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Re China Greenfresh Group Co Ltd (“The Company”)

Judgment Cited authorities 5 Cited in Precedent Map Related
Vincent
Judgment Date14 April 2021
Neutral Citation[2021] HKCFI 1182
Year2021
Judgement NumberHCCW83/2020
Subject MatterCompanies Winding-up Proceedings
CourtCourt of First Instance (Hong Kong)
HCCW83/2020 RE CHINA GREENFRESH GROUP CO LTD (“the Company”)

HCCW 83/2020

[2021] HKCFI 1182

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 83 OF 2020

________________

IN THE MATTER of section 327(3)(b) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32

and
IN THE MATTER of China Greenfresh Group Co Ltd (“the Company”)

________________

Before: Hon Harris J in Court

Date of Hearing: 14 April 2021

Date of Decision: 14 April 2021

________________

D E C I S I O N

________________

1. I have before me a petition issued by Mr Wang Fengming seeking an order to wind up the Company on the grounds of insolvency. The Company is incorporated in the Cayman Islands and its shares are listed on the Main Board of the Hong Kong Stock Exchange. The Petitioner issued a statutory demand in December 2019 demanding payment of what the Petitioner says is a debt owed to him by the Company.

2. The debt is described in [5] and [6] of the Petition which I quote:

“5. The Company is indebted to your Petitioner HK$10,011,945 being the sum of the outstanding principal amount of HK$10,000,000 and the interests accrued from 12 August 2019 to 28 November 2019 due to your Petitioner (‘the Debt’) pursuant to the Bond Certificate No. K201908-05 issued on 12 August 2019 (‘the Bond’).

6. Your Petitioner is the registered holder of the Bond. The principal amount of the Bond is HK$10,000,000 and the maturity date of the Bond is 12 November 2019 (‘the Maturity Date’). The Bond bears interest from and including the date of issue of the Bond to and including the Maturity Date at the rate of 0.4% per annum, payable on the Maturity Date.”

3. It will immediately be noted that despite the arrangement being described as involving issuance of a bond, what the Petitioner contends he agreed was simply to lend HK$10 million to the Company for a three-month period at an annualised interest rate of 0.4%.

4. The evidence filed by the Company in opposition to the petition disputes the debt. The Company says that the bond certificate and associated documentation including a subscription agreement were not authentic by which it means had not been knowingly executed by a duly authorised officer of the Company and further that it was believed the signatures on the documents and the seal that appear to be applied were forgeries. The position of the Company, however, by the time the petition came on for argument today before me had changed, mainly as a result of its case being streamlined so that the Company’s position is this.

5. It does not seek dismissal of the petition, it accepts that it is insolvent. There are four other petitions that have been issued against this Company; wrongly for reasons explained in my decision in Re China Greenfresh Group Co Ltd [1]. The Company acknowledges that unless it is able to formulate a scheme for the restructuring of its debt which achieves the support of the necessary proportion of unsecured creditors, it will be wound up. There is, therefore, no utility in seeking to have any one of the petitions dismissed on the grounds that the Company is able to demonstrate a bona fide defence on substantial grounds to the debt relied on by the relevant petition.

6. The position of Mr Ho on behalf of the Company today was that the Company sought a three-month adjournment in order to progress a restructuring. This is a proposal to which the Petitioner is not prepared to agree arguing, with some justification, that there is not a sufficiently developed proposal for creditors to consider to justify an adjournment.

7. The submissions of Mr Ho, however, apart from seeking to persuade the Court that it is the interest of creditors that the petition be adjourned, also raise an objection to the petition on the grounds that it fails to satisfy the second of the core requirements which the Court requires to be satisfied before it will wind up a company incorporated in a foreign jurisdiction.

8. I have explained how that the second core requirement is now understood, in [23]–[29] of my decision in Re China Huiyuan Juice Group Limited [2]:

“23. After this Petition was heard the Court of Appeal handed down its judgment in Shangdong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd [3]. This was an unusual case. The Company is incorporated in the Mainland and has listings both in Shenzhen and Hong Kong. It is solvent. It refused to pay an arbitration award, which the Defendant was given leave to enforce in Hong Kong as a judgment. The Company refused to pay the judgment. The Defendant threatened to issue a petition to wind-up the Company on the grounds of insolvency. The Company issued an application for a declaration that the Defendant would not be able to demonstrate that the three core requirements could be satisfied and, therefore, it should be enjoined from presenting a petition. It was not in dispute that both the first and third core requirements were satisfied. The Company argued that its only connection with Hong Kong was its listing and that no benefit would be derived by the Defendant if a winding-up order were to be made and thus the second core requirement could not be satisfied. The Court of Appeal agreed with my decision that a benefit to the Defendant would result from a winding-up order by virtue, and I summarise, of the pressure that a liquidation in Hong Kong, or the prospect of such a liquidation, would put on the Company to settle the debt. This effect largely arose from the fact that the Company was clearly solvent and wished to access Hong Kong’s capital and debt markets. The only reason for not paying was recalcitrance. It will be appreciated that the facts were unusual and, hopefully, are not likely to arise again. The relevance of the Court of Appeal’s decision is the following statement in the judgment, which was given by Barma JA, about the second core requirement. Barma JA says this at [27]:

‘Moreover to insist on this requirement being met is clearly sensible, in that there would seldom be circumstances in which it would be justified to set in motion the court’s winding-up machinery where to do so could provide no reasonable prospect of benefit of any kind to the petitioner. That said, the overarching nature of the enquiry, the purpose of which is to ascertain whether it would be appropriate to put into motion the winding-up machinery in respect of a particular overseas company, would, I think, allow for some flexibility as to the nature or extent of the likely benefit to the petitioner that should be shown in order to satisfy the second core requirement, as long as the benefit can be said to be a real possibility, rather than a merely theoretical one.’

24. I think it is accurate to say that the second core requirement had, until the Shangdong Chenming Paper case, given rise to less controversy than the first core requirement. However, the significant increase in the number of winding-up petitions in respect of listed offshore holding companies of Mainland business groups makes the second core requirement of much greater significance. The reason for this is as follows. It is common for these business groups to be structured in a similar form to that in the present case, namely, a listed holding company incorporated in one of the offshore jurisdictions, which has a wholly owned subsidiary incorporated in another offshore jurisdiction, which in turns has a wholly owned subsidiary incorporated in the Mainland, which has underneath it a web of Mainland incorporated subsidiaries that hold the group’s assets and conduct its business. Commonly these business groups, if they run into financial problems, come before the Hong Kong court in one of two ways. First, as a consequence of a creditor’s petition of the sort brought in the present case. Secondly, as a consequence of the group taking the initiative to restructure its debt and applying to the court of the place of incorporation for the appointment of soft-touch provisional liquidators, who then seek recognition and assistance in Hong Kong in order to facilitate rehabilitation and circumvent the difficulties caused by the Hong Kong Court of Appeal’s decision in Legend International Resorts Ltd [4]. I note in passing that since the High Court has reopened at the beginning of May of this year corporate insolvencies involving Mainland business groups listed in Hong Kong using offshore companies have generated the majority of the corporate insolvency matters coming before me.

25. In practice the application of the three core requirements has not until the handing down of the decision in Shangdong Chenming Paper (which predates the current spate of cases by some years) been the source of controversy. It is now well established that the listing of a company in Hong Kong is sufficient to satisfy the first core requirement and commonly there is more than one creditor subject to the jurisdiction of the Hong Kong court, which is sufficient to satisfy the third core requirement. Little attention has been paid to the second core requirement. In restructuring cases I have not yet had a company seek to have a petition dismissed on the grounds that the second core requirement cannot be satisfied. Normally the company is only concerned to persuade the court to...

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