Re Full Apex (Holdings) Ltd

• Jurisdiction: Bermuda
• Judgment Date: 12 March 2020
• Date: 12 March 2020
• Docket Number: Civil Jurisdiction 2019 No 24
• Court: Supreme Court (Bermuda)

[2020] Bda LR 19

In The Supreme Court of Bermuda

Civil Jurisdiction 2019 No 24

In the matter of the Companies Act 1981

And in the matter of Full Apex (Holdings) Limited (Provisional Liquidators Appointed)

Mr R Williams for the Company

Mr A Potts QC for Annuity & Life Re Ltd

Mr J Woloniecki and Ms K George for the Joint Provisional Liquidators

The following cases were referred to in the judgment:

Saturn Petrochemicals Holdings Ltd v Titan Petrochemicals Ltd [2013] Bda LR 42

Re Lycatel (Ireland) Ltd [2009] iEHC 264

Re US Global Health — Moscow Ltd [1996] Bda LR 27

CVC/Opportunity Equity Partners Ltd v Demarco Almeida [2002] UKPC 16

In re Rica Gold Washing Co (1879) 11 Ch D 36

Re Bellador Silk Ltd [1965] 1 All ER 667

In re Newman and Howard Ltd [1962] 1 Ch 262

Re the Kent Coalfields Syndicate Limited [1898] 1 QB 754

Sound Consolidated Industries Pty Ltd (in liq) (1992) 6 ACSR 647

Commissioner of Inland Revenue v Bemelman Engineering Ltd (1990) 5 NZCLC 66,494

Gamlestaden Fastigheter AB v Baltic Partners Ltd and ors [2007] Bus LR 1521

Application by shareholder for substitution of petitioner — Whether shareholder can use a contingent claim in proceedings to obtain substitution — Tangible surplus test — Lack of available accounting information — Discretion of the court

JUDGMENT of Duncan AJ

Introduction

1. By Amended Summons filed on 2 April 2019 (the “Annuity Amended Summons”) Annuity & Life Re Ltd (“Annuity”) seeks the following relief:

• (a) Applications for substitution as Petitioner in these winding-up proceedings, the lifting of the stay in respect of proceedings 181 of 2011 (the “Section 111 Proceedings”), and consolidation of the Section 111 Proceedings with these winding-up proceedings (the three applications together are hereafter referred to as the “Substitution and Consolidation Application”);

• (b) An application for the inspection and copying of the JPLs' Reports;

• (c) An application for the production of an audited financial report of the Company's affairs;

• (d) An application for an order that the JPLs take appropriate action in China/Hong Kong to gain control of the Company's property; and

• (e) An application for the removal and replacement of the JPLs.

2. The history leading up to the Substitution and Consolidation Application is somewhat convoluted but essential to understand the arguments made by the parties who appeared before the Court1. Annuity's skeleton argument conveniently sets out the

uncontroversial history, which I reproduce below with necessary amendments under the heading Background.

Background

3. On 21 June 2011, Annuity presented a Section 111 Petition (the “Section 111 Petition”) against the Company, its two principal director shareholders, Ms Liang and Mr Guan, and another company, Full Excellent Limited. The Section 111 Petition complained of a range of prejudicial behaviour on the part of the management of the Company, including the transfer of shares in the Company's subsidiary, Favour Development Limited (“FDL”), to Full Excellent Limited at an undervalue (the “FDL Transaction”) (the “Section 111 Proceedings”).

4. On 6 February 2012, pursuant to an application by the Respondents to the Section 111 Petition, the Court granted leave to Annuity to amend the Section 111 Petition to further particularise its complaint in relation to the FDL Transaction but struck out the rest of the Section 111 Petition.

5. On 31 May 2012, the parties to the Section 111 Proceedings agreed by Consent Order that Annuity's claim be amended.

6. On 28 July 2012, while the Section 111 Proceedings were on-going, Full Excellent Limited retransferred the FDL shares back to the Company.

7. Following the reversal of the FDL Transaction, the Section 111 Proceedings continued into August 2013 with various applications for disclosure but did not progress actively beyond that stage.

8. On 20 June 2013, the Company guaranteed a US$46m loan facility from the Petitioner and its principals to the Company's wholly-owned BVI subsidiary, Jetzen Investment Limited (the “Borrower”).

9. The Borrower and the Company defaulted on the facility and guarantee respectively, and on 15 January 2018, the Borrower was ordered to be wound up in the BVI with PwC appointed as liquidators. The petition debt was US$35.7m.

10. On 17 January 2018, the management of the Company arranged for the Borrower's valuable wholly-owned subsidiary, Pan-Asia PET Resin (Guangzhou) Co., Limited (“Pan-Asia”) to be transferred out of the liquidators' control to a Hong Kong company, Genhero Ltd, owned by a Marshall Islands company, Rainbow Ltd. Annuity asserts both entities are controlled by the Company's management. Rainbow Ltd's owners are not identifiable on a public register (the “Pan-Asia Transaction”).

11. Having discovered the Pan-Asia Transaction, on 8 February 2018 the Petitioners presented the Petition in these proceedings and issued an ex parte Summons for the urgent appointment of Joint Provisional Liquidators over the Company. On 9 February 2018, the Bermuda Court granted the appointment of PwC as Joint Provisional Liquidators (“JPLs”) on the grounds of the risk of dissipation of assets. Walkers acted at that stage for the Petitioner and the JPLs. By operation of section 167(4) of the Companies Act 1981, the Section 111 Proceedings were automatically stayed from that date, as against the Company.

12. Annuity assert that the management of the Company, including Mr Tan who has sworn all of the Company's evidence in these proceedings, refused to cooperate with the JPLs after their appointment as officers of the Bermuda Court, by refusing them access to the Company's Hong Kong office and removing voluminous documentation from that office without the JPLs' permission. The Company reject these assertions. Consequently, the JPLs applied for and obtained a Letter of Request from the Bermuda Court in an effort to gain control.

13. On 8 March 2018, the Company filed a Summons for the variation of the JPLs' powers from “full powers” to “soft-touch” powers. In Mr Tan's Affidavit in support of that Summons, he gave evidence that, amongst other things:

• (a) “The financial position of the Company is that it will be able to make the repayment in full, and needs only a short period of time to complete its restructuring”;

• (b) The Company's (unaudited) net profit for the first three quarters of 2017 was RMB 9,137,000 (US$1,372,975), revenue was increasing, the Company's current net assets were RMB346,502,000 (US$52,067,275) and its total net assets were RMB1,094,779,000 (US$164,507,453);

• (c) In November 2017, the Company had completed a substantive upgrade and transformation of its key subsidiaries' production equipment allowing the Company to expand its market areas;

• (d) That significant macro and micro-economic factors favoured the Company including Chinese governmental policy, and Pan-Asia entering into a Memorandum of Understanding with, and being granted an Industrial Investment Licence by, the Saudi Government regarding a US$4.8 billion annual-turnover Saudi development project (the “Saudi Project”); and

• (e) The majority of the Borrower's creditors, who allegedly held an aggregate of US$130m of the Borrower's debts, did not support the Borrower's liquidation and it was unlikely that the Saudi Project, which required US$4 billion in investment, would be feasible without the support of those creditors and with the liquidators of the Borrower and the JPLs of the Company having operational rather than supervisory powers over management.

14. Between 9 March 2018 and 27 April 2018, there followed five adjournments of the Petition and the Company Summons by Kawaley CJ, Hellman J and Subair Williams AJ. During this time, the JPLs had produced their first and second reports which they shared with the Petitioner, the Company and the Court. On 9 March 2018 and 13 April 2018 the Court ordered that the JPLs' first and second reports, respectively, be sealed on the Court file (these, and subsequent JPLs' reports, the “JPLs' Report(s)”), subject to any further Court Order. No reasoned Rulings were given in respect of those Orders. On each occasion, the Court adjourned the Petition, without re-advertisement, based on an understanding that the Petitioner acted for all of the Company's creditors, and that negotiations taking place outside of Court were capable of restoring the Company to a state of cash flow solvency within a short period.

15. On 27 April 2018, following a complaint by the JPLs that the Company and its subsidiaries' chops2 were being withheld from the JPLs, Hellman J adjourned the Petition and the Company Summons with directions, and ordered, as an express condition of the adjournment, that the Company deliver the chops of Pan-Asia by no later than 5.00 pm on 30 April 2018 and the chops of any other subsidiaries which the JPLs may request within 48 hours of such a request.

16. The Company breached this Order and Walkers issued a Summons for an immediate hearing on 4 May 2018. However, on account of further negotiations between the parties, the matter was adjourned a further three times by Hellman J and Subair Williams AJ, again without re-advertisement, before the Petitioner entered into a loan transfer agreement on 15 June 2018 (the “LTA”) whereby an investor, Mr Chung (the “Investor”) agreed to pay approximately US$22,250,743 over six instalments in exchange for the Petitioner's and its principals' rights to the sums owed under the facility agreement.

17. Two further adjournments were granted on 21 and 29 June 2018 to allow for payment before Annuity, frustrated that it had received no financial information about the

Company since 13 November 2017, and frustrated by what it asserted was the ongoing lack of transparency, accountability, prejudice being suffered by minority shareholders, and its inability to pursue its own action, gave notice of intention to appear in support of the...