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Igai Company Ltd (In Creditors’voluntary Liquidation) v Get Nice (Union) Finance Company Ltd

Judgment Cited authorities 5 Cited in Precedent Map Related
Vincent
Judgment Date21 August 2014
Year2014
Judgement NumberHCMP2739/2013
Subject MatterMiscellaneous Proceedings
CourtHigh Court (Hong Kong)
HCMP2739/2013 IGAI COMPANY LTD (IN CREDITORS’VOLUNTARY LIQUIDATION) v. GET NICE (UNION) FINANCE COMPANY LTD

HCMP 2739/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2739 OF 2013

____________

IN THE MATTER of Sections 266 and 266B(1)(b) of the Companies Ordinances, Cap.32
and
IN THE MATTER of Igai Company Limited (in Liquidation)

____________

BETWEEN
IGAI COMPANY LIMITED
(IN CREDITORS’VOLUNTARY LIQUIDATION)		 Applicant

and
GET NICE (UNION) FINANCE COMPANY LIMITED Respondent
____________

Before: Hon Harris J in Chambers

Date of Hearing: 9 July 2014

Date of Decision: 21 August 2014

_________________________

D E C I S I O N

_________________________

1. On 23 October 2008 the Company passed a resolution to put itself into creditors’ voluntary winding up and form W3 was filed at the Companies Registry stating that Alan Tang and Peter Wong had been appointed liquidators of the Company. On 17 October 2013 the liquidators issued an originating summons seeking, amongst other things, a declaration that a payment of $1,050,000 made on 8 July 2008 by the company to the respondent constituted an unfair preference contrary to sections 266 and 266B(1)(b) of the Companies Ordinance, Cap. 32, and is void.

2. The payment came to be made in the following circumstances. On 5 May 2008 the major shareholder of the company, Leung Ling, signed an agreement with the Respondent, which is a licensed money lender, pursuant to which he borrowed $2,500,000, which Mr. Leung was required to repay on or before 8 August 2008. Mr. Leung was the majority shareholder and a director of the Company. The Company had one other shareholder and director, Mr. Leung’s Wife, Madam Ma. On 8 May 2008 the board of directors of the company passed a resolution approving a guarantee by the Company of Mr Leung’s obligations under the loan agreement. A guarantee and indemnity was signed on 8 May 2008. The guarantee provided that the company guaranteed unconditionally the full and punctual payment of all sums payable by Mr Leung. Clause (d) provided that:

(i) a written confirmation from your company stating the amount of money due to you by the borrower shall be conclusive evidence of the indebtedness at such rate of the borrower to you and accordingly conclusive evidence between you and me/us that my/our liability has accrued in respect of the amount stated.

…

(iii) Any payment due to be made by me/us to you upon demand shall be made immediately on receipt of notice of such demand. Any such notice shall be sufficiently given if posted to my/our addresses last known to you and shall be deemed to have arrived in the due course of post.

3. Unbeknown to the liquidators at the time the originating summons was issued Mr Leung and the Respondent had also signed on 8 May 2008 a memorandum which recorded, amongst other things, that "securities" in the form of three cheques had been provided, which were post dated on 8 June, 8 July and 8 August 2008 respectively. The cheque post dated 8 July 2008 was for $1,050,000. That cheque was presented on 8 July to HSBC, on whom it was drawn, and honoured. It is this transaction that the liquidators contend gives rise to an unfair prejudice.

4. Sections 266(1) and 266B(1) of the Companies Ordinance provide respectively:

“266. Fraudulent preference

(1) Any conveyance, mortgage, delivery of goods, payment, execution or other act relatingto propertymade or done byoragainstacompany within 6 months beforethe commencementofitswinding upwhich, haditbeenmade ordone byoragainstanindividualwithin6 monthsbefore thepresentationofabankruptcypetition onwhichheis adjudged bankrupt,wouldbedeemed inhisbankruptcy a fraudulent preference,shallinthe event of the company beingwoundupbedeemedafraudulent preferenceofits creditorsand beinvalidaccordingly:

Provided that, inrelation to things made ordone before thecommencement*oftheCompanies (Amendment) Ordinance 1984(6of 1984), this subsection shall have effect with thesubstitution,for references to6 months,of referencesto3 months.

266B. Fraudulentpreferencedeemedtobeanunfairpreference

(1) On and after the day section 36 of the Bankruptcy (Amendment) Ordinance 1996 (76 of 1996) (the amending Ordinance) comes into operation, where the winding up of a company commences on or after that date-

(a) a reference in section 266 or 266A of this Ordinance to a fraudulent preference shall be deemed to be a reference to an unfair preference as provided for in section 50; and

(b) a reference in section 266 of this Ordinance to a period of 6 months shall be deemed to be a reference to a period of-

(i) 6 months; or

(ii) 2 years in the case of a person who is an associate as provided for in section 51B,

of the Bankruptcy Ordinance (Cap. 6) (the principal Ordinance).”

5. Sections 50(1) to (4) and 51(1)(c) and (2) of the Bankruptcy Ordinance, Cap. 6, provide:

“Section: 50 Unfair preferences

(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged bankrupt and he has at a relevant time (defined in section 51) given an unfair preference to any person, the trustee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that debtor had not given that unfair preference.

(3) For the purposes of this section and sections 51 and 51A, a debtor gives an unfair preference to a person if-

(a) that person is one of the debtor's creditors or a surety or guarantor for any of his debts or other liabilities; and

(b) the debtor does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the debtor's bankruptcy, will be better than the position he would have been in if that thing had not been done.

(4) The court shall not make an order under this section in respect of an unfair preference given to any person unless the debtor who gave the unfair preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection (3)(b).

Section: 51 “Relevant time” under sections 49 and 50

(1) Subject to subsections (2) and (3), the time at which a debtor enters into a transaction at an undervalue or gives an unfair preference is a relevant time if the transaction is entered into or the unfair preference given-

....

(c) in any other case of an unfair preference which is not a transaction at an undervalue, at a time in the period of 6 months ending with that day.

(2) Where a debtor enters into a transaction at an undervalue or gives an unfair preference at a time mentioned in subsection (1)(a), (b) or (c) (not being, in the case of a transaction at an undervalue, a time less than 2 years before the end of the period mentioned in subsection (1)(a)), that time is not a relevant time for the purposes of sections 49 and 50 unless the debtor-

(a) is insolvent at that time; or

(b) becomes insolvent in consequence of the transaction or preference,

but the requirements of this subsection are presumed to be satisfied, unless the contrary is shown, in relation to any transaction at an undervalue which is entered into by a debtor with a person who is an associate of his (otherwise than by reason only of being his employee).”

6. As is apparent from these sections what the liquidators have to establish is that at the “relevant time” the Company did anything or allowed anything to be done that had the effect of putting the Respondent in a better position than it would have been if the thing done had not been done. There is no dispute that the relevant time is 6 months prior to the date the Company went into liquidation. That period is 24 April 2008 to 23 October 2008. There is a dispute as to whether the relevant event occurred on 8 May, when the guarantee was signed and the cheques provide, or 8 July 2008 when the cheque was presented and honoured. Both dates are 6 months prior to the commencement of the winding up. This dispute is material because section 51(2) requires the liquidators to establish that at the time the unfair prejudice took place the Company was insolvent and this task is easier the closer the relevant date is to 23 October 2008.

7. The liquidators express suspicions in their evidence about the propriety of the Company agreeing to guarantee a personal loan to one of its directors, but the present application does not seek to set aside that transaction and, although I can understand the liquidators’ concerns, it does not seem to me that the evidence adduced before me justifies determining the present application other than on the basis that as between the Company and the Respondent the guarantee was lawful and enforceable and, indeed, Ms. Abigail Wong who appeared for the liquidators did not suggest otherwise. Ms. Wong did, however, argue that the Respondent was not entitled to present the cheque on 8 July 2008 because it had not complied with the clauses of the guarantee quoted in paragraph 2 of this decision. These provisions do not state that a demand has to be made before the guarantee becomes enforceable or that the Respondent has to demonstrate that Mr. Leung has failed to pay in accordance with the terms of the loan agreement. They are provisions addressed to the obligations of the Company to pay if the Respondent seeks payment under the guarantee. They are not apposite if the Respondent did not require the Company to do anything, in practice give it a cheque, because it already had a post‑dated cheque. Self-evidently the Respondent would have to make a demand for payment from the Company unless it had some form of...

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