Re Nt Pharma International Co Ltd

HCCW 288/2022

[2023] HKCFI 1623

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 288 OF 2022

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J U D G M E N T

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1. There is before the court the petition presented by Novartis Pharma AG (“Petitioner”) on 22 August 2022 seeking to wind up NT Pharma International Company Limited[1] (“Company”) on insolvency ground (“Petition”).

2. The Company does not dispute that it is indebted to the Petitioner in the amount of US$3,910,740.43 (“Debt”) and has failed to comply with the statutory demand served upon it on 12 April 2022 (“SD”). It opposes the Petition on the grounds that:

(1) It has a cross-claim against the Petitioner for US$30 million which, if successful, would extinguish the Debt by way of set-off. The cross-claim arose out of the same agreements under which the parties agreed to submit their dispute to arbitration. The Petitioner should be held to the contractual bargain and cannot ask the court to wind up the Company even if the Debt remains unpaid; and

(2) The Debt is “now completely secured” by the amount paid into court. There is no public interest or policy concern or any basis to contend that the Company abuses the process or acts in bad faith so as to bring the case into the exception discussed in Re Guy Kwok-Hung Lam [2023] HKCFA 9.

3. The Petitioner contends that the court should make a winding-up order against the Company or alternatively, direct the amount paid into court be paid to the Petitioner given that:

(1) the Company fails to discharge the burden of showing that it has a bona fide or serious cross-claim against the Petitioner;

(2) if and insofar as the Guy Lam approach applies, the Company’s opposition to the Petition is frivolous; and

(3) the court should not allow the Company to retain the Debt as security for its cross-claim.

A. BACKGROUND

4. The Company was incorporated on 9 July 2015 in Hong Kong. Its principal activities are holding the intellectual property rights, marketing and distribution rights associated with the trademarks and brand names relating to commercialisation of Miacalcic Injection and Miacalcic Nasal Spray branded drugs for sub-licensing, exploitation and trading of the relevant branded products.

5. In April 2021, there was a change in control of the Company in that:

(1) The Company was originally an indirect wholly owned subsidiary of China NT Pharma Group Company Limited (“NT China”), a listed company in Hong Kong.

(2) Pursuant to an agreement dated 21 April 2020 made between NT China and Beijing Konruns Pharmaceutical Co. Ltd (北京康辰藥業股份有限公司) (“Konruns”), a listed company in Shanghai, the parties agreed that (a) all the shares in the Company be sold and transferred to Beijing Kangchen Biological Technology Co Ltd (北京康辰生物科技有限公司) (“Beijing Kangchen”), a wholly owned subsidiary of Konruns, and (b) NT China would subscribe for 40% equity in Beijing Kangchen. The transaction was completed on 23 April 2021.

(3) On 4 November 2021, NT China transferred a further 13.7% equity in Beijing Kangchen to Konruns. Since then, the equity in Beijing Kangchen has been held by Konruns and NT China as to 73.7% and 26.3% respectively.

A1. Supply Agreements and the Debt

6. By 2 supply agreements made on 18 May 2016 and 25 October 2017 (“Supply Agreements”) the Petitioner and the Company agreed, inter alia, as follows:

(1) The Company shall pay the Petitioner within 45 days after receipt of the invoice for the Miacalcic Spray supplied by the Petitioner (“Products”) (clause 2.3);

(2) The Supply Agreements shall be governed by the laws of Switzerland, and all disputes arising out of or in connection with the same shall be submitted to the International Court of Arbitration of the International Chamber of Commerce (“ICC”) and shall be finally settled under the ICC Rules in force when the Notice of Arbitration is submitted (clause 16.1).

7. Pursuant to the Supply Agreements, from 3 April 2020 to 2 September 2020, the Petitioner supplied the Products and issued invoices to the Company for a total sum of US$3,647,597.96 (“Price”).

8. On 28 January 2020 and 27 April 2020, the Petitioner and the Company entered into 2 “Side Letters to Supply Agreement” (together “Side Letters”) whereby the Company acknowledged that it had not fulfilled the obligation to pick up the Products and agreed to pay the costs of storing the Products. Between 16 June 2020 and 8 July 2020, the Petitioner issued invoices to the Company claiming storage costs of US$263,142.47 (“Storage Costs”).

9. The Debt comprises the Price and the Storage Costs.

A2. SD and the Company’s Responses

10. By letter dated 4 February 2021 to Konruns, the Petitioner referred to the first Supply Agreement (dated 18 May 2016) and the Company’s failure to pay the Debt, and stated that if no payment was received within the next 15 days, it would seek “appropriate legal remedy” against the Company.

11. Mr. David Ng[2], the Chief Executive Officer of NT China, repeatedly acknowledged the liability of the Company to pay the Debt:

(1) In his letter dated 11 February 2021, Mr. Ng stated that the outstanding invoices would be the responsibility of the Company and NT China only, and the Company would propose “a suggestion of arranged payments for the outstanding invoices”;

(2) In his email to the Petitioner dated 12 February 2021, Mr. Ng said that he had “received the letter from [the Petitioner] and will work with [their] finance to provide [the Petitioner] with a payment solution”; and

(3) In another email to the Petitioner dated 1 March 2021, Mr. Ng stated that “[NT China] is currently selling assets to solve [their] financial problems. After [their] internal discussion and with [their] best effort, [NT China] proposes a payment plan”, under which the Company would repay the Debt over a 36-months’ period with annual interest at 4%.

12. Notwithstanding the above emails, the Company did not make any payment to the Petitioner.

13. On 12 April 2022, the SD was served on the Company. In response, the Company through Messrs. Jun He Law Offices’ letter dated 2 June 2022, stated that the Petitioner was not entitled to commence any winding up proceedings against the Company for the following reasons (“JunHe’s Letter”):

(1) By an Asset Purchase Agreement dated 25 October 2017 (“APA”) entered into between (a) Novartis AG and the Petitioner (together “Novartis”) and (b) the Company, the Company purchased, inter alia, the “Transferred Property”[3] which included the Miacalcic Spray (§2(1)-(2));

(2) The Petitioner was aware that the only manufacturer of the Miacalcic Spray is Delpharm, a drug manufacturer in France (§2(3));

(3) Sometime after completion of the purchase of the Miacalcic Spray, the Company discovered from Delpharm that the Miacalcic Spray could not be manufactured, exported and delivered to the Company without an export licence issued by The National Agency for the Safety of Medicines and Health Products of France (“ANSM”) permitting Delpharm to supply and export the Miacalcic Spray to the Company. This was material information relating to the “Transferred Assets” (“Information”) (§2(4)-(6));

(4) Novartis acted in breach of their warranty under clause 12.1 of the APA by withholding the Information from the Company before the closing date of the APA (§2(7));

(5) The Company discovered that an export licence had been granted by ANSM in 2015 permitting Delpharm to supply the Miacalcic Spray exclusively to Novartis, which remained valid and subsisting. To mitigate its loss and damages, the Company demanded Novartis to obtain the Miacalcic Spray from Delpharm and supply the same to the Company, particularly to China market and markets under the APA (§2(8)-(9));

(6) “In breach of the APA and the Supply Agreement(s) dated May 2016 and/or 25 October 2017”, Novartis refused to provide the Miacalcic Spray to the Company which resulted in the Company not being able to fulfil orders or tenders from various government authorities in China, Philippines and Switzerland (§2(10));

(7) It was not until around October 2019 that the Petitioner agreed to supply the Miacalcic Spray to the Company by obtaining the same from Delpharm (§2(11)); and

(8) As a result of the breach by Novartis, the Company has not been able to trade the Miacalcic Spray and has suffered loss and damage of not less than US$25 million during the period up to the time when Novartis “conceded and began supplying the Products to [the Company]” (§2(12)).

14. The JunHe’s Letter ended by demanding the Petitioner to pay US$20 million to the Company “in full and final settlement of all claims between the parties” within 7 days failing which they would “prepare and serve Notice of Arbitration in accordance with the terms of the relevant agreements”.

15. The Company did not commence arbitration as it threatened to do in JunHe’s Letter.

A3. Petition

16. On 22 August 2022, the Petition was presented. The affidavit verifying the Petition was filed on 26 August 2022 (“Muller 1^st”).

17. On 16 September 2022, the Company filed an affirmation of Lee Ying[4] (“Lee 1^st”) in support of its application for a validation order stating that:

(1) The Petitioner “has not clearly explained how and why the alleged email sent by David Ng is binding on the Company”, as the only pleaded particulars of Mr. Ng is that he was...