Founder Group (Hong Kong) Limited (in liquidation) vs Singapore JHC Co Pte Ltd
Companies Winding Up No 121 of 2022
Facts:
1.The claimant is a company incorporated in the Hong Kong Special Administrative Region (“Hong Kong”) of the People’s Republic of China (“the PRC”). In July 2021, the claimant was placed in liquidation by a winding up order made by the Court of First Instance in Hong Kong.
2.The defendant is a company incorporated in Singapore. At the material time, it was a wholesale trader in, among other things, metals and metal products. PUFG is a company incorporated in the PRC. It is, broadly speaking, the commercial arm of Peking University. PUFG is the ultimate holding company of a group of companies (“the PUFG Group”). At the material time, both the claimant and the defendant were members of the PUFG Group.
3.Claimant’s liquidators believe that the defendant is indebted to the claimant in the sum of US$47.43m.19 In December 2021, the liquidators issued a letter of demand to the defendant demanding that the defendant pay US$47.43m to the claimant within 14 days.
4.Liquidators issued a second letter of demand to the defendant. This letter demanded that the defendant pay US$47.43m to the claimant within 21 days, failing which the defendant would be presumed under s 125(2)(a) of the Act to be unable to pay its debts within the meaning of s 125(1)(e) of the Act. In May 2022, the liquidators caused the claimant to present this application to wind up the defendant.
3.Application is filed for the winding up of the defendant
Issue: Whether the application can be admitted and winding up order can be passed?
Decision: Hon’ble court dismissed the winding up application.
Rationale:
1.Binding Adjudication: Hon’ble court noted that The claimant has presented this winding up application without securing a binding adjudication that the defendant owes a debt to the claimant. It is certainly open to a claimant to present a winding up application without an adjudication.
2.No standing: Hon’ble Court noted that The claimant relies on only one ground for its standing to present this winding up application: that it is a creditor of the defendant within the meaning of s 124(1)(c) of the Act. Given that the claimant cannot establish standing on this ground, its application must fail in limine and be dismissed. If cannot even establish standing, there is no basis on which even to stay the application.
3.Consequences of Winding up Application: It held that A person claiming to be a creditor of a company is therefore in a position to use its power to present a winding up application as a threat to secure a collateral advantage, such as payment of a debt which is disputed. This is a very powerful threat. The very act of presenting a winding up application – even if no winding up order is ever made – has drastic legal and commercial consequences for a company, its shareholders, its stakeholders and even for its other creditors.
4.Burden: The defendant asserts on affidavit that the copper cathodes were never delivered. The liquidators are unable to assert on affidavit that the claimant in fact delivered the copper cathodes to the defendant. The defendant’s factual case is therefore unrebutted. The most the liquidators can say – and which is what they argue – is that the absence of documents proving delivery does not prove that there was in fact no delivery. But the burden is on the claimant to show that there was delivery. If there was no delivery, there can be no debt.
5.Delay: It also held that the claimant failed to enforce the defendant’s alleged payment obligation under the contracts for six years, from 2015 to 2021. It is significant to me that the claimant made attempts to recover this debt only after the liquidators took control of the claimant in 2021.55 Before that, the claimant was under the control of its directors and managers from 2015 to 2021.
6.Test for Insolvency: The only test for determining whether a company is insolvent for the purposes of s 125(2)(c) of the Act is the cash flow test. On this test, a company is insolvent if its current liabilities exceed its current assets such that it is or will, in the reasonably near future, be unable to meet all of its debts as and when they fall due. The reasonably near future for the purposes of this test is taken to be twelve months.
7.Just and Equitable: The premise of the just and equitable ground as between a shareholder and the company has no application whatsoever as between a creditor and the company. A creditor is not a party to the company’s constitution. A creditor is not subject to the default principle of majority shareholder rule. A creditor’s capital is locked in the company subject to majority rule. An unpaid creditor can demand repayment of his debt any time after it falls due. And if payment is not forthcoming, an unpaid creditor can attempt to recover the debt by suit or can present a winding up application on grounds of insolvency.
Order copy:
