RE HK FULLSON CO LTD

HCCW 374/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 374 OF 2005

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D E C I S I O N

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1.  This is an application taken out by Law Chak Kwan and Madam Chan Tai Ti under section 182 of the Companies Ordinance, Cap. 32.  They seek an order that notwithstanding the presentation of the winding-up petition against H.K. Fullson Company Limited (“the Company”), Citic Ka Wah Bank Limited be at liberty to assign the 4 mortgages referred to in the schedule of the summons to them and for such purpose to assign the charges over the 1^st to 5^th properties owned by the Company referred to in the schedule to the applicants and that such assignment shall not be avoided by virtue of section 182 in the event that a winding-up order is made on the petition.

2.  The Company was indebted to the bank and as security for its indebtedness, the Company executed the 4 mortgages in favour of the bank and charged the 5 properties to the bank by way of legal charge.  Also as security for the indebtedness of the Company, the applicants executed in favour of the bank a guarantee and charge by which they charged to the bank by way of first fixed charge a cash deposit and they have guaranteed to pay on demand all the liabilities of the Company.

3.  The winding-up petition was presented on 19 May 2005.  By letter dated 12 August 2005, the bank’s solicitors wrote to the applicants’ solicitors informing them that the bank had exercised its right under the guarantee and charge to set off part of the fixed deposit maintained by the applicants with the bank in settlement of the outstanding balance of the indebtedness of the Company.

4.  On 27 September 2005, the applicants’ solicitors wrote to the bank’s solicitors stating that in view of the setting off of the applicants’ fixed deposit in settlement of the outstanding balance of the indebtedness of the Company, the applicants being the guarantors are entitled to have assigned to them the security held by the bank under the 4 mortgages by virtue of section 15 of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23.  The applicants requested the bank to assign to them the charges over the 5 properties.

5.  Further correspondence was exchanged between them, and it is not necessary to recite what had transpired.  On 24 October 2005, the bank’s solicitors wrote to the applicants’ solicitors stating that as a winding-up petition has been presented, and in the event that an order is made on the petition, the properties of the Company would be vested in the Official Receiver, so the Official Receiver has a “potential interest” in the matter.  The bank’s solicitors stated they have drawn the attention of the Official Receiver to the applicants’ request to have the securities held by the bank assigned to them and, subject to the agreement of the Official Receiver and payment of the outstanding expenses under the subject mortgages, if any, the bank would agree to assign the securities to the applicants.

6.  On being informed by the bank of the applicants’ request, the Official Receiver’s stance on 31 October 2005 was that it is up to the bank’s solicitors to advise their clients whether to proceed with the assignment.  And if and when a winding-up order is made, the position would be reviewed and a decision made on the validity or otherwise of any assignment.

7.  So the summons under section 182 is taken out on 30 November 2005.

8.  The bank’s solicitors have indicated that they have no objection to the application, subject to the Official Receiver’s consent.  The petitioner and the 2^nd to 4^th respondents indicated by letters in December 2005 that they would have no objection.

9.  The Official Receiver wrote to the applicants’ solicitors on 29 December 2005 giving a clearer indication as to his stance.  The Official Receiver does not think section 182 is applicable, as this relates to disposition of the property of the Company and what the summons is seeking to do is to assign property belonging to the bank which comprises charges over property owned by the Company.  The Official Receiver has also raised the question that if the bank has been fully repaid, what rights remain to be assigned other than the obligation of the bank to discharge the mortgage.

10.  The petitioner and the 2^nd to 4^th respondents have not appeared at the hearing today.  The Company has not appeared in this application.

11.  I have considered the submissions made to me by Mr Chain for the applicants and by the Official Receiver.

12.  I think Mr Chain is right that under section 15 of Cap. 23, the applicants are entitled to be subrogated to the bank’s rights and to have the securities assigned to them when the applicants have paid in full the indebtedness of the Company to the bank.

13.  The Company has received notice of the payment in full of its indebtedness and it has notice of the request of the applicants to the bank to have the securities assigned to them.  There is no indication from the Company at all of any intention to discharge its liabilities to the applicants.

14.  I am of the view that section 182 is not applicable here.  Mr Chain has drawn my attention to Butterworths Hong Kong Company Law Handbook, 5^th ed, page 810 in which the authors expressed the view that a proposed transfer of mortgage by the special manager does not require leave of the court under section 182, citing Re Tak Ming Co Ltd [1960] HKLR 84, as a demand by a mortgagee for payment of the principal and interest under a mortgage is not a matter relating to the winding up of a company.

15.  It seems to me that the position is sufficiently clear.  The charge held by a secured creditor is administered outside the regime of the winding up of a company.

16.  I do not think it is appropriate to grant relief under section 182 in these circumstances.  I therefore dismiss the application.