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HCCW 1178/2004
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMPANIES (WINDING-UP) NO. 1178 OF 2004
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IN THE MATTER of LANDUNE INTERNATIONAL LIMITED and
IN THE MATTER of THE COMPANIES ORDINANCE, CAP. 32 |
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Before: Hon Kwan J in Chambers
Date of Hearing: 30 June 2005
Date of Handing Down of Decision: 14 July 2005
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D E C I S I O N
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1. This is a summons to strike out a creditor’s petition for winding up. The company in question is Landune International Limited (“the Company”), it is a listed company, formerly known as Singapore Hong Kong Properties Investment Limited. The petitioner, Cheung Chung Leung Richard, was a former director of the Company. He petitioned for its winding up on the basis of the non-payment of a debt of HK$1,177,500.00 due to him under a settlement agreement he reached with the Company dated 4 June 2004 (“the Settlement Agreement”). The Company does not dispute that this debt is due and payable, but has refused to pay on the ground that it has a bona fide and substantial cross claim against the petitioner far exceeding the petitioning debt. It seeks to strike out the petition on the basis that it has a serious and genuine cross-claim.
2. I will first set out the relevant facts in chronological order.
The facts leading to this application
3. The Company and its subsidiaries have been engaged in property holding and investment. During 25 September 1998 to 29 October 2001, Wong Wai Chi (“Mr. Wong”) was the chairman and managing director of the Company. The petitioner was an executive director from 1 October 1998 to 20 June 2003. He left the Company in June 2003.
4. On 28 April 2004, the petitioner brought a claim against the Company in the Labour Tribunal for arrears of wages, year end payment, director’s fees and remuneration during January 2001 to June 2003, in the amount of HK$2.6 million odd. In May 2004, the Company filed a statement in the Labour Tribunal admitting liability of HK$1.5 million odd. In June 2004, the Settlement Agreement was made by which the Company agreed to pay the petitioner, in full and final settlement of his claim, HK$1.57 million by four equal quarterly instalments of HK$392,500.00 each. The Settlement Agreement contained a provision that in the event of default of any instalment, the whole of the outstanding balance would be immediately due and payable.
5. The first instalment was paid on 15 June 2004. The second instalment, which was due on 15 September 2004, was not paid. On 24 September 2004, the petitioner’s solicitors served on the Company a demand for the outstanding balance of HK$1,177,500.00 under section 178(1)(a) of the Companies Ordinance, Cap. 32. As no payment was made, he presented this winding-up petition on 15 November 2004.
6. It was after the petition was presented that a writ was issued in HCA No. 2730 of 2004 (“the High Court Action”) on 2 December 2004. This is the cross-claim relied on by the Company to dismiss the petition. The writ was issued by Kailey International Limited (“Kailey”), a wholly owned subsidiary of the Company. The Company was not added as the 2nd plaintiff in the High Court Action until 4 February 2005.
7. The Company’s summons to strike out the petition was issued on 22 December 2004.
The High Court Action
8. There are four defendants in the High Court Action. The 1st defendant is Central Union (Asia) Holding Limited (“Central Union”). An executive director of Central Union, Hon Fong Ming Perry (“Mr. Hon”), is the 2nd defendant. Mr. Wong is the 3rd defendant and the petitioner the 4th defendant.
9. As mentioned earlier, Mr. Wong and the petitioner were former executive directors of the Company. They were also the only executive directors of Kailey, both were appointed on 22 August 2000, when the Company acquired Kailey as a shelf company in anticipation of its purchase of an interest in a hotel in the People’s Republic of China (“ the PRC”), known as the Luoyang Golden Gulf Hotel (“the Hotel”). Kailey was incorporated in the British Virgin Islands. On 22 August 2000, the Company and Mr. Wong, with Mr. Wong holding his share on trust for the Company, acquired the two issued shares of Kailey. Mr. Wong ceased to be an executive director of Kailey on 29 October 2001, when he also ceased to be the chairman and managing director of the Company. The petitioner ceased to be an executive director of Kailey on 16 July 2002.
10. It is alleged that as the most senior officers of the Company, Mr. Wong and the petitioner were in complete control of the Company and of Kailey at all material times.
11. On or before 1 September 2000, the Company, acting by Mr. Wong, entered into negotiations with Central Union for the acquisition of an interest in the Hotel. On 1 September 2000, at a meeting of the board of directors of the Company attended by only Mr. Wong and the petitioner, it was resolved that “the Executive Directors” be authorised to negotiate for the best terms on the proposed acquisition of an ultimate 40% interest in the Hotel for a consideration in the region of HK$120 million and to finalise with the relevant legal documentation.
12. On 6 September 2000, a sale and purchase agreement (“the Sale and Purchase Agreement”) was made. It was signed by Mr. Wong on behalf of Kailey as the purchaser. The vendor was Central Union. By the Sale and Purchase Agreement, Central Union agreed to sell to Kailey, at a total consideration of HK$120 million, (1) 57% of the entire issue share capital in Central Union (Asia) Hotel Management Company Limited (“CUAHM”), a company incorporated in the British Virgin Islands; and (2) 57% of a loan of HK$20,393,604.48, advanced by Central Union to CUAHM.
13. According to the recitals in the Sale and Purchase Agreement, warranted by Central Union as accurate in all respects, at the date of that agreement,
| (1) |
Central
Union was the beneficial owner of the entire share capital of CUAHM; |
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| (2) |
the sole
business of CUAHM was the holding of the entire share capital of Henan Central Union Computer Company Limited (“Henan Central Union”); |
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| (3) |
Henan Central Union was a private limited company incorporated in the PRC, whose sole business was the holding of 70% of the shares in Luoyang Golden Gulf Hotel Company Limited (“LGGH”), also incorporated in the PRC; and |
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| (4) |
the sole
business of LGGH was the operation of the Hotel. |
Thus, by acquiring 57% of the entire issued share capital of CUAHM, Kailey should hold ultimately 39.9% of the shares in LGGH, the entity which owned the Hotel.
14. It is also pertinent to note these provisions in the Sale and Purchase Agreement:
| (1) |
completion
was to take place 30 days after signing of the agreement; |
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| (2) |
of the
total consideration of HK$120 million, HK$80 million was to be
paid as part payment of the purchase consideration upon the
signing of the agreement and the balance of HK$40 million was to
be paid on completion; |
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| (3)
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completion
was conditional upon these conditions being satisfied within 30
days from the date of the agreement or such later date as the
parties may agree in writing: (a) Kailey being provided with a legal opinion issued by a qualified PRC lawyer on the good standing of Henan Central Union and LGGH; and (b) Kailey being satisfied at its absolute discretion with the results of a due diligence review of the legal, financial and operational position of CUAHM; in the event of the conditions not being fulfilled upon the time stipulated or the time extended, the sale and purchase in the agreement should become null and void; |
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| (4) |
various
warranties were given by Central Union in consideration of Kailey entering into the agreement and legal action may be taken by Kailey before or after completion for any material breach or non-fulfilment by Central Union of any of its representations, warranties, undertakings or agreements in the agreement; and |
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| (5) |
within 30 days
from the date of the agreement, Kailey was to procure its representatives to (a) review all books, records, accounts, contracts and other documentation of CUAHM, (b) review and verify the status, condition and ownership of the assets of CUAHM, (c) review the accuracies or otherwise of Central Union’s warranties and documents otherwise disclosed to Kailey. |
15. On 7 September 2000, the Company issued two cheques to Central Union, signed jointly by Mr. Wong and the petitioner, for the amounts of HK$80 million and HK$40 million, being the total consideration payable under the Sale and Purchase Agreement. Both cheques were cleared on 8 September 2000 and thus the sale and purchase was completed.
16. On 20 September 2000, the Company issued a cheque in the amount of HK$2.4 million, again signed jointly by Mr. Wong and the petitioner, in favour of one Zhu Chaosong, as “commission fee” for “acquisition of shares interest of [LGGH]”, pursuant to a letter from Evido Group Limited to the Company dated 1 September 2000, even before the Sale and Purchase Agreement was signed. There was no board resolution of the Company authorising payment of such commission or any engagement letter indicating what work was performed by Evido Group Limited to each such commission.
17. In October 2001, at around the time Mr. Wong left the Company, Ha Shu Tong (“Mr Ha”) was appointed an executive director of the Company and of Kailey. He became the managing director of the Company in December 2001. He was given the task...
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