XCHRX CHELLIC INDUSTRIES LTD. v. DATACOM WIRE & CABLE CO. LTD.

HCA 11656/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11656 OF 1999

-------------------------------------

--------------------

D E C I S I O N

--------------------

1. This is an application under s.181 of the Companies Ordinance cap.32 by a Mr Cheung Sing Kuen, a contributory of the Defendant company which is the subject of a winding up petition, for a stay of a garnishee order obtained by the Plaintiff.

History of proceedings - issue of writ

2. On 20 July 1999, the Plaintiff issued a writ against the Defendant with a claim in goods sold and delivered.

Petition

3. On 6 August 1999, a Petition was presented for the winding-up of the Defendant by Stella International, a creditor which is alleged to be connected to the other shareholder of the Defendant. The Petition was opposed by Cheung and Sun Ming Wah Holdings Ltd, which Cheung controls. Apart from Stella, there were other supporting creditors. The hearing of the Petition has been adjourned today due to the substitution of Stella by four other creditors as petitioners, and for further evidence to be filed. It has been listed for hearing again in about a month's time.

Judgment

4. Meanwhile, on 6 September 1999, the Plaintiff obtained summary judgment against the Defendant.

Garnishee order nisi

5. On 24 September 1999, the Plaintiff obtained a garnishee order nisi against the Hua Chiao Bank in respect of money in the Defendant's bank account. The garnishee was ordered to attend Court on 22 October 1999 to show cause.

6. Apparently it was not until quite late in the present proceedings that Cheung became aware of the judgment and the garnishee order nisi. This is not on the evidence before the Court, but has been accepted by Mr Pong, counsel for the Plaintiff, on instructions.

7. On 13 October 1999, Cheung's solicitors (acting for Sun Ming Wah on the basis that it was the holder of the shares in the Defendant) wrote to the Plaintiff's solicitors stating that the hearing of the garnishee order on 22 October 1999 should be stayed under s.181 pending the decision of the Court in the winding-up, and notifying the Plaintiff that they would oppose the garnishee order.

Garnishee order absolute

8. On 22 October 1999, counsel was instructed to appear before the master to oppose the garnishee order. It is not clear from the Court file for whom counsel was acting - whether Cheung or Sun Ming Wah. He is only noted as acting for a "third party". No Notice to Act was filed and there was no evidence filed. The opposition to the garnishee order was not heard or accepted, and the garnishee order was made absolute.

Summons

9. On 27 October 1999, the present summons was issued. I would note that this was within the time prescribed by the rules for an appeal from the master's decision to grant the garnishee order absolute, as the period prescribed is 5 days.

Section 181 applies - garnishee process not complete until receipt of money

10. The first point to consider is whether s.181 applies. Section 181 provides:-

"At any time after the presentation of a winding-up petition and before a winding-up order has been made, the company or any creditor or contributory may -

(a) where any action or proceeding against the company is pending in the Court of First Instance ... apply to the court in which the action or proceeding is pending for a stay of proceedings therein;

...

and the court to which the application is made may, as the case may be, stay or restrain the proceedings accordingly on such terms as it thinks fit."

11. It was held by the Court of Appeal in Attlee Investments Ltd v Lee Chuen [1983] HKLR 420 that the power under s.181 to stay any action or proceeding pending against a company which is the subject of a winding up petition extended to execution by way of a writ of fi.fa.

12. In that case, a writ of fi.fa. had been issued and the bailiff had already entered into possession and seized goods, before a petition was presented and a stay was sought (and granted).

13. It was held that the stay applied even to the "ministerial act" of the bailiff in selling the property that had been seized. In other words, the execution was not regarded as complete until sale of the seized goods (cf s.269(2)(a) of the Companies Ordinance).

14. Under s.269(2)(b) of the Companies Ordinance, execution by way of attachment of debts is not complete until the creditor has received the money the subject matter of the garnishee proceedings. Accordingly, by analogy, as long as the money has not been received by the creditor/Plaintiff (and the Court was informed by Mr Pong that the money has not yet been received), a stay could still be imposed under s.181.

15. Further, even if the above conclusion were wrong, and the mere making of a garnishee order absolute completes the process of execution (even before receipt of the money), in the circumstances of this case, I take the view that a stay should still be granted on the basis that the garnishee order should not be made absolute.

16. It should be noted that on 13 October 1999, before the hearing of the garnishee order absolute, Cheung's solicitors had already written to the Plaintiff (albeit in the mistaken belief that Cheung's company Sun Ming Wah was the shareholder and not Cheung) informing the Plaintiff of the petition, and of the intended application for a stay under s.181.

17. At the hearing of the garnishee order absolute, opposition was made to the garnishee order being made absolute, albeit unsuccessfully. Within the time prescribed for appealing the master, the present summons was issued. If necessary, the summons should be treated as Cheung's appeal from the master's decision to make the garnishee order absolute. An appeal from a master is by way of re-hearing, and any mistakes as to Sun Ming Wah having been made the applicant for the stay (as opposed to Cheung) can be rectified by reference to the rules on misjoinder of parties.

18. Thus the Plaintiff here was as early as 13 October made aware of the nature of the application for a stay, and that application was pursued throughout. The errors if any were made at the hearing on 22 October 1999 and in the issue of this summons on 27 October 1999 were purely procedural.

Discretion in favour of stay

19. There is then the question of discretion in considering whether a stay should be granted. The Court has an absolute and unfettered discretion in this regard.

20. A stay will in ordinary circumstances be ordered with a view to securing equal distribution of assets amongst creditors in the same class (Bowkett v Fullers United Electrical Works Ltd [1923] 1 KB 160).

21. In the present case, although the writ was issued before the Petition, it was issued only very shortly before, and the judgment was not obtained until after the presentation of the Petition (which is the date when the winding-up is deemed to have commenced under s.184(2) of the Companies Ordinance). A creditor such as the plaintiff should not be allowed to steal a march on other creditors in this sort of tight time frame.

22. Further, if the Defendant is wound up next month, even if no stay is granted now, the Plaintiff would in normal cases not be entitled to retain the benefit of the attachment under s.269(1) because the money has not yet been received before the commencement of the winding-up. Section 269 provides:-

"(1) Where a creditor has ... attached any debt due to the company, and the company is subsequently wound up, he shall not be entitled to retain the benefit of the ... attachment against the liquidator in the winding up of the company unless he has completed the ... attachment before the commencement of the winding up ...

(2) For the purposes of this Ordinance -

...

(b) an attachment of a debt is completed by receipt of the debt; ..."

23. In other words, even if the Court does not now grant a stay, so that the Plaintiff is allowed to receive the money from the bank, if the Defendant is wound up next month, the Plaintiff would still lose its status as secured creditor and may have to regurgitate the money (subject to the Court in its discretion setting aside the liquidator's rights in favour of a creditor in a suitable case).

24. There seems little point in the money passing from the Bank to the Plaintiff, and in a short time, possibly passing back from the Plaintiff to the liquidator. Mr Pong sought to argue that it would not be fair to his client the Plaintiff to be deprived of the cash flow in the meantime. No evidence was adduced on behalf of the Plaintiff in this regard. Indeed, if the Plaintiff's financial position were so precarious as to depend on this short-term cash flow, there must be a question about the ability of the Plaintiff to make the money available if s.269(1) were to apply.

25. In all the circumstances, I would grant an order under s.181, staying the garnishee proceedings pending the determination of the petition for the winding up of the Defendant. I do not grant any orders for costs of the Summons as none was sought, but I would give both parties liberty to apply to restore the summons in this regard.