Rich Region Holdings Ltd v Industrial and Commercial Bank of China (Macau) Ltd
| Jurisdiction | British Virgin Islands |
| Judge | Small Davis, J [Ag.] |
| Judgment Date | 31 July 2023 |
| Neutral Citation | VG 2023 HC 18 |
| Docket Number | CLAIM NOS. BVIHC (COM) 2022/0134 |
| Court | High Court (British Virgin Islands) |
IN THE MATTER OF THE INSOLVENCY ACT 2003
CLAIM NOS. BVIHC (COM) 2022/0134
THE EASTERN CARIBBEAN SUPREME COURT
IN THE HIGH COURT OF JUSTICE
(COMMERCIAL DIVISION)
Mr. Andrew Westwood, KC and Mr Bhavesh Patel for the Applicant
Mr Matthew Hardwick, KC and Ms Rosalind Nicholson for the Respondent
The respondent Industrial and Commercial Bank of China (Macau) Limited (“the Bank”) served a statutory demand on the applicant Rich Region Holdings Limited (“RRHL”) on 5 th July 2022 for the payment of HK$3,314,751,351.19 inclusive of interest (“the Debt”). RRHL seeks to set aside the statutory demand. RRHL does not dispute the Debt (although it does not admit the interest calculation) but disputes that the Debt is due and owing.
The statutory demand set out the facts giving rise to the Debt. It also put the value of the Bank's security interest at HK$1,971,000,000.00. The security comprises share charges over RRHL's own shares and shares in Goldin Financial Holdings Ltd. and a number of companies that form part of the Goldin Group. The Bank states that it has been unable to realise the security and it is therefore effectively an unsecured creditor.
RRHL is a member of a group of companies known as the Goldin Group. The Debt arises out of a facility agreement RRHL entered into with the Bank dated 10 th December 2018 to finance part of the funding requirement for a luxury residential real estate development project in Ho Man Tin, Hong Kong (“the Development”) by Gold Brilliant Investment Limited (“GBIL”), in which RRHL holds 83.5% of the shares. The original facility agreement was for a loan facility of up to HK$3,300,000,000.00. There were three supplemental agreements which amended and supplemented the original facility agreement. The contractual documents are referred to collectively as the Facility Agreement.
The repayment terms were initially that there were to be minimum repayment amounts on fixed dates, with the remaining principal due on the final maturity date. By the supplemental agreements, other members of the Goldin Group, Great Discovery Global Limited (“Great Discovery”) and Glamorous Smart Limited (“Glamorous Smart”) provided security by way of charges over all the shares in RRHL (the GD Share Charge and the GS Share Charge), Chariot Power gave security by way of its charge of its shares representing 40% of the shareholding in Gold Favour and the final maturity date was extended first to 10 October 2019, then to 10 April 2020.
Following the failure to pay the outstanding sums under the Facility Agreement on 10 th April 2020, on 15 th July 2020 Goldin Global granted a charge to the Bank over its entire right title and interest in certain defined securities and related rights (“the Goldin Share Charge”). Between 30 th July 2020 and 10 th February 2021, the Bank issued three demand letters to RRHL, the Goldin Group, Great Discovery, Glamorous Smart and Chariot Power, informing them that the failure to pay on 10 th April 2020 constituted an event of default under the Facility Agreement.
On 24 th February 2021 GBIL's rights and liabilities as the developer for the Project were novated to Magic Energy Holdings Limited, a subsidiary of Great Eagles Holdings Limited.
The dispute of the Debt is said to be grounded on representations made by the Bank to RRHL and upon which RRHL relied and acted to its detriment and that therefore the Bank is estopped from enforcing the Facility Agreement and/ or that there is a collateral agreement between the parties which precludes its current enforcement.
RRHL says further, that the dispute is one that should be resolved in the courts of Hong Kong, as the Facility Agreement is governed by Hong Kong law and the parties agreed that it was the most appropriate and convenient forum to settle any disputes.
RRHL also relies on the fact that the Bank is a secured creditor, holding a security interest which exceeds the amount specified in the demand.
The issues before me are:
-
(a) whether the Debt is disputed on substantial grounds;
-
(b) whether the Bank holds a security interest in respect of the Debt that equals or exceeds the amount demand.
Section 155 of the Insolvency Act 2003 (“the Act”) provides:
“(1) A creditor may make demand on a person for payment of a debt owed by that person to him.
(2) A demand under subsection (1) shall -
(a) be in respect of a debt that is due and payable at the time of the demand and that is not less than the prescribed minimum;
…
(3) If the creditor making demand under subsection (1) is a secured creditor in respect of the debt, the full amount of the debt shall be specified in the demand, but -
(a) the demand shall specify the nature of the security interest, and the value which the creditor places on it at the date of the demand; and
(b) the amount claimed -
(i) shall be the full amount of the debt less the amount specified as the value of the security interest; and
(ii) shall equal or exceed the prescribed minimum.”
Section 157 provides:
“(1) The Court shall set aside a statutory demand if it is satisfied that
(a) there is a substantial dispute as to whether -
(i) the debt, or
(ii) a part of the debt sufficient to reduce the undisputed debt to less than the prescribed minimum, is owing or due;
(b) …..
(c) the creditor holds a security interest in respect of the debt claimed and the value of the security interest is equal to or greater than the amount specified in the demand less the prescribed minimum.
…….
(4) If the Court dismisses an application to set aside a statutory demand, it shall make an order authorizing the creditor to make application for the appointment of a liquidator or for a bankruptcy order, as the case may be.”
The law is well settled. The applicable test in deciding if there is a substantial dispute as to whether a debt is due was authoritatively stated by Sir Dennis Byron CJ in Sparkasse Bregenz Bank AG v Associated Capital Corporation: 1
“The Court will order a winding up for failure to pay a due and undisputed debt over the statutory limit, without other evidence of insolvency. If the debt is disputed, the reason given must be substantial and it is not enough for a thoroughly bad reason to be put forward honestly. But if the dispute is simply as to the amount of the debt and there is evidence of insolvency the company could be wound up. To fall within the principle, the dispute must be genuine in both a subjective and objective sense. That means that the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. Substantial means having substance and not frivolous, which disputes the Court should ignore. There must be so much doubt and question about the liability to pay the debt that the Court sees that there is a question to be decided. The onus is on the company to bring forward a prima facie case which satisfies the Court that there is something which ought to be tried either before the Court itself or in an action or by some other proceedings.”
On an application to set aside a statutory demand on the basis that the alleged debt is the subject of a substantial dispute, the Court must be satisfied that there is such a dispute but it is not the Court's function to resolve it. As Foster J (Ag) stated in China Alarm Holdings Ltd v China Alarm Holdings LLC: 2
“It is not this court's function at this stage to resolve the issue as to whether there was an agreement to extend the maturity date. It is this court's function to inquire whether there is any bona fides in the allegation that an agreement or representation was made to extend the maturity date which would give rise to the finding of there being a substantial dispute as to whether the Debt is due now or at some future date.”
The issue of the substantial dispute identified by RRHL is a mixed one of law and fact. The facts that have to first be determined are:
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(a) Were the representations made as alleged;
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(b) If the representations were made, did RRHL relied on them to its detriment?
If the Representations were made and RRHL relied on them to its detriment such that the Bank is now estopped from enforcing the Facility Agreement because there was a collateral agreement is a question of law which ought properly to be reserved unto the court that the parties have elected to have jurisdiction over any disputes.
On RRHL's case, in early January 2022 the Bank represented to it (“the Representations”) that:
-
(a) it would provide a proposal to restructure the lending under the Facility Agreement (“the Restructuring Proposal”) subject to:
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(i) RRHL signing an undated blank charge over its shares in GBIL (which amounted to 83.5% of that company's shares) in favour of the Bank (“the GBIL Share Charge”)
-
(ii) GBIL signing an undated blank debenture as a charge over its assets (“the GBIL Debenture”).
-
-
(b) Once the GBIL Share Charge and GBIL Debenture (together, “the GBIL Security Documents”) had been signed, the Bank would send the Restructuring Proposal to RRHL.
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(c) The Restructuring Proposal would set out: new terms of the loan advanced under the Facility Agreement, to replace the existing terms; an extension of the maturity date; a six month or one year “observation period”; and after the “observation period”, the loan would become “normal debt” rather than “bad debt”, so that the pressure from the Bank to enforce repayment from RRHL would be released.
RRHL asserts that in reliance on the Representations, RRHL signed the GBIL Share Charge and GBIL signed the GBIL Debenture, together with other ancillary documents.
It is RRHL's case that pending the...
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