RE ASEAN INTERESTS LTD

HCCW 1233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 1233 OF 2000

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REASONS FOR DECISION

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1. On the morning of Monday 21 May 2001, I made a winding-up order against Asean Interests Ltd ("the Company"). Reasons for Judgment were handed down on 28 May 2001 and I need not repeat them here. Suffice it to say that after 4 adjournments of the hearing of the petition presented in December last year, and pursuant to strenuous objections by OCBC a supporting creditor, to a further adjournment sought by the Company and its sole contributory and opposing creditor Asean Holdings AG ("Holdings") notwithstanding the Company's offer to OCBC of payment of US$1.5m., the Company was ordered to be wound up.

Effect of winding-up order

2. The effect of a winding-up order is that it operates "in favour of all the creditors and of all the contributories of the company as if made on the joint petition of a creditor and of a contributory" (s.187 CO). This is the statutory expression of the nature of the "class remedy" of winding-up.

3. The order was approved on Tuesday 22 May 2001 but did not proceed to sealing in the circumstances set out below.

Summonses for rescission of winding-up order

4. On Wednesday 23 May 2001, a summons (returnable on 4 June 2001) was issued by solicitors for the Company for an order that: (1) the winding-up order be rescinded and annulled; (2) the Official Receiver be directed not to take any further step in the matter; and (3) the petition be withdrawn. This was supported by the 6th affirmation of Ho Suk Mi, on behalf of the Company.

5. On the following day 24 May 2001, a summons in similar terms (also returnable on 4 June 2001) was issued by Asean Holdings AG ("Holdings"), the opposing contributory and creditor. No affirmation in support was filed.

6. On Friday 25 May 2001, these summonses were brought to my attention. In light of the relief sought in the summonses, it was obvious that an earlier hearing date should be provided. The Company and Holdings issued fresh summonses for hearing on Monday 28 May 2001.

Hearing of summonses

7. The summonses were heard in open court on 28 May 2001. At one stage, counsel for the Company sought an adjournment of the hearing for another week but that was refused. Any party who issues a summons must be expected to be ready with his evidence and submissions. That must particularly be so when the relief sought is the rescission of a winding-up order, which affects the status of a company and which is not simply an inter-partes matter.

8. After hearing submissions on the applications for rescission, I dismissed the summonses (without prejudice to any application that may be brought under s.209 CO for a stay of the winding-up) and I directed that the Petitioner's solicitors proceed to the sealing of the winding-up order. In view of time constraints, I was not able to give reasons for my decision. I do so now.

Jurisdiction of Court to rescind winding-up order

9. It is well-established that the Court has jurisdiction to rescind an order, even a winding-up order, before the order has been perfected.

10. After the order is perfected, it would have no jurisdiction to do so, as there is no provision in the Companies Ordinance or Winding-Up Rules allowing that to be done. This was the position which obtained in England before the enactment of the Insolvency Rules 1986, rule 7.47 of which now provides that "every court having jurisdiction under the Act to wind up companies may review, rescind or vary any order made by it in the exercise of that jurisdiction". (For a case before rule 7.47 was enacted, where the court held that it had no jurisdiction to rescind a winding-up order after it has been perfected, see Re Intermain Properties Ltd (1985) 1 BCC 99,555).

11. The present case being one where the winding-up order had not been perfected, the Court did have jurisdiction to rescind the winding-up order.

Exercise of discretion

12. The question was whether the Court should, in the exercise of its discretion, rescind the order. Any party seeking a rescission of a winding-up order has to show clearly sufficient grounds to move the Court in the exercise of its discretion to do so.

13. For instance, if the ground was that there had been an agreement between the parties which, due to some error (whether of act or omission) in instructions given to legal representatives, was not put before the Court, the evidence should show clearly what the agreement was, when it was reached and how the error in instructions arose.

14. Or, for instance, if the ground was that there had emerged new evidence showing a real prospect of turning the Company around, then that new evidence should be fully and frankly put before the Court and creditors for consideration.

15. In the present case, the applications for rescission were supported by the 6th affirmation of Ho Suk Mi, a director of the Company, made on 24 May 2001 and her 7th affirmation handed up to the Court in the course of the hearing.

16. In the 6th affirmation, Ho hints at some error in instructions but it is far from clear what her case on the facts was. She said in paragraph 3 that "although counsel for OCBC submitted [at the hearing of the petition on 21 May 2001] that the investment proposal was not acceptable to OCBC, so far as I am aware, there had been some terms of settlement reached between the Company and OCBC on the hearing day" (emphasis added).

17. In paragraph 5 of the same affirmation, she referred to the hearing of a bankruptcy petition in Singapore fixed for Monday afternoon which she said was "withdrawn" conditional upon the "withdrawal" of the winding-up proceedings in Hong Kong. However, "due to delayed communication of the stage in settlement talks, a winding up order had already been made in the morning of the same day".

18. It was not at all clear what Ho was saying insofar as she was suggesting that there has been some error in instructions. The reference to "some" terms of settlement being reached, without more, was unhelpful. As to when those terms of settlement were reached, the situation was even less clear. At the hearing on 28 May, Counsel for the Company and Counsel for OCBC had conflicting instructions as to whether agreement had been reached the morning of 21 May. Counsel for the Company appearing on 28 May said on his instructions that an agreement had been reached the morning of 21 May. Counsel who appeared for OCBC on 21 May 2001 and 28 May 2001 said on his instructions that no agreement had been reached that morning. In light of that conflict, the Court must examine the evidence with care, and the evidence in Ho's 6th affirmation was simply that "some" terms of settlement between the Company and OCBC had been reached "on the hearing day", without specifying whether the settlement was reached before or after the winding-up order had been made that morning. If settlement was only reached after the winding-up order had been made, then it would not appear to be a case of error in instructions.

19. Insofar as there was a reference to "delayed communication of the stage in the settlement talks", the language of her affirmation was similarly vague. It was not clear which line of communication was being referred to. There was no evidence that any of the parties represented in Court on the morning of 21 May 2001 was conducting the case otherwise than as intended. The reference to "withdrawal" of the petition was also not understood. There was no assertion anywhere in Ho's 6th or 7th affirmations that there had been an agreement for the petition to be "withdrawn". Both conceptually and linguistically therefore, the evidence was confused and obscure, and I saw no ground for rescission of the winding-up order arising from any alleged error.

20. Ho's 7th affirmation referred to US$0.25m being paid to OCBC on 24 May 2001 and US$1.5m being remitted from a third party to OCBC on 25 May 2001. It was said that as a result, OCBC was willing to "re-open" negotiations. I would add that payment of US$1.5m was offered in Court on 21 May 2001, but had been rejected by counsel for OCBC. Further, there was no new development in the proposed restructuring. The Wing Shen proposal remained that previously considered by the Court.

21. At the hearing of the summonses on 28 May 2001, the positions taken by the Petitioner, OCBC and another supporting creditor, Bayer were neutral, although all objected to that part of the summonses asking for the Petition to be withdrawn. The upshot of that was that if the winding-up order were rescinded, the petition would continue as before, with OCBC and Bayer supporting the petition and the Company and Holdings opposing it. Nothing would have changed from the position adjudicated upon by the Court on 21 May 2001.

22. Apart from the creditors appearing, the position taken by the Official Receiver and any other creditors should also be considered. The Official Receiver, who had by virtue of his office become provisional liquidator upon the making of the winding-up order, opposed the application. One creditor, ABSA, who had previously appeared, indicated through the Official Receiver that it also objected to the application for rescission. The Court noted that the Company had not even compiled a list of its creditors, despite requests for it to do so between the presentation of the petition and the winding-up.

23. It cannot be emphasized more strongly that an application for rescission of a winding-up order, which effects a profound change in the status of the Company and which affects all creditors, would be treated with great caution by the Court (for the practice in England prior to the enactment of r.7.47(1), see Practice Note (Winding-Up Order: Rescission) [1971] 1 WLR 4). Substantial grounds supported by clear evidence must be placed before the Court. In the circumstances of this case, I saw no ground for rescinding the winding-up order and I dismissed the summonses with costs. The dismissal was without prejudice to any application that may be made under s.209 CO for a stay of the winding-up if circumstances justifying such a course are made out in the future.