CHOW WAI SHING DANIEL AND ANOTHER v. LU YING

CHOW WAI SHING DANIEL AND ANOTHER v. LU YING

The Disposal was a transaction at an undervalue under s.49. The Court found Market Value for the block after a 10% illiquidity discount was approximately HK$35.06M–HK$37.08M and, on the facts, the bankrupt knew (or must have known) the purchaser's identity so Fair Value principles apply; the shares conferred special value (control) to the purchaser and a shell premium of HK$350M was appropriate. The sale at HK$30M was therefore substantially less than Market Value and grossly less than Fair Value; the Disposal was set aside and shares vested in the trustees.

Citation
[2020] HKCFI 2148
Parties
Applicants / Trustees in Bankruptcy: Chow Wai Shing Daniel and Fok Hei Yu (Joint and Several Trustees in Bankruptcy of Ding Yi); Respondent: Lu Ying
Court
Court of First Instance
Jurisdiction
Hong Kong
Judgment Date
24 August 2020
Case Number
HCMP486/2017
Procedural Posture
Bankruptcy Transaction at Undervalue (s.49 Bankruptcy Ordinance) / Judgment (court of First Instance)
Outcome
Application granted. Impugned Disposal set aside as a transaction at an undervalue; shares to be returned to Trustees and account to be taken of benefits and dividends; costs to Trustees on nisi basis.
Legal Topics
Transactions at Undervalue, Market Value Vs Fair Value, Control Premium, Shell Premium, Illiquidity Discount, Expert Evidence, General Offer Obligations (takeovers)
Source Language
EN
Bankruptcy Insolvency Company Law Securities Regulation Valuation Law Transactions at Undervalue Market Value Vs Fair Value Control Premium +4 more

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Parties

Chow Wai Shing Daniel and Fok Hei Yu (Joint and Several Trustees in Bankruptcy of Ding Yi)

Applicants / Trustees in Bankruptcy

Lu Ying

Respondent

Procedural Posture

Bankruptcy Transaction at Undervalue (s.49 Bankruptcy Ordinance) / Judgment (court of First Instance)

Legal Issues

  1. 1 What was the Market Value of the shares on 31 March 2016?
  2. 2 Is Fair Value applicable to s.49 undervalue analysis?
  3. 3 Was the bankrupt aware of the purchaser's identity and interest?

Ratio Decidendi

The Disposal was a transaction at an undervalue under s.49. The Court found Market Value for the block after a 10% illiquidity discount was approximately HK$35.06M–HK$37.08M and, on the facts, the bankrupt knew (or must have known) the purchaser's identity so Fair Value principles apply; the shares conferred special value (control) to the purchaser and a shell premium of HK$350M was appropriate. The sale at HK$30M was therefore substantially less than Market Value and grossly less than Fair Value; the Disposal was set aside and shares vested in the trustees.

Court Disposition

Application granted. Impugned Disposal set aside as a transaction at an undervalue; shares to be returned to Trustees and account to be taken of benefits and dividends; costs to Trustees on nisi basis.

Orders

  • The Disposal of 400,000,000 NAS shares to Lu Ying on 31 March 2016 is set aside as a transaction at an undervalue under section 49 of the Bankruptcy Ordinance.
  • Upon payment of the consideration of HK$30,000,000 to Lu Ying, the 400,000,000 shares shall be vested in the Trustees and Lu shall forthwith deliver a duly executed transfer in favour of the Trustees.