Companies Winding-up Proceedings2005

RE OCEAN JET DEVELOPMENT LTD

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56795-EN-2007-04-18

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HCCW 440/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 440 OF 2005

____________

	IN THE MATTER of OCEAN JET DEVELOPMENT LIMITED（正洋發展有限公司）
	and
	IN THE MATTER of the Companies Ordinance, Cap. 32

____________

Before: Hon Kwan J in Chambers

Date of Hearing: 18 April 2007

Date of Decision: 18 April 2007

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D E C I S I O N

_____________

1. This is an application issued by Lee Kwong Yin on 15 February 2007 to remove the liquidators of Ocean Jet Development Limited (“the Company”). The Company was ordered to be wound up on the petition of a creditor on 27 June 2006. On 14 September 2006, James Wardell and Chan Chi Yuen of Horwath Corporate Advisory Services Limited were appointed liquidators of the Company by an order of a Master under section 194 of the Companies Ordinance, Cap. 32. The Master also appointed a committee of inspection, made up of the petitioning creditor, Mr Lee and Harbour Jet Shipping Limited (“Harbour Jet”). Mr Lee is a director and shareholder of the Company; he is also a director and shareholder of Harbour Jet.

2. Under section 196(1), a liquidator appointed under section 194 may be removed on cause shown. The burden is on the applicant to show good cause for removing a liquidator (Re Keypak Homecare Limited [1987] BCLC 409). Section 196(1) confers wide discretion on the court; “cause shown” is not limited to misconduct or personal unfitness (Re Liote Property Management Limited [2006] 2 HKLRD 106 at 108G to I).

3. In various letters sent to the liquidators dated 17 October 2006, 8 November 2006, 22 January 2007 and 8 February 2007, Mr Lee has informed the liquidators that he wanted to remove them.

4. His grievances or grounds for removing the liquidators may be summarized as follows:

(1) The liquidators are funded by the petitioning creditor, there is doubt if they are independent and impartial.

(2) The liquidators have acted on the instructions of the petitioning creditor, 2 examples were given in Mr Lee’s affirmation in reply to show that they were not independent.

(3) The liquidators have failed to look after the interests of Mr Lee and Harbour Jet as creditors of the Company.

(4) The liquidators have failed to comply with section 207(2) in convening meetings of the committee of inspection once a month.

5. I would consider each of these complaints.

6. Contrary to Mr Lee’s allegation, the liquidators are not employed by the petitioning creditor. They have received no funding from the petitioner so far. Mr Lee was told by the liquidators at a meeting on 3 November 2006 that the petitioner may provide funding to the liquidators for investigating into the assets and affairs of the Company. This was repeated clearly in the letter of the liquidators to Mr Lee dated 25 January 2007. Even if the liquidators were receiving funding from the petitioner, this in itself is not a matter for criticism (Re Akai Holdings Limited [2001] 2 HKLRD 411 at 422 E to I).

7. As for the incidents complained of to substantiate the allegation of lack of independence, they are equally without substance. What happened was that on 9 January 2007 and 7 February 2007, the liquidators made site visits to the factory in Zhongshan without notifying Mr Lee in advance. Mr Lee claimed that the assets in the factory belong to him and what the liquidators did had seriously interfered with his rights.

8. The liquidators have addressed this complaint by their letter to Mr Lee dated 25 January 2007. They stated that the factory is a factory of Zhongshan Zhengyang Shipping Manufacturing Company Limited 中山正洋船舶制造有限公司(“Zhongshan Zhengyang”), which is a wholly owned subsidiary of the Company according to the search records of the Administration for Industry and Commerce in China.

9. The liquidators were informed by the petitioner on 3 January 2007 that Mr Lee had removed certain assets from the factory. So there was a need to inspect the factory with a view to preserving the assets without giving prior notice to Mr Lee. The liquidators have written to Mr Lee and Zhongshan Zhengyang to request for more information, and no reply was received from either. Regarding Mr Lee’s assertion that he owns the assets at the factory, the liquidators have asked him to submit his claim with details of his assets and evidence to substantiate his assertion. No substantiation was provided by Mr Lee in correspondence.

10. My attention was drawn by the liquidators to certain affirmations made by Mr Lee in July and August 2005 when he applied and obtained from this court a validation order permitting the Company to withdraw $470,000.00 a month in the ordinary course of business of the Company. In the supporting affirmation of Mr Lee, he produced a balance sheet of the Company as at 15 May 2005, which was signed by him, showing that the Company had investments in Zhongshan Zhengyang of approximately $35 million.

11. In his affirmation in reply in the present application filed on 15 March 2007, Mr Lee exhibited for the first time a sale and purchase agreement of an investment dated 31 December 2001 and the minutes of an extraordinary general meeting of the Company of the same date, purporting to show that as at 31 December 2001, the Company had an investment interest in Zhongshan Zhengyang of RMB 4 million and that the Company had agreed to sell its investment to Mr Lee at that price, to be paid in 10 years’ time without interest.

12. Whether Mr Lee has indeed any interest in the assets in the factory of Zhongshan Zhengyang is clearly a matter for the liquidators’ investigation. In the meantime, steps should be taken to preserve such assets.

13. The liquidators have undertaken extensive investigation into other matters as well. What they have unravelled so far does give rise to concern. There was transfer of the Company’s motor vehicle to Harbour Jet after the commencement of the winding up. The Company had disposed of its motor vessels to companies that in return provided financial assistance to Mr Lee to discharge him as a bankrupt.

14. The liquidators intend to investigate the payments made under the validation order. They will seek an order under section 211 for Mr Lee to deliver up the books and records of the Company as he has not been co-operative.

15. The liquidators have no obligation to look after the interests of Mr Lee and Harbour Jet as creditors, as opposed to the interests of the creditors as a whole.

16. The allegation that the liquidators were in dereliction of duty in not convening a meeting of the committee of inspection once a month is unfounded. There is no failure to comply with section 207(2) on the part of the liquidators. The obligation to meet once a month unless other arrangements are made is placed on the members of the committee of inspection, not on the liquidators. Besides, in the view of the liquidators, the committee of inspection cannot function at present, as 2 out of 3 members (Mr Lee and Harbour Jet) are in a position of conflict regarding the matters investigated by the liquidators.

17. Mr Lee’s application to remove the liquidators is wholly misconceived. I agree with the liquidators that this move might well have been initiated in an attempt to avoid further investigation into his conduct of the affairs of the Company.

18. I dismiss this application. There is no reason why costs of the application should not follow the event. I order that the fees and expenses of the liquidators in this application be paid by Mr Lee personally, to be taxed if not agreed on the trustee basis. Mr Lee is also to pay the costs of the Official Receiver, which I assess on a gross sum basis at $4,300.00.

(S Kwan)
Judge of the Court of First Instance
High Court

Mr Lee Kwong Yin, acting in person, present

Mr James Wardell of Horwath Corporate Advisory Services Limited, for the Joint & Several Liquidators

Ms Polly Yip, for the Official Receiver

53021-EN-2006-06-27

RE OCEAN JET DEVELOPMENT LTD

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HCCW 440/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 440 OF 2005

____________

	IN THE MATTER of OCEAN JET DEVELOPMENT LIMITED (正洋發展有限公司)
	and
	IN THE MATTER of the Companies Ordinance, Cap. 32

_______________

Before: Hon Kwan J in Court

Dates of Hearing: 27 June 2006

Date of Judgment: 27 June 2006

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J U D G M E N T

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1. This is the hearing of an amended petition presented by Zhong Shan Zhang Jia Bian Enterprise Group Company Limited (“ZJB”) against Ocean Jet Development Limited (“the Company”). The petitioning debt is HK$6,430,166.27, being loans advanced by ZJB to the Company on 19 December 2000 with interest at 7% p.a. calculated up to 10 June 2005.

2. On 9 February 2006, I made an order on the application of ZJB to be substituted as petitioner in these proceedings in lieu of Hong Kong Win Mode Industries Limited (“HK Win Mode”). I also dismissed an application by the Company to strike out the petition. Full reasons were given in my decision of the same date. In summary, I held against the Company that the matters raised by it on affidavit are sufficient to raise a bona fide dispute of the debt alleged to be owed to ZJB on substantial grounds.

3. The amended petition was restored before me for directions on 27 February 2006. Directions were given for the filing of further evidence. The Company has failed to file any further evidence. On 20 June 2006, I made an order that the solicitors on record are to cease to act for the Company. The Company has not obtained leave from the court for any director to represent it in these proceedings, so it is not represented at the hearing today.

4. The evidence before me is the same as the evidence when I heard the application for substitution as petitioner and the Company’s cross application for striking out.

5. The background giving rise to the petitioning debt, taken from documents that are not in dispute, may be stated shortly as follows.

6. In December 1998, ZJB and the Company entered into a joint venture agreement to set up a joint venture company known as Zhong Shan Ocean Jet Shipbuilding Company Limited (“Zhong Shan Ocean Jet”). The joint venture was to design, manufacture and sell catamaran passenger ferries. The parties agreed to share in the profits and losses of Zhong Shan Ocean Jet in the ratio of 40% to ZJB and 60% to the Company, which was the ratio in which they were to contribute to the capital. It was agreed that the total investment was to be US$2.5 million, with an actual or registered capital of US$1.75 million. So the investment ZJB was required to contribute was US$700,000 and the amount the Company was required to contribute was US$1.05 million. ZJB was to contribute by providing the right to use existing factory premises on its land. The Company was to contribute by purchasing machinery and equipment approved by the board of directors.

7. At the meeting of ZJB and the Company on 13 November 1999, it was agreed and confirmed that ZJB had made its asset contribution to Zhong Shan Ocean Jet, and whilst the Company had provided a valuation report for its investments in assets such as equipment and materials, those assets had not been injected into Zhong Shan Ocean Jet. It was recorded in the minutes that ZJB had agreed to make a loan of HK$2.5 million to the Company for contingency use.

8. A loan agreement dated 10 December 1999 was signed between ZJB and the Company. Reference was made in the agreement to the minutes of the meeting on 13 November 1999 and that ZJB had provided funds for Zhong Shan Ocean Jet to open a letter of credit in Hong Kong of HK$3 million for the purchase of materials and had agreed to make available to the Company a loan of HK$2.5 million for contingency use.

9. By an agreement dated 19 December 2000 made between ZJB and the Company, the parties agreed to change their method of co-operation in Zhong Shan Ocean Jet from a joint venture enterprise to a “co-operation enterprise”. By this mode of co-operation, ZJB would allow the Company the use of its factory premises at a fee and ZJB would have no further responsibility for the liabilities of Zhong Shan Ocean Jet after 20 December 2000. It was provided in paragraph 2 of the agreement that the loan of HK$5.5 million (made up of the amounts of HK$3 million and HK$2.5 million aforesaid) should have an annual interest of 7% as from 20 December 2000, with an annual repayment of HK$1 million on 30 December of each year until the loan was repaid in full. The amount of the loan of HK$5.5 million was revised to HK$5,471,724.79 after an audit by the accountants of the parties, as stated in the supplementary agreement dated 20 December 2000 signed by the Company and HK Win Mode, which was the agent appointed by ZJB to enforce its rights under the loan agreement.

10. The co-operation between ZJB and the Company was terminated completely on 27 November 2003, as evidenced by the agreement on termination of co-operation signed by ZJB and the Company on the same date. It was provided in that agreement that as from that date, Zhong Shan Ocean Jet was to change from a sino-foreign co-operative enterprise to a sole investment enterprise owned entirely by the Company. Also on the same date, a tenancy agreement was made between ZJB and Zhong Shan Ocean Jet by which ZJB let to the latter land and factory premises at the rent stated for a 5-year term commencing 16 December 2003.

11. On 16 February 2004, the Company and ZJB signed a supplemental charter in respect of Zhong Shan Ocean Jet confirming again the change of Zhong Shan Ocean Jet to a sole investment enterprise operated by the Company and that the Company was to be responsible for all debts of Zhong Shan Ocean Jet before and after it became a sole investment enterprise.

12. Against these documents, the Company raised the defence denying the petitioning debt on the allegation that there was an oral agreement on 27 November 2003, when the written agreement on termination of co-operation was signed and the tenancy agreement was executed, that ZJB had agreed to discharge the Company from its liability to pay the loan of HK$5.5 million. As submitted by Mr Chain for ZJB, the alleged oral agreement was wholly inconsistent with all the surrounding circumstances and it made no commercial sense. The allegations are simply not believable. I see no reason to change my view that the Company has failed to raise a bona fide dispute of the petitioning debt on substantial grounds, for the reasons given in paragraphs 10 and 11 of my decision on 9 February 2006.

13. The other ground of opposition raised by the Company is that ZJB had wrongfully repossessed or had interfered with possession of the factory premises leased to Zhong Shan Ocean Jet and it has a cross claim for loss of profits on 3 contracts for the manufacture of ships estimated at HK$2.5 million, loss of profits on a boat building partnership to manufacture 20 luxury yachts a year estimated at HK$16.5 million, and damages for loss of use of its plant and machinery of the value of HK$17.1 million and materials in the factory premises.

14. It seems to me that the figures for the alleged cross claim are grossly inflated and speculative, to say the least. No evidence has been adduced by the Company at the time of the strike out application to refute the assertion of ZJB that no rent was ever paid to it under the tenancy agreement. In my decision on 9 February 2006, I have queried if such cross claim should be pursued by Zhong Shan Ocean Jet, and not by the Company. I hold that the Company does not have a genuine and substantial cross claim which would exceed the petitioning debt.

15. For the above reasons, I make a winding-up order against the Company. The costs of ZJB are to be paid out of the assets of the Company.

(S Kwan)
Judge of the Court of First Instance
High Court

Mr Benjamin Chain, instructed by Messrs Yung, Yu, Yuen & Company, for the Petitioner

The Company, Ocean Jet Development Limited, unrepresented

51559-EN-2006-02-09

RE OCEAN JET DEVELOPMENT CO LTD

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HCCW 440/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 440 OF 2005

____________

	IN THE MATTER of OCEAN JET DEVELOPMENT COMPANY LIMITED
	and
	IN THE MATTER of the Companies Ordinance, Chapter 32

____________

Before: Hon Kwan J in Chambers

Date of Hearing: 9 February 2006

Date of Decision: 9 February 2006

______________

D E C I S I O N

______________

1. I have before me two applications. The summons issued first in time on 4 August 2005 was by an entity in Zhongshan City, China known as Zhang Jia Bian (“ZJB”), seeking to be substituted as petitioner in place of Hong Kong Win Mode Industries Limited (“HK Win Mode”). The summons was stated to be issued under rule 26 of the Companies (Winding-up) Rules. The more appropriate provision is rule 33, under which the court may substitute as petitioner where the petitioner consents to withdraw his petition. I have confirmation from Mr Benjamin Chain today that HK Win Mode does consent to withdraw its petition.

2. A draft amended petition is annexed to the summons. It is alleged in the draft amended petition that the subject company, Ocean Jet Development Limited (“the Company”), is indebted to ZJB in the sum of $6,430,166.27, being loans advanced by ZJB to the Company on 19 December 2000 with agreed interest at 7% per annum calculated up to 10 June 2005. It is further alleged that ZJB had authorised HK Win Mode to demand and receive payment from the Company.

3. It would appear from the draft amended petition that HK Win Mode had caused solicitors to serve a demand on the Company under section 178(1)(a) of the Companies Ordinance, Cap. 32 on 14 April 2005 for the debt aforesaid. It is clearly stated in the demand that HK Win Mode made that demand as the authorised agent of ZJB, which had advanced the alleged loans. So I do not think the Company could have been misled in any way as to the identity of the creditor, as submitted by Miss Lorinda Lau for the Company.

4. ZJB’s application to be substituted as petitioner is opposed by the Company.

5. The other application is the summons issued by the Company on 5 August 2005, after the summons for substitution was issued, to strike out the petition presented by HK Win Mode. That summons was amended on 10 August 2005 to make clear what are the grounds for striking out. It is contended by the Company that there is a bona fide dispute of the debt on substantial grounds, that HK Win Mode has no locus to present the petition, and in any event the petition is frivolous, vexatious, and/or an abuse of the process of the court.

6. These two applications are two sides of the same coin. The application to substitute should be considered on the basis whether the draft amended petition presented by ZJB is liable to be struck out. It seems to me wholly pointless to consider whether the petition as it now stands should be struck out on the basis that the creditor of the alleged loan to the Company was ZJB and not HK Win Mode. This has been overtaken by events as HK Win Mode has consented to withdrawal of its petition.

7. The question I should ask here is whether the matters raised by the Company at present are sufficient to show a bona fide dispute of the debt allegedly owed to ZJB on substantial grounds so that the draft amended petition is liable to be struck out.

8. I do not propose to recite the evidence except to remark on some salient features.

9. Firstly, it seems to me that ZJB’s case of loans made to the Company is well supported by documents. For the purpose of the present application, I do not need to go into the circumstances under which the loans were made. The documents supporting ZJB’s case are conveniently set out in the chronology prepared by Mr Chain. They include the following:

(1 ) minutes of a meeting dated 13 November 1999;

(2 ) the loan agreement dated 10 December 1999 between ZJB and the Company;

(3 ) an agreement dated 19 December 2000 between ZJB and the Company. By this agreement the parties agreed to change the nature of their co-operation in a Mainland joint venture known as Zhongshan Zhengyang Shipping Manufactory Company Limited (“ZZ”) from one of joint investment to one merely of co-operation in business. It was stated in paragraph 2 of the agreement that ZJB had advanced to the Company $5.5 million and HK Win Mode is authorised to enforce repayment of the loan. It was further stated that before 20 December 2000, ZZ’s liabilities are borne by both ZJB and the Company, and that ZJB would have no further responsibility for the liabilities of ZZ incurred after that date;

(4 ) a supplemental agreement dated 20 December 2000 between HK Win Mode and the Company. This referred to the agreement in (3) and stated that the figure of the loan was amended to $5,471,724.79;

(5 ) a supplemental co-operation agreement dated 12 March 2002 between ZJB and the Company. This again confirmed that the nature of co-operation in ZZ was changed to co-operation in business;

(6 ) an audit confirmation of HK Win Mode dated 13 June 2002, signed by a director of the Company, Lee Kwong Yin. He confirmed that $5,610,611.75 was due to HK Win Mode by the Company as at 31 December 2001, being a long term loan;

(7 ) various letters of demand from lawyers in China for ZJB to the Company dated 14 May 2003, 29 July 2003, 13 August 2003, 2 September 2003 and 8 September 2003. A draft repayment agreement to repay by instalments within the time stipulated was enclosed to one of these letters;

(8 ) an agreement dated 27 November 2003 by ZJB and the Company to terminate the co-operation agreement dated 12 March 2002 in ZZ and ZZ was to become wholly owned by the Company thereafter;

(9 ) a lease dated 27 November 2003 between ZJB and ZZ, by which ZJB let land and factory to ZZ for 5 years from 16 December 2003 at the rent stated;

(10) the supplemental constitution of ZZ made on 16 February 2004. This again stated that the Company was responsible for the debts of ZZ before and after ZZ became the wholly owned enterprise of the Company;

(11) a reminder letter for payment dated 29 March 2004 from ZJB’s lawyer in China to the Company;

(12) a faxed notice of HK Win Mode to the Company on 3 August 2004 stating that on 30 September 2003, HK Win Mode had agreed formally to transfer to ZJB the right to sue for repayment of the debt owed by the Company of $5.6 million odd;

(13) minutes of meeting between the Company and ZJB on 16 April 2005 prepared by ZJB’s lawyer in China; and

(14) draft repayment agreement with amendments allegedly made by the Company’s director Lee Kwong Yin on the proposed dates for instalment payment.

10. As against the substantial body of documentary evidence adduced by ZJB in support of its debt, no contemporary documentary evidence has been adduced by the Company to support its case that ZJB had agreed orally to waive the debt owed by the Company on 27 November 2003, notwithstanding that on the same day, the parties had entered into two agreements in writing - an agreement to terminate the co-operation agreement in March 2002 and a lease. There was no response in writing to any of the various demand letters and the notice of assignment of debt from HK Win Mode. The matters now raised by the Company to dispute liability for the alleged debt would appear to have been raised for the first time in writing.

11. I am not able to say on this material that the Company has raised sufficient evidence to show a bona fide dispute of the petitioning debt on substantial grounds. I have considered the submissions made by Miss Lau on behalf of the Company, I would agree with Mr Chain that most of the issues she formulated as factual disputes are either of little relevance or that the Company is quite unable to surmount the hurdle that the documentary evidence is against its case.

12. The other matter raised in the Company’s evidence is a purported counterclaim on the basis that ZJB had wrongfully repossessed factory premises leased to ZZ causing substantial loss in profits estimated at over $19 million and damages for conversion in depriving ZZ of the use of the plant and machinery in the factory premises.

13. I have reservations if this counterclaim would avail the Company. If there is a claim against ZJB, it seems to me that this should be made by ZZ, which is a separate legal entity from the Company.

14. Besides, there is no denial that ZZ had never paid rent to ZJB under the lease.

15. I give leave for ZJB to be substituted as petitioner in place of HK Win Mode. I order ZJB to file and serve an amended petition as per the draft annexed to the summons within 3 days hereof. Advertisement of the amended petition is to be dispensed with.

16. The amended winding-up petition is to be restored for hearing on 27 February 9:30 a.m. The summons to strike out the petition is dismissed.

17. In respect of the costs for the striking out summons, I order the Company to pay the costs incurred by ZJB and HK Win Mode in any event, as it seems to me that the summons is entirely otiose, having regard to the fact that before the summons was issued, ZJB had already issued the summons to be substituted as petitioner in the place of HK Win Mode.

18. For the summons of ZJB to be substituted as petitioner, I order the costs incurred by ZJB up to the hearing on 10 August 2005 to be costs in the cause of the amended petition. As for the costs of today, I order the Company to pay the costs of ZJB in any event, as the Company’s opposition to that summons is unsuccessful.

(S Kwan)
Judge of the Court of First Instance
High Court

Mr Benjamin Chain, instructed by Messrs Yung, Yu Yuen & Co., for the Petitioner

Ms Lorinda C W Lau, instructed by Messrs Betty Chan & Co., for the Company