Haimen Zhongnan Investment Development (International) Company Ltd v Cithara Global Multi-Strategy SPC
| Jurisdiction | British Virgin Islands |
| Judge | Ellis JA |
| Judgment Date | 04 August 2023 |
| Judgment citation (vLex) | [2023] ECSC J0804-1 |
| Docket Number | BVIHCMAP2023/0012 |
| Court | Court of Appeal (British Virgin Islands) |
The Hon. Mr. Mario Michel Justice of Appeal
The Hon. Mde. Margaret Price-Findlay Justice of Appeal
The Hon. Mde. Vicki Ann Ellis Justice of Appeal
BVIHCMAP2023/0012
THE EASTERN CARIBBEAN SUPREME COURT
IN THE COURT OF APPEAL
Interlocutory appeal — Stay of winding up order pending appeal — Principles governing grant of stay pending appeal — Court's exercise of discretion to stay of a winding-up order pending appeal — Whether the Court's refusal of the stay will render the Company's appeal nugatory.
On 10 th October 2022, Cithara Global Multi-Strategy SPC (hereafter “Cithara” or “the respondent”) filed an originating application seeking the appointment of [joint] liquidators over Haimen Zhongnan Investment Development (International) Co. Ltd. (hereafter “the Company” or “the applicant”) after the Company had failed to comply with the requirements of a statutory demand served on it on 19 th August 2022.
On 29 th November 2022, the Company filed a notice of opposition opposing the liquidation application and seeking dismissal of the same on the ground that, inter alia, Cithara lacked standing as a creditor to make the application.
On 5 th July 2023, Mangatal J, sitting as a judge of the Commercial Court of the Territory of the Virgin Islands (“the BVI”), granted the liquidation application and appointed 3 joint liquidators of the Company. The learned judge, however, stayed the order for a period expiring on 25 th July 2023. In her written judgment dated 19 th July 2023, she concluded that Cithara had standing as a creditor to present the liquidation application pursuant to section 162(2)(b) of the BVI Insolvency Act.
On 5 th July 2023, immediately following the oral announcement of the court's decision, the Company applied for, and the court allowed an interim stay of the execution of the oral judgment of Mangatal J dated 5 th July 2023 and the written judgment dated 19 th July 2023 (the “Judgment”) on an urgent basis (the “Interim Stay”), until 14 days after the court delivered its draft written judgment, that is, until 25 th July 2023 as the draft written judgment was delivered on 11 th July 2023, in order to allow time for the applicant to make a formal stay application.
On 21 st July 2023, the Company issued a draft certificate of urgency and a letter to the Registrar stating that it intended to file a stay application and asking for it to be listed urgently on 25 th July 2023.
On 24 th July 2023, the Company filed an appeal against the Judgment, as well as the order dated 5 th July 2023 (the “Order”). On that same day, the Company also filed an application seeking a stay of execution of the Order of Mangatal J pending the determination of the appeal (together with affidavit(s) in support of the application, exhibit(s) and written submissions in support).
Cithara, having been served with the application, affidavit(s) in support and written submissions on the afternoon of 24 th July 2023, promptly informed the Court of its intention to oppose the application and its obvious inability to respond to the extensive application, affidavit(s) and submissions by the following day, 25 th July 2023.
On 25 th July 2023, a single judge of the Court made an order that: (i) the respondent [Cithara] shall file and serve written submissions with authorities by 4 pm on Friday 28 th July 2023 in response to the application and submissions filed and served by the applicant [HZID] on 24 th July 2023; (ii) the applicant's application filed on 24 th July 2023 for a stay of execution of the judgment of Mangatal J dated 5 th July 2023 shall be heard by the Full Court on Monday 31 st July 2023; and (iii) the interim stay granted by Mangatal J until 25 th July 2023 is extended until 31 st July 2023.
On 31 st July 2023 the application for a stay of execution was heard by the Full Court.
Held: dismissing the application, making consequential orders and awarding costs to the respondent to be paid out of the assets of the Company, that:
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1. The principles applicable to a stay include: that (i) the Court should take into account all the circumstances of the case; (ii) a stay is the exception rather than the general rule; (iii) the party seeking a stay must provide cogent evidence that the appeal will be stifled or rendered nugatory unless a stay is granted; (iv) in exercising its discretion, the Court applies what is in effect a balance of harm test in which the likely prejudice to the successful party must be carefully considered; and (v) the Court should also take into account the prospect of the appeal succeeding but only where strong grounds of appeal or a strong likelihood the appeal will succeed is shown (which would usually enable a stay to be granted). The guiding principle underlying these provisions is that a successful litigant should not generally be deprived of the fruits of their litigation pending appeal except in exceptional circumstances.
C-Mobile Services Limited v Huawei Technologies Co. Ltd BVIHCMAP2014/0017 (delivered, 2nd October 2014, unreported) followed; Novel Blaze Limited (in liquidation) v Chance Talent Management Limited (BVIHC (MAP) 2016/0047) followed.
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2. There is a general presumption against the grant of stay of a winding-up order. The dicta in the English decision of In re A&BC Chewing Gum Ltd explained the practical reasons for refusing a stay of the winding-up order pending appeal noting that under insolvency law, as soon as a winding-up order is made, the Official Receiver has to ascertain the assets and the liabilities of the company at the date of the order so as to find out the preferential creditors and the unsecured creditors. It follows that in the event that a stay of the winding-up order pending appeal is granted and the winding-up order is ultimately affirmed, the Official Receiver's ability to conduct the investigations into the liabilities and assets at the date of winding-up order will be seriously hampered given the time-lapse. Furthermore, even if a stay is not granted, the company may continue running its business and will not suffer any additional harm, irrespective of whether it is making any profit or not. The reasons in In re A. & B.C. Chewing Gum Ltd. were expressed in terms which are generally applicable to all windings up, to wit that a stay would probably make it very difficult for a liquidator to investigate the affairs so as to be able in a timely and efficient manner to ascertain the company's liabilities and assets and so take steps to recover those assets for the benefit of the creditors and, if a solvent estate, for the benefit of shareholders as well.
In re A&BC Chewing Gum Ltd [1975] 1 WLR 579 followed.
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3. This Court is not satisfied that the Company and the Parent's reputation could be impacted in a case where the group of entities, to which the Company belongs, and the relevant Notes are rated as being “likely in, or very near, default” and “typically in default”. Furthermore, it may well be that the liquidation order may have an irreversible effect on the Group's continuing efforts to restructure. However, the Court is not satisfied with the limited evidence which has been presented that there is any credible or realistic chance of this effort coming to fruition. Moreover, and assuming that it does not, the court is not satisfied that such failure will inevitably or necessarily have the nuclear effect which has been represented. Certainly, apart from the bare assertion, there has been little forensic evidence to that effect. In the circumstances, it is unlikely that refusal of the stay will render the Company's appeal nugatory.
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4. In this Court's judgment, the applicant has not presented a strong enough case to rebut the presumption against the grant of a stay of the Judge's liquidation order. We accept the submissions advanced by the respondent on the strength of the appeal and the likely effect of the refusal to grant the stay. In carrying out the balancing exercise, we have considered that there are insufficient reasons for denying the respondent the fruits of its victory in the lower court. The liquidation proceedings are a consequence of the Company's failure to pay the debts and failure to honour guarantees. The Company has also failed to pay interest and the principal on the Notes for over a year, and the Parent has failed to honour its guarantee despite making principal payments to onshore creditors. The liquidators are aware of the pending appeal and would then be on notice that the appeal might succeed. It then becomes a matter of commercial judgement how they will treat with the liquidation in the interim. Accordingly, we consider that a stay should not be granted and that the interim stay granted on 5 th July 2023 and extended on 25 th July 2023 should be lifted.
Mr. Thomas Lowe, KC with him Ms. Marie Stewart for the Applicant/Appellant
Mr. Peter Burgess with him Ms. Eleanor Morgan and Ms. Sophie Christodoulou for the Respondent.
On 10 th October 2022, Cithara Global Multi-Strategy SPC (hereafter “Cithara” or “the respondent”) filed an originating application seeking the appointment of [joint] liquidators over Haimen Zhongnan Investment Development (International) Co. Ltd. (hereafter “the Company” or “the applicant”) after the Company had failed to comply with the requirements of a statutory demand served on it on 19 th August 2022.
On 29 th November 2022, the Company filed a notice of opposition opposing the liquidation application and seeking dismissal of the same on the ground that, inter alia, Cithara lacked standing as a creditor to make the application.
On 5 th July 2023, Mangatal J, sitting as a judge of the Commercial Court of the Territory of the Virgin Islands, granted the liquidation application and...
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