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Re Everwin Enterprise (Hong Kong) Ltd

Judgment Cited authorities 10 Cited in Precedent Map Related
Vincent
Judgment Date02 June 2022
Neutral Citation[2022] HKCFI 1653
Year2021
Judgement NumberHCCW395/2021
Subject MatterCompanies Winding-up Proceedings
CourtCourt of First Instance (Hong Kong)
HCCW395/2021 RE EVERWIN ENTERPRISE (HONG KONG) LTD

HCCW 395/2021

[2022] HKCFI 1653

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 395 OF 2021

__________________

IN THE MATTER of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 of Laws of Hong Kong
and
IN THE MATTER of Everwin Enterprise (Hong Kong) (永興達企業（香港）有限公司)

__________________

Before: Hon Linda Chan J in Court

Date of Hearing: 25 March 2022 (remote hearing)

Date of Judgment: 2 June 2022

_________________

J U D G M E N T[1]

_________________

1. There is before the court a winding up petition presented by the petitioner, Haitong International Products & Solutions Limited (“P”), on 27 October 2021 (“Petition”) against Everwin Enterprise (Hong Kong) Limited (“Company”) on the ground that the Company is unable to pay its debts. The debt arose out of the “2020 Notes” (as defined in §16 below) which fell due on 31 December 2020.

2. On 19 October 2021, the Company applied ex parte (on notice) for an “interim interim” injunction to restrain P from presenting the Petition (“Injunction Summons”). On 22 October 2021, this Court after hearing arguments from leading counsel for both parties, dismissed the Injunction Summons as it did not appear from the evidence that there is a bona fide dispute on substantial grounds in respect of the debt. In particular, the Company admitted liability to pay the debt through Messrs. King & Wood Mallesons’ (“KWM”) letter dated 21 May 2021 (“Letter”):

“We are instructed that our client acknowledges and agrees that the amount of the outstanding sum owed by our client to your client under the Note Documents is USD195,378,000.” (underlined added)

3. The Letter was exhibited to the Company’s affirmation filed in support of the Injunction Summons in discharge of its duty to make full and frank disclosure.[2] The Letter was not marked without prejudice and was considered by this Court at the hearing on 22 October 2021 without any objection from the Company. However, 1 week prior to the original hearing of the Petition[3], the Company belatedly issued a summons to seek an order to expunge the Letter and other correspondence identified therein (“Expunge Summons”) on the ground that they are covered by without prejudice privilege (“WPP”).

4. At the hearing, Mr Paul Shieh SC (leading Ms Astina Au), counsel for the Company, opposes the Petition on the ground that there is a bona fide dispute on substantial grounds in that:

(1) the 2020 Notes are “tainted with illegality” and, therefore, unenforceable (Illegality ground); and

(2) there is an estoppel by convention against P by reason of the “Mutual Understanding” that P would not take any “drastic enforcement measures against the Company” until after expiry of the term of the appointment of its affiliate as financial adviser of the Company (Estoppel ground).

A. Approach to Expert Evidence

5. In recent times, there is a growing tendency on the part of the company opposing a winding up petition presented by a creditor (as well the debtor seeking to set aside a statutory demand or opposing a bankruptcy petition) to file voluminous affirmations and exhibits hoping to create an impression that there are many complex issues which cannot be determined by the court at the hearing of the petition. In particular, it is a matter of concern to see that substantial time and costs were incurred by the parties in filing “expert evidence” by affidavit[4] when such evidence is neither necessary nor relevant to the determination of the petition. This is because the approach of the Companies Court in dealing with a creditor’s petition is to ask whether the company has discharged the burden of showing a bona fide dispute on substantial grounds in respect of the debt. Once this threshold is met, the court will not go on to resolve the dispute, no matter how many affirmations or “expert evidence” have been filed by the parties.

6. The present case is a paradigm example to illustrate the extent to which a company seeks to adduce “expert evidence” and voluminous exhibits in opposition to the Petition when such evidence is clearly unnecessary and irrelevant to the determination of the Petition:

(1) The Company filed an affirmation of Huang Qisen (“Huang”) raising substantially the same factual matters already raised in the Injunction Summons. It also filed an “expert report” dated 6 January 2022 of Mr Stephen Weatherseed, senior director of Mazars CPA Limited (“SW Report”), which runs to 1,470 pages including many annexures.

(2) This led to P filing a responsive “expert report” dated 21 February 2022 of Mr Chen Yung Ngai Kenneth, a partner of ZANHOL Forensic Accounting Services Limited (“Chen Report”) which runs to 61 pages.

(3) The Company saw fit to include 3 bundles of Hong Kong Financial Reporting Standards and 3 more bundles of contracts relating to bonds which terms are irrelevant to the arguments on the Petition. As a result, there were 12 hearing bundles lodged with the court.

(4) However, it was obvious from the skeletons lodged by counsel for the original hearing that no reference was made to many of the documents in the 12 bundles. It was only upon this Court’s direction requiring the legal advisers to remove all the documents which are irrelevant to the Petition that the Company removed all the irrelevant documents which took up more than 6 bundles.

7. As will be seen from the latter part of this Judgment, the so-called “expert evidence” is wholly unnecessary and irrelevant to the determination of the Petition. When viewed against the underlying objectives of the CJR, one can only say that such “expert evidence” is a complete waste of time and costs.

8. Consistent with the court’s duty to further the underlying objectives by actively managing cases[5], in future, if a party wishes to adduce any expert evidence in winding up or bankruptcy proceedings (including application to set aside a statutory demand) commenced by a creditor, it should at the callover hearing, identify the relevant expert issues and the proposed expert and seek the court’s direction as to whether the issues are relevant to the petition. It is only if the court gives such directions that the parties may embark upon preparing and filing any expert evidence in the proceedings. If a party files any expert evidence without first satisfying the court that it is appropriate to do so, it may expect the court to order all the costs occasioned by such evidence to be borne by that party even if it is successful in the proceedings. In the case where the company is ordered to be wound up by the court, such that the petitioner is ordinarily entitled to be paid the costs of the petition out of the company’s estate, the court may order the directors responsible for causing the company to file the expert evidence to pay the costs occasioned by such evidence, as it would be unjust to apply the company’s estate to pay such costs.

B. Background facts

9. Haitong International Securities Group Ltd is a listed company in Hong Kong (“Haitong”) and engages in provision of financial services through its subsidiaries (collectively “Haitong Group”). The Company, Haitong International Securities Company Limited (“Haitong Securities”) and Haitong International Capital (HK) Limited (“Haitong Capital”) are wholly owned subsidiaries of Haitong.

10. Huang owns 95% of Tahoe Investment Group Co Ltd (“Tahoe Investment”). Tahoe Investment is the parent company of the Company and a substantial shareholder of Tahoe Group Co. Ltd (“Tahoe Group”), a company listed on the Shenzhen Stock Exchange. Tahoe Group holds all the issued shares in Tahoe Group Global (Co.,) Ltd (“Tahoe Global”).

B1. Tahoe Bonds and 2019 Notes

11. Pursuant to a Purchase Agreement dated 28 June 2019, Tahoe Global issued and sold to Haitong Securities US$400,000,000 aggregate principal amount of 15% Senior Notes due 2022 (“Tahoe Bonds”). Payment under the Tahoe Bonds was guaranteed by Tahoe Group. The Tahoe Bonds have since 11 July 2019 been listed on the Singapore Stock Exchange.

12. Pursuant to a Note Purchase Agreement dated 28 June 2019, the Company purchased from P a leverage participation note 2020 (“2019 Notes”) linked to the Tahoe Bonds.

13. Under the Pricing Supplement dated 10 July 2019 (as amended and restated on 18 December 2019) issued by P (as issuer of 2019 Notes), the “Aggregate Nominal Amount” and “Aggregate Proceeds Amount” of the 2019 Notes were US$195,378,000 and the maturity date was 17 July 2020.

14. In May and June 2020, P sought to terminate the 2019 Notes on the basis that the market price of the Tahoe Bonds had dropped significantly but was not able to do so given that “termination mechanism” existed in the 2019 Notes[6].

B2. 2020 Notes

15. The Company entered into a series of transactions with the result that the 2019 Notes were swapped with a set of notes issued by Auspicious Forward Investment Solutions Limited (“SPV”), a special purpose vehicle controlled by P, on 29 June 2020 (“SPV Notes”).

16. Pursuant to the Sale and Purchase Agreement dated 7 July 2020 made between the Company (as purchaser), Haitong Securities (as dealer) and P (as issuer), the Company exchanged the SPV Notes for a new set of leveraged participation notes issued by P on 7 July 2020 (“2020 Notes”).

17. Under the Side Letter Deed executed on or around 7 July 2020 (“Side Letter”), the Company agreed to pay default interest at 20% per annum (to be compounded daily) from the date the “Funding Total Amount” (as defined in §18 below) is due in full to the date of payment[7].

18. The terms of the 2020 Notes are set out in the Pricing Supplement dated 17 July 2020 (“2020 Pricing Supplement”) [8] which...

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