FOUNDER GROUP (HONG KONG) LIMITED (IN LIQUIDATION) v SINGAPORE JHC CO., PTE. LTD.

Facts

Founder Group (Hong Kong) Limited, placed in liquidation in Hong Kong in July 2021, applied in Companies Winding Up No 121 of 2022 to wind up Singapore JHC Co Pte Ltd, a Singapore metals trader. Both companies had been members of the group headed by Peking University Founder Group Company Limited (PUFG). After PUFG's reorganisation in the PRC, a consortium of strategic investors acquired the defendant, while the claimant's liquidation was initiated on behalf of PUFG's offshore bondholders. The judge described the case as in substance a contest between those two sets of interests.

The liquidators claimed the defendant owed US$47.43m and, after statutory demands went unpaid, presented the application. They relied on a 2019 audit confirmation in which the defendant's auditors recorded that sum as owed to the claimant, three contracts from December 2015 and January 2016 for the sale of copper cathodes, invoices for US$47.43m, and the defendant's audited accounts. The contracts were governed by PRC law and contained CIETAC arbitration agreements. The defendant disputed the debt, asserting that no copper cathodes were ever delivered, that the parties never intended the payment obligations to be enforced, and that the contracts were void under PRC law.

Issues

1. Whether the claimant had standing as a creditor where the alleged debt arose under contracts containing arbitration agreements.
2. Whether the defendant was abusing the court's process by disputing a debt it had admitted in an audit confirmation.
3. Whether the defendant was unable to pay its debts, and whether a creditor could rely on the just and equitable ground.

Holding

Vinodh Coomaraswamy J dismissed the winding up application, holding that the claimant had not established standing as a creditor, and ordered it to pay the defendant costs fixed at $25,000 including disbursements. He added that, had standing been shown, he would have found the defendant unable to pay its debts, but would not have wound it up on the just and equitable ground. The claimant appealed.

Reasoning

Where the alleged debt arises under a contract with an arbitration agreement, the approach in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158 applies: the court asks only whether there is prima facie a valid arbitration agreement covering the dispute and whether the defendant is abusing the process, without looking at the merits. By the doctrine of separability, the defendant's claim that the contracts were void did not make the arbitration clauses invalid, and CIETAC had accepted arbitrations under identical clauses involving a related company. The clauses covered all disputes in connection with the contracts.

There was no abuse of process. An audit confirmation is strong prima facie evidence of a debt but can be withdrawn, at least without consideration, if made in error, and here there were doubts about its accuracy. A claimant unable to prove it is a creditor lacks standing, so the application had to be dismissed, not stayed; a stay would give the claimant the effect of a freezing order without its safeguards. On the general approach too, the defendant raised triable issues: the liquidators could not show delivery, and the claimant had made no attempt to recover the debt for six years before the liquidators took over. The claimant should first have obtained an arbitral award.

The defendant's audited accounts showed current liabilities far exceeding current assets and heavily qualified audit opinions, so it was cash flow insolvent. But a creditor's protected interest is in being paid, so shareholder cases on lack of probity do not support a creditor's just and equitable petition.

From the judgment