North Mining Shares Company Ltd
| Jurisdiction | Bermuda |
| Judge | Shade Subair Williams J |
| Judgment Date | 27 January 2020 |
| Neutral Citation | [2020] SC Bda 7 Com |
| Docket Number | COMMERCIAL JURISDICTION 2019 No: 441,COMMERCIAL JURISDICTION |
| Court | Supreme Court (Bermuda) |
| Date | 27 January 2020 |
[2020] SC (Bda) 7 Com
In The Supreme Court of Bermuda
COMMERCIAL JURISDICTION
2019 No: 441
North Mining Shares Company Limited: Mr. Benjamin McCosker / Ms. Nicole Tovey ( Walkers (Bermuda) Limited)
Natu Investment 1 Company Limited (The Petitioner in the Hong Kong Proceedings): Mr. Keith Robinson ( Carey Olsen (Bermuda) Limited
Cross-Border Insolvency proceedings between Bermuda and Hong Kong High Court — Petition to Wind-Up Bermuda Exempted Company — Comity — Application by the Company for the Appointment of ‘Light Touch’ Joint Provisional Liquidators — Application for issuance of Letter of Request / Letters Rogatory to Hong Kong High Court for Recognition Order — Objections by Petitioner in Winding up Proceedings before the Hong Kong High Court
(REASONS)
RULING of Shade Subair Williams J
This Court is concerned with a voluntary winding-up petition (“the Petition”) and an ex parte summons application by North Mining Shares Limited (“the Company”) seeking the appointment of joint provisional liquidators (“JPLs”) on a light touch basis filed on 28 October 2019. The application for the appointment of JPLs is supported by the affidavit evidence of Mr. Zhao Jian, a director of the Company. Each of these documents were made and filed on 28 October 2019.
The Company is a publicly trading holding company which continues to be listed on the Main Board of the Hong Kong Stock Exchange. The Company and its subsidiaries (collectively “the Group”) carry on business in Hong Kong in the field of molybdenum mining and property management operations and in the manufacture and sale of chemical and security technology products. The Company acts as an investment company and a policy and administrative coordinator of its subsidiaries.
On 10 April 1995 the Company was incorporated in Bermuda. The authorized share capital of the Company is HK$400,500,000 which is made up of 30,000,000,000 ordinary shares and 15,000,000,000 preference shares. The Company's principal assets are its shares in its subsidiaries, valued at HK$999,876,839 (approximately US$128,000,000).
The Petition for the winding up of the Company is grounded on the Company's insolvency pursuant to section 161(e) of the Companies Act 1981. It is stated in the Petition that the Company is indebted to (i) Natu Investment 1 Company Limited (“Natu”) pursuant to a note valued at HK$115,902,134 (approximately US$14,700,000); (ii) SFund International Investment Fund Management Limited (“SFund”) under a corporate bond valued at HK$292,992,456.37 (approximately US$37,600,000) and (iii) Huatune Corporation Company Limited on the terms of a loan agreement for the unpaid sum of HK$336, 731,179 (approximately US$43,200,000).
In respect of the Natu debt, Mr. Zhao, at paragraphs 13 and 53 of his first affirmation, describes the undisputed outstanding sum to be HK$115,906,552.46 (approximately US$14,700,000-US$14,800,000 1). Prior to the presentation of a petition in this Court, on 27 May 2019 Natu petitioned for the Company to be wound up in the High Court of Hong Kong Special Administrative Region Court of First Instance (“the HK High Court”) (“the HK Petition”).
At the time of the hearing of this application, the proceedings on the HK Petition were live and active. A return hearing date for Monday 4 November 2019 before the learned Hon. Mr. Justice Harris sitting in the HK High Court was near pending. Mr. McCosker explained that the
Company endeavoured for the HK petition to be further adjourned on the prospect of a creditor majority agreement to a structure for the refinancing of the Company's debtsIn addition to the application before me for the appointment of soft touch JPLs, the Company sought for this Court to issue a letter of request to the HK High Court for recognition of the proposed appointment of JPLs.
Having heard oral arguments from both sides and having considered the evidence and other documents placed before me, I granted the Company's applications for the appointment of JPLs on a light touch basis and for the letter of request for recognition of that appointment in limited terms. I informed the parties that I would later provide them with these written reasons for my decision.
The application for the appointment of JPLs was mostly supported by the evidence contained in the first affirmation of Mr. Zhao who offered some insight on the recorded profit for the Group's mining and property management businesses and the current losses of the Group's chemical sales and manufacturing and security businesses.
Mr. Zhao reported that the mining business operated at a year-end loss of HK$26,000,000 (approximately US$3,330,000) in 2017 before it regained its annual profit of HK$67,132,000 (approximately US$8,600,000) in 2018 and a profit of HK$55,600,000 (approximately US$7,100,000) for the first half of 2019.
Similarly, the property management business, which is a smaller component of the Group's business services, saw an annual profit in 2018 of HK$7,607,000 (approximately US$975,000) from a recorded loss for 2017 of HK$7,400,000 (approximately US$940,000). The profit for the first half of 2019 was reported to be HK$3,200,000 (approximately US$410,000).
Due to a four-month closure of the chemical trading operations, the Group suffered loss for the 2018 financial year in the approximate sum of HK$49,805,000 (approximately US$6,400,000) with a continued loss for the first half of 2019 to the extent of HK$24,000,000 2.
The security business recorded a 2018 loss of HK$4,883,000 (approximately US$626,000) and a further loss of HK$37,427,000 (approximately US$4,800,000) for the first half of 2019. This led to a management decision to sell the security business.
While the Group is balance-sheet solvent, the Group's net-asset deficiency is made clear by Mr. Zhao where he speaks to the consolidated financial position for 2018. At paragraphs 63 and 64 of his affirmation he states:
“63. As at 31 December 2018 the Group's current assets of the Company were valued at HK$1,256,594,000 (approximately US$161.1 million) and the current liabilities of the Company and its subsidiaries are valued at HK$1,466,482,000 (roughly $188 million USD). Whilst the Group has substantial non-current assets (HK$5,117,736,000, or approximately US$656.1 million) which far exceed its non-current liabilities (HK$1,012,543,000, or approximately US$129.8 million) the Company is presently facing a liquidity problem that current assets are insufficient to immediately cover all current liabilities that are due within one year.
64. As of 30 June 2019, the Group had total outstanding borrowings of approximately HK$1,427,971,000 (approximately US$183 million) comprising…”
In an attempt to financially re-stabilise by disposing of its security business, on 28 March 2019 the Company publicly announced its agreement to conditionally sell its interest in Gold Pearl Investment Limited (“Gold Pearl”) to Mr. Zhu Wei Min for the sum of HK$430,000,000 (approximately US$54,800,000). The expected sum of the net proceeds is HK$429,000,000. This was confirmed by a Sales and Purchase Agreement dated 28 March 2019 between the Company and Mr. Zhu (“the Gold Pearl Sale”). At a special general meeting of its members held on 18 September 2019 the Company resolved by 99.71% of its voting shareholders that it would proceed with the Gold Pearl Sale.
In April 2019, the Company received an initial deposit of approximately HK$22,000,000 from Mr. Zhu. The remainder sum owed is expected to come by way of three further installments by 28 March 2021. Mr. McCosker highlighted the evidence of Mr. Zhu's commitment to proceed with the Gold Pearl sale notwithstanding a termination clause that would have allowed Mr. Zhu to step away from the sale in the event of insolvency proceedings.
SFund is the Company's sole corporate bondholder for the principal sum of HK$250,000,000 (approximately US$32,000,000). It is also the second largest creditor occupying 33.21% of the Company's total debt pool.
On Mr. Zhao's evidence, Mr. Qian Yi Dong, the Deputy Chairman of the Company, entered into a non-legally binding Memorandum of Understanding with SFund for what he referred to as a ‘Potential Share Subscription’ which is an arrangement for a share subscription in the amount of HK$400,000,000. Such an arrangement would allow for the settlement of the outstanding HK$250,000,000 sum. Further, by this arrangement the Company would also have access to an additional HK$150,000,000 in cash.
On 27 May 2019 Natu, holding 12.44% of the Company's overall debt sum, served the HK Petition for the Company to be wound up on the ground that it is unable to pay its debts. Under a re-amended petition (to which I shall also refer to as “the HK Petition”) the Company is alleged to owe an outstanding aggregate sum of HK$170,492,494.31 (approximately US$21,860,000). Mr. Zhao states the undisputed outstanding sum to be HK$115,906,552.46 (approximately US$14,700,000—US$14,800,000 3) (“the undisputed debt”).
The Company proposed a schedule of three installments of payment to fully settle the undisputed debt over a five month period. It is undisputed evidence that partial payment in the sum of HK$15,000,000 was paid. However, in respect of the further payments owed, Mr. Zhao explained at paragraphs 60 and 61 of his affirmation that the Company's other creditors object to the repayment of Natu on the grounds of fraudulent...
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...a provisional liquidator, the Court may limit his powers by the order appointing him.” 122 In Re North Mining Shares Company Limited [2020] SC (Bda) 7 Com (27 January 2020) I made the following general remarks about the purpose behind appointing a provisional liquidator [para 24]: “ 24. The......