RE LABOUR BUILDINGS LTD

   HCCW721/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)

NO. 721 OF 2009

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JUDGMENT

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1.  I have before me an application by Star Rainbow Limited for an order under section 182 of the Companies Ordinance validating an assignment by the Receivers of property at 11 Changsha Street (“Property”) on 17 December 2009.

Introduction

2.  On 10 July 2009, a provisional agreement was entered into for the sale of the property to Star Rainbow. On 26 November 2009, Winland Mortgagee Limited were appointed joint and several receivers over the property. On 11 December 2009, Mr Justice Yam ordered, in HCMP2544 of 2009, that the Receivers “in the capacity of Receivers of the property be empowered to sign and execute all necessary title deeds and documents, to receive all purchase price for the purpose of executing and completing the provisional agreement dated 10 July 2009 for the sale and purchase of the property on behalf of ...”.

3.  As I have already mentioned, on 17 December 2009, the assignment of the property took place. The Receivers executed the assignment first as Receivers of the property, secondly as the Company’s attorney pursuant to clause 18.01 of the debenture pursuant to which they were appointed, and thirdly as authorised by the order of Mr Justice Yam in HCMP2544 of 2009.

4.  Unbeknown to the Receivers, on 17 December 2009, a petition to wind up the Company on the grounds of insolvency was presented by Miss Lin Pai-ching. The petition is written in English, and shows all the signs of being drafted by a lawyer.

5.  On 19 January 2010, the Company issued a writ in HCA68/2010 seeking, inter alia, an order that the assignment is void.

6.  After the summons seeking a validation order was issued on 11 January 2010, the Petitioner applied for legal aid. On 26 January 2010, the Director of Legal Aid issued a notice of such application. Pursuant to section 15(4) of the Legal Aid Ordinance, Cap. 91, issue of such a notice acts to stay the relevant proceedings for not less than 14 days unless otherwise ordered by the court. I order that the stay be lifted so far as this application is concerned.

7.  I note that on 28 January 2010, the court received a fax from the Petitioner in Chinese referring to her application for legal aid and saying that she was not conversant with English. This is surprising, given the contents of the petition. The Petitioner is the sister-in-law of David Chan, the solicitor acting for the Company in HCA68/2010 and in these proceedings. David Chan was found in previous proceedings involving the original mortgagee of the property, Bank of East Asia Limited (HCMP762/2002) to have orchestrated and conducted the affairs of the Company as litigator.

8.  In my view, there is reason to believe that the issue of the petition and the application for legal aid was orchestrated by Mr Chan. I do not need, however, to determine this, or whether the claim in HCA68/2010 has merit.

9.  Section 182 of the Companies Ordinance provides:

“182.  Avoidance of dispositions of property, &c. after commencement of winding up

In a winding up by the court, any disposition of the property of the company, including things in action, and any transfer of shares, or alteration in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.

[cf. 1929 c. 23 s. 173 UK]”

10.  It is well established that section 182 does not apply to the sale of assets charged under a debenture by receivers appointed under the debenture In Re Henry Pound, Son & Hutchins (1889) 42 ChD 402; Re Magart Pty Ltd [1985] BCLC 314; Re MW Lee & Sons Enterprises Ltd [1999] 2 HKC 686; Sowman v David Samuel Trust Ltd (in Liquidation) [1978] 1 WLR 22. It is also well established that section 182 only applies to assets of which the Company is beneficial owner: Re French’s (Wine Bar) Ltd [1987] BCLC 499; Re MW Lee & Sons Enterprises Ltd [1999] 2 HKC 686. Where a specifically enforceable contract (such as the present one) has been entered into before the presentation of the petition, section 182 does not apply to the transfer of legal title upon completion.

11.  The present application has been brought as a matter of caution and to allay the concerns of the new mortgagee as to title. There is nothing unusual in such an application being made: Re French’s (Wine Bar) Ltd; J&J Chemtrading Company Limited v Citichem International Limited HCCW356/2007, Barma J, 23 August 2007.

12.  Another consideration is whether the granting of an order under section 182 would prevent or inhibit the Company pursuing its claim in HCA68/2010. The language of the section suggests that the granting of a validation order prevents a transaction being rendered void if a winding‑up order is made. It does not suggest that it acts to ratify a transaction that is void or voidable for some other reason.

13.  Mr Patrick Fung SC, who appeared for Star Rainbow, says that his researches have not managed to identify any authority directly on point. Mr Fung accepts that the granting of the validation order the Applicant seeks would not of itself prevent the Company obtaining the relief it seeks in HCA68/2010. Mr Chan, who appeared for the Company, was unable to assist on this particular legal issue, but did not disagree with my suggestion that the granting of a validation order would not prevent the Company pursuing HCA68/2010 or it successfully obtaining the relief that the Company seeks.

14.  The only relevant authority I am aware of is in the context of bankruptcy, Re Chan Woon Wing ex parte Lau Kei Property Limited HCB144/2000, unreported, 18 January 2000. In that case, Le Pichon J (as she then was) held that a validation order under section 42(1) did not preclude a subsequent challenge to a transaction under section 49 of the Bankruptcy Ordinance, Cap. 6.

15.  In my view, a validation order granted under section 182 does not prevent a subsequent challenge to a transaction for a reason unconnected with the presentation of the petition or the granting of a winding‑up order.

16.  I therefore see no reason not to grant a validation order in this case. I will make a formal order in terms of paragraph 1 of the Applicant’s summons.