Re China Cultural City Ltd

CourtCourt of First Instance (Hong Kong)
Judgment Date22 June 2020
Neutral Citation[2020] HKCFI 1598
Citation[2020] 4 HKLRD 1
Subject MatterCompanies Winding-up Proceedings
Judgement NumberHCCW313/2019

HCCW 313/2019

[2020] HKCFI 1598






IN THE MATTER OF Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)


IN THE MATTER OF China Cultural City Limited (中華文化城有限公司)


Before: Hon Harris J in Court

Date of Hearing: 11 June 2020

Date of Delivery of Decision: 22 June 2020





1. In October 2019 Shun Wo Yuen Limited (“Shun Wo Yuen”) issued a petition to wind up the Company on the grounds of insolvency relying on non-payment of a statutory demand for $113,208,628 (“Debt”) to establish insolvency. It is Shun Wo Yuen’s case that the debt was assigned to it by its parent company Xin Wenhua (Hong Kong) Development Company Limited (“Xin Wenhua”) on 17 September 2019 in the circumstances described in the next section of this decision. The Petition is opposed by one of the two shareholders of the Company, Chinluck Performance Limited (“Chinluck”)[1].


2. The Company was set up in 1993 by the Government of the People’s Republic of China (“Government”) through its then Liaison Office in Hong Kong, in collaboration with the owner of Chinluck, Cheng Zhen Shu, in order to promote Chinese culture. Chinluck owned 50% of the Company. It is not in dispute that the other 50% was held by nominees on behalf of the Government. What is contentious is the arrangements, which were put in place on behalf of the Government to represent its interests.

3. The two camps have fallen out and the Company is deadlocked. Xin Wenhua has decided that the way to resolve the current impasse is for it to initiate a winding-up.

4. It is Shun Wo Yuen’s case that Xin Wenhua represented the Government’s interest in the Company through a number of individuals who worked for it from time. They were Pang Ching, Wang Kejing, Zeng Qinghuai and Huang Peibin who has produced Shun Wo Yuen’s principal affirmation. It is also Shun Wo Yuen’s that advances to the Company, which were recorded as loans to the nominees representing Xin Wenhua’s interest were loans made on behalf of the Government. The Debt is said by Shun Wo Yuen to consist of those loans.

5. It is fair to say that the contemporary documentation dealing with the matters, which I have summarised in the previous paragraph, are not as well or clearly documented as one would expect given that Xin Wenhua was representing the Government. To some extent this can probably be explained by the fact that in 1993 (which was before the transfer of sovereignty) and until relatively recently Mainland commercial and financial interests were commonly informal and opaque. That being said certain things seem to me to be fairly clear.

6. Mr Pang, Mr Zeng and Mr Wang were directors of the Company. They were also in turn shareholders. The advances, which were clearly made to the Company did not come from their bank accounts. They came initially from a company called Hong Kong United Arts Entertainment Co Ltd, which was associated with the New China News Agency as is apparent from correspondence at the time including a memorandum dated 14 April 1994. HK United Arts subsequently came to be owned by Xi Wenhua.

7. I do not understand Chinluck to suggest that the sums recorded as loans made by the three nominees either as directors or shareholders (the description of the capacity of the lender in the audited financial statements changes over time) were not advances on behalf of the Government. There is some suggestion in the evidence filed by Mr Cheng on behalf of Chinluck that some of the advances were not loans and have been repaid, but nothing remotely like the full amount or sufficient to reduce the debt below the $10,000 threshold, which engages the court’s jurisdiction to wind up a company.

8. There are three live issues. The first issue, concerns the reliability of the accounts (which have been audited) and the amount payable. The second issue is whether the Government has authorised the presentation of the Petition. The third issue is whether Shun Wo Yuen has locus to present the petition. This is a legal issue, which arises from the fact that the loans were transferred by equitable assignment from Pang to Zeng to Wang and then Wang executed a declaration of trust in respect of his interest to Xin Wenhua. It was only the assignment by Xin Wenhua of its interest in the loan to Shun Wo Yuen that was by way of a legal assignment. Mr Hui argues that consequently all that was transferred to Shun Wo Yuen was an equitable interest and that it was necessary for the holder of the legal interest to be joined as a party.

The burden on the Opposing Contributory

9. In order to defeat the petition it is necessary for Chinluck to demonstrate that the Company has a bona fide dispute on substantial grounds. The applicable legal principles in this regard are well-established, and succinctly summarized in this Court’s judgment in Re Yueshou Environmental Holdings Ltd [2]. In particular:

(a) A winding-up petition can be successfully resisted if there is a bona fide dispute on substantial grounds on the Petition Debt. The onus is on the Company (or in this case, Chinluck as the opposing contributory) to prove the same.

(b) Chinluck must put forward sufficiently precise factual evidence to substantiate its allegations and cannot merely raise a cloud of objections on affidavits.

(c) Chinluck’s assertions must be believable in the context of so much of the background as is either undisputed or beyond reasonable dispute. In other words, the evidence is to not to be approached with a wholly uncritical eye.

(d) An honest belief in an insubstantial ground of defence is not sufficient to avoid a winding-up order.

10. It has been repeatedly held that bare oral allegations, uncorroborated by documentary evidence or contrary to common and commercial sense, are insufficient to raise a bona fide dispute on substantial grounds: see e.g. (1) Re GW Electronics Co Ltd [3]; and (2) Re Kinston Entertainment (HK) Ltd [4].

11. In Dayang (HK) Marine Shipping Co, Limited v Asia Master Logistics Limited [5], DHCJ William Wong SC stated:

… The Companies Court neither resolves nor determines disputes when ruling on a creditor-petitioner’s locus to wind-up a debtor-company. Instead, disputes over the debt are only finally resolved upon determination by the liquidator (subject to the possibility of appeal) ….

72. To elaborate, the Companies Court does not, when hearing a petition for winding-up, make any determination on the dispute. Its role is simply to consider the prospective merits and ascertain whether the debtor-company had proven a triable case on the defence. It does not even have to decide whether one side or the other is more probably right: see Tallington Lakes Limited v Ancasta International Boat Sales Ltd [2012] EWCA Civ 1712 (20 December 2012) §5 per David Richards J (as he then was) and Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850 (‘Re Leung Cherng Jiunn’) at p.863; §27(5) per Kwan JA (as she then was)…

12. I would qualify the Deputy Judge’s comments. It is necessary for a company or an opposing contributory to demonstrate that a company has a bona fide defence on substantial grounds to a claim that the petitioner is owed at least $10,000. In some cases a company will be able to fairly say that it does not know how much it owes, but that it concedes a certain amount at least is due and is willing to pay it. In an extreme case it may be able to demonstrate that it cannot work out with any confidence at all what the minimum amount is and in those circumstances it is reasonable for it not to make any payment; although that will, I anticipate, be rare. What it cannot simply do is to point to shortcomings in accounts or financial records and blithely say that it does not know how much is payable and decline to pay anything. Not only is that not a defence on a substantial grounds, but it also falls short of satisfying the bona fide component of the test. I would expect bona fide opposition where what is in issue is the amount of the debt to involve some credible attempt to show what the minimum owed is thought to be.

The Defence

13. I shall address the argument that the financial records are too unreliable to allow calculation of what is payable. In my view there can be no sensible dispute that a significant amount has been lent interest free and for no agreed term and is, therefore, repayable on demand. It is not sufficient to respond to a claim for repayment that there is genuine uncertainty about the sum due and not proffer any attempt at an assessment of what the sum payable is likely to be. Mr Cheng attempts to circumvent this type of complaint by distancing himself and Chinluck from any involvement in the preparation of the accounts, although audited financial statements were signed by Chinluck’s nominee director, and they record year after year amounts due to a shareholder and Mr Cheng does not suggest that it refers to Chinluck. For example, as early as 16 December 1996 the audited financial statement for the year ending 31 March 1996, clearly shows $22,417,053 as due to a shareholder. That figure increases over the following years.

14. It seems to me clear on the evidence that the Company owes considerably in excess of $10,000 to the Government’s nominees and that it is unable to repay what is due and owing.

15. The second defence, namely, that the Government has not authorised the presentation of the Petition has an air of unreality about it. It is apparent from correspondence exhibited to Mr Huang’s affirmations that the Liaison Office was actively involved at various times in the...

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    ...present the Petition. P relies on cases on equitable assignees and in particular Harris J’s decision in Re China Cultural City Limited [2020] 4 HKLRD 1 for the proposition that a beneficiary of a trust of a debt is entitled to present a winding-up 18. Second, P contends that it is a conting......
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