RE SILVER BASE (HOLDINGS) LTD

HCCW 20/2023

[2024] HKCFI 855

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 20 OF 2023

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__________________

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DECISION

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1.  This is the application of Liang Guoxing (“the Applicant”) by summons dated 21 February 2024 (“the Summons”) for leave to appeal this Court’s refusal on 7 February 2024 (“the Decision”) to stay the Winding up Order made on 6 November 2023 (“the WU Order”) pending the Company’s appeal to the Court of Appeal.

2.  When this Court handed down its Reasons for the Decision dated 23 February 2024 (“the 2024 Reasons”), the Applicant had already issued the Summons. By summons dated 1 March 2024, the Applicant seeks leave to amend the Summons and the draft Notice of Appeal (“the NOA”) to address the 2024 Reasons. As such, leave is granted to make the amendments sought.

3.  For the relevant background and applicable legal principles, reference should be made to the Reasons for Judgment dated 10 November 2023 (“the Judgment”) as well as the 2024 Reasons.

Merits

4.  Mr Look-Chan Ho and Mr Joshua Yeung (counsel for the Applicant) advanced the same three grounds they had relied on, unsuccessfully, for a stay. The principal thrust of their submissions is that the Court adopted a wrong approach to winding-up in a case where the company only has one creditor. The Applicant considers it arguable that the winding up order should not have been made, citing new authorities.

A. Approach to winding-up with a company only has one secured creditor

5.  The Applicant submits that this Court adopted the wrong approach in holding (at §6 of the 2024 Reasons) that “the court will rarely grant a stay of winding-up order, and a stay will be an exception” because this is a case where there are no other creditors other than the Petitioner who is a secured creditor.

6.  The Applicant relied on this passage from the judgment of Nugee LJ in Khan v Singh-Sall [2023] EWCA Civ 1119 at 52:

“… secured creditors stand outside the bankruptcy process, the whole purpose of taking security being to enable the creditor to have recourse to specific assets for payment of his debt without having to share them with other creditors”.

7.  However, in that passage, the English Court of Appeal was referring to sections 267(2)(b) and 269(1) of the Insolvency Act 1986. Those provisions are equivalent to sections 6(2)(b) and 6B(1) of the Bankruptcy Ordinance (“the BO”) respectively but have no counterpart in the winding-up statutory regime in Hong Kong.

8.  The wording in section 178(1)(a)(ii) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“CWUMPO”) informs and provides that

“a company shall be deemed to be unable to pay its debts if … the company has, for 3 weeks after the service of the demand, neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor.” (Emphasis added)

9.  No such provision exists in the BO or the Bankruptcy Rules. The passage from the Khan case (based on English provisions that have no Hong Kong counterpart) does not and cannot assist the Applicant.

10.  In his reply submissions, the Applicant maintained that the Khan case stands for the proposition that the Petitioner, as a secured creditor, stands outside of the winding-process, citing the following passage from a new authority, namely, Re Progetto Jewellery Co Ltd[2022] HKCFI 364 at §40:

“It is well established that where a petitioner asserts that the company is insolvent, secured creditors stand apart from the collective process of liquidation and do not have any real interest in the company’s assets except those on which they have security. It is only the unsecured creditors who have any real interest in the company. This is because a secured creditor has the right to realize the security provided by the company for the purpose of repaying the debt owed to it …”

11.  The Applicant submits that the same legal principles apply to the winding-up statutory regime.

12.  Once again, the citation relied on is taken wholly out of context. First, the heading for §§37-45 (which appears immediately above §37) reads: “Whether the Petitioner was a creditor[1]”. That was the question before the court in Progetto. In that case the court concluded that the petitioner was not a creditor.

13.  In the present case the Petitioner is unquestionably a creditor of the Company when this Court rejected its defence based on the debt being a bona fide disputed.

14.  Second, the court in Progetto was not concerned with the position of secured creditors but “a creditor who owes a debt to the company which remains unpaid[2]”.

15.  Third, the background to that case shows that prior to issuing the statutory demand, the petitioner had in effect obtained full payment or the benefit of a full security in respect of the debt by withholding payment of the judgment debt to the company[3]. Given that context, the reference to “secured creditors” must mean those creditors whose debts have been fully secured.

16.  That is reinforced by the authorities cited by Linda Chan J for the observations made in Progetto §40.

17.  Mr Anson Wong Yu Yat, counsel for the Petitioner, invited attention to the fact that the phrase “stand apart from the collective process of liquidation” (in §40 of Progetto) is apparently taken from Fletcher, The Law of Insolvency, (5^th edn), §24-018. However, in Fletcher, the relevant passage reads:

“In effect, to the extent of the realisable value of the property comprised in the security, such a creditor enjoys the advantage of being able to stand apart from collective process of the liquidation and to proceed to realise the charge in order to recoup the amount outstanding from the company[4].”

18.  Company Law in Hong Kong: Insolvency 2021, §7.035 (which concerns the order of payment to creditors laid down in the CWUMPO) is the other authority cited. The relevant passage read “secured creditors can look to their security for the realisation of their claims to the extent of such security[5].”

19.  Thus, only fully secured creditors stand apart from the collective process of liquidation.

20.  For the reasons stated, I do not consider that the observations made in the Khan and Progetto cases take the Applicant’s case any further. They do not support the proposition the Applicant advances.

B. Sufficiency of security

21.  Where the petitioner is a secured creditor, the applicable legal principles are those set out in §34 of the Judgment. The relevant test of sufficiency of security is stated in §13 of the 2024 Reasons which is not challenged.

22.  The repeated assertions of the Applicant/Company of sufficiency of security are self-serving and rendered meaningless by the conduct described in §§58-59 of the Judgment. Repetition of a submission rejected by this Court cannot remedy its lack of substance.

C. Bona fide dispute on valuation

23.  In §16.1 of the Applicant’s written submissions, the Applicant cited French on Applications to Wind Up Companies (4^th edn) at §§7.188-7.190[6] for the proposition that “the existence of sufficient security means that the Company has secured the Debt to the reasonable satisfaction of the Petitioner, and renders section 178 (1)(a)(ii) CWUMPO inapplicable”.

24.  I note that the proposition stated is not reflected in the authority cited. Be that as it may, as formulated, the security has to be “to the reasonable satisfaction of the Petitioner”. The Applicant has not adduced any evidence to that effect. To the contrary, the security is not “to the reasonable satisfaction of the Petitioner”.

25.  As a fallback position, the Applicant resorts to submitting that the proper approach to determining how a bona fide dispute on valuation affects the grant of a winding-up order is a difficult and important question of law and principle that ought to be determined on appeal.

26.  I do not agree. The dispute on valuation is a distraction. The plain fact is that the debt the Company owes the Petitioner is and remains unpaid.

Conclusion and order

27.  None of the grounds advanced in support of the leave application has any merit. It follows that leave to appeal the stay application must be refused and costs would follow the event.

28.  The Petitioner seeks costs on an indemnity basis because of this unmeritorious application as well as the Applicant’s repeated attempts to submit new authorities causing wastage of time and costs.

29.  While I deprecate the piecemeal fashion in which the Applicant’s counsel has chosen to present his submissions and the Applicant has sailed pretty close to the line, I do not consider its conduct sufficiently egregious to attract an award of indemnity costs.

30.  Accordingly, the Summons as amended is dismissed. Costs of the Summons (as amended) with certificate for counsel be to the Petitioner, such costs to be summarily assessed and payable forthwith.

31.  The Petitioner do lodge its statement of costs within 14 days hereof, the Applicant do lodge its objections (limited to 2 pages) within 14 days thereafter and the Petitioner do lodge its reply (if any, limited to 2 pages) within 7 days thereafter.

Mr Anson Wong Yu Yat, instructed by Y S Lau & Partners, for the Petitioner

Mr Look-Chan Ho and Mr Joshua Yeung, instructed by Foo and Li for Liang Guoxing

HCCW 20/2023

[2024] HKCFI 586

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 20 OF 2023

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REASONS FOR DECISION

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1.  There were 2 applications before the Court:

(1)  the application of Silver Base (Holdings) Ltd (“the Company”) by summons dated 10 January 2024 (“the Leave Summons”) for leave to appeal out of time from the Decision dated 6 November 2023 (“the Decision”) dismissing the Company’s summons dated 24 October 2023 (“the October 2023 Summons”) for leave to file the 4^th affirmation of Liang Guoxing (“Liang 4^th”); and

(2)  Mr Liang Guoxing’s application by summons dated 23 January 2024 (“the Stay Summons”) for a stay of the winding up order dated 6 November 2023 until final disposal of the Company’s appeal or further order.

2.  At the conclusion of the hearing, the Court dismissed the Leave Summons and the Stay Summons for the reasons set out below.

3.  The relevant background is set out in the Decision to which reference should be made. These Reasons will adopt the nomenclature used in the Decision.

Legal principles

The Stay Summons

4.  In Bright Gold Limited v Mega Well Development Limited[2019] HKCA 1440 (at §13) Lam VP affirmed the principles set out in Star Play Development Limited v Bess Fashion Management Co Limited [2007] 5 HKC 84 at §§6-10 in applications for a stay. In that case, Ma J considered (at §9(6)) that an arguable appeal was a minimum requirement before a court would even consider granting a stay.

5.  In Bright Gold, the CA emphasised that even if arguable grounds exist, there must be other circumstances justifying the deprivation of the successful party of the fruit of the judgment. In all cases where the discretion is engaged, ultimately it is a balancing process with common sense[1].

6.  The court will rarely grant a stay of a winding-up order, and a stay will be an exception: see Re China Silver Asset Management (HK) Ltd[2020] HKCFI 1028 at §10. Further, at §11, Harris J remarked that in order for a company to satisfy the court that its case is exceptional justifying a stay,

“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 which 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.”

The Leave Summons

7.  It is common ground that leave to appeal under Order 59, rule 2B is required in relation to the court’s dismissal of the October 2023 Summons.

8.  An appeal from an interlocutory judgment or order shall not be granted unless the court hearing the application for leave is satisfied that (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard: sections 14AA(1) and 14AA(4).

9.  A statement of the general approach for considering an application for leave to appeal out of time be found in Lee Chick Choi v Best Spirits Co Ltd, unrep., HCMP 371/2015, 21 May 2015 at §19 cited in the judgment of G Lam J (as he then was) in Competition Commission v W Hing Construction Company Limited & others[2020] HKCT 6 at §4:

“The legal principles regarding an application to extend time for an appeal are well established. In the exercise of its discretion, the court will take into account the length of the delay, the reasons for the delay, the chances of the appeal succeeding if an extension of time is granted, and the degree of prejudice to the other party if the application is granted. Where the delay is substantial and not wholly excusable, the applicant must show a real prospect of success on the merits, not merely a reasonable prospect of success."

The Stay Summons

10.  Mr Look-Chan Ho and Mr Joshua Yeung, counsel for the Company submitted that the Company has an arguable appeal against the winding up order. Although at the hearing below, the Company had relied on 2 grounds to oppose the Amended Petition, namely, the repayment ground and the security ground, Mr Ho clarified that for the appeal the Company will rely solely on the security ground.

11.  3 grounds were advanced in support of there being an arguable appeal:

(1)  it raises an important point of principle of the court’s winding up jurisdiction in circumstances where there is only one debtor;

(2)  it is arguable that there is sufficient security; and

(3)  the court’s approach to valuation was wrong.

12.  It was submitted that class remedy considerations do not arise where there is only one creditor and one debtor. However, there was no elaboration as to what considerations (if any) should replace class remedy considerations.

13.  On the point as to sufficiency of security, one of the relevant principles that is applicable is set out in §34 (c) of the Decision: that the Property would command the amount of the debt if "put into the market”. The Company was at liberty to come up with a buyer. It failed to do so and made no effort to dispose of the Property: see §§58-59 of the Decision. In those circumstances, I cannot see that the point is arguable.

14.  Ms Audrey Eu, SC, Mr Anson Wong Yu Yat and Mr Xizhen Wang appeared for the Petitioner. Ms Eu submitted that there is no arguable grounds for appeal. The court made the winding up order after it had rejected the Company’s contention that there is a bona fide dispute on the debt.

15.  The Company’s case is that the appeal only relates to the security point and seeks to raise some dispute on the valuation[2]. That is the reason it filed the Leave Summons. If it obtains leave and succeeds on the appeal from the dismissal of the October 2023 Summons, the New Midland Report with the 10 comparables would be part of the evidence in its appeal from the winding up order.

16.  However, the only real defence the Company could possibly rely on is that there is a bona fide dispute on the debt, not a bona fide dispute on valuation.

17.  In the circumstances, I do not consider that the Company has met the threshold established by the authorities for the discretion to grant a stay to be engaged.

The Leave Summons

18.  The Decision dismissing the Company’s application to file Liang 4^th was an interlocutory decision. Leave for an appeal from the Decision has to be made within 14 days of the Decision, namely, on or before 20 November 2023. The application was not made until 10 January 2024.

(1)  Delay

19.  Mr Look-Chan Ho and Mr Joshua Yeung, counsel for the Company, applied for an extension of time. The application is supported by Liang’s 5^th affirmation of 10 January 2024 (“Liang 5^th”) which explained that the delay was caused by their former legal advisors (“TKC”) who never advised that leave to appeal was required.

20.  In outline, the sequence of events deposed to was as follows:

(1)  after the Decision was handed down, Company sought legal advice and instructed TKC to lodge an appeal against the Decision and the winding up order;

(2)  TKC filed a notice of appeal on 1 December 2023 (“NOA”) which included grounds of appeal against the Decision but never advised that leave would be required or that there was a 14-day time limit for the application;

(3)  on 15 December 2023 (for unexplained reasons), the Company changed its legal advisers to its present solicitors (“F & L”);

(4)  thereafter, Liang (having instructed F & L to instruct counsel to advise on the Company’s intended appeal) was away from Hong Kong on holiday between 15 to 27 December 2023 ;

(5)  he had a first preliminary conference with Counsel on 29 December 2023 and on that occasion learnt that there was an error in the NOA that leave to appeal was required;

(6)  the meeting was adjourned and a 2^nd meeting took place on 2 January 2024 when instructions were given for the present application.

21.  The Company submitted that the account in Liang 5^th provided a legitimate explanation for the delay. What prompted the change of legal representation is unknown and on the very day Mr Liang engaged new legal advisers, he left Hong Kong for a 12-day holiday.

22.  That aside, the excuse put forward is TKC’s failure to advise the Company on the correct procedure. Mr Ho cited a number of authorities including PT Bank Pembangunan Indonesia Persero v Tan Eddy Tansil [1997] HKLRD 57 where Bokhary JA’s approach (at 59J-60C) was said to reflect the general principle that the court will not allow a client to suffer for the mistake of his lawyers if it could help it.

23.  But the more recent Court of Appeal cases adopt a different approach. In KNM v HTF unrep., HCMP 288/2011, 7 September 2011 at §18, Fok JA (as he then was) with whom Hartmann JA agreed, held that the fault of the legal representative is not a reason excusing delay[3]. That approach was endorsed by Chu JA (as she then was) giving the judgment of the Court in Tsang Wai Fan v Hui Siu Kwong, unrep., HCMP 409/2016, 12 April 2016 at §23. The present case is therefore one in which the delay is inexcusable.

24.  In the Tsang Wai Fan case, where the defendant’s application for leave to appeal was late by 14 days, the CA held (at §23) that it was “not an insubstantial delay.” 

25.  Where the delay is inexcusable although insubstantial, the threshold for the grant of leave is not simply the test of a reasonable prospect of success but rather the test of a real prospect of success on the merits: see KNM v HTF at §§19-20 and Tsang Wai Fan at §20.

26.  In the present case, the delay between 20 November 2023 and 10 January 2024 is more than 7 weeks. So not only is the delay inexcusable, it is also substantial.  

Merits

27.  As the delay is substantial and inexcusable, at the very least, the Company must show that intended appeal has a real prospect of success. Apart from summarising the Court’s reasons for finding that there was inordinate and inexcusable delay and for concluding that the New Midland Report had been deliberately withheld or was provided to the Company much earlier, the grounds for overturning those findings are not discernible from the Company’s written submissions.

28.  It would appear that the appeal only relates to the comparables Liang 4^th sought to introduce into evidence which goes to valuation rather than the debt. The only defence raised against the Petitioner’s claim was that there was a bona fide dispute on the debt.

29.  At the hearing, the Company’s submissions were directed at criticising the Petitioner for not enforcing the security that it holds and instead, choosing the liquidation route. It sought to suggest that it might be because the debt was not fully due to the Petitioner. Not only is there no basis for this suggestion, one of the defences raised was the repayment point that was not pursued at the hearing.

30.  Rather, it now claims that there is prejudice arising from the Petitioner choosing the liquidation route. It was submitted that if there is a winding up, the Company will be prejudiced because such a sale would be ‘“an irreversible ‘fire sale’ at low value by the liquidators of the Company after it is wound up[4]”.

31.  These complaints ring hollow since it has been and remains open to the Company to sell the property at the price asserted if it is able to find a buyer.

32.  The prejudice the Petitioner will suffer if the liquidation process is delayed is clear: it is a falling market. If, as in the present case, the Company is unable to pay the debt, the Petitioner has every right to seek a winding up order.

Conclusion

33.  The Stay Summons and Leave Summons were dismissed with costs to the Petitioner with certificate for 2 counsel, such costs to be summarily assessed and payable forthwith.

34.  It is further directed that (1) the Petitioner do lodge its statement of costs within 14 days; (2) the Company and  Liang Guoxing do lodge their list of objections (not exceeding 2 pages) within 14 days thereafter; and (3) the Petitioner do lodge the reply (not exceeding 2 pages if any) within 7 days thereafter.

Ms Audrey Eu SC, Mr Anson Wong Yu Yat and Mr Xizhen Wang, instructed by Y S Lau & Partners, for the Petitioner

Mr Look-Chan Ho and Mr Joshua Yeung, instructed by Foo & Li, for the Debtor Company and Liang Guoxing

Huen & Partners, representing for the Joint and Several Provisional Liquidators of the Company, were excused from attendance

The Official Receiver was absent

HCCW 20/2023

[2023] HKCFI 2916

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 20 OF 2023

__________________

__________________

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REASONS FOR JUDGMENT

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1.  This is the substantive hearing of the petition (as amended) by Guangdong Finance Ltd (“the petitioner”) against Silver Base (Holdings) Ltd (“the Company”) pursuant to section 177 (1) (d) and section 178 (1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance. Cap 32 (“CWUMPO”) on the ground that the Company is unable to pay its debts. At the conclusion of the hearing, it was ordered that the Company be wound up, with costs with certificate for 2 counsel to the Petitioner, such costs to be taxed if not agreed.

Background facts

2.  By a loan agreement dated 28 December 2016 (“the Loan Agreement”) made between the Petitioner, the Company and Liang Guoxing (“Mr Liang”), the Petitioner granted the Company a loan of $350 million (“the Loan”) at an interest rate of 8%, repayable on the maturity date being two years after the drawdown of the loan, with Mr Liang (a 50% shareholder and one of the directors of the Company) agreeing to execute a guarantee in favour of the Petitioner to guarantee the repayment of the loan and interests.

3.  After various extensions, the Company was obligated to settle all outstanding principal and accrued interest by 30 April 2022.

4.  The petition is based on the debt arising from the Loan together with relevant accruing interest (“the Debt”).

5.  The Debt was secured by a first charge over the property known as House 8, No 33 Island Road, Hong Kong (“the Property”) owned by the Company.

6.  A statutory demand was served on the Company on 1 December 2022 which went unmet.

7.  The Company opposes the petition on two grounds, namely, (a) the Debt has been fully repaid (“the repayment ground”), and (b) the value of the Property exceeds that of the Debt (“the security ground”).

8.  In support of the security ground, the Company exhibited a report dated 3 May 2023 prepared by Midland Surveyors (“the Midland report”). Under the heading “4. VALUATION METHODOLOGY”, it read:

“We have adopted the direct comparison method to assess the market value of the Subject Property. Selection of comparable sale transactions is confined within the same locality, which is considered to be the most relevant and indicative of the market value of the Subject Property. Accordingly, comparable sale transactions have been selected and adopted for comparison and analysis …”

9.  Surprisingly, the Midland report did not contain a list of comparables.

The Company’s application to file further evidence

10.  The Court first dealt with the Company’s application by summons dated 24 October 2023 filed less than 2 weeks prior to this hearing. It sought leave to file and serve Mr Liang’s 4^th affirmation (“Liang 4^th”) to reply to the allegations raised in the 4^th affirmation of Lee Chun Hing, the manager of the Petitioner (“Mr Lee”), dated 26 June 2023 (“Lee 4^th”), filed 4 months earlier.

11.  The Company’s application was dismissed with indemnity costs for the reasons set out below.

12.  The only explanation for the inordinate delay was that Mr Liang was hospitalised in July and August and had to undergo an operation. However, no documentary evidence was provided to substantiate Mr Liang’s inability to deal with the matter during those 2 months, such as proof of the operation and hospitalisation with relevant dates.

13.  Even assuming Mr Liang was hospitalised for the entire 2 months, there was at least a week in June to start the process. It then took him another month and 3 weeks from the end of August before the summons was taken out. There is no explanation given for the delay. Moreover, the Company had another director (Mr Liang’s brother who is the shareholder of the other 50% of the Company) who could and should have taken over or progressed the matter in the interim.

14.  Although Liang 4^th was said to reply to allegations raised in Lee 4^th, that is not the case. Lee 4^th did not make new allegations. Rather, it was filed to reply to the allegations made in Mr Liang’s 3^rd affirmation dated 29 May 2023 (“Liang 3^rd”) to supplement the Company’s opposition to the petition based on 2 grounds set out in §7 above.

15.  In particular, Liang 3^rd exhibited a revised set of repayment records[1] (“the 07 record”) compiled by the Company’s accountant Choi Do Chiu (“the accountant”) and a set of documents[2] said to support the 07 records (“the 08 vouchers”).

16.  According to Liang 3^rd, the 07 record was compiled by the accountant based on internal records of “related accounts”. No information was given as to the nature of such accounts and their connection/relevance to the Loan Agreement. There is no affirmation from the accountant to explain the methodology adopted in compiling the 07 record and how they are to be read.

17.  When the repayment information set out in the 07 record was analysed, the amounts of many of these items reflected payments due to the Petitioner under 3 personal loans made to Mr Laing in 2014 and 2015 and a loan made to Keen Pearl Limited (“Keen Pearl”), a company owned and controlled by Mr Liang, in 2018 (collectively, “the Other Loans”). They are summarised in the table in §37 below. That information was set out in Lee 4^th which described the analysis conducted.

18.  Lee 4^th also exhibited 2 written valuations of the Property, namely, a valuation report prepared by B.I. Appraisals Limited (“BIA”) dated 18 May 2023 and a valuation report prepared by Jones Lang LaSalle Limited dated 30 May 2023 (“the JLL report”). Lee 4^th noted (at §45) the absence of any market comparable in the Midland report which it considered “weird”.

19.  So far as the new Midland report is concerned, it bears the same date as the Midland report[3] with an identical reference number and an identical valuation of $710 million. The only real difference is the addition of a list of 10 comparables. While under the heading Valuation Methodology, there are 2 additional paragraphs absent from the Midland report, the critical and operative paragraph is that common to both reports: see §8 above.

20.  A clear statement of the applicable principles for late interlocutory applications is to be found in Converge Design and Construction Co Ltd v Mount Kelly International Limited[2020] HKCFI 2433 where (at §2) Mimmie Chan J observed that:

“…delay itself is a ground to refuse a late application, either for discovery or for the introduction of new pleadings and evidence, when trial is imminent. The onus is on the applicant to justify its delay and to show good reason for leave to be granted. … [The] just resolution of disputes requires due consideration of the time occasioned by last minute applications to introduce amendments to the pleadings and/or evidence on the eve of trial. Prejudice is inevitably caused, in the disruptions in the preparation for trial, the need to consider the new evidence and the need to respond thereto, coupled with the need to locate witnesses at the last minute to consider and if necessary to respond to the new evidence, and the last minute distraction from the proper focus and priority of the due preparation for trial. This is actual prejudice.”

21.  Since those principles are based on the underlying objectives of the CJR, they must also be applicable to winding up petitions where the company is unable to pay debts.

22.  The delay in the present case is not only inordinate but also inexcusable. That is sufficient reason to dismiss the Company’s summons for leave to put in Liang 4^th.

23.  So far as the new Midland report is concerned, the Company did not disclose the date it was received. That is an important piece of information given that the only differences are those described in §19 above. The timing of the new Midland report is relevant.

24.  If the omission of the list of comparables had been a genuine oversight, it could easily have been remedied upon receipt of Lee 4^th (26 June 2023) which noted its absence. It was not.

25.  Ms Audrey Eu SC, Mr Anson Wong Yu Yat and Mr Xizhen Wang, counsel for the Petitioner, submitted that the valuation given in the Midland report was clearly based on the same list of comparables as that in the new Midland report. Otherwise, it would not be explicable how the same valuer could have arrived at an identical valuation when the same methodology was used for both reports. In other words, the list of comparables was the basis upon which both reports were prepared.

26.  The Petitioner invited attention to the fact of the list of 10 comparables, only 2 (transactions concerning Houses 5 and 7 in the same development) were directly comparable. These other properties are situated in very different areas which command a much higher unit rate. These could only have been included to yield a much higher unit rate for the Property. It was thus submitted that the list had been deliberately withheld until Liang 4^th.

27.  Given the fact that the report was prepared by an experienced valuer, an unintentional omission is hardly credible absent immediate action to rectify that omission after receiving Lee 4^th. There is therefore some merit to the Petitioner’s submission.

28.  Mr Jonathan Chang SC and Mr Peter Dong, counsel for the Company, submitted that if the intention was to conceal the list of comparables, there would be no reason to disclose it now.

29.  The Company acknowledged that the Midland report without a list of comparables has no probative value. It was therefore necessary for the Company to seek leave to file the new Midland report to show the value of the security. In seeking leave to admit Liang 4^th, the Company must have entertained the possibility (however remote) that its application would be successful.

30.  The possibility that the new Midland report had been deliberately withheld or that it was provided to the Company much earlier who only chose to make it available on the eve of this hearing is an inference that is justified by the lack of evidence as to when the Company received the new Midland report and the total absence of any explanation to account for the delay.

31.  The Company’s conduct in taking out the summons in circumstances when it had no good reason to seek the Court’s leave to allow Liang 4^th to be filed cannot be condoned. Had the application been successful, that evidence could have derailed the hearing.

32.  The whole exercise is wasteful of judicial time and resources, not to mention causing prejudice to the Petitioner by diverting its attention on the eve of the substantive hearing and the need to spend time to consider respond to the new evidence. Indemnity costs are thus warranted.

Applicable principles

33.  The applicable principles where the debt is disputed on substantial grounds are well-established. A convenient summary may be found in Re Hong Kong Investments Group Ltd[2018] HKCFI 984 at § 13:

(a)  The burden is on the Company to establish that there is a genuine dispute of the debt on grounds that have substance and are not frivolous.

(b)  The evidence is not to be approached with an uncritical eye.

(c)  The company must put forward sufficiently precise factual evidence to substantiate its allegations.

(d)  The court does not try the dispute on affidavit but is to determine whether a substantial dispute exists.

34.  Where the petitioner is a secured creditor, the following principles are relevant:

(a)  A secured creditor may petition for the winding up of the debtor company: see Synergy Lighting Ltd v The Hongkong and Shanghai Banking Corporation Limited[2020] HKCFI 2490 at §8.

(b)  In relation to a winding up, a secured creditor does not have to elect between resting on the security and taking part in the liquidation until after the winding-up order is made: see French, Applications to Wind Up Companies (4^th edition, 2021) at [7.382].

(c)  The true test of the sufficiency of security ought to be whether it would command the amount of the debt if “put into the market”: Commercial Bank of Scotland v Lanark Oil Company Limited (1886) 14 R 147, 149; French, at [7.188].

(d)  A security holder owes no duty to the debtor to exercise its power of sale over the secured assets at any particular time and could decide in its own interest whether and when to sell: Re Victor River Ltd[2021] HKCFI 886 at §44.

(e)  Whether security has been furnished for the full amount is one of the considerations that would affect the exercise of the court’s residual discretion whether or not to wind up the company: see Re IJ Langleb Ltd [1996] 4 HKC 68 at 73B-C.

Repayment

35.  As noted in §15 above, the 07 record was exhibited to Liang 3^rd. It is in the form of a chart with numerous columns headed, inter alia, “Serial no”, “GDF Form” “Payment date”, “Instalment”, “Interest”, “[Principal]”, “Total amount” “Payment amount (with supporting documents) and “Supporting document no (Red number)” being the last column. The chart comprised 66 rows of entries under the various columns.

36.  To recap, the key documents said to support the 07 record prepared by the accountant were also exhibited[4] (ie the 08 vouchers). There is no affirmation from the accountant himself to identify what ‘related accounts’ (in addition to the Company's own records relating to the loan) he consulted when compiling the 07 record. Nor is there any explanation of the methodology used for the compilation or of various markings/endorsements appearing on the 08 vouchers.

37.  Upon perusing the 07 record and the 08 vouchers, it became apparent to the Petitioner that many of the payments relied on were payments in respect of the Other Loans described §17 above and summarised in the table below:

Loan No.	Agreement Date	Loan Amount / Principal	Borrower
EV6-01-20140911- 001	11/9/2014	$300,000,000	Mr Liang
EV0-01-20150706- 001	6/7/2015	$50,000,000	Mr Liang
EV0-01-20150731- 001	6/7/2015	$234,900,000	Mr Liang
EV6-01-20181220- 001	20/12/2018	$148,000,000	Keen Pearl

38.  The Petitioner submitted that the 07 record and the 08 vouchers are not credible or reliable and full of absurdities and inherent inconsistencies. To demonstrate this, the Petitioner referred to Annexes 1 and 2 attached to its written submissions.

39.  Annex 2 is a detailed calculation of overpaid principal and interest. The amounts of principal repayment and interest payment were all extracted from the 07 record. Since interest was only payable on the outstanding principal from time to time, the Petitioner caused interest calculations to be prepared on the basis.

40.  Annex 2 shows

(a)  total accrued interest of just under $21 million whereas on the Company’s case, the total interest paid came to $77 million, resulting in an overpayment of over $56 million; and

(b)  an overpayment of principal in excess of $1.5 million.

41.  Annex 1 which identifies some of the more glaring absurdities and inconsistencies is very detailed. Those absurdities are summarised in §14 of the Petitioner’s submissions and it suffices to mention but a few to illustrate the point:

(a)  at least 8 of the repayments were made between 31 January 2016 and 11 October 2016 well before the actual drawdown of the Loan which took place on 3 January 2017;

(b)  one of the 08 vouchers stated on its face that it was an interest payment for one of the Other Loans;

(c)  the amounts and payment dates of many of the repayments relied on match the amounts of interest and scheduled dates due under the Other Loans; and

(d)  one of the 08 vouchers[5] showing a payment of RMB 30 million[6] bears 23 numbered stamps in red [7]. That voucher is said to support all 23 repayments when the recorded repayments span a period ranging from 31 January 2016 to 23 July 2019.

42.  At the hearing, Mr Chang made no oral submissions on this part of the Petitioner’s case. Obviously, the Company was unable to challenge the matters set out in Annexes 1 and 2.

The security ground

43.  The Debt is currently around $506 million. The Company accepted that the Midland report can be disregarded as it lacks comparables.

44.  Mr Chang referred to the JLL report which referred to major recent transactions within the development where the Property is situated as the most relevant comparables. House 5 was sold on 9 September 2021 for $505 million representing a unit rate of $104,946 per square foot and House 7 on 13 November 2017 for $480 million representing a unit rate of $95,257 per square foot.

45.  He submitted that House 5 was the more relevant comparable being a more recent transaction. Adopting that unit rate, the value of the Property would be in excess of $528 million which comfortably exceeds the current value of the Debt.

46.  On that basis, it was submitted that the Petitioner is fully secured and cannot avail itself of section 178 (1) (a) as the Debt is fully secured. While the Petitioner could still prove that the Company is unable to pay the Debt without relying on the deeming provision (i.e. section 178 (1) (a) (ii)), that is when the court’s discretion would be triggered, citing the Langleb case at 71H-I, 72A D-E and 73A.

47.  The decision in that case related to whether a petitioner whose petition was dismissed was entitled to the costs of the petition. On the facts of that case, the court held that the petitioner was a fully secured creditor who must have known or deemed to have known there were sufficient assets to meet any sum due under the judgment. In those circumstances the court had difficulty with the averment that the company was unable to pay its debts and awarded costs of the petition to the company.

48.  Mr Chang proceeded to persuade the Court that the value of the Property was of the order of $528 million. He submitted that

(1)  the court should adopt JLL’s conclusion that the unit rate for House 5 was $104,946;

(2)  as House 8 is in the upper row of houses commanding a better sea view and being further away from traffic along Island Road, those factors support the view that House 8 is not ‘worse off’ than House 5 in terms of unit rate;

(3)  JLL cannot justify a 20% discount by valuing the Property at $440 million; and

(4)  the Court was invited to adopt the JLL report but not its valuation.

49.  In response to the Court’s query as to the saleable area of the Property, the JLL report adopted the saleable area stated in the sales brochure of 5039 ft.² while Midland and BIA in their respective reports adopted the information obtained from the Rating and Valuation Department (“RVD”) of approximately 4720 ft.²

50.  If the RVD figure is adopted, the value of the Property would be around $495 million, far short of what is due to the Petitioner. The RVD figure would appear to me to be more reliable than information given in sales brochures.

51.  Mr Chang then sought to persuade the Court that JLL should not have assessed the Property at such a low value since it considered Houses 5 and 7 to be “the most direct evidence due to their high similarities in terms of building design and specification, layout, and aspect, provision of ancillary areas including garden and car parking spaces.[8]” It was submitted that JLL’s valuation, effectively discounting the value by approximately 20%, cannot possibly be justified.

52.  In short, the Court was invited to cherry pick from the JLL report. That appears to be a novel approach which must be rejected. The Court is in no position to carry out an assessment of the value of a property which is the province of experts in the field. It is a matter of expert evidence.

53.  Section 178 provides:

“178. Definition of inability to pay debts

(1) A company shall be deemed to be unable to pay its debts—

(a) if —

(i) …

(ii) the company has, for 3 weeks after the service of the demand, neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; ”

54.  To satisfy section 178 (1) (a) (ii), it is incumbent on the Company to secure the Debt “to the reasonable satisfaction of the creditor”. In the Langleb case, the creditor was fully protected in the sense that it had a charge over assets that “unquestionably”[9] exceeded the amount required to satisfy the debt.

55.  But that is not the present case. Other than the Midland report (being common ground that it is to be disregarded), none of the valuations before the Court shows an assessed value inarguably in excess of the Debt.

56.  The Company then sought to persuade that if there is dispute as to the value of the Property and the Company has shown that it is reasonably arguable that the Company’s valuation would prevail, there should be a trial on valuation as it will have demonstrated that it has a bona fide defence to the petition.

57.  That is not a proposition that the Court will entertain. The Debt became due on 30 April 2022. A statutory demand was served on 1 December 2022 and the petition presented on 6 January 2023. There is no denial that the Debt is not paid.

58.  The evidence shows that the Petitioner did invite the Company to sell the Property and also sought to arrange inspection of the Property for potential buyers with Mr Liang but he repeatedly refused, using the pandemic as an excuse. In late October 2022, a potential buyer offered $430 million for the Property, with an alternative offer of $480 million to acquire the entire issued shares in the Company. Mr Laing refused the offer on 8 November 2022[10].

59.  The Company made no effort to dispose of the Property. If the Property has the value the Company asserts, there was nothing to prevent it from selling it and repaying the Debt.

60.  In those circumstances, it was not unreasonable for the Petitioner to take the view that it is not sufficiently secured.

61.  As Ms Eu submitted, as a matter of law, any difference in valuation does not preclude the Court from exercising its residual discretion to order a winding up, citing the Langleb case at 73B-C and Synergy Lighting Limited v Hong Kong and Shanghai Banking Corporation Limited[2020] HKCFI 2490 at §§5, 8 and 14.

62.  The Company is unable to demonstrate that the Property would command the amount of the Debt if “put into the market” which is the true test of the sufficiency of security[11]. Accordingly, it cannot succeed on the security ground.

Ms Audrey Eu, SC, Mr Anson Wong Yu Yat and Mr Xizhen Wang instructed by Y.S. Lau & Partners for the Petitioner

Mr Jonathan Chang, SC and Mr Peter Dong instructed by Tony Kan & Co for the Company

The Officer Receiver, attendance was excused