XCHRX HWANG DA-LIN AND ANOTHER v. WONG CHUNG KEUNG AND OTHERS

HCCW 643/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 643 OF 1996

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REASONS FOR DECISION

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1. On 8 October 1998, Le Pichon J (as she then was) ordered that the 1st and 2nd Respondents purchase the 600,000 shares of the Petitioners in the 3rd Respondent Company ("the Company"), and in the event of the 1st and 2nd Respondents failing to do that, that the Company should purchase the Petitioners' shares. There was also an order for interest to be payable at the rate of 10% from 1996.

2. The purchase price payable, according to the valuation ordered by the judge, is $33.5m. not including interest. The 1st and 2nd Respondents have failed to purchase the shares. Accordingly, the Company is bound under the Order to purchase them.

3. On 23 February 2001, the parties appeared before me on a summons issued by the Petitioner for the determination of the means by which the Company should be required to pay for the shares. The Company has cash of about $4.5m and units in a building charged to two banks. The Petitioners proposed that the units be assigned to them to pay for the shares (or part thereof) and for this purpose, a professional valuation of the units was produced.

4. The Company had by Order of Le Pichon J been placed in receivership. KPMG, the receivers, were neutral as to this mode of funding the purchase.

5. The 2nd Respondent (for himself and for the 1st Respondent) questioned the valuation of the units. He also suggested that the purchase could be funded by means other than the assignment of the units to the Petitioners. The 2nd Respondent asked the court for time to put together another proposal for the funding of the purchase. He was given 28 days to file evidence in opposition.

6. As it turned out, it was not until 10 May 2001 that the hearing on this matter resumed. However, within the 10 weeks that had elapsed, the 2nd Respondent was unable to provide a different valuation for the units. He could only propose that the Company be given another "few years", estimated at 10 years in his proposal, for accumulation of sufficient rental income to pay for the shares (and presumably the accruing interest). As I have held on that occasion, the postponement of the time of payment for so long is simply unrealistic. (I would add that on this occasion, the 2nd Respondent said that the estimate could be reduced to 5 years, but even then, that would mean that the purchase price would only be payable in 2006, 10 years after the presentation of the petition, and 8 years after the order, a period which is still commercially unrealistic).

7. However, given that the Company was in effect insolvent, I was concerned that the position of unsecured creditors should not be jeopardized by the order that the Petitioners were seeking. Accordingly, it was upon the Petitioners' undertaking to pay the sum required into a special account that I ordered that the Company's units in Lap Fai Building (net of charges) be assigned to the Petitioners in discharge of the purchase price of a corresponding quantity of shares.

8. On 18 June 2001, the parties appeared before this Court again for various directions including the wording of the draft order. The Petitioners gave an undertaking to pay $2,605,862.47 into a special account of the Company to enable the Company (in addition to cash retained) to fully satisfy the claims of all other unsecured creditors at the date of the order.

9. I also gave directions that upon the assignment of the units taking place, there would be no further need for the receivers to remain in place, as the Company would be left with no assets and as the continued involvement of receivers would lead to further expenses being incurred. Insofar as the 2nd Respondent suggested that the receivers had caused the Company loss in the implementation of its letting policy, the order for discharge of receivers would be without prejudice to any claims that the Company may have against them.

10. There was also the matter of the expert valuer's fees. The order made by Le Pichon J was that these should be paid by the 1st and 2nd Respondent. By their summons dated 18 June 2001, the Petitioners asked that the Company should pay them first, subject to reimbursement from the 1st and 2nd Respondents. The 2nd Respondent submitted that they should be paid by the Petitioners.

11. I did not see any grounds for interfering with Le Pichon J's order, especially when it was given apparently without objection and without argument from solicitors then representing the 1st and 2nd Respondents, such that it was tantamount to a consent order. I accordingly dismissed the Petitioners' summons of 18 June 2001 with costs to be borne by the Petitioners.

12. Finally, as for costs, I ordered that the costs of the hearing of 23 February 2001 be borne by the 1st and 2nd Respondents since the adjournment was granted solely to enable the 2nd Respondent to collate and adduce evidence to oppose the professional valuation produced by the Petitioners. The receivers' costs for that hearing should be treated as expenses in the receivership and to be dealt with according to paragraph 7 of the order of 10 November 1998. All other costs in the application, including the costs of 18 June 2001, should be borne by the 1st and 2nd Respondents since the application was brought about by their failure to comply with Le Pichon J's order to purchase the Petitioners' shares.