RE A-ONE INVESTMENTS LTD

HCCW448/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 448 OF 2008

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D E C I S I O N

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1. This is an appeal by Mr Patrick Chau Cham Wong and Mr Leung Yung, the contributories of A-One Investment Limited (“the Company”), wound up on 3 December 2008, against the master’s order dated 26 May 2009 appointing Mr Cosimo Borrelli and Ms G. Jacqueline Fangonil Walsh as liquidators on the principal ground of apparent bias against them.

2. The background circumstances are summarized as follows.

A.  Background circumstances

A.1.   Events leading up to the winding up petition

3. Incorporated in the BVI, the Company was an investment holding company.  It wholly holds A-1 Business, another BVI company, which in turn holds 65% equity interest in SFT Holdings de Finance et de Technologie (“SFT”).  The Company acquired the equity interest by a loan advanced by ABN AMRO Bank N.V. (“ABN”) on 13 September 2007.  The Company also holds shares in Peace Mark Holdings Limited (“Peace Mark Holdings”), a listed company in Hong Kong, which was until the appointment of the provisional liquidators on 10 September 2009, under the management of Mr Chau as chairman and Mr Leung as CEO.

4. The loan referred to above was later re-financed by the bonds issued by the Company to ABN on 1 February 2008 which was secured by, inter alia, a charge over 131,285,051 shares in Peace Mark Holdings.  The trustee of the bonds is DB Trustees (Hong Kong) Limited (“DB Trustees”).

5. The Company subsequently defaulted.  On 23 September 2008, DB Trustees presented a winding up petition against the Company.

A.2.   Appointment of provisional liquidators

6. At the same time, DB Trustees applied for the appointment of Mr Borrelli and Ms Walsh as provisional liquidators on the grounds of questionable conduct of the management by Mr Chau and Mr Leung, surreptitious disposal of SFT and possible financial irregularities of Peace Mark Holdings.  The application was allowed by Kwan J.

A.3.   HCA1868/2008

7. The provisional liquidators then carried out investigation of the Company’s affairs.  They found out that the Company, whilst under the control of Mr Chau and Mr Leung as directors, entered into an agreement dated 12 August 2008 with Festina Lotus S.A. (“Festina”), a Spanish company, to sell its 65% equity interest in SFT for a total consideration of CHF27 million.  Pursuant to the agreement, Festina made an initial payment of CHF10 million to the Company and paid a second tranche of CHF10 million to A-1 Business on or about 22 August 2008.  The provisional liquidators repeatedly asked Mr Chau and Mr Leung to account for the whereabouts of the CHF20 million without avail.

8. The provisional liquidators then obtained Kwan J’s sanction on 29 September 2008 to commence HCA1868/2008 in the name of the Company as a derivative action against Mr Chau and Mr Leung to recover the CHF20 million and to apply for a worldwide Mareva injunction against them.  The injunction was granted on the same day.

9. A couple of points arose from the evidence filed by Mr Chau and Mr Leung in opposing the continuation of the Mareva injunction.

10. First, Mr Chau admitted that he had used the CHF20 million to repay his personal debt owed to DBS Bank on 25 August 2008.  Mr Chau and Mr Leung alleged that Mr Chau did so pursuant to a resolution purportedly passed by them as directors of A-1 Business on the same day to pay a dividend of the same amount to the Company which, they alleged, owed Mr Chau HK$300 million, a loan that he advanced to the Company earlier on 14 May 2008 (“the Disputed Loan”).  However, they had been unable to produce any documentary evidence in support of the Disputed Loan.  Mr Chau and Mr Leung further accepted that save of HK$50,000, the HK$300 million paid in to the Company’s account was paid out to Peace Mark Ltd, a wholly owned subsidiary of Peach Mark Holdings, immediately after it was received.  They alleged that it was a “demand loan” advanced by the Company to Peach Mark Ltd, without however producing any documentary evidence in support.  It is the provisional liquidators’ case that the $300 million was never used by the Company for its benefit or purpose.

11. Second, Mr Chau said that between 3 July and 5 August 2008, he had already drawn 5 cheques on behalf of the Company for a total of HK$90,608,713, which was used to repay the Disputed Loan.

12. On 13 November 2008, Deputy Judge Mayo ordered the Mareva injunction to be continued against Mr Chau.  The provisional liquidators did not seek continuation of the injunction against Mr Leung after considering the further evidence filed.

13. Separately, the provisional liquidators applied for summary judgment against Mr Chau and Mr Leung, which was dismissed by Deputy Judge Bharwaney SC on 27 May 2009.  But he granted the Company leaved to appeal.  The appeal is scheduled to be heard on 10 September 2009. 

A.4.   Winding up

14. On 3 December 2008, the Company was ordered to be wound up.

15. The provisional liquidators continued to act pursuant to section 194(1)(aa) of the Companies Ordinance, Cap. 32.

A.5.   HCA253/2009

16. By order dated 12 January 2009, Kwan J gave sanction to the provisional liquidators to commence HCA253/2009 against Mr Chau, Mr Leung and DBS Bank for the HK$90,608,713 that Mr Chau allegedly misappropriated (by drawing the 5 cheques referred to in paragraph 11 above) from the Company and A-1 Business and other reliefs to avoid various security purportedly created by Mr Chau and Mr Leung on behalf of the Company in favour or DBS Bank for Mr Chau’s personal loan. 

17. In their defence, Mr Chau and Mr Leung relied on the Disputed Loan to justify Mr Chau’s taking of the HK$90,608,713 to repay his personal loan owed to DBS Bank.

A.6.   Settlement with Festina

18. By the same order of 12 January 2009, Kwan J gave sanction to the provisional liquidators to settle with Festina for the last instalment due and payable to A-1 Business for CHF5.5 million.

A.7.   Meetings of creditors and the contributories

19. On 3 February 2009, the first meetings of the creditors and contributories were held.

20. At the meeting of the contributories, only Mr Chau (through proxy) attended.  He voted against the appointment of the provisional liquidators as liquidators.

21. The meeting of creditors was attended by DB Trustees, DBS Bank and Mr Chau.

22. The indebtedness due to DB Trustees (HK$184,106,279) was not disputed.  The provisional liquidators adjudicated its claim for voting purposes at HK$184,106,278, that is, one dollar less than the claim.  The provisional liquidators made that adjudication after taking into account the value of the security in the form of the charge over the shares of Peace Mark Holdings, which could not be sold as trading in Peace Mark Holdings has long been suspended.

23. DBS claimed for HK$65,601,339 as the outstanding balance of Mr Chau’s personal loan, purportedly guaranteed by the Company.  Mr Chau claimed for HK$69,391,286 as the balance of the Disputed Loan.  Since both DBS’s and Mr Chau’s claims are subject matters of on-going proceedings, the provisional liquidators took the view that their status as creditors had not been established and adjudicated their claims at HK$1 for voting purposes.

24. Various resolutions were then passed at the creditors’ meeting.  DB Trustees voted for the appointment of the provisional liquidators as liquidators of the Company.  Mr Chau opposed and proposed KT Consultants Ltd.  DBS Bank abstained from voting.

A.8.   The master’s order 

25. Because of the parties’ difference as to who should be appointed liquidators of the Company, the provisional liquidators took out an application before the master.  The contributories opposed the appointment of the provisional liquidators as liquidators on the ground that “they were dissatisfied with the provisional liquidators’ apparent prejudiced bias” against them.  They proposed Kenny Tam King Ching of Kenny Tam & Co. as liquidator.

26. As noted, the master appointed the provisional liquidators as liquidators of the Company.

27. So much for the background.  I now turn to the law.

B.  The law

28. The court has a wide discretion when appointing liquidators.  It is not bound by the determinations of the meetings of the creditors or the contributories, although the court would have due regard to those determinations.  The court will consider what is in the best interests of all persons interested in the winding up.  Naturally that would result in a saving in the time and cost of investigating the company’s affairs should be preferred : see Re Akai Holdings Limited & Another [2001] 2 HKLRD 411, per Yuen J (as she then was) at 417I-418C.

29. The court may decline to appoint any nominated liquidator if his appointment conflicts or is likely to conflict with the bests interest of the winding up as a whole including the best interests of all parties concerned in the winding up : Re Orient Power Holdings Ltd [2008] 2 HKLRD 494, per Kwan J at para.26(3).

30. As an officer of the court, a liquidator should maintain an even and impartial hand between all individuals whose interests are involved in the winding up.  A guiding principle in appointing a liquidator is that he must be independent and seen to be independent, as it is of great importance there should be no possibility of criticism attaching to the liquidator as an officer of the court on the ground of a conflict of interest as liquidator in circumstances where there is some real prospect, even if small, of a conflict of interest and duty when the liquidator is conducting his duties : Orient, supra, at para. 26(4).

31. Any conflict of interest or even over-familiarization should be discouraged.  But it is not every connection or action that can give rise to an allegation of an appearance of lack of independence and impartiality on which the court should act : Akai Holdings, supra, at 421A-B.  It must depend on the facts of the case.

32. With these principles in mind, I now turn to consider the points taken by Mr Chau and Mr Leung in support of their case on apparent bias.

C.  Points taken by the contributories

C.1.   Preferential treatment given to DB Trustees/ABN

33. At the creditors’ meeting, the provisional liquidators on the one hand made the adjudication in favour of DB Trustees’ claim without asking it to surrender the security while on other hand adjudicated Mr Chau’s claim to be HK$1.

34. Contrary to any suggestion Mr Chau and Mr Leung might wish to make, the adjudications made by the provisional liquidators were for voting purpose only.  They did not make any adjudication on the claims for dividend purpose, which hopefully will take place in the future.  I am told that for voting purposes, adjudicating a secured creditor’s unsecured claim by taking into account the value of the security that he holds and adjudicating a disputed creditor’s claim at HK$1 is a well-established practice.  Nothing in the evidence suggests otherwise.

35. Here, the indebtedness owed to DB Trustees is never in doubt.  The value of the security held by them is of nil value as long as trading in the shares of Peach Mark Holdings remains suspended.  The provisional liquidators did take that into account and made the adjudication as they did.  I can see no preferential treatment in their favour.

36. On the other hand, Mr Chau’s claim is hotly disputed.  For voting purposes, the provisional liquidators were entitled to adjudicate its value at HK$1.  That adjudication will not impact on the on-going legal proceedings at all.  I fail to see any apparent prejudice against Mr Chau or Mr Leung.

C.2.   Commencing the High Court Actions

37. Mr Chau and Mr Leung next contended that apparent bias arose because the provisional liquidators chose to commence the two High Court Actions against them.  They said the actions are unreasonable, oppressive and an abuse of process.

38. Underlying the contributories’ contention is the submission that the provisional liquidators have been acting unreasonably in refusing to recognize the validity of the Disputed Loan and Mr Chau’s status as the Company’s creditor.  However, on the evidence before the court, the dispute raised by the provisional liquidators on Mr Chau’s claims is genuine and legitimate.  The actions are properly commenced, as indicated by the sanction given by Kwan J.

39. They then complained that the provisional liquidators saw fit to obtain a Mareva injunction against Mr Leung when it was not justified by the evidence.  But it should be recognized that when the provisional liquidators took out the application, as is usual in similar applications, they did not necessarily have all the information.  After Mr Leung had filed his evidence, and after it had become apparent that the injunction could not be maintained against him, the provisional liquidators had acted most responsibly by not seeking its continuation against him.  I fail to see how they can be criticized for what they had done.

40. Mr Chau and Mr Leung also complained that the provisional liquidators adopted unjustified litigation tactics by taking an application for summary judgment in HCA1868/2008, which was doomed to fail on extant authority.  I need not say any more on this point.  Suffice it to note that after dismissing the application, Deputy Judge Bharwaney immediately gave the plaintiff leave to appeal, indicating that there is some prospect of success in the appeal.  I do not think this point takes their case any further.

C.3.   Engaging Mallesons

41. Mallesons was the solicitors acting for DB Trustees in the winding up petition.  Mr Chau and Mr Leung complained that by engaging Mallesons as their solicitors, the provisional liquidators put themselves in a position of conflict.

42. There can be no substance in this complaint for the simple reason that after the appointment of the provisional liquidators, Mallesons have already ceased to act for DB Trustees or ABN on matters relating to the Company.

C.4.   Settlement with Festina

43. Mr Chau and Mr Leung complained that the provisional liquidators ought not have settled with Festina when the claim against them was very strong.  I disagree.  On the evidence before the court, nothing objectionable can be raised against the provisional liquidators for settling with Festina.  I only wish to add that the settlement was in fact sanctioned by Kwan J.

C.5.   Unethical tactics

44. Mr Chau and Mr Leung complained that the provisional liquidators employed unethical tactics against them.  I need not go into details.  As rightly pointed out by Ms Chan, counsel for the provisional liquidators, the matters in support of the allegations were well predicated on the validity of the Disputed Loan.  That being hotly disputed, this complaint cannot possibly stand.

C.6.   Other points

45. Mr Wong, counsel for Mr Chau and Mr Leung, relied on some additional points including the costs incurred by the provisional liquidators and their relationship with Mallesons.  Again I do not wish to dwell on details.  Suffice to say that having carefully considered all of them, I think they are wholly unmeritorious.

D.  Orders

46. For the above reasons, I dismiss the appeal.

47. The parties have already made their submissions on costs and submitted their skeleton bills, which I have carefully considered.  I order that Mr Chau and Mr Leung do jointly and severally pay the provisional liquidators’ costs assessed at HK$100,000 and the Official Receiver’s costs assessed at HK$50,000.