Re Hung Fung Holdings Ltd

HCCW445/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.445 OF 2000

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D E C I S I O N

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1. There is before me an application to stay the liquidation of Hung Fung Holdings Ltd ("the Company"), which was ordered to be wound up on 27 November 2000. Mr Darach E.Haughey and Mr Joseph Kiu Ching Lo ("the Liquidators"), both of Messrs Deleitte Touche Tohmatsu were appointed by the order of this court dated 12 September 2001. The present summons was issued on 2 April 2002 by Mr Chan Siu Ping ("the Applicant).

Background

2. The background of this case has been set out in details in the judgment of the Court of Appeal handed down on 22 March 2002 and in my Reasons for Decision handed down on 9 October 2001. I do not repeat them here.

3. The major events that have occurred since the Court of Appeal's judgment can be summarised as follows. On 26 March 2002, the Liquidators applied by summons under section 211 of the Companies Ordinance for a court order that the Applicant in his capacity as a director of the Company, produce and deliver to the Liquidators the books and records of the Company. Prior to that, the Liquidators had on 17 October 2001 given notice under section 211 and rule 67 of the Companies (Winding up) Rules ("the Rules") requiring the Applicant to produce and deliver the books and records of the Company to them. The request was refused by the Applicant for the reason that his appeal to the Court of Appeal against my decision made on 12 September 2001 was pending.

4. Then on 2 April 2002, the Applicant together with another contributory, Madam Yu Ka Chun, took out a summons seeking to appeal against the Official Receiver's decision pursuant to Rule 128 of the Rules ("the Rule 128 Application"). The appeal was directed against the decision of the Official Receiver, as the chairman of the adjourned First Creditors' Meeting, rejecting the proofs of three creditors for the purpose of voting at the Creditors' meeting. The adjourned First Creditors' Meeting was held on 22 March 2001. The three creditors whose proofs had been rejected are the subsidiaries of the Company ("the Three Subsidiaries").

5. Also on 2 April 2002, the Applicant issued the present summons ("the Summons") asking for an interim stay of the liquidation carried out by the Liquidators pending the determination of the Rule 128 Application.

The application for stay

6. It would appear that section 209(1) of the Companies Ordinance will be relevant to this application, though the legal basis on which the application was made has not been set out in the Summons.

7. The Summons is also silent on the capacity of the Applicant in making the application. The Applicant is both a director and a contributory of the Company. But as a director will have no locus standi to make such an application, I take it and will proceed on the basis that the Applicant made the stay application in his capacity as a contributory of the Company.

8. The stay application is opposed by the petitioner, China Everbright Holdings Co. Ltd, a creditor of the Company ("China Everbright"), the Liquidators and also the Official Receiver.

Reasons for decision

9. The legal principles governing an application for stay of winding-up proceedings, whether interim or permanent, have been set out in a number of decided cases. The guiding principle is that before the court will grant a stay, it has to be satisfied that there are very good reasons and that it is right to do so. A heavy burden is casted on an applicant : Re Lowston Ltd [1991] BCLC 570.

10. The only reason put forward by the Applicant in support of an interim stay is that the Rule 128 Application is pending, and that the application has strong merits and is likely to succeed. The Applicant says that if the application were successful, then the decision of the Official Receiver to reject the proofs of the Three Subsidiaries for voting at the First Creditors' Meeting will be reversed and the Committee of Inspection and the liquidators may be differently constituted.

11. Against that reason, there are four factors that I consider to be relevant and ought to be taken into account. I shall deal with them in turns.

12. Firstly, the validity of the winding-up order which was made as early as 27 November 2000, is not in issue. Therefore prima facie there is no reason to delay or withhold the winding-up proceedings : see Re Lowston Ltd at page 572.

13. Secondly, there is no evidence filed and there is also no challenge made to the integrity of the Liquidators and their fitness to carry out their office. The Applicant indicates at the hearing that he opposes the appointment of the Liquidators because they were proposed by China Everbright when the status of China Everbright as creditor and the amount of its proof are under challenge. I had in my earlier Decision handed down on 9 October 2001 at paragraph 10 pointed out that this is purely a fear harboured by the Applicant, and that there is no material to support the fear that the Liquidators will not act fairly in the discharge of their duties. The fact is that since their appointment in September 2001, there is no allegation that they are unfit or have acted in preference to or in favour of China Everbright. Given that the integrity and fitness and priority of the Liquidators are not in issue, there is no reason not to allow the Liquidators to continue with the liquidation.

14. Thirdly, if the Rule 128 Application were to be successful, the result is that the decision of the Official Receiver at the adjourned First Creditors' Meeting will be overturned. This will lead to a fresh creditors' meeting being convened. At the new creditors' meeting, it is possible that the creditors will resolve to appoint a different liquidator and/or a new Committee of Inspection. If indeed the new creditors' meeting were to resolve to appoint a different liquidator, the approval of the court has to be sought. In deciding whether to appoint a new liquidator, the court will have regard to a number of considerations including, for example, the desirability and justifications for appoint new liquidators and also the implications on the costs of liquidation. The court may or may not remove the present liquidators. In other words, even though the new creditors' meeting may resolve to appoint a different liquidator, assuming that the Rule 128 Application is successful, it does not necessarily result in the removal of the Liquidators. This being the case, there is no reason why the Liquidators should not be allowed to continue with the liquidation that is already underway.

15. Fourthly, the Liquidators' Report dated 16 March 2002 disclosed matters that point to the need of investigating into the affairs of the Company. There is, among other things, suggestion that the assets of the Company may have been disposed of despite the making of the winding-up order. This is a compelling consideration operating against the grant of stay : Lai Kam Hung v. Guangdong (Hong Kong) International Ltd [1995] 2 HKLR 211, 213-214.

Conclusion

16. The decision to stay winding-up proceedings involves the exercise of the court's discretion. In exercising its discretion, the court should have regard to all the relevant factors. In the present case, weighing the reason put forward in support of the stay application against the four factors that I have identified, the discretion can only be exercised against the grant of stay. For the reasons that I have indicated, the Summons is dismissed.

17. There is no reason why costs should not follow event. There is accordingly a cost order in favour of the petitioner, China Everbright, the Liquidators and the Official Receiver against the Applicant personally, to be taxed if not agreed. There is no reason for the Liquidators' costs to be borne even partially by the Company's assets. The Liquidators' costs is therefore to be paid on an indemnity basis.