XCHRX GREATER BEIJING FIRST EXPRESSWAYS LTD. (IN LIQUIDATION)

HCCW 338/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 338 OF 2000

____________

_______________________

REASONS FOR DECISION

_______________________

1. By summons filed on 25 August 2000, the Joint and Several Provisional Liquidators ("PL") of Greater Beijing First Expressways Limited ("the Company"), Ms Oswin and Mr Hague, both of Price Waterhouse, apply for orders that they be appointed the Joint and Several Liquidators ("the Liquidators") of the Company and for a Committee of Inspection ("the COI") be appointed to act with the Liquidators. The application is supported by the Petitioner, but opposed by the sole contributory and parent company of the Company, Greater Beijing Region Expressways Limited ("GBRE"), and 2 creditors, Tianjin Tian Ang Expressway Co. Ltd and Tianjin Tian Yong Expressway Co. Ltd ("collectively "the Opposing Creditors"). After hearing submissions, I ordered that the PL be appointed the Liquidators of the Company. I also appointed a COI comprising the members set out in the PL's summons and other ancillary reliefs. My reasons appear below.

Background

2. The Company is a BVI company. The Petitioner is the trustee for Noteholders under 2 series of Notes totalling US$288 million under an Indenture dated 17 June 1997 ("the Indenture"). On 13 April 2000, upon the Petitioner's application, the PL were appointed. On 12 June 2000, the Company was ordered to be compulsorily wound up. The winding up order is currently under appeal, but there is no stay of the winding up proceedings. On 12 July 2000, another winding up order was made against the Company by the BVI Court. The BVI Court on 20 September 2000 appointed the PL as the official liquidators in the BVI winding up proceedings.

3. On 12 July 2000, the PL convened separate meetings of contributories and creditors to consider the appointment of liquidators and committee of inspection. At the contributories' meeting, GBRE nominated Mr Gabriel Tam and Mr Alan Tang of KPMG to act as the Liquidators and a resolution to that effect was passed. GBRE also resolved in favour of the appointment of a COI with itself as one of the members. The creditors' meeting, however, resolved that the PL be appointed as the Liquidators, and that a COI comprising representatives from the Petitioner, GBRE, American Express Financial Corporation, Dupont Capital Management and Ernst & Young be appointed. The 5 members appointed by the creditors' meeting are the same members proposed by the PL in their summons. As a result of the differences, it is incumbent upon the Court to decide the differences pursuant to section 194(c) and section 206(2) of the Companies Ordinance.

Appointment of Liquidators

4. One day before the hearing of the PL's summons, GBRE by its director, Mr Alan Lau, made an affirmation dealing with a wide range of matters. No reason had been advanced for the late introduction of evidence. Indeed there is no apparent reason why the affirmation could not have been filed earlier when the matters referred therein were events which had been in existence and facts known to GBRE for a considerable period of time. Notwithstanding the late arrival of this affirmation, no objection to its admission was made and the Petitioner and the PL had managed to compile affirmations in answer thereto.

5. In this last minute affirmation, GBRE mounted a number of objections to the appointment of the PL as the Liquidators. The objections range from the suitability of the PL to procedural irregularity in the meeting of creditors leading to the resolution to appoint the PL as the Liquidators. At the hearing of the summons, senior counsel for GBRE and the Opposing Creditors only rely on one argument, namely, that Mr Tam and Mr Tang are more appropriate and suitable than the PL to be the Liquidators. It was argued that as the asset value of the Company derives from its interests in toll roads in the Mainland, it is paramount that the Liquidators should have experience of working with Mainland parties and should be able to communicate effectively as well as to maintain a good working relationship with the Mainland joint venture partners. It was submitted that Mr Tam and Mr Tang were to be preferred to the PL by virtue of their experience, contacts and language ability.

6. Senior Counsel for the Petitioner referred me to the old authorities as establishing the rule that where the party who has the carriage of the winding up order proposes a fit and proper person, that person shall be appointed as liquidator without reference to the fitness of any other person proposed by other parties: Re General Provident Assurance Company (1868) 19 LT45 and Re Albert Average Assurance Company (1870) LR 5 Ch App 597. The modern trend, however, is that the Court has a wide discretion in these matters, although the discretion has to be exercised judicially and in accordance with settled principles: Re Dunquil Pty Ltd (1985) 9 ACLR 950 and Re Australian National Finance Ltd (1992) 7 ACSR 697. An important consideration for the Court in the exercise of its discretion is the wishes of the major creditors: section 287(1) and (2) of Companies Ordinance, see also Re Goldcone Properties Ltd [1999] 4 HKC 602.

7. In the present case, the Noteholders on whose behalf the Petitioner acts constitute the major creditors of the Company. The evidence before the Court shows that the PL receive the support of an overwhelming majority of the creditors.

8. In my view, no useful purpose can be served by embarking upon a comparison of the skill and ability enjoyed by the PL and that possessed by Mr Tam and Mr Tang. They are all professional and experienced insolvency practitioners. No objection had been taken by GBRE and the Opposing Creditors to the competence and ability of the PL. Although Mr Alan Lau had suggested in his affirmation in opposition that the PL had lost the trust and confidence of both the Noteholders and the majority creditors, that suggestion is refuted by the Petitioner and the point was not pursued at the hearing.

9. I consider that the question of the choice of liquidators should be approached by asking whether there is any good and compelling reason for not acceding to the wishes of the majority creditors. The PL enjoy the support of an overwhelming majority of the creditors. They have since April 2000 been working closely with the Mainland joint venture parties and the affidavit of Ms Oswin indicates that a relationship of trust and confidence has gradually been established. Prima facie, the PL are the appropriate persons to be appointed as the Liquidators.

10. Both GBRE and the PL recognised that a relationship of trust and confidence is vital in gaining the support and co-operation of the Mainland joint venture parties. This in turn has a significant impact on the possibility of finding potential buyers for the assets of the Company and on the chances of the creditors achieving any return for their investment. Accordingly, the fear on the part of the Petitioner that a change in the identity of the liquidators may jeopardise the progress of liquidation is entirely justified and well founded.

11. At the same time, considering that the PL had been appointed the liquidators in the BVI winding up proceedings, the liquidation of the Company will be rendered more efficient, effective and economical by having the same liquidators in the 2 jurisdictions.

12. The evidence before me does not afford any good reason for suggesting that the PL should not be appointed as the Liquidators. There is nothing to suggest, and it is not suggested by Senior Counsel for GBRE and the Opposing Creditors, that the PL are not fit and proper persons to act. All that GBRE and the Opposing Creditors are saying is that Mr Tam and Mr Tang are more suitable candidates. I had indicated that it is not appropriate to embark upon a comparison exercise. Even if I were to accept that Mr Tam and Tang may enjoy some advantage in terms of their language ability and contacts, that would have been countered by the fact that the PL have been working on the affairs of the Company for nearly 6 months and they are working on the liquidation of the Company in the BVI. Mr Tam and Mr Tang, on the other hand, will have to start afresh. There is thus no distinct and obvious advantage to be gained by the appointment of Mr Tam and Mr Tang.

13. Having regard to all the matters aforesaid, I am of the view that the PL should be appointed as the Liquidators, and I so order.

Appointment of Committee of Inspection

14. The objection of GBRE and the Opposing Creditors is that the resolution appointing the COI passed at the creditors' meeting is defective in that the vote of the Petitioner is a nullity. It is submitted that the more preferred course is for the Court to direct for another meeting to be convened to consider the matter.

15. The argument of GBRE and the Opposing Creditors evolves around the construction of sections 6.5 and 6.11 of the Indenture. In this regard, I agree with Senior Counsel for GBRE and the Opposing Creditors that the expert opinions before the Court do not reveal any peculiar principle or rule of construction under New York law, which is the governing law under the Indenture.

16. I accept that section 6.5(b) whether read alone or read in conjunction with section 6.11, does not empower the Petitioner to vote on behalf of the Noteholders on the appointment and/or the composition of a COI. Accordingly, the Petitioner could only have done so at the creditors' meeting by acting as the proxy for the Noteholders, who are creditors of the Company, under Rule 131 of the Companies (Winding Up) Rules. The letters of consent and direction given by the Noteholders to the Petitioner are not in the form prescribed in the Companies (Winding Up) Rules as required by Rule 132 thereof. Not only that, they specifically direct the Petitioner to vote at the Creditors Meeting in favour of, inter alia, "an application be made to the Hong Kong court for the appointment of a Committee of Inspection to act with the Joint & Several Liquidators and for the trustee" (i.e. the Petitioner) "to be on the Committee of Inspection". The letters of consent and direction do contain specific instructions on the question of appointment of a COI. In the circumstances, the Petitioner when sub-delegating the authority to Mr Nee of Coudert Brothers, who represented the Petitioner at the Creditors meeting, could only do so by means of a special proxy. Yet Mr Nee was only appointed by the Petitioner under a general proxy, which is in the prescribed form. The vote casted by Mr Nee on behalf of the Petitioner is therefore invalid.

17. This procedural defect or irregularity is however immaterial in deciding whether to grant the order sought in the PL's summons. It is common ground that the Court can either determine the composition of the COI or order that another meeting of creditors be called. Section 287 of the Companies Ordinance does not oblige the Court to direct for meetings of creditors or contributories to be called. The Court may, however, direct for such meetings to be convened for the purpose of ascertaining the wishes of the creditors or contributories. Where the wishes of the creditors can be readily ascertained such that it would be virtually certain that a resolution would be carried, it will be unnecessary to hold a meeting of creditors for the purpose of voting on the resolution: Re Manmac Farmers Ltd [1968] 1 WLR 572. It follows that no useful purpose can be served by the Court directing for a meeting of the creditors to be convened when there is sufficient evidence before the Court as to the wishes of the majority creditors.

18. In the present case, the views and wishes of the majority creditors are already before the Court. It is almost certain that the same resolution would be passed if a creditors' meeting were to be re-convened. There is therefore no need to hold another creditors' meeting. The Court can simply on the basis of the material now before it decide the composition of the COI. In this regard, GBRE and the Opposing Creditors had argued that it is unfair and inappropriate for American Express Financing Corporation and Dupont Capital Management to have separate seats on the COI since they are minority creditors. They proposed that the COI should comprise the Petitioner, GBRE and Ernst & Young. I do not agree that American Express Financing Corporation and Dupont Capital Management can be regarded as minority creditors. Although they are assignees of debts of modest amounts, they are also Noteholders holding substantial amounts of debt. At the same time, it is to be noted that the debt held by Ernst and Young is of a modest amount.

19. For the above reasons, I am of the view that a COI with the composition set out in the PL's summons should be appointed without having to resort to another creditors' meeting, and I so order.

Costs

20. The Petitioner applied for costs against GBRE and the Opposing Creditors. The PL also applied for part of the costs of this application to be borne by GBRE and the Opposing Creditors.

21. I accept the submissions advanced by GBRE and the Opposing Creditors that an application to the Court is inevitable irrespective of the differences between the parties. However, I note that the application has been complicated by the stance taken by GBRE, which was supported by the Opposing Creditors, and more significantly by the late affirmation of Mr Alan Lau. The affirmation raises a wide range of matters, much of which had not been relied upon or pursued at the hearing.

22. But for the stance taken and this affirmation, the hearing would have been much shorter and the appearance by leading counsel in the case of the Petitioner would not have been necessary. The wasted aspect of the costs of the application should therefore be borne by GBRE and the Opposing Creditors. Accordingly, I order that the costs of the application to be costs of the liquidation, save that the costs of and incidental to and occasioned by the 2nd affirmation of Mr Alan Lau filed on 23 October 2000 and the hearing be borne by GBRE and the Opposing Creditors, to be taxed if not agreed.