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Re Fortune King Trading Ltd

Judgment Cited authorities 5 Cited in Precedent Map Related
Vincent
Judgment Date19 May 2017
Year2017
Judgement NumberHCCW432/2012
Subject MatterCompanies Winding-up Proceedings
CourtHigh Court (Hong Kong)
HCCW432A/2012 RE FORTUNE KING TRADING LTD

HCCW 432/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 432 OF 2012

________________________

IN THE MATTER of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 of the Laws of Hong Kong
and
IN THE MATTER of (Fortune King Trading Limited) (君裕貿易有限公司)

________________________

Before: Madam Recorder Linda Chan SC in Chambers
Date of Hearing: 14 March 2017
Date of Decision: 19 May 2017

________________

DECISION

________________

1. This is an application made by the joint and several liquidators of Fortune King Trading Limited (君裕貿易有限公司) (“Company”) on 14 October 2015 under section 200(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“Ordinance”) for determination of the following question:

“ Whether the net balance of the sale proceeds of House 18 Severn 8, No. 8 Severn Road, Hong Kong (‘Net Balance’) paid into Court pursuant to the Order of Deputy High Court Judge Lok on 21 September 2012 under HCA 1055/2012 is an asset (a) owned legally and beneficially by the Company or (b) held on trust by the Company for and on behalf of the bankruptcy estate of Mr Luu Hung Viet Derrick.”

2. Mr Anson Wong SC (leading Mr Tom Ng), counsel for Construction Limited (“Construction”), objects to the summons issued by Mr Wong Tak Man Stephen and Mr Osman Mohammed Arab, the trustees of the estate of Mr Luu (together “Trustees”) to adduce his 5th affirmation dated 10 March 2017 on the basis that it was filed without leave of the court and the Trustees have failed to demonstrate exceptional circumstances for admitting this additional evidence at this stage. I do not think the objection is well founded as the purpose of 5th affirmation is to exhibit the contemporaneous documents obtained by the Trustees which relate to the matters already canvassed by the Trustees in their earlier affirmation. As will be seen further below, given the lack of any assistance from the liquidators of the Company, the court has to rely on the documents produced by the parties, in particular the Trustees, in ascertaining the fact relevant to the question raised in the liquidators’ Summons.

Background

3. The Company was incorporated in Hong Kong on 28 April 2007. Until 20 March 2012, its sole shareholder was Alphred Group Limited (“Alphred”), holding one issued share. Alphred was the sole director of the Company.

4. Alphred was incorporated in the BVI on 28 March 2007. On 4 May 2007, Mr Luu Hung Viet Derrick (“Mr Luu”) became its sole shareholder (holding one share) and director. Pursuant to a written resolution dated 26 September 2008 signed by Mr Luu, one share was allotted to his wife, Ms Liu Ke Mian Lorraine (“Mrs Luu”) for US$1. On 20 January 2012, Mrs Luu was appointed as a director of Alphred.

5. The Company purchased House 18 Severn 8, No 8 Severn Road, Hong Kong (“Property”) on 23 July 2007 for HK$109 million. As stated in schedule 4 to the agreement for sale and purchase dated 27 August 2007 (“SPA”), the price was paid by the Company in 4 tranches, and the last payment was made on 30 November 2007, which was also the date for completion. At the time of completion, Mr Luu was the sole beneficial owner of Alphred and the Company.

6. The Property was subject to a number of mortgages and legal charges as follows:

Date of creation Date of release Nature In favour of Amount secured
4/12/2007 -- Mortgage Standard Chartered Bank (“SCB”) All monies
4/12/2007 26/2/2008 Second legal charge Freeway Finance Company Ltd (“Freeway Finance”) All monies
18/7/2008 26/9/2008 Legal charge Goldbest International Investment Ltd (“Goldbest”) $15 million facility, all monies
23/6/2008 5/8/2009 Legal charge Freeway Finance All monies
4/9/2009 27/10/2009 Legal charge Freeway Finance All monies
27/10/2009 21/1/2010 Second legal charge Hong Kong Finance Company Ltd (“HK Finance”) All monies
21/1/2010 -- Second legal charge Sparkle Well Finance Company Ltd (“Sparkle Well”) All monies
16/8/2010 -- Third mortgage HK Finance All monies

7. On 1 August 2011, a bankruptcy petition was presented against Mr Luu. Following a contested hearing, a bankruptcy order was made on 8 February 2012 and the Official Receiver became the provisional trustee of Mr Luu’s estate.

8. Without any notice or consent of the Official Receiver, Mrs Luu on behalf of Alphred signed a special resolution stated to have been passed on 30 March 2012 (“Special Resolution”) to approve the transfer of the one share held by Alphred to Satisfactory Kingdom Holdings Ltd (“Satisfactory”). There is no evidence to suggest that any consideration was paid by Satisfactory to Alphred for the transfer of the share. This was despite the fact that by transferring the only issued share held by Alphred in the Company to Satisfactory, Mrs Luu was in effect disposing of the Company and the Property to Satisfactory. After the transfer of the share to Satisfactory, Mr Luu and Mrs Luu continued to reside in the Property, apparently without having to pay any rent to the Company.

9. The Property was sold to Petrina Company Limited pursuant to a sale and purchase agreement dated 30 April 2012 (“2012 SPA”) for HK$168 million and the sale was completed on 22 June 2012.

10. Shortly before completion of the sale, on 18 June 2012, the Trustees commenced HCA 1055/2012 against Mr Luu, Mrs Luu, Alphred, Satisfactory and the Company to claim, inter alia, declarations that (1) the transfer of the one share in the Company from Alphred to Satisfactory and the approval of the transfer by the Special Resolution were void, (2) Alphred remains the sole shareholder of the Company, and (3) 100% or 50% of the balance of the proceeds of sale, after discharging the amounts owed to the mortagees and chargees, is held by the Company on trust for the Trustees. On the same day, the Trustees applied for and obtained an ex parte proprietary injunction to enjoin the defendants from disposing of or dealing with the balance of the proceeds of sale.

11. Pursuant to a consent order dated 21 September 2012, HK$13.4 million, which was then thought to be the net balance of the proceeds of sale was paid into court.

12. On 3 July 2012, Construction commenced HCA 1140/2012 against the Company to claim repayment of a debt of HK$16.8 million. According to the statement of claim filed by Construction, the debt arose in this way:

(1) Pursuant to a loan agreement dated 24 July 2009 (“1st Loan Agreement”), Mr Wong Tseng Hon agreed to advance a HK$12 million loan to the Company for a term of 2 years.

(2) By an extension agreement dated 24 July 2011 (“1st Extension Agreement”), the time for repayment was extended for 6 months and the amount payable became HK$15 million.

(3) On 12 January 2012, the loan was assigned by Mr Wong to Construction.

(4) Instead of repaying the loan, on 24 January 2012, the Company and Construction entered into a second extension agreement whereby the parties agreed to further extend the time for repayment to 24 May 2012 upon the Company agreeing to repay HK$15.5 million by the extended date (“2nd Extension Agreement”).

(5) By another loan agreement dated 26 April 2012 (“2nd Loan Agreement”), Construction agreed to advance a further loan of HK$1.3 million to the Company, and the Company agreed to repay HK$16.8 million to Construction within 30 days thereof, i.e. by 25 May 2012.

13. Except the 2nd Loan Agreement which appears to have been signed by one “Sandy”, all the agreements were signed by Mr Luu on behalf of the Company and in his capacity as the guarantor of the loan. Only 2 cheques dated 26 April 2012 in the amounts of HK$800,000 and HK$500,000 paid by Construction to the Company have been produced.

14. Within 2 days of the issue of the writ in HCA 1140/2012, on 5 July 2012, one “Sandy”[1] on behalf of the Company filed an acknowledgement of service and admitted the claim, whereupon Construction obtained a default judgment against the Company on 12 July 2012 for HK$16.8 million together with interest at 8% per annum from 3 July 2012 and fixed costs of HK$11,045 (“Default Judgment”).

15. On 27 July 2012, Construction was added as the 6th defendant in HCA 1055/2012 and the only relief sought against Construction was an injunction to enjoin it from attaching or otherwise interfering with the balance of the sale proceeds in satisfaction of the Default Judgment.

16. Relying on the Default Judgment, on 23 November 2012, Construction presented a winding up petition against the Company in these proceedings. A winding up order was made against the Company on 30 January 2013. Ms Tso Yin Yee and Mr Pang Yiu Kwong, both of Vantage Advisory Limited, were appointed on 4 November 2013 as liquidators of the Company (together “Liquidators”). Construction is the only creditor which has filed a proof of debt in the liquidation of the Company.

17. The Trustees subsequently discovered that a sum of HK$1,435,000 had been taken from the sale proceeds of the Property and used by Mr Luu to repay a debt he owed to HK Finance. Upon the repeated requests of the Trustees, on 10 January 2017, HK Finance repaid HK$1,435,000 to the Liquidators, and the Liquidators paid the same into court on 6 March 2017. Taking into account this additional payment, the “Net Balance”, as defined in the Liquidators’ Summons, was...

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