The providers of registered offices for two Cayman companies must reveal if the firms are owned by a Chinese former billionaire, a Grand Court judge has ordered.
Wenbin Que, once the controlling shareholder of herbal medical supplier Hengkang Medical, was worth US$1.5 billion in March 2018 but dropped off the Forbes billionaires list in 2019.
Non-repayment of debts saw him on 19 occasions placed on China’s ‘Dishonest Persons List’, the judgment said, allowing the country’s courts to make orders restricting spending.
Seven years ago, Que signed a contract with the applicant, Northeast Securities Co, to sell $72 million shares in his company with a promise that he would buy them back two years later.
According to court documents, Que did not follow through on his agreement, so in 2021 the Chinese securities firm took him to court, where an enforcement judgment was granted.
After an attempted auction failed, shares in Hengkang Medical were instead transferred to the applicant in partial satisfaction of the judgment, leaving Que owing $43.5 million.
Now Northeast Securities is enforcing its judgment in the United States – and its New York lawyers have identified two Cayman companies as potential asset-recovery targets.
They suspect Que of being the beneficial owner of both China Hydrogen Energy and Guo Ao Mining Investment International – both registered in the Cayman Islands.
Norwich Pharmacal relief
On 9 Dec. 2022, Northeast Securities applied to the Grand Court for Norwich Pharmacal relief – an order for the disclosure of information from innocent third parties.
Those third parties in this case are the providers of registered office services to the firms, namely Tricor Services and International Corporation Services, both based in George Town.
The case was heard in chambers on 16 March, during which Katie Pearson of Claritas Legal, representing Northeast Securities, said her client is seeking disclosure of records.
She explained that for Norwich Pharmacal relief to be granted, there must be a wrongdoing, a need for an order, a facilitation in the wrongdoing, and ability to provide information.
According to the written judgement, Paul Smith of Harneys, representing China Hydrogen Energy, questioned the wrongdoing.
He said the evidence against Que only proved “propensity” to not pay debts and not “wilful evasion” of debts, the document said.
The lawyer also presented an affidavit from Que’s son Mike Que which insisted his father “is not a director, a shareholder, or the ultimate beneficial owner” of China Hydrogen Energy.
Smith said the court could not go behind this positive denial that Que was the ultimate beneficial owner, but Pearson countered that what was not said was significant.
No clarification was given as to whether the legal owner was also the beneficial owner, nor did Que’s son give any indication that he had independent sources of wealth, the judge reported she said.
‘Deliberate acts of debt evasion’
In Grand Court Judge Ian Kawaley’s judgment, which was published on 3 April, he said the case was “not a clear and straight forward one”.
China Hydrogen Energy was incorporated the same month that Que’s debt fell due, which is “consistent with this company being used as a debt evasion vehicle”, he said.
Kawaley went on to say that the Cayman-registered company used to indirectly own 90% of Guo Ao Mining Investment International.
He added that Que has been placed on the list of dishonest parties in China so many times that it is inherently probable that he is generally wilfully evading his debts.
“On balance, I am satisfied that the plaintiff has established a good arguable case of wrongdoing, namely deliberate acts of debt evasion,” he said.
He said the necessity of the Norwich Pharmacal order is clear, as the records cannot be found elsewhere.
And he added that the two defendants “were clearly likely to have innocently facilitated the alleged wrongdoing and were clearly likely to be able to provide the information sought”.
Kawaley concluded the evidence does “just” meet the requisite threshold for a good arguable case that the Cayman companies are beneficially owned or controlled by Que.
He ordered the defendants to produce a register of shareholders and details of ultimate beneficial owners for the Cayman companies from inception to the current date.
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