Professional Documents
Culture Documents
HCMP001887 - 2012 Before Le Pichon
HCMP001887 - 2012 Before Le Pichon
HCMP 1887/2012
B B
IN THE HIGH COURT OF THE
C HONG KONG SPECIAL ADMINISTRATIVE REGION C
H and H
K BETWEEN K
____________________
Q Q
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A A
B DECISION B
C C
1. This is an appeal out of time by Joy Rich Development
D Limited (now in liquidation) (“the defendant”) from an order of D
I I
CHRONOLOGY OF EVENTS
J J
2. The principal asset covered by a floating charge (“the
K charge”) created on 26 January 2011 is a valuable house on Middle Gap K
been living together at the property. The falling out apparently occurred
P P
in late 2011.
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date of the loan or when called upon to repay by the plaintiff whichever
B B
was the earlier.
C C
operate as a fixed charge. As earlier noted, the principal asset was the
F F
property although, as will become apparent, there were other assets.
G G
J J
7. YW Chan was also the sole director for the period from
K 3 March 2009 to about 1 September 2012 when she was replaced by one K
R R
10. Under section 80 of the old Companies Ordinance (Cap 32)
S if a charge created by a company is not registered within five weeks of its S
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A A
register the charge lies on the chargor (the defendant) but any interested
B B
party may also make the application.
C C
11. The defendant did not register the charge within the five
D D
week period which expired on 2 March 2011 despite reminders by letter
E respectively dated 2 January 2011 and 22 February 2011 from the E
plaintiff.
F F
detail the sequence of events and showing, inter alia, that the company
L L
was continuing to carry on business and that no winding up petition was
M pending. M
N N
14. The plaintiff called in the loan on 19 December 2011 and
O required repayment of the amount outstanding by 28 December 2011. O
P P
15. No repayment having been made, the charge crystallized on
Q 28 December 2011. Q
R R
16. On 5 January 2012, Kennedys (the plaintiff’s former
S solicitors) wrote to the defendant referring to the defendant’s and S
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pursuant to clause 2.02 of the deed of charge and, for that purpose, to
B B
provide a draft deed of assignment by 12 January 2012.
C C
F F
18. On 12 January 2012, the plaintiff discontinued its ex parte
G summons to register the charge out of time. G
H H
19. Nothing came of the negotiations and by 2 February 2012,
I Kennedys demanded repayment of the loan and the provision of a draft I
20 February 2012.
L L
R R
22. Three months or so later, on 27 June 2012, the plaintiff
S applied for the appointment of provisional liquidators supported by the S
3rd affirmation (“So 3”) of So Yuen Leung (“Mr So”) one of its directors.
T T
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23. By that time, for reasons that will become apparent, the
B B
plaintiff decided not to proceed with the petition and the summons. As a
C result, both were dismissed on 9 July 2012. C
D D
24. The plaintiff issued an inter partes summons on 4 September
E 2012 to register the charge out of time. The summons was duly served E
8 October 2012 and the charge duly registered with the Companies
L L
Registry on 19 October 2012 after the 14 day period for appealing the
M master’s order had expired. M
N N
27. As part of an internal restructuring, the plaintiff assigned its
O legal and beneficial rights in the loan agreement and charge to its wholly O
R R
28. Seven months or more later, on 5 June 2013, Chan Yuen Wa
S (“Madam Chan”) presented a petition to wind up the defendant. S
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H
context, de minimis.
H
the solicitors for the provisional liquidators applying for copies of court
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documents in HCCW 80/2012.
K K
N N
THE APPLICATIONS
O O
33. Before the court are the following matters:
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(1) the defendant’s appeal issued on 20 March 2014 pursuant to
Q Order 58, rule 1 of the Rules of the High Court from the Q
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THE APPEAL
F F
35. When the summons leading to the 2012 order was issued on
H H
4 September 2012, YW Chan was no longer the defendant’s director.
I While Mr Lu confirmed in his affirmation dated 15 August 2014 that he I
has been the defendant’s sole director since 1 September 2012, he merely
J J
stated that he never received the court documents referred to in the Order
K until they were very recently produced to him by Ms Chen. No K
P
his appointment.
P
the falling out with Mr Lau at the end of 2011 after which Mr Lau was no
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longer involved in the defendant, she not only continued to handle the
S defendant’s operations as before, she continued to enjoy the services of S
T
the driver Mr Shek who, for some years, had been serving both Mr Lau
T
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and Ms Chen. In fact, she continued to use Mr Shek as her driver until
B B
the end of 2012.
C C
K 38. During September and October 2012 when the inter partes K
summons and the order were served on the defendant, on Ms Chen’s own
L L
evidence, Mr Shek was still serving as her driver. Given that fact, there
M is an apparent inconsistency in Ms Chen’s evidence if the first sentence M
quoted above is compared with the second. Having asserted that the
N N
documents would be collected on her behalf with the necessary
O implication that they would be handed to her, she changed her tune and O
Tsang & Co for them to give their account of what actually happened.
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40. Mr Manzoni SC, senior counsel for the defendant, faced with
B B
the affidavits of service on the defendant, had to accept due service but
C sought to rely on the affirmations filed on the defendant’s behalf “to C
demonstrate” why the summons and the order did not come to the
D D
defendant’s attention and the reason why the defendant did not turn up at
E E
the hearing. In fact, the thrust of his submission was nothing short of
F
accusing Mr Lau of engaging in chicanery by causing Mr Shek (who was F
employed by one of Mr Lau’s companies) to collect the documents that
G G
had been duly served on the defendant and, instead of handing them to
I I
41. In my view, the defendant’s evidence does not remotely
J
support the scenario Mr Manzoni was keen to have the court believe was J
what actually happened. I do not accept it. It was nothing more than
K K
sheer conjecture.
L L
42. As the defendant has not put forward a credible explanation
M M
for the delay in excess of 18 months or so in bringing this appeal, short of
N
demonstrating a strong case on the merits, the court’s discretion could not N
properly be exercised in the defendant’s favour. But before turning to
O O
consider the merits, it is necessary to deal with the admission of
P additional evidence. P
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(b) Admission of additional evidence
S
for the plaintiff objected to the admission of the additional evidence on
S
the basis that the defendant could not show that the Ladd v Marshall
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conditions were satisfied.
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proceed on the basis that the additional evidence is part of the relevant
D D
evidence.
E E
I (1) there had been a prior ex parte application that had been I
discontinued; and
J J
(2) the defendant was insolvent and unable to pay its debts at the
K time of the Order. K
L L
46. It was submitted that had the master been apprised of those
M matters, he would never have made the 2012 order because none of the M
47. Mr Manzoni also invited attention to the fact that the hearing
P P
was a “two-minute hearing”, and that the master had been misled into
Q thinking that the defendant had “disappeared” when that was not the case. Q
R R
(i) non-disclosure of prior application
S S
48. As to the prior ex parte application, I cannot see its
T relevance when the hearing before Master de Sousa was an inter partes T
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one. The defendant was duly served and that fact must be determinative
B B
particularly as I have rejected the defendant’s explanation as to why it did
C not know about the hearing. C
D D
(ii) allegation that the defendant had ‘disappeared’
E E
49. After the ex parte hearing, in fact several attempts were
F made to contact the defendant without success: see Yeung 1, §§14-16 F
and 19. The defendant never answered any of the letters sent to it. It
G G
steadfastly ignored the letters sent to it by the plaintiff. On the evidence,
H while Ms Chen was allegedly the one handling the defendant’s operations H
51. He also commented (at §46) on the fact of the defendant had
R R
only one director, namely, YW Chan whose address was the defendant’s
S current registered office address but that: S
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the master had been “misled” at all as the defendant sought to suggest.
F F
G (iii) jurisdiction G
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G G
56. Mr Manzoni relied on the plaintiff’s statutory demand,
fact that the loan has never been repaid and the plaintiff's belief that the
I I
defendant had disappeared in 2012 as supporting his submission that the
J plaintiff knew that the plaintiff was insolvent at the time of the 2012 J
application to register the charge out of time or, at any rate, that
K K
liquidation was then imminent. Reliance was also placed on the fact
L that the defendant was wound up in August 2013 on the basis of its L
O O
57. The debate between Mr Manzoni and Ms Chan largely
P concerned the meaning of “imminence of insolvency”. It is obvious that P
the principles set out above have to be understood in the context of the
Q Q
facts of the case actually decided.
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extension of time to register the charge (which was heard only 12 days
B B
before the scheduled date of the EGM) was unsuccessful before the
C registrar. On the following day, C issued a notice of motion to vary the C
registrar’s order but later that same day the company went into
D D
liquidation. C’s motion was heard on 23 June and dismissed. C’s
E E
appeal met with the same fate.
F F
59. It should also be noted that in Ashpurton the application was
G not made until after C was put on notice of an imminent EGM convened G
H
with a view to putting the company into liquidation. Contrast Braemar
H
where the company was put into voluntary liquidation less than one
I I
month after the registration of charge. Hoffmann J rejected the
J
argument that at the time of the registrar’s order, the company was no J
longer a going concern. He stated (at 62C-F):
K K
“As a matter of strict law an application to extend time is not
L too late if the registration can be effected before the liquidation L
actually commences. The court may, as a matter of discretion,
on particular facts decide that it is too late at an earlier date, but
M the overriding question must be whether it would be just and M
equitable to grant the leave … Unlike the Resinoid case … no
notice of the meeting of creditors had been sent out and it
N N
certainly could not be said that it was only the prospect of
forthcoming liquidation which had alerted the applicants to the
O necessity for an extension of time.” O
P P
60. The issue of the defendant’s solvency and the plaintiff’s
Q awareness of its financial condition as at the date of the Order formed the Q
focus of Mr Manzoni’s submissions.
R R
S
61. As earlier mentioned, the nub of this appeal is whether at the S
time the Order was made, the plaintiff knew that the defendant was
T T
insolvent or that its liquidation was imminent but failed to disclose that
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fact to the court. The defendant accused the plaintiff of making its
B B
application to register the charge out of time with a view to prejudicing
C the position of creditors or shareholders of the defendant and that on the C
of Yeung Kwok Leung dated 4 September 2012 (“Yeung 1”). That gave
F F
a chronological account of the defendant’s failure to register the charge
G despite two reminders from the plaintiff; the plaintiff’s realisation in late G
H
2011 of the defendant’s failure to register; the calling in of the loan and
H
conversion of the floating charge into a fixed charge in December 2011;
I I
the putting of the defendant on notice of the crystallisation of the charge
J
in early January 2012; its subsequent registration at the Land Registry in J
February 2012 against the title to the property; service of a statutory
K K
demand on the defendant in late February 2012; the presentation of the
P P
64. Mr Manzoni gave a description of the contents of So 3 at
Q Q
§33 of his written submissions:
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65. But the fact of the matter is that Yeung 1 had made it
G G
abundantly clear, inter alia, that the plaintiff’s demand for repayment in
H late 2011 had not been met, resulting in the crystallisation of the charge H
and registration at the Land Registry against the title to the property and
I I
the fact of the service and subsequent non-satisfaction of a statutory
J demand resulting in the presentation of the petition. The financial health J
M M
66. Further, according to So 3, the defendant’s known assets
N consisted of (a) the property recorded by the defendant in its June 2011 N
Q
and owing to the defendant by its debtors (“account receivables”) which Q
at 30 June 2011 stood at approximately $168 million but that they were
R R
unsecured. Based on information obtained at a meeting of creditors held
S
on 25 May 2012, in addition to the plaintiff, there were three other S
creditors including one (“King Perfection Limited”) for $20 million who
T T
subsequently admitted not to be a creditor. The defendant’s known
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P
68. It will be seen from the evidence given of the assets of the P
defendant and the known creditors at the time of the application for the
Q Q
appointment of provisional liquidators in June 2012 that, while the
R
defendant had cash flow difficulties, its assets exceeded its liabilities even R
if the lower value is taken to be the value of the property.
S S
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J 70. Fairly read, the evidence shows that it was never the J
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F F
73. It is to be noted that the draft management accounts as at
G June 2011 list as one of the defendant’s assets “Director’s current G
H
account”, the amount involved being just in excess of $83 million. At
H
that point in time and indeed since 3 March 2009, YW Chan was the
I
defendant’s sole director and who, during her tenure as sole director, had I
J
shown zero interest in the defendant and its operations. But by 5 June J
2013, within a two-year period, YW Chan was able to transmogrify her
K K
status from that of debtor for $83 million to creditor for $1 million plus
N
74. While the winding up petition presented by YW Chan was N
the next relevant event, it did not happen until seven months or so after
O O
the date of the Order and its due service on the defendant. The winding
P up order itself was not made until August, almost 10 months after the P
registration of the charge.
Q Q
R
75. Since this appeal is a rehearing, I accept that the fact of the R
defendant’s liquidation is to be taken into account. Nevertheless, in the
S S
circumstances of this case, I do not consider that it could properly be said
T that there was any reason for the plaintiff to consider that liquidation was T
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imminent at the time the Order was made. I therefore reject the
B B
submission that the court had no jurisdiction to make the Order.
C C
(iv) prejudice
D D
that they include “any and all unsecured creditors and it would also be
G G
any creditors who are secured over the assets that would be affected by
H any priority caused by the registration of the charge”. H
I I
77. The Order contained the usual proviso designed to protect
J the relevant creditors whose interests might be prejudiced. Paragraph 2 J
N N
78. Given that proviso, I confess that the class/classes of
O O
creditors Mr Manzoni was referring to that would allegedly be prejudiced
P
remain(s) obscure. None of the reasons raised by the defendant has P
merit. The conclusion is obvious.
Q Q
79. For good measure, in the event that this court were minded
R R
to set aside the Order (which it is not), Ms Chan submitted that the appeal
S S
should still be dismissed as it is of no utility or serves no useful purpose.
T
The contention is that the certificate of registration is conclusive evidence T
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that the requirement as to registration had been satisfied so that the charge
B B
is not invalidated as against the liquidators and the creditors of the
C company: Exeter Trust Ltd v Screenways Ltd [1991] BCC 477. C
D D
80. While it is strictly unnecessary to address this point given
E my conclusion that no valid basis has been shown for this court to set E
L L
82. Mr Manzoni sought to argue that as the certificate was
M
premised on the Order, if the Order were set aside, there would be no M
valid basis for the certificate. In Exeter Trust, the English Court of
N N
Appeal rejected a similar argument. It allowed the appeal and set aside
O the order of the court below that had set aside the registrar’s order O
extending time for registration, explaining that the whole point of
P P
creating the register is to give security to people relying on the certificate.
Q It cited with approval Wilde v Australian Trade Equipment Co Pty Ltd Q
(1981) 145 CLR 590, 603-604 where the High Court of Australia held
R R
that the order extending time was beyond recall so soon as registration
S had been effected in reliance upon it: see also In The Matter of Top S
Marques Car Rental Ltd v In the Matter of the Companies Act 1985
T T
[2006] EWHC 109.
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D D
84. Mr Manzoni’s remaining argument was based on section 42
E of Cap 622, submitting that it provides the court with jurisdiction lacking E
in Wilde. Ms Chan’s answer was that Cap 622 (and thus section 42) has
F F
no application to the present case which pre-dates that ordinance. In any
G event, the power in subsection (3) arises only if there is no other power. G
H
As section 347 of Cap 622 confers power on the court to rectify the
H
register, section 42 is not engaged at all.
I I
L L
CONCLUSION
M M
86. For all the reasons stated above, I conclude that the appeal is
N without merit. It is dismissed with an order nisi of costs in favour of the N
P P
Q Q
R (Doreen Le Pichon) R
Deputy Judge of the Court of First Instance
S High Court S
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Ms Linda Chan SC & Mr Vincent Chen, instructed by Leon Lai & Co,
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for the plaintiff and the intervener
C Mr Charles Manzoni SC & Mr Norman Nip, instructed by C
E E
F F
G G
H H
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K K
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