SAFE CASTLE LTD v. CHINA SILVER ASSET MANAGEMENT (HONG KONG) LTD

HCCW 69/2019

[2020] HKCFI 1028

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 69 OF 2019

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D E C I S I O N

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Introduction

1.  On 11 March 2020, I handed down my decision in these proceedings which concerns a petition to wind-up China Silver Asset Management Limited (“Company”) and a petition to bankrupt Mr Frank Dominick. I made an order that the Company be wound up.  The order has not yet been pronounced.  I also ordered that the bankruptcy petition be adjourned in order that the issue of service, which I had concluded could not be determined on affidavit evidence, could be considered further.

2.  The sole shareholder of the Company, China Silver Asset Management Ltd (“opposing contributory”) has applied for a stay of the winding-up order pending determination of the Company’s appeal of my decision[1].

3.  I divide this decision into the following sections:

(1)     The circumstances in which the Companies Court will stay a winding-up order pending an appeal;

(2)     The appeal’s prospect of success

Stay of a winding-up order pending appeal

4.  Although the court has the jurisdiction to stay a winding-up order pending an appeal on the application of a contributory[2], it is my understanding that it is not the practice to do so.  I have not granted a stay pending appeal in the 10 years that I have been the Companies Judge.  This in my view is consistent with the authorities.  The position in England is explained by Plowman J in Re A&BC Chewing Gum Ltd[3] in which he says this:

“… and as a matter of practice a stay is never granted. The only exception that I think is known to the department is where I myself once went wrong in In re Westbourne Galleries Ltd.[4], and not having been alerted to the position, and not knowing it before, I granted a stay, with precisely what consequences nobody has ever told me. But there are very good reasons for the practice of never ordering a stay, and they are these: as soon as a winding up order has been made the Official Receiver has to ascertain first of all the assets at the date of the order; secondly, the assets at the date of the presentation of the petition, having regard to the possible repercussions of section 227 of the Act of 1948; and thirdly, the liabilities of the company at the date of the order, so that he can find out who the preferential creditors are, and also the unsecured creditors.

     Supposing there is an appeal and the winding up order is ultimately affirmed by the Court of Appeal, and there has been a stay, his ability to discover all these things is very seriously hampered: it makes it very difficult for him, possibly a year later, to ascertain what the position was at different times a year previously.  But assuming a stay is not granted, if the business is being carried on at a profit, as I understand this business now is, no additional harm is done by refusing a stay.  As I understand it, if the Official Receiver is given an indemnity, say by the Coakley brothers, who are running this business, he will allow it to be carried on, and the Coakley brothers, in this case, could be appointed special managers and carry on the business as they have been doing.  If the business is being carried on at a profit, creditors of the business, after the date of the winding up order, would be paid in priority to the unsecured creditors at the date of the order as part of the expenses of the winding up.  Then, if the appeal is allowed, the business is handed back as a going concern, it has not suffered any loss.  Of course, if the business can only be carried on at a loss—it should not be carried on at all.”

5.  There are two Hong Kong Court of Appeal authorities that are in my view entirely consistent with this approach.  In Bank Negara Indonesia v Interasian Traders Finance Ltd[5] Cons JA says this, with which the others members of the Court of Appeal agreed:

“… In general litigation the likelihood of success and the danger that success may in the interim have been rendered nugatory are matters of considerable concern. But the jurisdiction we are concerned with at the moment is different. It is to some extent a supervisory jurisdiction and must take into account the interest of others apart from the two immediately involved. The machinery of winding-ups gives ample reason for the English practice, which is never to grant a stay pending appeal: In re A & B.C. Chewing Gum Ltd.[6]. A company is not without some protection. I understand that advertisement of the order may be restricted. And a company may bring an appeal within a very short space of time. There is a practice direction in England that such appeals, although they are from a final order, shall be entered in the list of interlocutory appeals: Re Reliance Properties Ltd.[7]. I think we should adopt the same practice here once separate lists are in fact established. In the meantime urgent matters can be dealt with urgently and I can for the moment think of no reason why we could not have been asked to deal with the substantive appeal as well this morning. That would have disposed one way or other of the Company’s problem.

Where an appeal against a winding-up order is subsequently allowed, but the liquidation has proceeded so far that the Company cannot be put back into its original position, then some injustice may result from the refusal of a stay.  This must be set against the difficulties that a stay would cause to the liquidator in all other cases and also be viewed in the context of the many and varied advantages that limited liability otherwise confers.”

6.  Penlington JA in Re S Zhong Shan International Investments Co Ltd[8] also cites Re A&BC Chewing Gum Ltd[9] with approval and applies it in declining an application for leave to appeal a winding-up order made by Mayo J (as he then was) on the grounds of insolvency.  These decisions have been followed by Kwan J (as she then was) in Re King Pacific International Holdings Ltd[10]and Re China International Business Development (Hong Kong) Limited[11].  Kwan J refers to a short decision of the Court of Appeal in Re Cirtex Co Ltd[12] in which the Court of Appeal refers to A&BC Chewing Gum[13], with apparent approval.  It would, therefore, appear that the established Hong Kong practice approved by the Court of Appeal is quite clear, namely, that a winding-up order will not be stayed pending appeal; certainly not stayed simply on the basis that the criteria by reference to which such applications in general litigation are assessed, principally that any appeal will be rendered nugatory unless a stay is granted, are satisfied.

7.  However, Mr Manzoni referred me to a decision of Yuen J (as she then was) in Re Max Share Ltd[14] in which her Ladyship took a different approach.  It should be said at the outset that the judgment makes no reference to either of the Court of Appeal decisions to which I have referred, which suggests that Yuen J may not have been referred to them.  Yuen J refers to a decision of Supreme Court of Victoria, Brinds Ltd & Ors v Offshore Oil NL & Ors (No 2)[15], which considers the way in which the court’s discretion to grant a stay, which I do not understand it to be disputed that the court has, should be exercised. The facts of Brinds are relevant and unusual.  A winding up was ordered on 5 May 1983 on the grounds of insolvency.  The winding-up order was stayed on the same day for 14 days and the stay extended until determination of the appeal, which was dismissed on 16 December 1983. On 2 February 1984 the Full Court gave the applicant leave to appeal to the Privy Council.  Counsel was asked if the applicant wished to apply for a stay and was told they did not wish to do so.  On 14 March 1984, the applicants having changed their minds, an application was made for a stay pending appeal to the Privy Council, which was adjourned and having subsequently been restored was heard on 2 October 1985.  By that time liquidators had been in office for over two years and, it would appear, had undertaken a substantial amount of work[16]. The principal judgment is that of Fullagar J with whom the other two members of the court agree.  Fullagar J draws a distinction at p245 (2^nd paragraph) between an application to stay a winding-up order before it has become effective (which is the present case) and one made long after liquidators have been appointed.  He goes on to refer with apparent approval to the decision of Plowman J in Re A&BC Chewing Gum Ltd[17], although the application had been made sometime after liquidators had been appointed.  I note in passing that at p246 (3^rd paragraph) Fullagar J notes that “[It] has long been accepted in the law that it is not desirable that insolvent companies should remain free to operate.  It is, as a matter of public interest, not desirable”.  This is, of course, correct and a subject that I return to at [10].  Fullagar J then goes on to summarise the reasons for granting a stay advanced by counsel on behalf of the applicants at p245:

“1. Irreparable harm would be caused to Brinds if the winding up proceeded until Brinds was successful on the appeal; or, at all events, there was a very severe risk of such harm.

2. There is little or no countervailing harm likely to be suffered by the petitioner if the liquidator was restrained until the appeal was determined against Brinds, that is to say, restrained in the way Mr Hooper ended by seeking.

3. The length of stay sought was comparatively short.

4. There were good prospects of success in the appeal.

5.     Such delay as had occurred in the prosecution of the appeal was not inordinate, and had largely resulted from lengthy, albeit unsuccessful, negotiations for settlement of this and a number of other proceedings between the companies associated with or controlled by the present parties, and the delay had not substantially prejudiced the respondents or anyone else.”

8.  I note that Fullagar J does not suggest that in all cases the court should approach an application for a stay by turning the submissions advanced before him into questions used to assess the application. What he did was to deal with each submission and, on my reading of the Judge’s decision, reject each of them and accordingly dismiss the application.

9.  In Re Max Share Yuen J after referring to Brinds says this:

“ In Brinds, the Full Court set out 5 considerations which would be pertinent to a court exercising its discretion whether or not to grant a stay of a winding up order pending appeal. The first is to consider what prejudice would be caused to the company if the winding up proceeded; secondly, what prejudice or harm would likely be suffered by the petitioner if a stay is granted; thirdly, the length of the stay sought; fourthly, whether there were good prospects of success in the appeal; and fifthly, the time taken in the prosecution of the appeal and in the making of an application for stay of the winding up order. I shall deal with each of these 5 considerations in turn.

     First of all, I have to consider whether there would be irreparable prejudice done to the Company in this case if the winding up order is not stayed. …”

10.  With great respect I do not read Brinds as setting out five considerations which the Full Court thought are the criteria by reference to which applications for stays should be assessed.  Fullagar J simply summarises counsel’s submission having introduced them with the statement that an applicant must at least demonstrate cogent reasons why a stay should be granted.  Matters of the sort advanced by counsel for the applicants in Brinds may commonly be relevant, but they are no more than that.  In my view the correct position is as follows.  The court will rarely grant a stay of a winding-up order.  A stay will be an exception.  As Cons JA states in Bank Negara Indonesia[18] it is not sufficient, as is in general litigation, to demonstrate that the appeal will be rendered nugatory, regard has to be given to the special character of the remedy, which the petitioner invokes when presenting a petition.  The classic statement of the nature of winding up as a class remedy is to be found in the judgment of Buckley J in Re Crigglestone Coal Co Ltd[19]:

“But then comes another consideration, viz, that the order which the petitioner seeks not an order for his benefit, but an order for the benefit of a class of which he is a member. The right ex debito justitiae is not his individual right, but his representative right. If a majority of the class are opposed to his view, and consider that they have a better chance of getting payment by abstaining from seizing the assets, then, upon general grounds and upon s.91 of the Companies Act, 1862, the Court gives effect to such right as the majority of the class desire to exercise. This is no exception. It is a recognition of the right, but affirms that it is the right not of the individual, but of the class; that it is for the majority to seek or to decline the order as best serves the interest of their class. It is a matter upon which the majority of the unsecured creditors are entitled to prevail, but on which the debtor has no voice.”

Once the court has found that a company should be wound up on the grounds of insolvency the interests of creditors generally are engaged.  In my view it follows that the court should have regard to their interests, which include terminating a company’s operations if it is insolvent.  The question of solvency is directly engaged.  The engagement is all the more concrete if, as in the present case, another creditor has issued a    winding-up petition; which I consider in more detail in [15].

11.  The consequence of this is that in order for a company to satisfy the court that its case is exceptional and a stay should be granted pending appeal, it will be necessary to demonstrate, in addition to the normal criteria which guide the court, that the interests of creditors will not be harmed by a stay.  Commonly this will necessitate a company adducing evidence that shows that it is able to pay its debts as they fall due even if the petitioner is entitled to payment of the disputed debt.  If it cannot then prima facie the interests of creditors for whose benefit (as a class) the winding-up order has been made will be prejudiced and a stay should not be granted.

12.  In the present case an affidavit has been filed by Patrick Maloney on behalf of the opposing contributory.  Mr Maloney explains that the Company carries on business regulated by the Securities and Futures Commission (“SFC”) and if the winding-up order is not stayed the Company will lose its licence, which was granted on 2 December 2009, to carry on regulated business and will not be able to provide the advisory services it is currently contracted to provide to a Cayman Islands entity, Ardon Maroon Fund Management Ltd, which will damage its business.  The SFC has agreed to a temporary suspension of the licence (type 9) pending determination of the stay application.  However, as I understand the evidence, the SFC would cancel the licence if the winding-up order is not stayed.  Although, the Company could apply for a new licence if the appeal is successful Mr Maloney asserts that a licence which has been in place for an extended period has greater value as a new licence suggests the holder is inexperienced and it would also take sometime to obtain a new licence.  During the period it did not have a licence the Company could not carry on its normal advisory business and would likely loose clients.  The immediate impact has been the Company’s inability to execute trades during the period of suspension, which has taken place during a period of market turbulence.

13.  This maybe correct, but it is not the relevant issue. As I have explained that relevant issue is whether or not creditors’ interests will be harmed.  Mr Maloney explains that the opposing contributory has been paying the Company’s creditors since the Company’s bank accounts were frozen. On 3 April 2020 the opposing contributory passed a board resolution to provide financial support to the Company in order that it can pay its debts as they fall due and can continue as a going concern.  Mr Maloney has exhibited the Company’s audited financial statement for the year ending 31 December 2018, which shows the Company is solvent.  However, they do not show the liability under the guarantee, which gave rise to the Petition.  What seems clear is that if Altair Asia Investments Limited[20] (a related company to the Company (“Altair”)) is liable to the Petitioner as it alleges under the agreement, which has been guaranteed by the Company, the Company could not pay the Petitioner.  This presumably explains why despite being put on notice by a letter from the Court dated 8 April 2020 that in order to obtain a stay security for the debt might be necessary, no offer of security has been forthcoming.  In short, the opposing contributory has not shown that it is able to pay the debt claimed by the Petitioner and remains solvent.

14.  As I mentioned in [10] another petition was issued against the Company by Mr Li Xianyang on 10 January 2020.  Mr Li asserts in the Petition that he is owed US$1,500,000 under a guarantee of the opposing creditors liability to pay him an advisory fee under an advisory agreement dated 4 May 2018.  Mr Maloney suggests in his affidavit that the claim is baseless and sets out reasons why he says this is so.  However, I cannot assess whether or not the Company has a bona fide defence to this new petition.  What is relevant for present purposes is that there is another creditor, who is sufficiently concerned that a debt, which he believes is payable is outstanding that he has issued a winding-up petition.  This engages the considerations that I have discussed in [10].  On the face of the accounts that I have been given it would appear that the Company cannot pay Mr Li’s debt.  As I have already noted the Company is being pursued under a guarantee of an alleged debt of the opposing contributory.  I have no evidence of the opposing contributory’s ability to pay either the debt claimed by the Petitioner or Mr Li.  In these circumstances, it seems to me that there is no reason to depart from the established practice and refuse a stay.  Although given this decision it is not necessary for me to do so, I will deal with the grounds advanced by Mr Manzoni as demonstrating a strong prospect of success in the appeal.

Prospects of the appeal succeeding

15.  The Company argued that it has a bona fide defence on substantial grounds on the basis that the Petitioner’s right to payment was dependent on it showing that the Company had failed to satisfy one of the conditions precedent to payment specified in the Waiver Letter[21].  The Waiver Letter constituted a variation to the obligations of Altair, which it was unable to honour in January 2018.  The obligations have been guaranteed by the Company.  The Company’s defences were technical, but I accepted that in all but the case of clause 2(6), the Company had managed to show a bona fide defence on substantial grounds[22].

16.  Clause 2(6) provides: “[Altair] has settled, or has arranged the settlement of, reasonable costs and expenses incurred by Safe Castle (including legal documentation costs) in the amount of approximately HK$150,000 on or before 15 February 2018”.  The question of whether or not clause 2(6) has been satisfied emerges as follows.  The substantive evidence in opposition was filed in the Bankruptcy Proceedings issued against Mr Frank Dominick.  In [58]–[64] of his affidavit Mr Dominick says, and I summarise, that the Company had not been presented with bills addressed to Altair in respect of the relevant costs and expenses and this is why no payment has been made.  This was responded to by Mr Liu Yao on behalf of the Company.  He answers Mr Dominick’s critique in [34] of his 3^rd affirmation.  Clearly on the basis of the evidence the Petitioner contended that clause 2(6) had not been complied with.  However, the Petitioner did not address this point in its skeleton argument, although the Company did.  The Company now takes two points in respect of my finding that the Company had not complied with clause 2(6).  The first is that it was not argued at the hearing by counsel on behalf of the Petitioner and, therefore, it was wrong to decide this point without having given the Company the opportunity to deal with it[23].  The hearing lasted two hours and my notes do not record either counsel making oral submissions on this issue.  However the issue was not conceded by counsel for the Petitioner and counsel for the Company obviously understood it to be taken against the Company despite it not being expressly dealt with in the Petitioner’s skeleton to which the Company responded.  Not only did the Company have the opportunity to address the issue, but its counsel did deal with it. It does not seem to me that the fact that I did not ask any questions about the issue can sensibly be said to have deprived the Company of the opportunity to deal with the point.  If counsel for the Company had any doubt whether the point was abandoned, he could have asked.  He did not.

17.  I also do not think that the Company had demonstrated that it has good prospects of demonstrating that I was wrong in my finding on this clause.  The Company had to demonstrate a substantial defence that it is bona fide. Clearly, the obligation was to pay a sum of approximately HK$150,000 in respect of legal fees, which it appears from Mr Dominick’s evidence he accepts it had been demonstrated Altair was to liable to pay[24].  Altair has not paid it or made any effort to pay it.  In my view there is certainly not a strong argument that it has a “bona fide” defence on substantial grounds. The substance of the condition was that Altair would pay the costs in return for the waiver.  It has not done so.

Conclusion

18.  I, therefore, will dismiss the application for a stay pending appeal with costs to the Petitioner with a certificate for two counsel, such costs to be taxed if not agreed.

HCCW 69/2019 & HCB 1301/2019
(HEARD TOGETHER)
[2020] HKCFI 406

HCCW 69/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 69 OF 2019

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1301 OF 2019

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_____________________

(HEARD TOGETHER)

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D E C I S I O N

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1.  I have before me a petition to wind up the Company on the grounds of insolvency and bankrupt Frank Dominick. Subject to an issue concerning service of the statutory demand on Mr Dominick, the outcome of the former determines the latter.

2.  The claim arises out of an investment by the Petitioner,   Safe Castle Limited (“Safe Castle”) in Altair Asia Investments Limited (“Altair”).  By way of a subscription letter dated 1 October 2017 Safe Castle subscribed for $200,000,000 worth of participating shares.  By way of a side letter, Altair agreed to redeem the participating shares at cost together with a 15% guaranteed return on the occurrence of certain events, which included the average closing price of a particular listed share falling below a specified price for an extend period, in which event redemption should take place with 21 business days (“Closing Price Trigger Event”) and the expiry of one year after the date of Safe Castle’s investment in Altair ie 10 October 2018.

3.  To secure Altair’s obligations a security package was put together, which included:

(1)  a guarantee from the Company, which is Altair’s investment advisor;

(2)  a charge over the shares of China Silver Asset Management Limited, the Cayman Island incorporated parent of the Company to secure Altair’s obligations (“Share Charge”);

(3)  a charge over the Company’s bank account with Standard Chartered Bank; and

(4)  a personal guarantee provided by Mr Dominick.

4.  In November 2017 a dispute arose as a result of, so      argues Safe Castle, a failure by Altair and the Company to have the Share Charge registered and notification to Standard Chartered of the charge over the bank account.  On 4 December 2017 Mr Dominick wrote to Safe Castle stating that registration of the Share Charge was being processed by Cayman lawyers and Standard Chartered were in the process of advising them about registration.  Safe Castle sent a series of emails during December and January pressing for confirmation that these matters were being dealt with.

5.  On 3 January 2018 a Closing Price Trigger Event occurred and Safe Castle served a redemption notice on 5 January 2018.  Altair could not redeem and a waiver letter was signed on 23 January 2018.  In return for Altair’s agreeing six conditions precedent Safe Castle agreed by a waiver letter dated 23 January 2018 to waive the Closing Price Triggering Event and not insist on immediate redemption.  Amongst the conditions precedent were the following:

(1)  Redemption of HK$60,000,000 of the HK$200,000,000 by a particular date;

(2)  payment of a guaranteed return of HK$7,500,000 by a particular date; and

(3)  perfection of the Charges within a particular date.

6.  The conditions were not satisfied.  In particular $60 million was not paid on time; although it was paid.

7.  In order for a company to successful defend a petition for its winding up on the grounds of insolvency it is necessary for it to establish that it has a bona fide defence on substantial grounds.  This is explained in [8] of my decision in Re Yueshou Environmental Holdings Ltd [1],           I explain the principles which govern how this is assessed:

“8. It is well established that a winding-up Petition should only be issued if a creditor is clearly owed a liquidated sum and the debtor company does not have any valid ground for refusing payment. If the company has a bona fide defence on substantial grounds to the debt a petition should not be brought and if the court concludes either on the hearing of a strike out application or on the hearing of the petition that the company does have such a defence, the Petition will be dismissed. Many cases consider what constitutes a bona fide defence on substantial grounds and how the court should approach determining whether such a defence has been demonstrated. I will cite three commonly cited authorities which together explain the established principles.

(1) The onus is on the Company to show that it disputes the debt on substantial grounds:

‘Importantly for this case there is a distinction between a consideration of whether the company has established a defence on substantial grounds and a consideration of whether the evidence is believable. Taken to the ultimate, the difference is between whether there is evidence and whether that evidence is believable. It seems to me that the onus must be on the company against which a petition is presented to adduce sufficiently precise factual evidence to satisfy the court it has a bona fide dispute on substantial grounds.

Re ICS Computer Distribution Ltd [1996] 3 HKC, 440 at 444B

(2) I have to be satisfied that the Company’s assertions are believable. The test

‘... is indeed as simple as whether the defendant’s assertions are believable. But it must be recognised – because failure to recognise it would create a debt‑dodgers’ charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.’

Re Safe Rich Industries Ltd (Unreported) CA 81/94, 3 November 1994, Bokhary JA, §13

(3) The relevant principles were summarised as follows by Kwan J (as she then was) at paragraph 6 of her Ladyship’s judgment in Re Hong Kong Construction (Works) Limited (unreported) HCCW 670/2002, 7 January 2003:

‘(1)The burden is on the company to establish that there is a genuine dispute of the debt on substantial grounds. In this context, “substantial” means having substance and not frivolous. An honest belief in an insubstantial ground of defence is not sufficient to avoid a winding-up order.

(2) The court should look at the company’s evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith; in other words, the evidence is not to be approached with a wholly uncritical eye.

(3) The court would caution itself against unsubstantiated and unparticularised assertions, especially where particulars and information have been sought by the other side. It is incumbent on the company to put forward “sufficiently precise factual evidence” to substantiate its allegations.

(4) The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists. In so doing, the court necessarily has to take a view on the evidence, to see if the company is merely “raising a cloud of objections on affidavits” or whether there really is substance in the dispute raised by the company. Even where the company has obtained unconditional leave to defend in an application for summary judgment, the Companies Court is not precluded from examining the evidence and taking a view on whether the debt is disputed on substantial grounds.’”

8.  In Re Leung Cherng Jiunn [2] the Court of Appeal confirmed that there is no meaningful difference between a bankruptcy petition and a winding up petition so far as this test is concerned.

9.  I will consider whether or not the Company has demonstrated that it has a bona fide defence on substantial grounds before dealing with the question of service of the statutory demand on Mr Dominick.

10.  Mr Barlow advanced two defences.  First that Safe Castle accepted partial payment from Altair after the deadlines under the Waiver Letter had passed.  By accepting the late payments from Altair and thus enjoying the benefit of the Waiver Letter Safe Castle made an unequal representation that it would continue with the Waiver Letter and forgo its right arising from delay of the payments: Chitty on Contracts (33^rd ed), §§22-040 & 24-003.  I disagree.  It seems to me that in accepting partial payments that Altair had agreed to make under both the subscription agreement and subsequently in varied form under the Waiver Letter Safe Castle, was not representing anything.  It is artificial to read into the act of acceptance in the circumstances Safe Castle found itself in any representation to Altair, the Company or Mr Dominick about anything in particular and equally artificial to suggest that Mr Dominick thought otherwise, which is why, I think it reasonable to assume, he does not      say in his affidavit that when Safe Castle accepted the payments he assumed that it was affirming the Waiver Letter.  A waiver requires an unequivocal representation[3] that rights will be foregone which necessitates establishing “that the party alleged to have waived his objection has taken some step which is only necessary or only useful if entertained at all”[4].  This has not been demonstrated.

11.  Secondly, that there had been no breach of the conditions precedent.  Safe Castle says that Altair failed to pay in accordance with clauses 2(1) and 2(2) of the Waiver Letter, which require:

“2. WAIVERS

Subject to the satisfaction of the following conditions precedent, Safe Castle hereby irrevocably waives its rights to request for early redemption of the relevant number of Participating Shares up to the principal amount of HK$140 million on the ground of the Triggering Event:

(1) the Company has completed the redemption of the relevant number of Participating Shares representing the principal amount of HK$60 million to the full satisfaction of Safe Castle and Safe Castle has received the proceeds thereof on or before [21 February 2018];

(2) Safe Castle has received the guaranteed return in respect of the Participating Shares in the principal sum of HK$200 million accrued up to 18 January 2018 on or before [15 February 2018] and for the avoidance of doubt, Safe Castle shall only be entitled to the guaranteed return in respect of the Participating Shares in the principal sum of HK$140 million subsequent to 18 January 2018.”

12.  Mr Barlow submitted that it was necessarily an implied term that Safe Castle had to take such steps as were necessary in order for Altair to make this payments and Safe Castle did not provide the necessary information before the due dates for payment.  I accept that on the basis of the documentary evidence this is arguable.

13.  Clauses 2(3) and 2(5) required Altair to provide on before 26 January 2018 documentary evidence to Safe Castle’s reasonable satisfaction that:

(1)  the Share Charge had been registered; and

(2)  for Altair to arrange service of the charge over the Standard Chartered Bank account to the bank

14.  The Company says that these conditions were complied with and that even if Safe Castle was not informed in writing of compliance certainly in the case of the Share Charge, Safe Castle were told at a meeting on 11 January 2018 that the Share Charge had been registered.  Also, Mr Barlow argued that to the extent that Safe Castle questions the authenticity of the documents evidencing the registration of the Share Charge this is clearly not an issue that can be resolved on affirmation evidence filed for the purpose of a winding up petition on   the grounds of insolvency.  It seems to me that it is arguable that the Company has a bona fide defence on substantial grounds to the claim for breach of clauses 2(3) and 2(5).

15.  Clause 2(4) required Altair to arrange for the appointment of a person nominated by Safe Castle as the authorised signatory subject to regulatory approval and bank approval of the bank accounts referred to in the charge over the bank account “on a date to be provided at the sole discretion of the regulator.”  The regulator is the Securities and Futures Commission and they have provided no date.  It would seem that this provision had not been properly thought through.  Not only is there an argument that technically it has not been breached even if the spirit       has not been complied with, but it is peripheral to the main purpose of the Waiver Letter and it does not seem to me that even if it has been breached, the breach by itself would justify treating Safe Castle as entitled to treat the agreement embodied in it at end and the Subscription Agreement revived.

16.  Clause 2(6) provides that Safe Castle waives its rights to request early redemption if “Altair has settled, or has arranged the settlement of, reasonable costs and expenses incurred by Safe Castle (including legal documentation costs) in the amount of approximately amount of HK$150,000 or before [15 February 2018].” Mr Dominick says that the failure to pay arose from Safe Castle’s own failure to provide invoices showing that Safe Castle had incurred legal costs in relation to the Waiver Agreement.  He says it was made clear during discussions in the first quarter of 2018 that Altair could not get Intertrust, the administrator of the fund to pay the costs.

17.  Clause 2(6) does not make it clear precisely what costs were intended to be paid by Altair, but it would appear that Mr Dominick accepts that a series of revised bills issued by Raymond Siu & Lawyers, and sent to him by email from Yvonne Wu on 4 October 2018, covered work for which Altair was liable under clause 2(6) to reimburse Safe Castle totalling $223,072.  However, Mr Dominick says that they were not paid because the bills were all to China Shandong Hi-Speed Financial Group Limited (“Hi-Speed”) not Safe Castle.  Hi-Speed is Safe Castle’s ultimate holding company. Hi-Speed changed its name from China Innovation Finance Group Limited to Hi-Speed in early 2018 and informed Intertrust of this by email on 2 February 2018.  There is nothing unusual about legal fees incurred by an investment vehicle being payable by its holding company and Mr Dominick must have known this, given that as he explains in his affirmation he had worked for some years in a number of sophisticated financial services companies.  Mr Dominick has not exhibited any emails with Intertrust dealing with this issue and has not provided any evidence that after 4 October 2018 he informed Ms Wu that the bills would be paid by Intertrust (which is not what clause 2(6) provides) and that it would do so if the bills were reissued in the name of Safe Castle.  It seems to me clear that Altair were in breach of clause 2(6) and that this justified Safe Castle treating the condition precedents as not being met and it becoming entitled to enforce its rights under the Subscription Agreement.

18.  Mr Barlow argued that Safe Castle has no basis for presentation of the Petitions because it is fully secured as it still holds 5,292,982.11 shares in Altair.  The fact of security does not deprive a creditor of locus to present a petition.  In any event such evidence as I have on the value of the security, namely Altair’s balance sheet as at 31 March 2019, shows it to be $3,198,157.46 which provides nothing like full security for the debt.  Therefore, even if, which seems unclear as Altair confirmed the redemption by its contract note of 26 February 2019, Safe Castle still holds security it obviously fails to provide anything like full security and is irrelevant not to only to the issue of locus, but how the Court should exercise its discretion to determine the Petition.

19.  In conclusion it seems to me that the Company has failed to show a bona fide defence on substantial grounds and should be wound up.

20.  So far as the bankruptcy petition is concerned there is an additional issue to resolve namely the question of service. Rule 46(2) of the Bankruptcy Rules provides that “the creditor shall do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected.”

21.  Proper service of a statutory demand is required before a bankruptcy petition is issued and the court requires strict compliance with Rule 46(2).  Kwan J (as she then was) explains the principles in [15]–[17] of her decision in Lam Chik Sing ex p Hong Kong Chinese Textile Mills Association [5]:

“15. Proper service of the statutory demand is a pre-requisite for the commencement of bankruptcy proceedings under section 6A of Cap. 6. The requirements as to service of the statutory demand must be strictly adhered to (Re Lam Lai Wah Susanna [6] and on appeal in Lam Lai Wah Susanna v Pacific Century Insurance Co Ltd[7]).

16. Ms Anna Saing, appearing for the petitioner, relied on the authorities which stated that the court is not bound as a matter of course to annul the bankruptcy order even if it is satisfied the order ought not to have been made, but has a discretion to exercise in the light of all the circumstances whether the order should be annulled (Delph Sing v Wood[8]; Re Lawson[9]; Re Ditfort, ex p Deputy Commissioner of Taxation (NSW)[10];and Re Chan Chi Ho, ex p Strong Well International Ltd[11]).

17. Failure to serve the statutory demand properly is an extremely serious matter.  That the petitioning debt is apparently not in dispute is wholly immaterial. Failure to serve the demand is not just a formal defect or irregularity, it renders defective the petition founded on the demand.  It does not appear to me it would be at all appropriate to exercise the discretion not to annul the bankruptcy order where service of the statutory demand was defective.”

22.  As a matter of law to effect personal service:

(1)  The server should first satisfy himself that he has found the correct person.  He should then hand to or leave with the person to be served the document.  If the person will not take the copy, he should tell him what it contains and leave it as nearly in his possession or control as he can: Hong Kong Civil Procedure 2019, [65/2/3].

(2)  It must be brought to the attention of the person to be served that he was being served with a legal document which required his attention: Dynasty Line Ltd v Sukamto Sia [12]

23.  It is Mr Dominick’s case that this did not happen.  The first point that he makes in his affidavit is that in the solicitor’s certificate        of service dated 7 March 2019 it says he was served at 2:15pm on 16 January 2019 at Units 1405-10, 14^th Floor, China Resources Building, 26 Harbour Road, Wan Chai.  Mr Dominick accepts that he attended a meeting at that office in the afternoon 16 January, but he did not arrive until about 3:19pm, which seems to be borne out by an exchange of Wechat messages between him and Ms Wu and indeed is accepted by Ms Wu in her affirmation.  He then goes on to give the following evidence:

“15. In this connection, I also refer to paragraph 4 of Ku’s 1^st Affirmation, in which he said as follows:

‘4. That at the time of the said service of the Statutory Demand, the said Debtor was identified and pointed out by the Petitioner’s staff in the conference room of the Petitioner Company and the said Debtor also admitted to me that he was the Debtor named therein and the proper party to be served.’

16. This is again untrue, in that there is absolutely no question of me ‘admitting to [Ku] as the Debtor named in the Statutory Demand and the proper party to be served’. I never spoke to Ku, let alone making any admission to him as alleged. Ku never addressed me at the Meeting in any way and never presented me with any document stating what the document was and why it was being served upon me. It is doubtful if Ku can even speak sufficient English to address me as to deliver the Statutory Demand in the proper manner and I do not speak nor understand Chinese at all as I am American and my only language is English.

17. Instead, during the Meeting (which was a without prejudice meeting between the parties), I noted that a Chinese man was invited to come into the conference room.

(1) The man did not identify himself or say anything about his role. After he had entered into the conference room, he sat nearest to the door of the conference room.

(2) Shortly after that man had come into the room, he spoke with the other representatives of the Petitioner in Chinese, which I did not understand.

(3) Later, about 2 to 3 minutes after he had come into the room, that man came forward and dropped on a coffee table in front of Patrick Maloney and me a document. He never told me what the document was. He simply said to both Patrick and me in English ‘you sign this’. Instead of addressing either Patrick or me he just kept on saying ‘you sign this’ in English.

(4) I did not pick up the document. I never read it. I did not know what the document was, as the document was face down with the back of the document a blank page facing upwards. I had no dialogue with that man and there is absolutely no question of me admitting to that Chinese man that I was the debtor nor as I mentioned earlier did he ever address Patrick or me individually by name—when I even did not know what the document was about. He then spoke to the other representatives of the Petitioner in Chinese for a brief moment and he then left the Meeting never to be seen again. Patrick said that the meeting was ‘Without Prejudice’ and we are not signing anything. Patrick asked for the man’s business card but he failed to produce any.

18. I only became aware of the bankruptcy petition against me on 8 March 2019 when I received a call from one Horace Yiu of Citibank informing me that my credit card was cancelled.  I was very surprised and asked him why as I have made all the payments.  He said that  I was bankrupt and they have the right to cancel it     and demanded payment in full for the entire amount owed as per the credit card agreement that I signed. Mr Horace Yiu then proceeded to tell me that a company called ‘Safe Castle’ filed a bankruptcy petition against me and it was in a paper that the bank checks.”

24.  Ms Wu and the solicitors clerk who attempted to effect service (Ku Sze To) dispute this version of events.  It certainly looks like either Mr Dominick or Ms Wu and Mr Ku are lying.  I agree with Mr Barlow that this is not a conflict I can resolve on affirmation evidence.  Cross-examination is necessary if Safe Castle wishes to proceed with the bankruptcy petition.

25.  I will make the normal winding up order in respect of the Company.  I direct that there be a case management hearing on the Bankruptcy Petition in order to determine how it should proceed.  I will reserve the costs of the Bankruptcy Petition.