RE ODD.HK LTD

HCCW239/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 239 OF 2009

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REASONS FOR DECSION

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1.  On 20 July 2009, a winding-up order was made against Odd.HK Limited (“the Company”).  By summons dated 13 August 2009, Madam Fung Wai Mun Polly (“the applicant”) applied as a contributory of the Company to rescind the winding-up order or, alternatively, to permanently stay the winding-up proceedings herein.

2.  As the winding-up order had already been sealed and perfected on 28 July 2009, the court does not have jurisdiction to order a rescission.  Hence, the applicant only seeks a permanent stay of the winding-up proceedings, pursuant to section 209(1) of the Companies Ordinance, Cap. 32.

3.  The petitioner, Octopus Cards Limited, opposes the application.  The Liquidators take a neutral position provided that the costs of the liquidation is provided for. 

4.  At the hearing after hearing arguments, I refused the application. My reasons appear below.

The winding-up proceedings

5.  The applicant is one of the two shareholders and directors of the Company.  The other shareholder and director is her sister.

6.  The petitioner presented the winding-up petition on 27 April 2009.  It is based on two sums of taxed costs in HCA87 of 2007 and HCMP104 of 2007,totalling HK$136,988.69, together with interest. 

7.  Mr Bruno Arboit and Mr Simon Richard Blade of Baker Tilly Hong Kong were appointed the Joint and Several Provisional Liquidators of the Company.  They have performed preliminary investigations into the affairs of the Company and had filed a report dated 14 October 2009 (“the PL’s Report”)

HCMP104/2007 and CACV99/2009

8.  The petitioner and the Company have been involved in litigation in HCMP104 of 2007. The subject matter of the dispute is the validity of two short-term patents registered in the name of the Company.  By a Judgment delivered on 17 March 2009, Deputy High Judge L Chan ordered the revocation of the two patents with costs to the petitioner.  The petitioner had lodged a Bill of Costs claiming HK$1,879,340.60.  The Company had filed a List of Objections, which if accepted in full, would reduce the petitioner’s costs to HK$806,587.94.  As a result of the winding-up order, Master Ko had on 4 August 2009 ordered a stay of the taxation proceedings.

9.  The Company represented by the applicant (with leave of the Registrar) has appealed against the Decision in HCMP104 of 2007 under CACV99 of 2009.  By summons filed on 11 June 2009, the petitioner applied for security for costs of the appeal.  As a result of the winding-up order, Yeung JA ordered on 27 July 2009 that the hearing of the summons be adjourned sine dine.

10.  The Provisional Liquidators indicated in the PL’s Report that due to insufficient funds, they have not obtained advice on the appeal and are unable to determine whether or not to pursue it. 

The present application

11.  The applicant applies for a permanent stay of the winding-up proceedings on the ground that she will provide finance to the Company to enable it to pay off the taxed costs and interest thereon, upon which the winding-up order is based.  Prior to making the present application, she had offered to pay the petitioner $200,000 to discharge the judgment debts and the costs in the winding-up proceedings.  This was not accepted, there being no reply from the petitioner’s solicitors.  The applicant has since placed $170,000 with her solicitors.

12.  The applicant also undertakes to pay for the costs of the winding-up proceedings and the costs of liquidation.  According to the PL’s report, the petitioner’s costs is $265,055 whereas the costs of liquidation is $135,523.30.  The applicant has reservations about the reasonableness of these amounts.  This, however, has no material bearing on the present application, as it is not in dispute that they are subject to taxations.    

13.  The applicant further indicates that she will not demand repayment from the Company in the next five years.

14.  The petitioner’s stated position is that it is prepared to reach a settlement with the Company and/or the applicant on all the outstanding principal sums, interest and costs in these winding-up proceedings, but it is at the same time concerned about the effect of a stay on the appeal in CACV99 of 2009 and the taxation in HCMP104 of 2007.  In Mr So’s submissions, the petitioner is concerned that with the revival of the appeal and taxation process, it will have to incur further costs.

The applicable legal principles

15.  Section 209(1) of the Companies Ordinance provides:

“The court may at any time after an order for winding up, on the application either of the liquidator, or the Official Receiver, or any creditor or contributory, and on proof to the satisfaction of the court that all proceedings in relation to the winding up ought to be stayed, make an order staying the proceedings, either altogether or for a limited time, on such terms and conditions as the court thinks fit.”

16.  Counsel have no disagreement on the relevant legal principles.  Briefly stated,

(1)   The court has to be satisfied that it is right to stay the winding-up proceedings, and if there are matters as to which the court has doubts, it should not do so.  It is for the applicant to satisfy the court that a stay ought to be granted: In re Telescriptor Syndicate Limited [1903] 2 Ch 174 and In re Lowston Limited [1991] BCLC 570 applied in Lai Kam-hung v. Guangdong (HK) International Company Limited [1995] 2 HKLR 211. 

(2)   The factors that the court will take into consideration include: (i) whether the debts and expenses of the liquidation are paid; (ii) whether the debts of the company are paid or satisfactorily provided for; and (iii) whether the affairs require investigation in a winding-up: Re Huaqing Oriental Mining (Holdings) Limited (In Liquidation), unreported, HCCW930 of 2002, Kwan J, 26 June 2003.  

(3)   Where there is doubt as to whether or not the Company is solvent, a stay is unlikely to be granted: Lai Kam-hung v. Guangdong (HK) International Company Limited at 214 and Re Highfit Development Company Limited, unreported, HCCW61 of 2008, Barma J, 19 August 2009.

The PL’s Report

17.  The PL’s Report reveals:

(1)   The Company ceased operation in 2006.

(2)   The amount recovered by the Provisional Liquidators is HK$1,117.37.

(3)   The Company previously owned two short-term patents, but they had been revoked as a result of the decision in HCMP104 of 2007.  Although the applicant estimated the value of the patents to be HK$5,000,000, there is neither independent valuation nor objective evidence to substantiate the estimate.

(4)   According to the applicant, the Company has a trade debt of HK$860,768 due from a company called Haier Group (Asia) Company Limited. At the same time, the Company is indebted to Haier in the sum of $523,876.  Haier is currently in compulsory liquidation.

(5)   Other than the above, the Company does not have any other asset.

(6)   The Provisional Liquidators had received only one proof of debt, which was lodged by the petitioner.  It is in the amount of HK$2,040,595.48, comprising (i) the two sums of taxed costs that form the subject matter of the winding-up petition; and (ii) the amount of $1,879,340.60 claimed in the Bill of Costs in HCMP104 of 2007, the taxation of which has been stayed.  The claim has not yet been adjudicated.

(7)   Other than the petitioner and Haier, the Provisional Liquidators have not identified any other creditor.

(8)   The Provisional Liquidators are not aware of any matters that require investigation into the conduct of the directors and/or the affairs of the Company.

Reasons for decision

18.  The petitioner’s primary objection is that if the winding-up proceedings were to be stayed, then the Company will be in a position to pursue the appeal in CACV99 of 2009 and the petitioner will have to proceed with the application for security for costs, thereby incurring further costs.  Similarly, with a stay of the winding-up proceedings, the taxation of costs in HCMP104 of 2007 will have to proceed and again the petitioner will have to incur more costs.   

19.  In my view, the mere fact that with a stay of the winding-up proceedings, the Company will be in a position to pursue the appeal and/or the taxation of the petitioner’s costs does not afford a relevant objection.  It is within the rights of the Company to appeal against the decision in HCMP104 of 2007 and to challenge the petitioner’s Bill of Costs.  What it may not do is to incur further liability which it has no ability to meet, thereby acting to the prejudice of its creditor.  This brings me to the consideration of whether the Company is solvent and whether it is able to meet its debts, which is the central issue in this application. 

20.  It is evident from the PL’s Report that the Company is unable to meet its debts, including the judgment debts that form the subject matter of these winding-up proceedings.  While the applicant has offered to discharge the judgment debts together with interest and the costs and expenses of the liquidation, she is not prepared to extend her undertaking to cover the untaxed costs in HCMP104 of 2007.  On behalf of the applicant, Mr Cheung argues that the costs have yet to be taxed and that the relevant costs order is under appeal in CACV99 of 2009.  It is said that if the appeal is successful, the liability for the costs claimed will fall away.

21.  The merits of the Company’s appeal are for another occasion.  As matters now stand, there is no stay of the costs order against the Company imposed in HCMP104 of 207.  Until the order has been overturned, the Company comes under a present and existing liability to pay for the costs.  And although the petitioner’s Bill of Costs has yet to be taxed, the Company’s liability is unlikely to be less than $800,000 in light of its List of Objections.  It is inappropriate to on the assumption that the Company is solvent because it is possible that the costs order will be overturned on appeal. 

22.  In the circumstances, the applicant has not been able to demonstrate that the Company is solvent and that all its debts and have been satisfactorily provided for.  It is not possible for the court to be satisfied that the winding-up ought to be stayed. 

23.  For these reasons, the applicant’s application is refused.  I order that the summons be dismissed and the costs of the petitioner and of the Provisional Liquidators be paid out of the assets of the Company.