Titan Petrochemicals Group Ltd
| Jurisdiction | Bermuda |
| Judge | Hargun CJ |
| Judgment Date | 10 August 2021 |
| Court | Supreme Court (Bermuda) |
| Docket Number | CIVIL JURISDICTION 2019: No. 383 |
[2021] SC (Bda) 63 Civ
In The Supreme Court of Bermuda
(COMMERCIAL COURT)
COMPANIES (WINDING UP)
Hon. Chief Justice Hargun
CIVIL JURISDICTION 2019: No. 383
Mr. Steven White and Mr. John McSweeney of Appleby (Bermuda) Limited for Sino Charm International
Mr. Alexander Potts QC and Mr. Rhys Williams of Conyers Dill & Pearman Limited for the Company
Mr. Keith Robinson of Carey Olsen Bermuda Limited for Fame Dragon International Investment Limited and Docile Bright Investments Limited
Ms. Kehinde George of ASW Law Limited for Marine Bright Limited
Hearing of a petition to wind up a company based upon a statutory demand; whether debt is disputed bona fide and on substantial grounds; relevance of the proceedings pending in a foreign jurisdiction in relation to the debt in question
Over a period of two days on 12 and 13 July 2021, the Court heard the Petition presented by Sino Charm International Limited (“ Sino Charm” or the “ Petitioner”) seeking a winding up order in relation to Titan Petrochemicals Group Limited (the “ Company” or “ Titan Group”) under section 161(e) of the Companies Act 1981 (the “ Act”). The Petition was based upon a Statutory Demand for the debt which remained unpaid. The essential dispute between the parties at the hearing was whether the debt in question was disputed bona fide and on substantial grounds.
The parties have filed extensive affidavit evidence in support and in opposition of the winding up Petition. In support of the Petition, in addition to the affirmation of Xue Zhengye formally verifying the Petition, the Petition was supported by seven affirmations of Mr. Zhou Bing (“ Mr. Zhou”), a director of Sino Charm. In opposition to the relief sought in the Petition there were three affirmations by Mr. Lai Wing Lun (“ Mr. Lai”), who is the non-executive Chairman of the Titan Group and has the day-to-day conduct of the liquidation of Fame Dragon International Investment Limited, (“ Fame Dragon”), a 66.46% shareholder of the Titan Group, two affirmations of Zhang Qiandong (“ Mr. Zhang”), an executive director of the Titan Group, and an affirmation of Lui Kit Yit of Messrs. Michael Li & Co., solicitors acting for the Titan Group in the Hong Kong proceedings, who exhibits the pleadings filed in the Hong Kong action. The evidence filed by the parties comprised five three-inch ring binders.
The Petition is supported by Marine Bright Limited (“ Marine Bright”), who claims to be a creditor of the Company for at least HK $423,000,000. Marine Bright's standing as a creditor of the Company is disputed by Docile Bright Investments Limited (In Liquidation) (“ Docile Bright”), who claims to be a creditor of the Company for the same debt and opposes the relief sought in the Petition. The Petition is also opposed by Fame Dragon.
The Petition was presented to the Supreme Court on 20 September 2019. In the Petition Sino Charm asserts that on 13 April 2017, Titan Group entered into a Subscription Agreement (the “ Subscription Agreement”) with Sino Charm pursuant to which Titan Group agreed to issue a convertible bond to Sino Charm (the “ Bond”) upon Sino Charm's payment to Titan Group of a subscription sum of HK $78,000,000 (approximately US $10,000,000) (“ Subscription Sum”).
The terms and conditions of the Bond Certificate (the “ Terms and Conditions”) provided that:
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(a) The bonds bear interest from the Issue Date to the Maturity Date at the rate of 7 1/2 % per annum payable annually.
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(b) If the company fails to pay any principal, premium, yield or any other amount payable under the bonds when due, it shall pay an additional interest on the overdue amount from the due date of payment until the date of actual payment at the rate of 5% per annum.
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(c) Unless previously converted, purchased, and cancelled or discharged, the Company shall redeem the bonds at 100% of their principal amount together with the accrued interest thereon on the date which is the first anniversary from the issue of the bonds (the “ Maturity Date”).
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(d) The Company shall not be entitled to redeem the bonds (in whole or in part) at any time prior to the Maturity Date, except by the mutual consent of the Bondholder and the Company.
On 26 April 2019, by a banker's draft bearing reference number HK126047Q4AJRBNK issued by the Bank of Communications Co. Ltd., Hong Kong Branch, Sino Charm remitted the Subscription Sum to the Company. The Company accepts that it has received the Subscription Sum.
Pursuant to the Terms and Conditions, the Bond's Issue Date was 28 April 2017 and the Bond's Maturity Date was 28 April 2018.
On 15 July 2019, Sino Charm issued a Statutory Demand to the Company which was served on the Company at its registered office demanding payment of HK $96,571,078.77 being:
“(1) the principal amount of HK $78,000,000 paid by Sino Charm pursuant to the 7.5% Coupon Convertible Bond issued by the Company to Sino Charm on 28 April 2017 with Bond Certificate No: 001 (CBC001); (2) the amount of HK $5,850,000 being the interest accrued on that principal amount at 7.5% per annum from 28 April 2017 to the maturity date of 28 April 2018 (the Maturity Date) pursuant to the terms of CBC001; and (3) the amount due by the Maturity Date at 12.5% per annum between 29 April 2018 and 15 July 2019 pursuant to the terms of CBC001.”
The Statutory Demand included a statement that if payment was not made within 21 days of the date on which it was served on the Company, the Company would be deemed to be unable to pay its debts pursuant to section 162(a) of the Act and Sino Charm shall be entitled immediately to apply to the Supreme Court for winding up under the provisions of section 161(e) and 162 of the said Act.
The Statutory Demand was not paid, secured or compounded by 5 August 2019 and as a result Sino Charm presented the Petition seeking that the Company be wound up by the Court under the provisions of section 161(e) of the Act.
The Company opposes the Petition, on the basis that the Petition debt is bona fide disputed on substantial grounds (both because the Company has a defence to Sino Charm's claim, and because the Company has a cross-claim against Sino Charm, which is the subject of pending proceedings before the Hong Kong Court). The Company invites the Court to dismiss the Petition in light of the dispute between the parties; alternatively, the Company invites the Court to adjourn or stay the Petition pending a final and binding determination of the Hong Kong proceedings (in circumstances where, the Company contends, Hong Kong is the most appropriate forum for the dispute between the parties, which is substantially governed by Hong Kong law).
In the written submissions filed on behalf of the Company it is said that the Company's case, which is currently being pursued in ongoing proceedings in the Hong Kong Court against Charm is, inter alia, that:
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(a) The funds used to pay for the Subscription Sum for the Bond were siphoned from the Titan Group and paid to Sino Charm through a series of fraudulent transactions. It is said on behalf the Company that it is not in dispute that Sino Charm received circa HK $78m shortly before the Subscription Sum was paid to the Company in the amount of HK $78m.
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(b) The issuance of the Bond was in breach of fiduciary duty by the then chairman of the Titan Group, Mr. Zhang WeiBing (“ Mr. WeiBing”), and the then Chief Executive Officer, Tang Chao Zhang (“ Mr. Tang”), and is void. As Sino Charm, the Company claims, is controlled by or closely connected to Mr. WeiBing and Mr. Tang, Sino Charm was aware of their wrongdoing at the time of the purchase of the Bond, and at the very least Sino Charm was put on inquiry.
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(c) The Bond was issued by the Company under the instigation and direction of Mr. WeiBing and Mr. Tang for improper purposes and in breach of fiduciary duty.
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(d) Specifically, by the Bond, Mr. WeiBing and/or Mr. Tang intended (i) to entrench their control within the Company, (ii) to personally benefit from the proceeds of the Bond, and/or (iii) to put themselves in a better position to extract a ransom from potential buyers of shares in the company (the “ Improper Purposes”).
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(e) To this end, using a series of suspicious and coordinated transactions conducted using the Company's subsidiaries Petro Tan (HK) Limited (“ HT01”) and Brilliance Glory Limited (“ Brilliance Glory”), Mr. WeiBing and Mr. Tang caused funds to be diverted from the Company to Sino Charm, and the funds were used to finance the Subscription Sum paid by Sino Charm.
In support of the proposition that by procuring the Company to enter into the Subscription Agreement so as to entrench their control within the Company, Mr. WeiBing and Mr. Tang acted for an improper purpose, Counsel for the Company relies upon, inter alia, Piercy v Mills [1920] 1 Ch 77, at 84–85; and Howard Smith v Ampol Petroleum Ltd [1974] AC 821 (PC), at 834E-G.
Alternatively, argues Counsel, that if the Subscription Agreement is not void or unenforceable, the Company was entitled to rescind the Subscription Agreement, and the rescission was effective immediately upon the communication by the Company of its election to rescind. It is said on behalf of the company that by virtue of the Writ issued by the Company in the Hong Kong Court on 21 October 2019 and/or Mr. Zhang's First Affirmation dated the 22 October 2019, the Subscription Agreement had been effectively rescinded.
Central to the allegation of wrongdoing is the assertion by the Company that using a series of highly suspicious transactions, Sino Charm, Mr. WeiBing, Mr.Tang, Uni-Loyal International Enterprises Limited (“ Uni-Loyal”), Sino Champion Corporation Limited and/or Mr. Chan Shu Leung conspired together to divert...
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