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Re Legend International Resorts Ltd

Judgment Cited authorities 3 Cited in Precedent Map Related
Vincent
Judgment Date08 June 2006
Year2006
Citation[2006] 3 HKLRD 270
Judgement NumberHCCW1139/2004
Subject MatterCompanies Winding-up Proceedings
CourtHigh Court (Hong Kong)
HCCW001139A/2004 RE LEGEND INTERNATIONAL RESORTS LTD

HCCW 1139/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1139 OF 2004

____________

　 IN THE MATTER of LEGEND INTERNATIONAL RESORTS LIMITED
　 and
　 IN THE MATTER of the Companies Ordinance, Cap. 32

____________

Before: Hon Kwan J in Court

Date of Hearing: 8 June 2006

Date of Judgment: 8 June 2006

_______________

J U D G M E N T

_______________

1. This is a hearing of the petition presented by Morgan Stanley Emerging Markets Inc (“MSEMI”) to wind up Legend International Resorts Limited (“the Company”) on 2 November 2004. Two grounds are relied on in the petition - the Company is unable to pay its debts (under section 177(1)(d) of the Companies Ordinance, Cap. 32) and that it is just and equitable that the Company be wound up (section 177(1)(f)).

2. The Company was incorporated in Hong Kong. Its business is to own and operate a casino in Subic Bay in the Philippines.

3. The debt in the petition is US$5,236,020.54 with interest. MSEMI purchased the debt from the original lender. Since the presentation of the petition, it has purchased further debts owed by the Company. The total debts acquired are in the region of US$60 million. MSEMI is a wholly owned subsidiary of Morgan Stanley, a major investment bank in the United States.

4. This petition has the support of 2 other creditors, Philippine Asset Investment (SPV-AMC) Inc. (“PAII”) and Asset Pool A (SPV-AMC) Inc. (“APA Inc”). PAII is a wholly owned subsidiary of MSEMI and APA Inc. is a wholly owned subsidiary of Avenue Asia Special Situations Fund III, L.P. Unlike MSEMI, these creditors have also purchased debts owed by the Company from the original lenders. The combined indebtedness to PAII and APA Inc. is about US$83.76 million odd.

5. No creditor has filed any notice to oppose the petition. It is not in dispute that the Company is hopelessly insolvent.

6. According to a schedule submitted by MSEMI to the Court of Appeal at a hearing in February 2006, the debts claimed by MSEMI, PAII and APA Inc. together accounted for 95.8% of the Company’s debts to financial creditors and 79.7% of the total debts of the Company, based on figures provided by the Company regarding its liabilities in a rehabilitation plan (“the Rehab Plan”) annexed to its petition for corporate rehabilitation filed in the Philippine Court on 5 November 2004.

7. The Company does not recognise PAII and APA Inc. as creditors, and have issued proceedings in the Philippines to challenge their status.

8. I have said that this petition was presented by MSEMI on the ground of insolvency and on the just and equitable ground. In support of the just and equitable ground, the allegation relied on in the petition is that the business and affairs of the Company are being conducted in a manner detrimental to its creditors and third parties dealing with the Company. I think it is right to say that insolvency is the main, if not the only, ground relied on by MSEMI. I do not propose to deal with the just and equitable ground.

9. For the background of the Company, the matters giving rise to this petition, and related proceedings in the Philippines, Malaysia and England, I refer to a decision I gave in these proceedings on 6 June 2005, paragraphs 6 to 38, and the judgment of the Court of Appeal on the appeal from my decision given on 1 March 2006, paragraphs 3 to 12. I shall not repeat them.

10. This petition is resisted by the Company on three broad grounds:

(1) the Company has raised a bona fide dispute on substantial grounds that MSEMI is not a creditor of the Company in that it is not an “Eligible Transferee” within the meaning of the Facility Agreement dated 22 July 1997;

(2) there is a Stay Order made on 9 November 2004 by the Philippine Court in the rehabilitation proceedings and this has the effect of staying enforcement of all claims against the Company by court action or otherwise; and

(3) this court should exercise its discretion against making a winding-up order for 2 reasons: (a) to allow the Company to go through with its plan for rehabilitation in the Philippine Court; and (b) MSEMI is a “delinquent” petitioner that has allied itself with the Philippine Amusement and Gaming Corporation (“Pagcor”) and Pagcor has engaged in “unlawful” conduct recently in forcibly closing the Company’s casino and seizing the assets of the Company under various writs of attachment.

Disputed debt

11. The approach of the court on hearing a creditor’s petition to wind up a company was neatly summarised by the English Court of Appeal in these terms in Alipour v. Ary [1997] 1 WLR 534 at 546B to C:

“(1) A creditor’s petition based on a disputed debt will normally be dismissed. (2) It will not be dismissed if the petitioning creditor has a good arguable case that he is a creditor and the effect of dismissal would be to deprive the petitioner of a remedy or otherwise injustice would result or for some other sufficient reason the petition should proceed. (3) On a contributory’s petition where the locus standi of the petitioner is disputed, the court will consider all the circumstances, including the likelihood of damage to the company if the petition is not dismissed, in determining whether to require the petitioner to seek the determination of the dispute outside the petition.”

12. I have held against the Company it has raised a bona fide dispute on substantial grounds regarding MSEMI’s locus standi as a creditor in its application to strike out the petition (paragraphs 39 to 57 of my decision). My decision was upheld by the Court of Appeal (paragraphs 17 to 22 and 51 of the judgment). The same arguments raised by the Company before the Court of Appeal were raised before me at this hearing.

13. The point at issue is a question of construction of the Facility Agreement, whether MSEMI would qualify as an “Eligible Transferee”, which was defined to mean “any bank, deposit taking company or other financial institution, wherever incorporated, duly authorised to carry on its business and to participate in the Facility.” MSEMI is not a bank or deposit taking company. MSEMI claims it comes within “other financial institution, wherever incorporated, duly authorised to carry on its business and to participate in the Facility”, on a proper construction of the Facility Agreement. The Company contends that “other financial institution” in this context should be confined to an entity whose business is analogous to that of a bank, and a substantial proportion of whose business would involve the making of loans.

14. Mr. Barlow submitted for the Company that the central issue as to MSEMI’s claim to be a creditor of the Company is not suitable for summary determination in these winding-up proceedings. He said there should be a full trial with discovery and cross-examination of deponents of affirmations. This could either be in the winding-up proceedings (he gave as examples Bateman Television Ltd v. Coleridge Finance Co Ltd. [1971] NZLR 929 and Brinds Ltd & Ors v. Offshore Oil N.L. & Ors (1986) 2 BCC 98,916), or in a separate action commenced by writ. He submitted it would be wrong to determine the issue summarily on the evidence adduced on affidavit, and without expert evidence. I gather he had made the same complaints when the Company applied for leave to the Court of Appeal to appeal to the Court of Final Appeal (see Reasons for Judgment of the Court of Appeal handed down on 3 May 2006, paragraphs 7 and 8).

15. In this regard, I can do no better than to express my agreement with the observations of Gibbs J in Re Q.B.S. Pty Ltd [1967] Qd. R. 218 at 225, which were approved by the Privy Council in Brinds, supra. at 98,921:

“It seems to me that in every case it becomes necessary for the court to exercise its discretion as to how far it will allow the question whether or not the dispute is bona fide to be explored. In some cases it may be very easy to decide this question on the petition and affidavits in reply. In other cases however it may be difficult to determine whether or not the...

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