier notice of intention to oppose this application.

13.  I grant the relief sought in paragraphs 1 to 3 of the amended summons. 

14.  The Bank seeks an order for costs on an indemnity basis.  In view of clause 18 of the Share Mortgage which provided that the Company shall indemnify the Bank all costs occasioned for the enforcement of the terms and provisions of the Share Mortgage, I order costs to be awarded to the Bank on an indemnity basis.

HCCW 622/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 622 OF 2004

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D E C I S I O N

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1.  This is an application taken out by the International Commercial Bank of China Company Limited (Hong Kong Branch) (“the Bank”) under sections 199(3), 200(5) and 186 of the Companies Ordinance, Cap. 32.

2.  The Bank seeks an order that:

(1)	the provisional liquidator of Forefront International Limited (“the Company”) be directed to take all necessary steps and/or execute all necessary documents to effect forthwith the transfer to the Bank 39,888,805 shares in Forefront International Holdings Limited (“FIHL” and “the FIHL Shares”) registered in the name of the Company and charged to the Bank by a share mortgage executed by the Company on 13 March 2003 (“the Share Mortgage”);
(2)	alternatively, leave be granted to the Bank to commence an action against the Company to enforce the Share Mortgage.

3.  The background matters may be stated as follows.

4.  The Company was incorporated in Taiwan and was wound up by an order of this court on 14 July 2004.  Provisional liquidators were appointed for the Company on 7 June 2004.

5.  FIHL is a company listed on the main board of The Stock Exchange of Hong Kong Limited.  The FIHL Shares mortgaged to the Bank under the Share Mortgage were to secure, inter alia, facilities granted to Todaytech Asia Limited (“Todaytech”) by the Bank in the amount of US$10 million for the issue of a standby letter of credit pursuant to a facility letter dated 13 March 2003.  Todaytech is an affiliated company of the Company.  The Share Mortgage was registered on 1 April 2003 at the Companies Registry and the share certificates relating to the FIHL Shares were deposited with the Bank.  The Share Mortgage provided that upon the occurrence of an event of default, the security constituted by the Share Mortgage shall become enforceable.

6.  On 2 March 2004, facilities to the extent of US$10 million under the facility letter were drawn down by Todaytech.  On 17 June 2004, the Bank demanded repayment of the amount outstanding under the facility letter, being US$5 million, with interest thereon.  Todaytech failed to repay the said sum and was wound up by this court on 30 June 2004.  The liquidation of Todaytech constituted an event of default under the Share Mortgage.

7.  On 11 October 2004, the principal amount outstanding from Todaytech to the Bank was reduced by US$302,931.05 through the realization of 700,000 shares in another company charged by the Company to the Bank.  As at the date of this application on 21 October 2004, the principal sum of US$4,697,068.95 with interest was and is due and owing from Todaytech to the Bank.

8.  The Bank is unable to exercise its rights regarding the FIHL Shares unless and until they are transferred to the Bank.

9.  Since July 2004, correspondence has been exchanged between the Bank’s solicitors and the provisional liquidators and their solicitors in relation to a request of the Bank that the provisional liquidators should sign and execute instruments of transfer of the FIHL Shares in accordance with the Share Mortgage.  The provisional liquidators have sought further information and documents relating to the facility granted to and the security held by the Bank.

10.  It is well settled that property which has been mortgaged to a creditor as security does not form part of the assets available to the general body of creditors on winding up and a secured creditor is entitled to enforce the mortgage as of right notwithstanding any order for winding up.

11.  By letter dated 7 January 2005, the solicitors for the provisional liquidator withdrew his earlier notice of intention to oppose this application and solicitors on both sides have since entered into correspondence on the form of the draft order to be placed before the court.  The parties have also reached agreement on costs.

12.  I grant the relief sought in paragraph 1 of the summons.  I make an order in terms of the final draft submitted to me as amended.

Mr Douglas Lam instructed by Messrs Elizabeth Mo & Associates, for the Applicant

Messrs Johnson, Stokes & Master, for the Provisional Liquidator, absent