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Liu Liguang v Decade Technology Ltd And Another

Judgment Cited authorities 6 Cited in Precedent Map Related
Vincent
Judgment Date31 January 2012
Subject MatterMiscellaneous Proceedings
Judgement NumberHCMP1941/2011
CourtHigh Court (Hong Kong)
HCMP1941/2011 LIU LIGUANG v. DECADE TECHNOLOGY LTD AND ANOTHER

HCMP 1941/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1941 OF 2011

(ON AN INTENDED APPEAL FROM HCCW NO. 463 OF 2010)

____________

IN THE MATTER OF Decade Technology Limited
（德凱技術有限公司）
and
IN THE MATTER OF section 327(3)(c) of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong
____________

BETWEEN
LIU LIGUANG（劉立光） Petitioner

and
DECADE TECHNOLOGY LIMITED 1st Respondent
GREAT MASTER TECHNOLOGY LIMITED 2nd Respondent
____________

Before: Hon Kwan JA in Chambers

Date of Hearing: 13 January 2012

Date of Decision: 31 January 2012

_______________

DECISION

_______________

The application

1. This is the petitioner’s application for leave to appeal against the decision of Reyes J on 22 September 2011. The judge refused to grant the interlocutory injunctions sought by the petitioner, having given ex tempore reasons. At the conclusion of the hearing and on his own motion, he refused leave to the petitioner to appeal to the Court of Appeal insofar as any such application was to be made.

The background

2. The relevant background matters may be stated shortly as follows.

3. The petitioner, Liu Liguang, holds 30% of the issued shares in the subject company, Decade Technology Ltd (“the Company”). The 2nd respondent, Great Master Technology Ltd (“Great Master”), holds the other 70%. The Company was incorporated in the British Virgin Islands. Its only valuable asset is its wholly owned subsidiary, Champway (China) Ltd, which, in turn, has a wholly owned subsidiary, Asia Dekor (Huizhou) Woods Company Ltd (“AD Huizhou”). AD Huizhou derives all its revenue from the business of its factory in Huizhou, which manufactures wood works for sale in the PRC and overseas.

4. Pursuant to a sale and purchase agreement made in October 2004, 70% of the issued shares of the Company were sold to Great Master, which was an indirect wholly owned subsidiary of Asia Dekor Holdings Ltd. In February 2005, the petitioner, Great Master and the Company entered into a shareholders’ agreement by which they set out the terms and conditions on which the business of the Company and the group were to be conducted.

5. As a result of a sale and purchase agreement made in November 2007, by which Asia Timber Products Co Ltd (“Asia Timber”) acquired the entire issued share capital of the immediate holding company of Great Master, there was a change in control of Great Master in March 2008. The petitioner claimed he has since been wrongfully excluded from the management of the Company and the group by Asia Timber.

6. The petition for winding up the Company was presented on 15 November 2010 pursuant to section 327(3)(c) of the Companies Ordinance, Cap 32. The only remedy sought is an order for winding up, on the just and equitable ground. Alternative relief under section 168A is not applicable, as the Company does not have a place of business in Hong Kong and is not a “non-Hong Kong” company as defined by section 332.

7. In the petition, it was alleged that notwithstanding provisions in the sale and purchase agreement on the obligation of the petitioner and Great Master to supply working capital in proportion to their shareholdings, and notwithstanding the provisions of the shareholders’ agreement, there was an oral agreement subsequent to the sale and purchase agreement between the petitioner and Great Master (referred to as the “Basic Agreement”) by which those provisions were varied. Instead, the petitioner was to use his effort and connections to secure a continuous supply of wood for the factory of AD Huizhou, Great Master was to finance the balance of the registered capital of AD Huizhou in the form of a loan to the Company, and AD Huizhou was to finance the balance of the capital required for the construction of its factory and all the working capital through borrowing from banks using the factory as security.

8. The petition set out a number of complaints of unfair and improper conduct against Great Master. For present purpose, it is necessary to mention only two of them.

9. The first related to a series of loan arrangements (“the Onshore Facilities Agreement”) which AD Huizhou and a number of affiliates of Great Master entered into in December 2009 as borrowers of RMB 280 million, by which all the assets of AD Huizhou were encumbered as security. It was alleged that in so doing, the nominees of Great Master on the board of AD Huizhou (“Great Master’s Nominees”) had acted in breach of their fiduciary duties and in breach of the mutual understanding and expectation that the business and affairs of the group should be managed jointly by the petitioner and Great Master in all major decisions.

10. The second matter (which was added to the petition by the amendments allowed by Reyes J on 22 September 2011) related to a multilateral entrustment loan agreement (“the Entrustment Loan Agreement”) entered into in March 2009 by AD Huizhou with Citibank Shanghai branch and four affiliates of Great Master including Asia Dekor (Heyuan) Woods Co Ltd (“Heyuan”). Pursuant to the Entrustment Loan Agreement, Great Master’s Nominees procured AD Huizhou to advance an aggregate of RMB 90,772,079.02 to Heyuan as at 31 December 2010. The loan was on an unsecured basis and carried an interest rate substantially lower than the commercial lending rate. The petitioner and his nominee on the board of AD Huizhou were not informed of or consulted about the Entrustment Loan Agreement or the loan to Heyuan.

The application for interlocutory injunctions

11. The petitioner applied by summons for interlocutory injunctions on 25 May 2011. Reyes J dismissed the entire summons. The petitioner sought to reverse his decision only in respect of paragraphs (2) and (4) of the summons.

12. In paragraph (2), the petitioner sought a mandatory injunction ordering Great Master to procure repayment of RMB 90,772,079.02 and any other amounts which it had caused AD Huizhou to pay itself, its associate companies or affiliates and which have not been authorised by the petitioner, and to pay such amount, together with compound interest at 2% above prime lending rate with monthly rests, into a designated bank account opened in the name of AD Huizhou within 14 days.

13. In paragraph (4), the petitioner sought a prohibitory interim injunction to restrain Great Master from causing AD Huizhou to make any loans or payments to Great Master, its associate companies or affiliates save with the written consent of the petitioner or an order of the court.

The grounds of appeal

14. In essence, Miss Linda Chan, SC submitted that the judge had failed to have regard to the fact that the petitioner has a very strong case in respect of his complaint about the unauthorised loan of RMB 90,772,079.02. The loan was made without obtaining proper authorisation in accordance with the articles of association of AD Huizhou and is void and without legal effect. It is in breach of the provisions of the shareholders’ agreement which provided that the business of the Company and AD Huizhou shall be managed in accordance with the directions and subject to the control of the Company’s board of directors. The loan had not been considered or approved by the board of directors of the Company or of AD Huizhou. Great Master’s Nominees were...

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