RE WELL BOND GROUP LTD

HCCW 389/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 389 OF 1998

____________

____________

_______________

D E C I S I O N

_______________

1.  This is an application taken out by the Official Receiver on 27 September 2006 to remove Mr Steven Todd Krause as the liquidator of Well Bond Group Limited (“the Company”).

2.  The summons and the first report of the Official Receiver also dated 27 September 2006 were served on Mr Krause personally on 10 October 2006.  The second report of the Official Receiver filed on 1 November 2006 was served on Mr Krause also personally on 2 November 2006.  He has not appeared today nor has he filed any evidence in response to the application.

3.  The application was made under section 196(1) of the Companies Ordinance, Cap. 32 and rule 48(2) of the Companies (Winding-up) Rules.

4.  Under the former provision, a liquidator may be removed “on cause shown”.  I have held in Re Liote Property Management Limited [2006] 2 HKLRD 106 at 108G to 109A that this provision confers a wide discretion on the court and that the Official Receiver has locus to apply under the provision.  Under rule 48(2), the court also has discretion to remove a liquidator where he fails to keep up security required to be given by him under rule 48(1).

5.  Mr Krause was the subject of two earlier applications made by the Official Receiver in 2002 and 2005 under section 204(1) of Cap. 32 and orders were made against him on those occasions as he had not been performing his duties faithfully as the liquidator of the Company, nor had he been duly observing all the requirements imposed on him by statute.  The breaches on his part were set out in paragraphs 6 to 19 of my decision on 4 May 2006.  There were further breaches after that order on 4 May 2006 and they are set out in the Official Receiver’s first report.

6.  In summary, there was serious misconduct on his part and he had failed to conduct the liquidation of the Company effectively, efficiently and vigorously in that he:

(1)     failed to comply with the orders made on 30 October 2002 and 4 May 2006 upon the application of the Official Receiver under section 204;

(2)     failed to submit liquidator’s accounts in accordance with section 203(1) and failed to furnish the Official Receiver with information relating to the liquidator’s accounts in accordance with section 203(3);

(3)     failed to provide security to the Official Receiver in accordance with section 195;

(4)     failed to cause to be filed with the Registrar of the court a verified statement of affairs in accordance with rule 39(1);

(5)     failed to cause to be filed with the Registrar of the court a list of proofs of debt in accordance with rule 101;

(6)     failed to take effective steps to declare and distribute dividends to creditors in accordance with rule 142;

(7)     failed to proceed with the liquidation with reasonable expedition;

(8)     failed to forward to the Official Receiver reports on the position of the liquidation of the Company in accordance with rule 162(1); and

(9)     persistently ignored enquiries raised by the Official Receiver in the exercise of his functions and powers under Cap. 32 and the reminders.

7.  A detailed account of the above is given in the Official Receiver’s first report at paragraphs 13 to 97.

8.  A clear case is made out to remove Mr Krause as not a fit and proper person to act as the liquidator of the Company and I so order.

9.  The Official Receiver seeks consequential orders on the removal of Mr Krause, set out in paragraph 118 of his first report.  In short, he seeks orders to appoint Mr Bruno Arboit and Mr Simon Richard Blade, both of Baker Tilly Hong Kong Business Recovery Limited, as the replacement liquidators; to require Mr Krause to deliver books and documents to the new liquidators; to deliver to the Official Receiver the up-to-date liquidator’s accounts, the cash books for the bank current accounts maintained by him and for the Companies Liquidation Account, and the certified bank statements; and to pay to the Companies Liquidation Account all the cash balance of the Company held by him.  These orders are appropriate and I make an order in terms of sub-paragraphs (2) to (6), (10) and (11) of the draft.

10.  The Official Receiver also seeks an order that the fees of Mr Krause as the liquidator be disallowed.  As Mr Krause has not performed his duties, the new liquidators would have to verify the statement of affairs, adjudicate the proofs of debt, continue with the asset realization work, consider recovery action and conduct investigation work before the finalisation of the liquidation.  Additional costs would have to be incurred on the work that had not been carried out by Mr Krause or was only carried out in part by him and which would have to be taken up and carried out all over again by the new liquidators.  I agree with the Official Receiver that the additional work undertaken due to Mr Krause’s breaches should not be at the expense of unsecured creditors and contributories.

11.  In 1998 and 1999, Mr Krause submitted 5 debit notes on his fees and disbursements in the liquidation and the Official Receiver paid him HK$716,353.11 as interim payment on account.

12.  I would allow Mr Krause to keep his disbursements but disallow all his fees, in view of the serious dereliction in duty.  I have jurisdiction to disallow the fees of liquidators in a compulsory winding up under the supervision of the court.  As the Court of Appeal had stated in Re Kansa General International Insurance Company Limited [1999] 3 HKLRD 94 at 99I and 100D, the court’s control through its officers of a winding up by the court is comprehensive and the court cannot be left powerless if it wishes to question any aspect of such a winding up.

13.  I have altered sub-paragraphs (7), (8) and (9) of the draft orders in this respect.  The revised orders are to provide as follows:

(7)     the fees of Mr Krause incurred in the liquidation of the Company be disallowed;

(8)     Mr Krause be at liberty to file for the approval of the court a schedule of all his disbursements incurred in respect of the liquidation of the Company after 21 days of his delivery of the books and documents to the new liquidators, but in any event not later than 2 months from the date of this order;

(9)     Mr Krause shall return to the Official Receiver for payment to the Companies Liquidation Account the interim payment on account in the total sum of HK$716,353.11, less any amount of disbursements approved and allowed by the court in paragraph (8).

14.  The costs of this application should be borne by Mr Krause.  I have assessed the Official Receiver’s costs on a gross sum basis at HK$83,000.00.

15.  I will give liberty to apply.