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Re Hong Kong Automobile Ltd

Judgment Cited in Precedent Map Related
Vincent
Judgment Date08 June 2020
Neutral Citation[2020] HKCFI 1134
Year2020
Judgement NumberHCCW288/2019
Subject MatterCompanies Winding-up Proceedings
CourtCourt of First Instance (Hong Kong)
HCCW288/2019 RE HONG KONG AUTOMOBILE LTD

HCCW 288/2019

[2020] HKCFI 1134

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 288 OF 2019

______________

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

and

IN THE MATTER of HONG KONG AUTOMOBILE LIMITED (香港汽車有限公司)

_____________

Before: Deputy High Court Judge Le Pichon in Court
Date of Hearing: 28 May 2020
Date of Decision: 8 June 2020

________________________

JUDGMENT

________________________

1. This is the hearing of a petition presented on 23 September 2019 by Pininfarina S.p.A. (“the Petitioner”), an Italian-listed company to wind up Hong Kong Automobile Limited (“the Company”) on grounds of insolvency. At the conclusion of the hearing, judgment was reserved which I now give.

BACKGROUND

2. This petition is based on an unpaid statutory demand served on the Company on 23 May 2019 in respect of a debt of €3 million (“the debt”). The debt arises out of a Memorandum of Understanding dated 11 June 2018 and 2 subsequent amendments made on 1 August 2018 and 24 October 2018 respectively (“the 1st Amendment” and “the 2nd Amendment” and collectively “the Amendments”).

3. The Company was incorporated in Hong Kong in March 2016 and is a fully owned subsidiary of Hybrid Kinetic Group Ltd (“HK Group”) a Hong Kong listed company whose Chairman is hereinafter referred to as “Chairman Yeung”.

4. The Company is in the business of design, development, manufacture, sales and service of new energy vehicles and related core components and systems.

5. The Petitioner is an Italian car design firm, carrying on the business of design, engineering, prototyping and niche manufacturing of motor vehicles.

6. The Petitioner and the Company began their collaboration in 2017 and entered into one contract in February and two contracts in May 2017 for the development of electric cars. There were subsequent amendments made in 2018 to the May contracts.

THE MEMORANDUM OF UNDERSTANDING (“THE MOU”)

7. On 11 June 2018, the parties entered into the MOU. Its substantive provisions were prefaced by the following:

“[i]n consideration of the successful performance of the activities and the fruitful ongoing cooperation and in order to permit [the Petitioner] to properly organize its own resources and keep them booked for [the Company]’s programs guaranteeing a smooth activities start-up in July, 2018”.

8. For present purposes, the pertinent substantive provisions are articles 1, 2 and 4:

“ 1) The Parties wish to enter into a long term development agreement providing a partnership according to which [the Company] shall engage [the Petitioner], for the programs to be developed in the next years, including the overall development for series, consisting of: complete styling, engineering, prototyping and SOP follow-up for [4 specified models]

2) At time’s benefit, [the Company] authorizes [the Petitioner] to start working on the above vehicle(s) development after this MOU signature. This MOU foresees a down-payment invoice of 3.000.000€ net (three million Euro) to be paid within 31st July 2018, relevant to the initial styling and feasibility stage for the first SUV model, where [the Petitioner] has to be promptly engaged. This amount will become part of the overall Contract Price, once it will be signed.

4) The Parties have agreed to sign this MOU that will remain in full force and effect until the first of:

a) the signature of the contracts listed in point 1), of which at least one of the SUV model shall be signed within 30th June 2018, to start up in the first week of July, 2018

b) 31st of July, 2018”

9. The 1st Amendment dated 1 August 2018 postponed the term provided in art. 4 b) in the MOU from 31 July 2018 to 15 September 2018.

10. The 2nd Amendment dated 24 October 2018 revised article 1 of the MOU by adding other models/items to the list. It then went on to provide as follows:

“ The Parties agree to implement art. 2 as follows:

2) The 3M€ downpayment did commit [the Petitioner] to start the activities relevant to the initial development for the compact-SUV (K350) and compact-Sedan (H300).

The Parties agree that the 3M€ invoiced on June 15th 2018 will be paid by [the Company] within Sep 30th 2018 ...

The parties agree to change art. 4 as follows:

4) The Parties have agreed to sign this MOU that will remain in full force and effect until the first of:

a) The signature of the contracts listed in point 1), of which at least a total of n.2 models shall be signed within Dec 31st 2018 – and n. 1 of them within Oct 30th 2018.

b) March 15th 2019

In case in which this [MOU] will terminate without the signature of the relevant contract, [the Petitioner] will be entitled in any case to retain the downpayment received as per art. 2 and to be compensated for the works performed, the work already in progress together with the cost incurred and for the costs [the Petitioner] has committed to incur for the ongoing activity.

All the other terms of the MOU shall remain valid and unchanged.” (emphasis supplied)

11. Attached to the 2nd Amendment was a chart headed “Budgettary Estimation for New Vehicles Development based on assumptions as of Sep 17th 2018” which set out cost estimates for 8 “existing platforms” including those for K350 and H300 which are models within the MOU.

12. The 2nd Amendment is significant in that it removed any ambiguity that might be said to have existed in the original MOU. Clear wording was used not only in relation to the Petitioner’s obligations to start its work relevant to the initial development of the K350 and H300 models but also to the Company’s payment obligation in relation to the €3 million.

13. The penultimate paragraph providing as it did for the retention of the down payment as per art. 2 whether or not the MOU (as amended) terminates without the signature of the relevant contract made the obligation to pay clear beyond doubt.

CHRONOLOGY

14. The relevant events (including summaries of relevant emails where appropriate) leading up to the statutory demand are set out below:

(a) On 18 June 2018 the Petitioner sent an email to the Company enclosing (i) an invoice dated 15 June for 3M€ as down payment for the project (K350); and (ii) an “Invoice Plan” as well as a “Payment Plan”, with the latter showing when each payment was due.

(b) By 17 July 2018[1], initial drawings, sketches, vehicle dimensions et cetera for K350 and H300 models had been prepared and sent to the Company.

(c) On 1 August 2018, the parties entered into the 1st Amendment extending the backstop date to 15 September 2018.

(d) On 24 October 2018, representatives of the Petitioner and HK Group had a meeting at which various topics were discussed. Minutes of that meeting (“the October minutes”) are set out in an email of even date from the Petitioner to the participants (viz. representatives of HK Group and the Company).

(i) One of the topics was the “MOU”. Its signing was recorded in the minutes.

(ii) Under the topic “Payments”, the minutes recorded that “Chairman Yeung will force the payment process in order to release all payments due to [the Petitioner] (around 8 M€) within end of October.”

(e) WhatsApp messages from Mark Moussa of the Company to the Petitioner of (i) 2 November 2018 reported an update from its CFO that “the wire transfer will complete by end of next week” and (ii) 9 November 2018 stated that the Chairman is personally working to help expedite the payment … now planned for next week”.

(f) In his email of 26 November 2018 to Chairman Yeung, the Petitioner referred to the final agreement reached at the October meeting that all overdue amounts would be paid by the end of October. However, they remained pending and unpaid as at the date of the email.

(g) Chairman Yeung’s reply (sent the same day) regarding the payment issue was that HK Group’s remittance request was being reviewed by the State Administration of Foreign Exchange of China (“SAFEC”)[2] and HK Group undertook to pay interest accrued caused by the delay.

(h) On 13 December 2018, the Petitioner sent a letter to HK Group seeking payment within 2 weeks (by 27 December 2018) of outstanding invoices totaling €8,267,000[3] that included the debt.

(i) On 21 January 2019, the Petitioner sent its demand letter seeking settlement of outstanding receivables[4] from the Company of, inter alia, €4,827,000 that included the debt. Attached to the letter was a statement of accounts as of that date.

(j) In his reply by email dated 24 January 2019, Chairman Yeung explained that a potential acquisition had been delayed but upon its completion, “all payment obligations” would be fulfilled.

(k) There were email exchanges between the parties on 13-14 February 2019 with Chairman Yeung requesting further time (another 2 weeks[5]) for payment. While amenable to request, the Petitioner required “a firm commitment from HK Group to sign the [Letter of Warranty]” by 1 March 2019.

(l) The Petitioner’s email of 7 March 2019 to Chairman Yeung referred to “the absence of any substantial and acceptable proposal from [HK Group]” despite the Petitioner having offered “all reasonable and possible solutions to [HK Group]” and that it had been his sincere hope that HK Group would at least agree with signing a Letter of Warranty and propose an arrangement to pay its debts. As it had not done so, the Petitioner had no choice but to resort to legal proceedings.

15. On 23 May 2019, the statutory demand was served on the Company in respect of the debt.

16. The petition was presented on 23 September 2019.

THE COMPANY’S DEFENCE

17. The Company contends that it can show a bona fide...

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