RE SAMWELL SPARE PARTS LTD (IN CREDITORS' VOLUNTARY LIQUIDATION)

HCCW 379/2021

[2022] HKCFI 2851

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 379 OF 2021

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DECISION

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A.      INTRODUCTION

1.  This was the substantive hearing of the Petition by Airbus Helicopters China HK Limited (“the Petitioner”) seeking to wind up the company, Samwell Spare Parts Limited (“the Company”), by way of compulsory winding up.  The Company has been in creditors’ voluntary liquidation since June 2021.  The question before the Court was whether there should be an order made for compulsory winding up notwithstanding the Company is already in voluntary liquidation.  This process is commonly referred to as “conversion” from voluntary winding up to compulsory winding up.

2.  At the hearing, the Petitioner was represented by Counsel Mr Martin Ho, and the Connected Creditors (defined at paragraphs 14 to 16 below) who opposed the Petition were represented by Counsel Ms Connie Lee.

B.      BACKGROUND

3.  The following background matters are undisputed.

B1.    Events leading to the Creditors’ Voluntary Liquidation

4.  The Company was incorporated on 21 June 2012.  Its principal business was the supply of spare parts for rotary wing aircrafts and their repair as well as consultancy services for the selection of ramp handling equipment.  Its sole shareholder is Samwell Group Limited (“SGL”).  A Mr Li Jiang Nan (“Mr Li”) is the ultimate shareholder of SGL and the Company, as well as the former director of the Company (up until 30 September 2020).

5.  On 28 June 2013, the Company entered into a distribution agreement with the Petitioner, which was subsequently extended and amended (“Distribution Agreement”).

6.  On 3 June 2019, the Company commenced arbitration proceedings against the Petitioner in respect of an alleged wrongful termination of the Distribution Agreement.  The total amount claimed was EUR 8,993,502.69.  The claim was supported by the Petitioner’s expert report dated 7 September 2020, by Mr Eugene Liu of RSM Consulting (Hong Kong) Ltd (“RSM”), which set out the debt owed by the Petitioner to the Company as being a lower figure of EUR 5,168,203.

7.  In the same arbitration, the Petitioner counterclaimed for outstanding invoices and interest due from the Company to the Petitioner.

8.  Following the substantive hearing before a sole arbitrator (“the Tribunal”), on 21 April 2021:

(1)  The Tribunal found the termination was wrongful.  However, the Petitioner was only ordered to pay to the Company damages in the sum of EUR139,982.  The quantum awarded was much lower than originally claimed as inter alia the Company’s expert was not made available for cross-examination.

(2)  A partial award was made in favour of the Petitioner in the sum of EUR3,401,820.78, together with simple interest.

9.  In early May 2021, correspondence was exchanged between the respective solicitors for the Petitioner and the Company demanding payment of the above sums.

10.  On 7 May 2021, a statutory demand for the net sum of EUR 3,254,944.19 plus interest was sent by the solicitors for the Petitioner to the Company (this being the Partial Award sum, with the damages set off against the same).

11.  On 14 May 2021, leave was granted to the Petitioner to enforce the Partial Award in the same manner as a judgment or order of the Hong Kong court (“Enforcement Order”).

12.  On 20 May 2021, the Enforcement Order was served on the Company.

13.  On 27 May 2021, the Company sent a letter to the Petitioner seeking to convene a meeting of creditors on 7 June 2021 to initiate a creditors’ voluntary winding up.

14.  On 7 June 2021, SGL as sole shareholder passed a special resolution to wind up the Company by way of creditors’ voluntary liquidation and appointed Mr Yiu Cho Yan (“Mr Yiu”) as the liquidator.

15.  At the creditors’ meeting on the same day, the following breakdown of debts owed to creditors was provided by the Company:

Creditor	Amount of debt (EUR)	%
Mr Li	2,314,895.31	29.18
Samwell Aviation Limited (“SAL”)	1,957,967.48	24.68
Mr Lee Man Kai Alexander (“Mr Alex Lee”)	16,101.07	0.20
Mr Leung Ka Wing (“Mr Leung”)	13,425.79	0.17
Petitioner	3,455,504.31	43.55
Inland Revenue Department	176,419.51	2.22
TOTAL AMOUNT OF DEBT	7,934,303.47

16.  As indicated above, Mr Li is the ultimate shareholder of the Company and its former director. SAL is an associate company controlled by Mr Li. Mr Alex Lee and Mr Leung were employees of the Company. There is no dispute that these four creditors, viz. Mr Li, SAL, Mr Alex Lee and Mr Leung, are connected creditors of the Company.  They are hereinafter referred to as “the Connected Creditors”.

17.  As at the date of the meeting, on the basis of the information provided by the Company, the subtotal of the Connected Creditors’ debt was EUR 4,302,379.65, comprising 54.23% of the total amount of debt.

18.  At the creditors’ meeting the Petitioner had proposed that Ms Chi Lai Man Jocelyn and Mr Li Chung Ngai of Borrelli Walsh Limited should be appointed as liquidators in the voluntary winding up.  However, as the Connected Creditors’ debt was greater in amount and they had voted in favour of Mr Yiu, it was Mr Yiu who was appointed.  There is no dispute that prior to this, Mr Yiu had also been appointed as liquidator in the voluntary liquidation of another associated entity controlled by Mr Li, Samwell International Holding Limited (“SIHL”).

B2.    Further Developments After Entry into Creditors’ Voluntary Liquidation

19.  On 15 July 2021, the Tribunal:

(1)  Rendered a final award ordering that the Company should pay the Petitioner further sums of EUR 99,943 (with simple interest), EUR1,605,584 and EUR232,376.42 (“the Final Award”);

(2)  Further ordered that the Petitioner should pay the Company HK$2,826,507.23 in costs (“Costs Award”).

20.  After netting off the Costs Award, the solicitors for the Petitioner, Messrs. Clifford Chance, wrote to Mr Yiu on 29 July 2021 asserting a demand for payment of the net amount of EUR1,640,133.89. The Petitioner’s claim form was also supplemented to include the Final Award.

21.  As a result, the Petitioner alleges that creditor position changed in that the Petitioner became the majority creditor as follows:

Creditor	Amount of debt (EUR)	%
Mr Li	2,314,895.31	24.61
SAL	1,957,967.48	20.81
Mr Alex Lee	16,101.07	0.17
Mr Leung	13,425.79	0.14
Petitioner	4,928,848.61	52.39
Inland Revenue Department	176,419.51	1.88
TOTAL AMOUNT OF DEBT	9,407,647.77

22.  There is an added wrinkle to the above, however, by reason of two further developments:

(1)  First, on 13 September 2021, Mr Yiu rendered an interim report (“the Interim Report”) wherein inter alia:

(a)  He set out his preliminary findings that there had been unfair preference payments to Mr Li and SAL in the respective sums of HK$9,345,846.10 and HK$1,380,000.

(b)  He noted that since April 2015 there had been cash payments to two entities associated with Mr Li (北京亚太晴川经貿有限公司 and East Charm Limited) totaling over HK$85 million.

(c)  He took note of the fact that the amount due to SAL (HK$19,380,000) mainly arose by reason of the monthly management fee charged since April 2015 by SAL to the Company, the purpose of which was unclear.

(d)  During January 2021 to May 2021, there were fund transfers amounting to HK$18,000,000 transferred from Mr Li to SAL via the Company’s bank account.

(2)  Second, in December 2021, Mr Li and SGL submitted revised proofs of debt which included 1% monthly interest charged on the alleged outstanding amounts. Based on those updated proofs, Mr Li and SGL asserted that they together would be the majority creditors.  (This proposition has been considered by Mr Yiu during inter alia the annual creditors’ meetingof the Company held on 8 July 2022 (“ACM”), where he indicated that for voting purposes, the Petitioner’s debts were ‘adjudicated’ whereas Mr Li’s and SAL’s were ‘unadjudicated’, and that therefore Mr Li’s and SAL’s debts could not ‘take precedence over’ the debts owed to the Petitioner.)

23.  As a result of the further developments, there has been some debate between the parties about the assessment of respective creditors’ debts for voting purposes (albeit there is not any actual vote which is presently the subject of review or appeal before the Court).  Regardless, there can be little dispute, and the parties are essentially in agreement, that the Petitioner is and always has been the majority independent creditor.

B3.    The Conduct of the Voluntary Liquidation Thus Far

24.  Immediately following the commencement of the voluntary winding up and on multiple occasions thereafter, the Petitioner had communicated with Mr Yiu: (i) complaining that the voluntary liquidation was a debt evasion tactic by the Company, (ii) seeking information regarding inter alia the affairs of the Company and the status of the Connected Creditors’ debts, and (iii) making inquiries about potential claims against certain Connected Creditors.  These requests have not, the Petitioner says, been answered satisfactorily.  There has thus been an ongoing allegation that Mr Yiu has been dilatory in his conduct of the liquidation, and/or that the Petitioner has a legitimate grievance in that the conduct of the voluntary liquidation is not pursued by a liquidator that is not only independent, but is seen to be independent.

25.  On various occasions, the Petitioner, citing the aforementioned complaints, has also invited Mr Yiu to resign his position such that an alternative candidate can take up the role in his stead.  This invitation has been rejected by Mr Yiu as he does not agree that his independence is compromised, and it is his “ethical duty” to remain.

26.  I will return to these interactions (and the implications thereof, if any) below when addressing the reasons put forward by the Petitioner in support of a compulsory winding up.

27.  Be that as it may, there is no dispute that Mr Yiu experienced some delay retrieving the Company’s books and records and other documents from the Company’s personnel. In this regard, it does not appear that any approach had been made to parties outside the Company, such as the auditors, for relevant information.

28.  There is also no dispute that despite having identified the various matters summarized at paragraph 22, Mr Yiu’s current stated position is that since he is not in funds (and since the realiseable assets of the Company to date amount to only approximately HK$62,000), further investigations and/or claims will not be pursued.

C.      RELEVANT LEGAL PRINCIPLES

29.  The case of Re STX Pan Ocean (Hong Kong) Co Ltd (in liq) [2014] 5 HKLRD 581 sets out the relevant principles in cases where one is concerned the conversion of voluntary winding up to compulsory winding up.  I would gratefully adopt the following passage from paragraph 51 of the judgment of the Honourable Mr Justice Godfrey Lam (as he then was):

“(1) A helpful way of approaching the court's decision is to see "whether the class remedy of liquidation is better satisfied by the continuation of the voluntary liquidation or is better served by being superseded by a compulsory liquidation";

(2) In deciding whether to wind up a company already in voluntary liquidation, the court will have regard to the wishes of the creditors as permitted by s.287(1) of the Ordinance. In doing so, regard shall be had to the value of each creditor's debt: s 287(2). However, the views of the majority are not decisive;

(3) In general, the court should grant a compulsory winding up order, even where the company is in voluntary liquidation, if the majority of the creditors so wish;

(4) If however a voluntary liquidation already in progress is preferred by the majority of creditors, it is incumbent upon the petitioner to show some "valid reason" or "special circumstances" why the majority should not, as the majority of a class ordinarily would, prevail over the minority;

(5) The court is not bound to give equal weight to all debts of equal amount. It is not simply a head count or value count of creditors. A qualitative, as opposed to a purely quantitative approach to the majority, has to be taken. The court will have regard to other interests which may influence the views of a particular creditor. Less weight is given to creditors who are related to the management of the company, especially where the reason for seeking a compulsory winding up is the need for independent investigation into the management;

(6) Where the petitioning creditors rely on the need for investigation to seek a compulsory winding-up, the court asks itself whether the matters which they say require investigation are on the evidence questions which rational creditors could think need investigation and in which the outcome may be financially favourable for them;

(7) A factor given significant weight is that liquidators must not only act independently and impartially, they must be seen to be doing so, particularly where possible wrongdoing by the directors has to be investigated and possibly pursued in litigation. It is in the public interest that the creditors should have confidence in the independence of liquidators. Thus a compulsory order might be made in preference to a voluntary liquidation even though no attack was made on the probity or the competence of the voluntary liquidator;

(8) The court is entitled to have regard to the general principles of fairness and commercial morality which underlie the details of the insolvency law as applied to companies. A judicial exercise of discretion should not leave substantial independent creditors with a strong and legitimate sense of grievance;

(9) The question of whether additional expenses both in terms of the liquidators' fees and disbursements and ad valorem fees payable to the Official Receiver should be incurred are usually best left to the majority of the creditors.”

30.  Ms Lee does not dispute the above principles, but has referred the Court to a number of other authorities which support the proposition that where there is an alternative route or remedy open to the petitioner, such as by changing the liquidator in the voluntary winding up, a compulsory winding up ought not to be ordered (see French on Applications to Wind Up Companies (4^th Ed.) at §10.79; Re Inside Sport Ltd [2000] 1 BCLC 302 at 305g-h).

D.      THE PARTIES’ RESPECTIVE ARGUMENTS

31.  Mr Ho put forward four grounds to support the Petitioner’s argument for conversion to compulsory winding up:

(1)  Pointing to the timing of the voluntary liquidation and the manner in which Mr Yiu was appointed (i.e. by reference to the Connected Creditors’ votes), it is alleged that the voluntary winding up arrangement was wrongfully engineered by the Company as a means to evade proper investigation of the Company’s affairs by an independent insolvency professional.

(2)  It is said that the Petitioner is the majority creditor of the Company for voting purposes, and that in any event, as the majority independent creditor, its views should take precedence over that of the Connected Creditors.

(3)  There is a real and practical need for conversion to a compulsory winding up, given the claims identified to date as against the Connected Creditors, and the need to investigate and pursue the same rigorously.

(4)  The Court should have regard to the general principles of fairness and commercial morality, and in exercising the discretion in relation to the Petition, should not leave independent creditors with a strong legitimate sense of grievance.

32.  In resisting the Petition, Ms Lee’s core argument is that the true motivation of the Petitioner is to replace the liquidator since Mr Yiu was not its liquidator of choice. Reliance is placed on the principle cited at paragraph 30 above that if there is an alternative remedy open to the Petitioner, then it is not necessary to convert to a compulsory winding up. It is further suggested that the voluntary liquidation has been in progress for over 15 months, and that as such, there would be unnecessary duplication of costs and detriment to the whole body of creditors if the liquidation were to be converted at this juncture.

E.      DISCUSSION

33.  Applying the approach in Re STX (supra), I consider that the voluntary liquidation should be converted to a compulsory winding up.

34.  The following factors are of particular relevance in the circumstances of this case:

(1)  As parties are agreed, and as Ms Lee has very fairly conceded, the Petitioner is the majority independent creditor.

(2)  There are plainly various matters which require further investigation, and it would not be ideal if this were simply left in abeyance due to a lack of funding.

35.  Considering the above in the context of the approach in Re STX:

(1)  The views of the majority by number (i.e. the Connected Creditors) are most certainly not decisive in the present case.

(2)  The views of the majority independent creditor are very clear – i.e. in favour of a compulsory winding up.

(3)  The Court will accord lesser weight to the views of the Connected Creditors (and Mr Li and SAL in particular) in view of the questions raised as to possible unfair preference transactions as well as other unexplained transactions (referenced at paragraph 22 above).

(4)  On the basis of the evidence presently before the Court, it is fair to say that there are indeed legitimate and very real questions raised which require further investigation and which rational creditors would think need investigation and in which the outcome would be financially favourable to them.

(5)  Insofar as it is alleged that the present liquidators should be seen to be acting independently and impartially, I do not consider there is sufficient evidence to say that Mr Yiu has, as a matter of fact, been lacking in independence or impartiality. I wish to make clear that I do not consider that there is any justified attack on his probity or competence. Indeed, as can be seen from inter alia his Interim Report and his conduct of the ACM in July 2022, he has at various junctures acknowledged the possible claims against the Connected Creditors, as well as afforded precedence to the weighting of the debts of the Petitioner.  Having said that, for the reasons set out below, I do consider that there have been sufficient question marks raised whereby an objective observer would legitimately question whether the present arrangement is the most prudent, and that there is basis for saying that viewing all the circumstances in the round, this leaves a substantial independent creditor with a strong and legitimate sense of grievance.

(6)  Insofar as there may be additional expenses both in terms of liquidators’ fees and disbursements and ad valorem fees payable, this is again a question best left to the majority independent creditor (particularly where the Connected Creditors said to hold the majority of the debt are subjects of potential investigation and claims). Again, as Ms Lee has fairly conceded, there is little additional detriment to be suffered in this regard given the minimal recoveries in the liquidation to date (in the sum of approximately HK$62,000).

36.  In the course of considering the above, I have specifically considered the four grounds relied upon by the Petitioner and the counterarguments by the Connected Creditors, as below.

37.  First, as to the alleged suspicious circumstances and the manner in which Mr Yiu was appointed:

(1)  The undeniable fact of the matter is that Mr Yiu was appointed on the strength of the votes of the Connected Creditors, and he had been introduced to the Company by RSM. Added together with the fact that he was already the liquidator of SIHL and had been appointed in a similar manner to SIHL, an objective observer might well question if he was particularly “friendly” with the various parties connected with the Company, even if in reality he has been acting independently and impartially.

(2)  The progress of the liquidation has not been entirely smooth. As is apparent from the available papers, Mr Yiu had had trouble obtaining the basic books and records from the officers and employees of the Company. The deponents for the Connected Creditors endeavour to explain the various personal circumstances of the parties involved in justifying the delay in providing the records, citing e.g. the fact that Mr Li had been ill and out of the country, and that they had had trouble contacting the next director of the Company. To a certain extent, the underlying reasons and explanations are secondary. The short point is that the progress of the liquidation has been delayed because of this late provision, and an objective observer might well question why this is the case. Further, it does not appear that Mr Yiu had taken any steps to try and obtain this information from other avenues (such as the auditors). Coupled with the above observations, this again might lead an objective observer to question if there has been a degree of laxity afforded to the various officers and employees of the Company in the course of the preliminary investigations conducted by Mr Yiu.

(3)  Having said that, I do recognize that Mr Yiu has ultimately very fairly set out, both in the Interim Report and in his evidence filed for the purposes of the Petition, the various questionable transactions and areas which require further investigation. He has also indicated that the primary reason why he is unable to proceed further with the investigations is because of lack of funding. Whilst a point is made against him by the Petitioner that certain duties must be performed irrespective of whether he is in funds (see Engel v South Metropolitan Brewing and Bottling Company [1892] 1 Ch 442 at 447-448), I do not consider that such duties includes substantial complex investigations of the sort that one might envisage when dealing with the preliminary findings summarized at paragraph 22 above. In the circumstances, the decision not to proceed further with investigations is not, in and of itself, a questionable factor which might lead to a sense of grievance.

(4)  Further, I do not accord much weight or significance to the timing of the entry into voluntary liquidation. As the chronology above demonstrates, prior to the resolution of the arbitration, the Company had asserted a claim in excess of the claim against it by the Petitioner. Whilst Ms Lee fairly conceded that the amount supported by the Petitioner’s expert’s report was for a lesser sum, the status of the claims would not have been fully fleshed out until the award was rendered. There is nothing inherently suspicious about the Company then going into liquidation upon the award being rendered after the conclusion of the arbitration.

(5)  Finally, I note that the Petitioner had on various occasions requested that Mr Yiu should resign and that he had refused to do so. The Petitioner relies on this factor in and of itself to suggest that Mr Yiu cannot be seen to be independent or impartial. I find this proposition to be somewhat unusual. There is no authority or principle which demands that a voluntary liquidator ought to resign in circumstances where he considers himself to be acting independently and impartially. I do not consider that Mr Yiu can be criticized for failing to adhere to such request.

(6)  Considering matters in the round insofar as this first ground of complaint is concerned, I accept the Petitioner’s submissions made in relation to the factors set out at sub-paragraphs 37(1) and (2) above. The other factors are neutral at best and do not necessarily advance the Petitioner’s case further.

38.  Second, as to the weighting to be accorded to the Petitioner’s views:

(1)  This is essentially conceded by Ms Lee (and quite fairly so), given the Connected Creditors’ intimate degree of connection to the Company and the possible claims and questionable transactions as have been identified to date by Mr Yiu. Whilst the Connected Creditors’ views are not entirely discounted, they must be afforded lesser weight.

(2)  The Petitioner has invited the Court to go further and to effectively determine that because of the potential claims against Mr Li and SAL, in the hypothetical situation where the creditor body were to vote, they would enjoy only unliquidated claims against the Company (upon the operation of insolvency set off) and accordingly should not be entitled to vote or only HK$1 should be assigned to their claims for voting purposes (citing Re Hsin Chong Construction Co Ltd (No 4) [2021] 5 HKLRD 489 and Re Apastron Capital Ltd [2002] HKCFI 1567). Having reviewed the present facts, I do not consider it is necessary nor prudent for this Court at the present juncture to make any such findings. This is particularly so where (i) there has not been any vote per se that is the subject of appeal, (ii) there is no specific appeal or point raised as to assessment of Mr Li’s and SAL’s proofs of debt, whether for voting purposes or otherwise, and (iii) the Connected Creditors themselves have already acknowledged that the weight to be accorded to their views is necessarily lesser.

39.  Third, as to there being a real and practical need for conversion given the claims identified to date:

(1)  I agree that there are very legitimate concerns raised about the questionable transactions summarized at paragraph 22 above. As a matter of general policy, it is undesirable that such questions having been raised, they should go uninvestigated. And if they are to be investigated, then it should be by a liquidator who is not only independent and impartial, but is seen to be as such.

(2)  There is little that can be said against this point, and I do not understand Ms Lee to be suggesting otherwise. Indeed, she herself has observed that the Connected Creditors are not tied to the idea that Mr Yiu must remain as liquidator. I note that the point dovetails somewhat with the core submission made by Ms Lee as to the alleged availability of other routes (such as the appointment of another liquidator in the voluntary liquidation), which is addressed below.

40.  Fourth, as to the general principles of fairness and commercial morality:

(1)  Overall, I do not consider this is a standalone point per se. Rather, taking all the matters in the round in this case, it is fair to say that an independent creditor would have a strong and legitimate sense of grievance that there are potential claims against the Connected Creditors which ought to be rigorously pursued, and Mr Yiu is not necessarily the best candidate for doing so. In saying this, I am conscious that a fully independent liquidator appointed in the context of a compulsory winding up will be in a better position to pursue such investigations in that he or she will be seen to be independent (see Re Joint Silver Ltd HCCW 1/2016, unreported decision dated 16 December 2016 at §43; Re STX (supra) at §51(7)).

(2)  Insofar as any reliance is placed on the progress of the voluntary liquidation to date, I do not consider this to be a factor against the ordering of compulsory winding up. On Mr Yiu’s own evidence and as can be seen from the papers, there have only been preliminary investigations, the outcome of which are quite readily picked up from the Interim Report and the available documents. This is not a case where substantial complex investigations have been ongoing for years, and much work has been done by the incumbent liquidator such that a new practitioner will have great difficulty picking up the file. Rather, the very fact that no one has as yet proceeded into the next stage of investigations would augur in favour of a fully independent liquidator coming in at the present juncture. The current status and progress of the liquidation, therefore, is a factor which weighs in favour of making the winding up order.

(3)  Finally, I note the fair acceptance by Ms Lee that there is no particular detriment caused to the creditor body by any additional fees and expenses insofar as the recoveries are minimal to date. The question of ad valorem fees does not substantively arise unless the potential claims are investigated and brought to fruition. Intrinsically, the Connected Creditors’ views on this issue are to be viewed with some circumspection. It is thus very much a matter for the majority independent creditor to consider and take on (if they so wish).

41.  As against the above, the Connected Creditors’ additional arguments are considered below.

42.  First, it is suggested that the Petitioner had failed to identify any cogent reason to doubt the Liquidator’s independence and impartiality. As I have stated above, I do not consider there is any evidence to establish that Mr Yiu has in fact been biased or partial. However, there are circumstances which could lead an objective observer to say that he may not be seen to be independent.

43.  Second, whilst a point was originally taken as to possible delay and detriment, this was essentially conceded at the hearing (and in any event has already been discussed above).

44.  Third, the Court is invited to take the Connected Creditors’ views into account, albeit with lesser weighting (Re Medisco Equipment Ltd [1983] BCLC 305). This has been done in the context of the above exercise as well.

45.  This leaves the fourth and final point, which is the core argument advanced that there is another route or remedy available, viz. the removal or replacement of the Liquidator:

(1)  Whilst I do not question as a matter of general principle the proposition advanced by the Connected Creditors, in the circumstances of this case I do not consider it applicable.

(2)  The relevant passage from Re Inside Sport (supra) at 305c-h is worth considering in full. Having determined that there was “close parity in value between the creditors favouring a voluntary liquidation and favouring a compulsory liquidation”, Lightman J (as he then was) considered that the fair course was to order a compulsory winding up:

“At the end of the day I think the balance is in favour of the making of a compulsory order. I think that the petitioner and CCL may have a genuine sense of injustice and grievance if the voluntary liquidator appointed at the instance of the managing director of the company should continue and the liquidation should be in his hands, in particular in view of the need to investigate the conduct of the directors of the company and the directors of Brackenbury Ltd in relation to the transactions relating to the unauthorised payments of moneys.

The matter that has occasioned me principal concern is whether the appropriate course in this case was for the petitioner to present this petition or whether he should not instead have made an application to the court under s. 171 of the Insolvency Act 1986 for the appointment of a new voluntary liquidator in place of Mr Beat. Such a course would have saved the costs and time involved in proceeding with a compulsory liquidation.

… In a number of previous cases the court has been content to decide the question whether the identity of the appointee as voluntary liquidator is satisfactory on a petition for a compulsory liquidation, and to give effect to any decision that the appointee was unsatisfactory by making a compulsory order. But I am not aware of any case where the court has considered whether the petitioner has an alternative and preferable remedy in an application under s 171. I think that this alternative remedy is one which must be borne in mind in any case where the real dispute between the parties is as to the identity of the liquidator and if this alternative remedy is available, it may be inappropriate to proceed by way of petition for a compulsory liquidation.”

(3)  Notwithstanding the consideration of S.171, Lightman J proceeded to make the compulsory winding up order in any event (at 305i), citing three reasons:

“First of all, this is not a point that has been taken in any previous case or in this case prior to the hearing and the petitioner can be forgiven, as it seems to me, for failing to have this consideration in mind. Secondly, the petition was presented in this case prior to any resolution being passed for the voluntary liquidation of the company and indeed at a time when it may have been uncertain whether there would have been a voluntary liquidation. Thirdly, it would be a total waste of costs, with the petition having now reached this stage, to dismiss the petition and require the petitioner to make a fresh application to the court under s. 171 for the appointment of a new voluntary liquidator in place of Mr Beat.”

(4)  Insofar as the present case is concerned, one questions whether the alternative remedy is actually one which is truly available to the Petitioner.  First, one might consider convening a meeting under S.244A of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) to consider the removal of the liquidator.  However, in order to do so, a resolution needs to be passed by a majority in number and three-fourths in value of the creditors present and voting on the resolution (S.244A(5)).  It will be immediately apparent that the Petitioner would not be able to carry such a vote.  Second, there is the provision in S.252, Cap 32, whereby the Court may, on cause shown, remove a liquidator and appoint another liquidator.  However, as I have indicated above, I do not consider that there has been any basis for suggesting that Mr Yiu was in fact biased or partial towards the Connected Creditors.  Nor is there any other evidence placed before the Court of any alleged misconduct. In those circumstances, there is no true remedy available for removing the liquidator via S.252, Cap 32.  So it would seem that whilst in theory there are alternative remedies available, these are not truly available on the circumstances of the case.

(5)  In such scenario, the question for the Court is in fact simplified and one returns to the reasoning and approach in Re STX (supra). Viewed against the reality of the present facts, the Petitioner would be forgiven for not pursuing the more difficult (or even impossible) routes outlined above. Furthermore, the causes for concern and grievance have accumulated over the course of the voluntary liquidation, starting with the manner in which Mr Yiu was appointed (much akin to the circumstances in Re Inside Sport which Lightman J felt gave rise to “a genuine sense of injustice and grievance” – see §45(2) above), and developing with the identification of the questionable transactions. Finally, it would be a waste of costs and time to ask the Petitioner to pursue these unavailable “alternative” remedies.

46.  In the circumstances, I consider that the Connected Creditors’ opposition fails. The Company will accordingly be wound up by way of compulsory winding up.

F.       COSTS

47.  As to costs, on the basis of the principles set out in Re Goldcone Properties Ltd (in creditors’ voluntary liquidation), HCCW 391/1999 (unreported decision dated 5 November 1999), I make an order nisi that the Petitioner’s costs will be paid by the Connected Creditors.

48.  I thank both counsel for their assistance.