Fullsun International Holdings Group Company, Ltd
| Jurisdiction | Bermuda |
| Judge | Mussenden J |
| Judgment Date | 09 June 2022 |
| Year | 2022 |
| Court | Supreme Court (Bermuda) |
| Docket Number | 2022: No. 46 |
[2022] SC (Bda) 43 Com (9 June 2022)
RULING of Mussenden J
2022: No. 46
In The Supreme Court of Bermuda
Henry Tucker and Kyle Masters, Carey Olsen Bermuda Limited for the Petitioner
Nicholas Miles, Kennedys Chudleigh Ltd . for the Company
Lilla Zuill, Harneys (Bermuda) Limited, for Profound Success Investment Limited, a creditor of the Company
Harbor Sure (HK) Investments Limited (the “ Petitioner”) filed a Petition on 24 February 2022 (the “ Petition”) for the purposes of winding up Fullsun International Holdings Group Co., Limited (the “ Company”) and to appoint provisional liquidators (“ JPLs”) of the Company. The hearing of the Petition was listed for 22 April 2022 but eventually came on for hearing on 16 May 2022.
The Company filed a Summons dated 20 April 2022 seeking a two-month adjournment of the Petition.
Profound Success Investment Limited (the “ Supporting Creditor” or “ Opposing Creditor”) filed a Notice of Intention to Appear dated 20 April 2022 as a creditor for US$215 million of the Company and to oppose the Petition.
The Petition relates to the leveraged acquisition in March 2018 of certain British Virgin Islands (“ BVI”) companies owning the 41 st, 42 nd, 43 rd, 45 th and 46 th floors, 16 car parking spaces and 3 external signage areas of “Enterprise Square Three”, No. 39 Wang Chiu Road, Kowloon, Hong Kong by the Company via its former indirect wholly-owned subsidiary, Splendor Keen Limited.
The Petition set out that by a facility agreement dated 22 March 2018 (the “ Agreement”) made between, amongst others, Vivalink Limited, a BVI company, (the “ Borrower”) as borrower and the Petitioner as lender, the Petitioner agreed to make available to the Borrower a term loan facility of HK$400,000,000 (the “ Facility”) upon and subject to the terms and conditions for the purposes set out in the Agreement.
The Petitioner subsequently provided a consent in connection with the Agreement in favour of the Borrower, that the Company (the “ Guarantor”) would enter into a guarantee dated 21 August 2019 (the “ Guarantee”) as Guarantor in favour of the Petitioner.
An agreement dated 18 May 2021 supplemented and amended the Agreement for the Facility of HK$400,000,000 and upon the Effective Date, defined as 25 March 2021, the principal amount of the loan was stated to be HK$380,000,000. As of the date of the Petition, the principal amount of the loan which was outstanding was HK$47,580,000 (the “ Outstanding Principal Amount”).
The Petition set out the terms of the Guarantee, in particular clauses 2(a), 2(b), 2(c) and 3.
The Petition set out the details of non-payment. On 21 September 2021, a Notice of Default (the “ Notice of Default”) was issued to the Borrower, and to other obligors, stating that the Borrower was obliged to pay on 20 September 2021 a sum of HK$20,000,000 (the “ Relevant Interim Payment”) towards the repayment of the principal due and unpaid pro rata for the Loan. On 21 and 22 October 2021, the Borrower had partially repaid the Relevant Interim Payment in the sum of HK$2,420,000, however, as of the date of the Petition, the balance of the Relevant Interim Payment was still overdue and outstanding thus becoming a non-payment event. The Notice of Default also entitled the Petitioner to charge default interest (the “ Default Interest”) on the entire amount of the outstanding loan according to various dates.
On 5 October 2021 Notices of Demand were sent to each of the Borrower and Guarantor. The Notice of Demand to the Borrower demanded that the entire loan be immediately due and payable at its principal amount together with various amounts including with accrued interest, default interest and all other amounts outstanding and to be paid by 8 October 2021.
Under the terms of the Guarantee, each guarantor had undertaken that whenever the Borrower does not pay any amount when due, they shall immediately on demand pay that amount as if they were the principal debtor in respect of that amount. Therefore, the Petitioner demanded that each guarantor immediately pay all amounts referred to in the Notice of Demand no later than 8 October 2021.
On 7 January 2022 Carey Olsen Bermuda Limited, on behalf of the Petitioner, served a statutory demand (the “ Statutory Demand”) on the Company requiring the Company to pay the sum of HK$70,733,122.19 (the “ Statutory Demand Amount”) consisting of the Outstanding Principal Amount in the amount of HK$47,580,000 and the Default Interest in the amount of HK$23,153,122.19.
As at the date of the Petition, the Company had neglected to pay the Statutory Demand Amount or to secure or compound for it to the reasonable satisfaction of the Petitioner.
As at 23 February 2022, the Borrower or the Company had not paid either in whole or part the total amounts due under the Agreement of HK$71,483,973.70 (the “ Total Amount”) consisting of HK$47,580,000 and the Default Interest in the amount of HK$23,903,973.70.
The Petition set out that the Company is unable to pay its debts as they fall due pursuant to section 161(e) of the Companies Act 1981 and therefore should be wound up. Further, or in the alternative, it is just and equitable that the Company should be wound up.
Issues to be resolved on the Petition
Mr. Tucker submitted that in order to establish a right to an immediate winding-up order, the Petitioner must demonstrate that the following questions can be answered in the affirmative:
Issues to be resolved on the Adjournment Application
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a. Does the Petitioner have an unpaid debt?
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b. Is the Company unable to pay its debts as they fall due?
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c. Has the Petitioner established that there is a possibility of some advantage in making a winding-up order (i.e. that the prospect of a return to creditors in winding up is not hopeless?)
Mr. Tucker submitted that if the Petitioner establishes that it has a right to an immediate winding-up order, the Court retains a residual discretion to suspend the Petitioner's right by way of an adjournment. In order to determine whether or not to exercise this discretion to adjourn the Petition, the Court must make findings on the following issues:
The Law – The Petition
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a. Has the Company established that a majority of unsecured creditors oppose the Petition?
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b. If so, are there any matters which affect the independence of the unsecured creditors who oppose the Petition?
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c. If so, has the Company established that there is a good reason for refusing to wind up the Company?
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d. Where the reason for the adjournment is in pursuit of a prospective restructuring:
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i. Is the prospective restructuring and continuation of the Company's business as a going concern likely to more beneficial to the creditors than a liquidation realisation of the company's assets?
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ii. Has the Company established there is a real prospect of the prospective restructuring and the continuation of the Company's business as a going concern being affected for the benefit of the general body of creditors?
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Mr. Tucker made the following submissions about the law in respect of petitions.
Section 163 of the Companies Act 1981 (the “ 1981 CA”) provides that any creditor of the Company may petition for the winding up of the Company.
Section 161(e) of the 1981 CA provides that a company may be wound up on the petition by the Court if the Company is unable to pay its debts.
Section 162(a) of the 1981 CA provides that a company shall be deemed to be unable to pay its debts if it fails to satisfy a statutory demand served under that section.
A petitioner must also establish that there is a possibility of a prospect of a benefit to a winding-up order. In the leading case of Re Demaglass Holdings Ltd [2001] 2 BCLC 633 Neuberger J (as he then was) considered the test stating:
“… the petitioning creditor has to establish the possibility of the prospect of some sort of benefit from a winding up. The test, however, appears to be a low one. In Re Criggleston Coal Co Limited …Collins MR appears to have thought the petitioner need only show a reasonable possibility of some advantage. The other two members of the Court of Appeal seem to have considered that the test was even lower than that. Romer LJ observed that he could not say that the prospect was ‘hopeless’. Cozens-Hardy LJ said the evidence against the petitioners ‘did not support the contention that there is no possibility’ of a dividend being paid to the unsecured creditors.”
Where these circumstances are made out, a creditor of an insolvent company is entitled to a winding-up order under the 1981 CA as of right. As stated in Re LAEP Investments Limited [2014] BDA LR 35 and cited in the ruling in In the Matter of NewOcean Energy Holdings Limited [2022] SC (Bda) 15 Comm:
“A petitioner who can prove that a debt is unpaid and that the company is insolvent is entitled to a winding-up order ex debito justitiae, which has been taken to mean that, in accordance with settled practice, the court can exercise its discretion in only one way, namely by granting the order.”
Does the Petitioner have an unpaid debt?
Mr. Tucker submitted that the Company had admitted the Petition debt (the “ Petition Debt”) up to the amount of approximately HK$48 million (approximately US$6 million).
Is the Company unable to pay its debts?
Mr. Tucker submitted that the Company failed to satisfy the Statutory Demand in respect of the Petition Debt.
Is there a reasonable prospect of a benefit of a winding up?
Mr. Tucker stated that the Company's liquidation analysis estimated a return to creditors arising from a winding up of HK$138,822.
Mr. Tucker submitted...
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