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Re The Sun"s Group Ltd

Judgment Cited authorities 10 Cited in Precedent Map Related
Vincent
Judgment Date24 May 2004
Judgement NumberHCCW425/2003
Citation[2004] 3 HKLRD 65
CourtHigh Court (Hong Kong)
Subject MatterCompanies Winding-up Proceedings
HCCW000425/2003 RE THE SUN'S GROUP LTD

HCCW 425/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 425 OF 2003

____________

IN THE MATTER of THE SUN'S GROUP LIMITED

AND

IN THE MATTER of the Companies Ordinance, Chapter 32

____________

AND

HCCW 426/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 426 OF 2003

____________

IN THE MATTER of THE SUN'S GROUP (HK) LIMITED

AND

IN THE MATTER of the Companies Ordinance, Chapter 32

____________

(Heard Together)

Coram: Hon Kwan J in Court

Dates of Hearing: 27 and 28 April 2004

Date of Handing Down of Judgment: 24 May 2004

______________

J U D G M E N T

______________

The petitions

1. There are before me two creditors' winding-up petitions, both presented on 11 April 2003 and are heard together.

2. The subject company in HCCW No. 425 of 2003 is The Sun's Group Limited, formerly known as Pearl Oriental Holdings Limited until its change of name in May 2002 ("Sun's Group"). Sun's Group was incorporated in Bermuda on 9 July 1993 and was registered in Hong Kong on 20 September 1993 under Part XI of the Companies Ordinance, Cap. 32. It is the holding company of the entire group ("the Group"). Since January 1994, its shares have been listed on The Stock Exchange of Hong Kong Limited ("the Stock Exchange"). The subject company in HCCW No. 426 of 2003 is The Sun's Group (HK) Limited, formerly known as Pearl Glorious Investment Limited ("Sun's Group HK"). Sun's Group HK was incorporated in Hong Kong on 26 February 1985 and is a wholly owned subsidiary within the Group.

3. The petition in HCCW No. 425 of 2003 was presented by Wong Kwan, also known as Wong Yuk Kwan, and Charcon Assets Limited ("Charcon"), a company wholly owned by Wong Kwan beneficially. Wong Kwan was the founder of the Group and prior to 29 January 2002, the majority shareholder, the chairman and chief executive, and a director of Sun's Group. He alleged in the petition that Sun's Group is indebted to him in the sum of HK$2,590,000.00, made up of outstanding salary of HK$2,072,000.00 and year-end bonus of HK$518,000.00, under his contract of employment with the company dated 23 September 1993. Charcon's debt in the petition is HK$10 million; this comprised outstanding principal of a loan advanced to Sun's Group on 29 January 2002, pursuant to a loan agreement of the same date between, inter alios, Charcon and Sun's Group. Under the terms of that agreement, the loan was repayable in full, with interest, on the first business day immediately after the lapse of six months from the drawdown date, which was 29 January 2002. The outstanding interest, calculated as at 18 March 2003, amounted to HK$576,780.82.

4. The petition in HCCW No. 426 of 2003 was presented by Wong Kwan, on the basis of a debt of HK$49,294,635.07, representing the outstanding principal of various loans advanced to Sun's Group HK between 31 March 2000 and 28 February 2001, pursuant to short-term loan agreements between Wong Kwan and Sun's Group HK. The interest outstanding, as at 18 March 2003, amounted to HK$3,210,113.37.

5. Demands for the debts in the petitions were served on Sun's Group and Sun's Group HK on 19 March 2003. The petitioners contended that they are each creditors of the subject companies by virtue of section 179(1) or section 327(1) (in respect of the oversea company, Sun's Group), and that the companies are unable to pay their debts under section 177(1)(d) or section 327(3)(b). In respect of the inability to pay debts, the petitioners relied on the deeming provision in section 178(1)(a) or section 327(4)(a); alternatively, it was contended that the companies are demonstrably insolvent and acknowledged to be so, under section 178(1)(c) or section 327(4)(d).

6. In each of the petitions, the company's position was that there is a bona fide dispute of the petitioning debts on substantial grounds ("the disputed debt issue"). In HCCW No. 425 of 2003, an alternative argument was raised in that even if the petitioning debts were established, there are cross claims, at least against the debts of Wong Kwan, upon which the court should exercise its discretion to dismiss or stay the petition presented by Wong Kwan ("the cross claim issue").

7. Only one creditor has filed a notice of intention to appear and that is a supporting creditor with a claim of HK$1,761,544.50. Sun's Group made an announcement on 13 January 2004 that statutory demands were served on the Group by a creditor bank on 29 December 2003 demanding payments of HK$266 million odd.

The background

8. I propose to set out some of the relevant background matters and key events before going into the two issues raised in opposition to the petitions.

9. The Group was originally engaged in the business of property trading and development, hotel investment and management, finance and marketing. In or about 1998, it developed the internet and telecom business and Pearl Oriental Holdings Limited changed its name to Pearl Oriental Cyberforce Limited. When the internet bubble burst, it reverted to its original name. As in September 2002, the major asset of the Group comprised properties in Hong Kong, being nine floors of The Sun's Group Centre in Wanchai, two development projects on the Peak and Des Voeux Road West.

10. The Group had suffered badly from the Asian financial crisis, the property crash and the internet bubble burst. From June 2001 until the termination of his employment at the end of January 2002, Wong Kwan deferred the receipt of his salary of HK$259,000.00 a month in view of the financial difficulties. Other senior staff had similarly deferred their rights. Wong Kwan's outstanding salaries for eight months remain unpaid, along with year-end bonus for 2001 being two extra months' salary.

11. In December 2001, the Bank of East Asia Limited ("BEA"), a major creditor of Sun's Group, foreclosed on the Genesis property on the Peak. After foreclosure, the outstanding indebtedness of the Group (being that of a wholly owned subsidiary, Pearl Century Limited) due to BEA was HK$102 million odd.

12. In late 2001, Wong Kwan was on the lookout for a new investor to steer the Group back to a healthier financial state. His beneficial shareholding in Sun's Group at the time was 50.17%. On 6 December 2001, Wong Kwan and Charcon entered into a sale and purchase agreement ("the Share Sale and Purchase Agreement") with China Wanan Group Limited ("China Wanan") for Charcon to sell 29.9% of the issued shares in Sun's Group to China Wanan at HK$112 million odd. China Wanan was a joint venture company set up for this purpose and was owned 50% by a listed company, Sun Man Tai Holdings Company Limited ("Sun Man Tai"), and 50% by Wei Wu beneficially. In consideration of China Wanan entering into the Share Sale and Purchase Agreement, Wong Kwan agreed to waive his rights in respect of the loan amount in the sum of HK$48 million, being part of the loan amount of approximately HK$96.58 million owed to him by Sun's Group as at the date of the agreement. It was also provided that of the HK$50 million payable by China Wanan on the completion date, Charcon was to release and advance HK$30 million to Sun's Group as a loan forthwith.

13. On 29 January 2002, a supplemental agreement was entered into to bring forward the completion date of the share sale and purchase from 30 January 2002 to 29 January 2002. In consideration of China Wanan agreeing to completion on an earlier date, Charcon agreed to waive its right in respect of its HK$30 million loan to Sun's Group as aforesaid to the amount of HK$20 million and to assign the same to China Wanan, leaving Charcon's loan to Sun's Group at HK$10 million. To give effect to this, a loan agreement was made on 29 January 2002 between Charcon, China Wanan and Sun's Group, by which Charcon was to lend Sun's Group HK$10 million (this advance formed the subject of the petitioning debt of Charcon in HCCW No. 425 of 2003, on the terms as mentioned earlier) and China Wanan was to lend Sun's Group HK$20 million.

14. The commercial rationale for the above arrangement was to provide Sun's Group with extra liquidity of HK$30 million. In addition, Sun's Group raised another HK$30 million by selling certain non-performing assets (being the internet and telecom businesses) on 7 December 2001 to Dynamic Brilliant Group Limited, an investment vehicle of Wong Kwan, so as to concentrate on its property and development business.

15. Wong Kwan resigned as a director of Sun's Group on 29 January 2002. As a condition of the Share Sale and Purchase Agreement, the old management of Sun's Group comprising Wong Kwan, Wong Wai Hay, Wong Yau Kuen were replaced by the new management comprising Wei Wu (the new chairman), Qian Yong Wei (director and chairman of Sun Man Tai), He Hui Min (another director of Sun Man Tai until he resigned in September 2002), Peter Siu King Nin, and others. Similar changes in management were made for the subsidiaries in the Group.

16. On 30 January 2002, the indebtedness of Pearl Century Limited to BEA of HK$102 million odd was assigned by BEA to On Fat Limited ("On Fat"), a company incorporated in the British Virgin Islands only on 2 January 2002, for HK$30 million, payable in two instalments on 30 January 2002 and 25 February 2002. On the same day, Sun's Group made an announcement of the completion of the Share Sale and Purchase Agreement, disclosing the assignment of the aforesaid indebtedness to On Fat and asserting that the latter was an independent third party.

17. In May 2002, Sun's Group under the new management published the Group annual report including the audited accounts for the year ended 31 December 2001.

18. In June 2002, a deed of...

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