Cititrend Asia Ltd v Genstar Investment Holding Ltd

HCCW 416/2021

[2022] HKCFI 3482

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 416 OF 2021

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D E C I S I O N

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1. Cititrend Asia Limited seeks by its Amended Petition (“Petition”) an order that Genstar Investment Holding Limited (“Company”) be wound up on the grounds of insolvency. The debt upon which the Petitioner relies is explained in [6] of the Petition:

“According to a Promissory Note dated 13 September 2013 (the ‘Promissory Note’), the sum of USD378,567.00 is loaned to the Company by the Petitioner and the Company agrees to pay back the Creditor the sum of USD378,567.00 with 1% interest rate per annum from the date of the Promissory Note. The Company therefore has been indebted to the Creditor in the sum of USD378,567.00 for the principal amount under the Promissory Note since 13 September 2013.”

2. To prove insolvency the Petitioner relies on a statutory demand served on 18 October 2021 (“Statutory Demand”). The Statutory Demand describes the debt (“Debt”) as follows:

“According to a Promissory Note dated 13 September 2013 (the ‘Promissory Note’), the sum of USD378,567.00 is loaned to the Company by the Creditor and the Company agrees to pay back the Creditor the sum of USD378,567 with 1% interest rate per annum from the date of the Promissory Note.”

3. The material part of the Promissory Note reads as follows:

“Genstar Investment Holding, Ltd. referred to herein as ‘Promisor’, and CitiTrend Asia Ltd., referred to herein as ‘Promisee’, enter into an agreement that the sum of $378,567.00 USD is loaned to Genstar Investment Holding, Ltd .. and that the promiser agrees to pay back the promisee the sum of $378,567.00, (Three Hundred Seventy Eight Thousand, Five Hundred Sixty Seven and 00/100 Dollars), with 1% interest rate amortized annually from the above date. The payback schedule is to be over 5 years starting in 2016 or sooner. Details to be determined according to cashflow on Jan 2016.This Note is Guaranteed by the assets of Genstar Investment Holding, Ltd.”

4. Although the details of the payback schedule is ambiguous, from the language of the Promissory Note what is clear is that the principal and interest were to be repaid by the end of 2021 at the latest; it being clear from the Promissory Note that the latest date the Payback Schedule was to commence was the end of 2016. No practical problem arises in regard to assessing when or how much had to be repaid, because it is not in dispute that the advance was made and there has been no repayment of the principal or the interest.

5. The Petition is contested by one of the 2 contributories to the Company, Hiperk Limited (“Hiperk”) , which holds 54% of the Company. The remaining 46% is held by the Petitioner. In order to successfully oppose the Petition, Hiperk must demonstrate that the Company has a bona fide defence on substantial grounds to the Debt. What this test requires is uncontroversial. The Parties agree that it has recently been summarised accurately in a decision of DHCJ Sit SC in Asia View Enterprises Limited[1].

“28. The applicable legal principles are not in dispute:-

(1) A petitioner who is owed an undisputed or indisputable debt is entitled to a winding up order ex debito justitiae.

(2) In order to successfully oppose a petition on the basis of a bona fide dispute to the debt on substantial grounds, the debtor has to adduce sufficiently precise evidence which is believable, and must establish that it has a defence of substance, not just a fair probability of one.

(3) Winding-up proceedings are summary in nature and are not meant to be used for the purpose of debt collection. If the court is satisfied that there is a bona fide dispute on the debt, it will not usurp the function of a civil court and decide the disputes between the parties.

(4) 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.

(5) 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.

(6) The court should caution itself against unsubstantiated and unparticularized assertions. It is incumbent on the company to put forward sufficiently precise factual evidence to substantiate his allegations.

(7) 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.

See Re Hong Kong Investments Group Limited[2018] HKCFI 984, HCCW 63/2017 (unrep., 21 May 2018), §§11-14.””

6. As I explain in [10] of Re China Culture City Ltd[2]:

“…bare oral allegations, uncorroborated by documentary evidence or contrary to common or commercial sense, are insufficient to raise bona fide dispute on substantial grounds.”

7. Hiperk contends that the Company has 2 defences. The first is that the Promissory Note is unenforceable because the agreement is unenforceable on the grounds that the repayment provisions are uncertain. I disagree. As I have already observed even assuming it was unclear what the interim repayment schedule was to be, it is clear that by 31 December 2021 the...