Novel Blaze Ltd ((in Liquidation)) v Chance Talent Management Ltd

• Jurisdiction: British Virgin Islands
• Judge: Blenman JA
• Judgment Date: 16 April 2021
• Judgment citation (vLex): [2021] ECSC J0416-2
• Docket Number: BVIHCVAP2020/0006
• Court: Court of Appeal (British Virgin Islands)
• Date: 16 April 2021

[2021] ECSC J0416-2

THE EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Before:

The Hon. Mde. Louise Esther Blenman Justice of Appeal

The Hon. Mde. Gertel Thom Justice of Appeal

The Hon. Mr. Gerard St. C. Farara, QC Justice of Appeal [Ag.]

BVIHCVAP2020/0006

Between:

Novel Blaze Limited (In Liquidation)

Appellant

and

Chance Talent Management Limited

Respondent

Appearances:

Mr. Robert Nader and Ms. Sophie Christodoulou for the Appellant

Mr. Grant Carroll and Mr. Daniel Mitchell for the Respondent

Civil appeal — Insolvency law — Appeal against order appointing liquidators over company — Locus standi — Whether respondent had standing to apply for appointment of liquidators over appellant — Whether respondent was a secured creditor within meaning of section 9(2) of Insolvency Act, 2003 and was therefore disqualified from making an application to appoint liquidators over respondent — Section 162 of Insolvency Act, 2003 — Whether learned judge erred in exercising discretion to appoint liquidators over appellant — Costs — Whether circumstances of appeal warrant departure from general rule that unsuccessful party should pay costs — Whether costs award should be made against non-party

Novel Blaze Limited (in liquidation) (“Novel Blaze”) and Chance Talent Management Limited (“Chance Talent”) are companies incorporated in the Territory of the Virgin Islands (the “BVI”). Novel Blaze is a minority shareholder in Mobile Internet (China) Holdings Limited (“Mobile Internet”). Novel Blaze owed money to Chance Talent pursuant to a guarantee agreement. The debt was secured by charges over the entire issued share capital in two companies – Rich Kirin Holdings Limited (“Rich Kirin”) and Big Wealth Limited (“Big Wealth”). Rich Kirin is owned by Mobile Internet, and Big Wealth is wholly owned by Rich Kirin.

Chance Talent sent a letter of demand to Novel Blaze for repayment of a portion of the guaranteed sum. Novel Blaze did not repay the debt in accordance with the letter of demand. In November 2019, therefore, Chance Talent served a statutory demand on Novel Blaze for repayment of the sums inclusive of interest. Novel Blaze did not respond to the statutory demand and did not apply to have it set aside.

In March 2020, Chance Talent applied to the Commercial Court to have liquidators appointed over Novel Blaze on the basis that it had failed to comply with Chance Talent's statutory demand, which had not been set aside, and that Novel Blaze was insolvent and unable to pay its debts as they fell due. The liquidation application was issued on the instructions of Mr. Sun Shao Hua (“Mr. Sun”), who is a director of Novel Blaze. Novel Blaze resisted the application on the basis that Chance Talent was a secured creditor as defined by section 9(2) of the Insolvency Act, 2003 (“the Insolvency Act” or “the Act”) and therefore had no standing to pursue its liquidation application. The application by Chance Talent was granted by a learned judge of the Commercial Court, who was satisfied that Novel Blaze was insolvent and that Chance Talent was not a secured creditor and therefore had standing to make the application.

Being dissatisfied with the learned judge's decision, Novel Blaze appealed. The issues considered by the Court of Appeal were: (1) whether Chance Talent was a secured creditor within the meaning of section 9(2) of the Insolvency Act, and therefore disqualified from pursuing an application to appoint liquidators over Novel Blaze; (2) whether the learned judge erred in exercising his discretion to appoint liquidators over Novel Blaze; and (3) whether a costs award should be made against Novel Blaze, or alternatively, Mr. Sun, upon whose directions the appeal was launched.

Held: dismissing the appeal; awarding Chance Talent its costs in the lower court to be paid by Novel Blaze and assessed by a judge of the Commercial Court, if not agreed within 21 days; and awarding costs on the appeal to Chance Talent against Novel Blaze to be assessed by a judge of the Commercial Court at no more than two-thirds of the costs below, if not agreed within 21 days, that:

• 1. The general rule is that the words in a statute must be interpreted and given effect in keeping with their natural and ordinary meaning. This is so particularly where the words of the statute are clear and unambiguous. At the heart of this appeal is the interpretation of section 9(2) of the Insolvency Act which provides that a creditor is a secured creditor of a debtor if it has an enforceable security interest over an asset of the debtor in respect of its claim. The central question therefore is whether, in keeping with the settled principles of statutory interpretation, Chance Talent is a secured creditor within the meaning of section 9(2) of the Insolvency Act, and is therefore disqualified from pursuing an application to wind up Novel Blaze.

  Smith v Selby [2017] CCJ 13 (AJ) applied; Joseph Cadette v Saint Lucia Motor and General Insurance Co. Limited [2021] ECSCJ No. 472 (delivered 22 ^nd February 2021) followed.

• 2. The natural and ordinary meaning of the words ‘security interest over the assets of the debtor’ in section 9(2) of the Insolvency Act mean that a creditor will be a secured creditor if it holds a security interest over the assets of the debtor, only. To argue that section 9(2) was intended to apply to security interests held over assets of a third party is an impermissible overextension of the clear words of the statute. A security interest held over the assets of a debtor's subsidiaries is simply not a security held over the assets of the debtor. When applied to this case, the effect of section 9(2) is that Chance Talent will only be a secured creditor if it holds an enforceable security interest over the assets of Novel Blaze. On the plain words of the section, there is no basis upon which to conclude that Chance Talent is a secured creditor of Novel Blaze, given that the security interest held by Chance Talent is not over assets of Novel Blaze, but is over the assets of its subsidiaries, Rich Kirin and Big Wealth. The learned judge's reasoning and conclusion on this point therefore cannot be impugned.

  Section 9(2) of the Insolvency Act, 2003 Act No. 5 of 2003 interpreted; Re Swiber Holdings Ltd [2018] SGHC 180 applied; Re Plummer (1841) 1 Phillips 56 41 E.R 552 applied; White v Davenham Trust [2011] EWCA Civ 747; Ex parte West Riding Union Banking Co. (1881) 19 Ch D 105 distinguished.

• 3. The court has a discretion under section 162 of the Insolvency Act to appoint liquidators over a company on the ground of insolvency. In order for this Court to interfere with the learned judge's decision to appoint liquidators over Novel Blaze, it must be demonstrated that the decision exceeded the generous ambit within which reasonable disagreement is possible and is therefore blatantly wrong. It is clear that the judge exercised his discretion to wind up Novel Blaze having found that the company was insolvent within the meaning of the Act and having determined further that there would not be any straight-forward remedy which Chance Talent could pursue to realise its debt. In the totality of circumstances, there is no discernible error in principle that was committed by the learned judge. Therefore there is no basis upon which this Court can interfere with the judge's exercise of discretion to wind up Novel Blaze.

  Dufour and Others v Helenair Corporation Ltd and Others (1996) 52 WIR 188 applied.

• 4. It is the law in relation to a winding up application, as with any court proceedings, that the question of costs is always at the discretion of the court. The general position is that the costs of a company that is the subject of liquidation proceedings, for participating in a winding up application, are to be paid by the company as an expense in the liquidation. The court, however, has the power to depart from this general position and order that the company's costs are to be paid by some non-party who is connected to the liquidation where, in the circumstances, it is just to do so. Critically, the basic principles of natural justice require the party seeking such an order, against a non-party, to give notice of its application and the evidence in support of the application, to the person against whom the order is sought. While it is true that the opposition to Novel Blaze's winding up application and its appeal were commenced as a result of instructions given by Mr. Sun, in his capacity as director of Novel Blaze, his powers as a director to issue those instructions have not been challenged by Chance Talent. Furthermore, there is no evidence that Mr. Sun was given notice by Novel Blaze of its intention to seek an order for costs against him, as a non-party. Therefore, in the circumstances, it would not be in the interests of justice to make an order for costs against Mr. Sun, and accordingly there is no proper basis to depart from the general rule that costs should be awarded to the winning party (Chance Talent) against the unsuccessful party (Novel Blaze).

  Re Humber Ironworks Co (1866) LR 2 E Q 15 applied; Re Bostels Ltd [1967] 3 All ER 425 applied; Re A Company (No.004055 of 1991) [1991] 1 WLR 1003 applied; Re Aurum Marketing Ltd (in liquidation) [2000] 2 BCLC 645 applied.

Introduction

Blenman JA

1 This is an appeal by Novel Blaze Limited (in liquidation) (“Novel Blaze”) against the judgment and order of Jack J [Ag.] made on 8 ^th June 2020, by which the learned judge appointed joint liquidators over Novel Blaze upon the application of Chance Talent Management Limited (“Chance Talent”). Novel Blaze is aggrieved by the decision of the learned judge and has appealed on several grounds. The appeal is strenuously resisted by Chance Talent.

2 It is necessary to briefly set out the relevant background to the appeal in order to provide the requisite context. The background is not in dispute. I therefore...