RE GIDEON INVESTMENTS LTD

HCCW 616/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 616 OF 2000

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(Heard Together)

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D E C I S I O N

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The Applications

1. There are 3 applications in 3 proceedings by the liquidators for directions under section 200(3) of the Companies Ordinance, Cap. 32. They are made by the liquidators of the following companies:

(1) Gideon Investments Limited ("Gideon BVI"), a company incorporated in the British Virgin Islands wound up by an order of the Court on 14 September 2000;

(2) Killarney Pastoral Limited ("Killarney HK"), a company incorporated in Hong Kong wound up under the provisions of section 228A of Cap. 32 on 20 April 2000; and

(3) Gideon Holdings Limited ("Gideon HK"), a company incorporated in Hong Kong wound up under the provisions of section 228A on 20 April 2000.

The background

2. The three companies mentioned above are part of the Gideon group, which also has as constituent elements the following:

(1) Gideon Investments Pty Limited ("Gideon Australia"), an Australian company wound up on 9 May 2000 by an order of the Supreme Court of New South Wales when Mr Geoffrey Hancock was appointed as the liquidator;

(2) the GHF Trading Trust ("GHF") to which Mr Hancock was appointed as receiver and manger on 6 October 2001;

(3) Killarney Pastoral Pty Limited ("Killarney Australia"), an Australian company wound up on the application of the Australian Securities and Investments Commission and of which Mr Simon Wallace-Smith was appointed liquidator on 16 June 2000;

(4) the bankrupt deceased estate of Mr Michael Bastion, who had passed away on 16 March 2000.

3. The Gideon group was run by Mr Bastion from Hong Kong before his death. He had the sole and effective day to day management of the group. On investigation of the liquidators in Hong Kong and Australia, it would appear that the group was run for the sole purpose of obtaining funds from investors in order to facilitate Mr Bastion's personal involvement in:

(a) share trading, futures, currencies and other financial instruments; and

(b) the horse racing industry in Australia, New Zealand, Hong Kong and elsewhere.

4. Mr Hancock has concluded from his investigations into Gideon Australia and GHF that the investors in GHF were the source of funds for the acquisition of all the assets held or realised by the liquidators of the entities comprising the Gideon group and that these investors apart from various trade creditors are the true creditors of the Gideon group. However, in order to prove this, it would be necessary to establish the precise flow of funds from the investors to Mr Bastion and the other entities in the group. This would be extremely time consuming and costly, as the books and records of the group are in disarray. Further, Mr Bastion had not paid any particular regard to the separation of entities and trusts and was inclined to move money from one entity to another as the circumstances suited him. So far only a partial reconstruction of the bank account of Gideon BVI has been attempted and this has accounted for just 20% of the transactions. A full reconstruction would not have been possible in any event, nor would this be accurate, as a considerable amount of money was deposited and withdrawn by way of cash.

5. It is also apparent that none of the entities in the group will have any assets available for distribution to all the creditors in full.

6. Mr Hancock is therefore of the view that it would be in the best interest of the investors in GHF for arrangements to be implemented which can provide an acceptable financial outcome for the investors but which will avoid time and expense of establishing the precise flow of funds from the investors to Mr Bastion and other entities in the group. For that purpose, Mr Hancock has made several applications in the Supreme Court of New South Wales and the present applications before me are also for the same purpose.

7. On the evidence before him, Austin J of the Supreme Court of New South Wales had in his judgment delivered on 31 January 2002 found that it was very likely that an investor who had lodged funds for investment purposes and therefore in trust, with one of the entities over which Mr Bastion had control, would (if the matter were fully and rigorously explored and assuming the requisite evidence were available) be able to show the investment funds were mixed with investment funds by other entities in the group.

8. Among the orders and directions made by Austin J in the liquidation of Gideon Australia, it is pertinent to note the following:

(1) On 13 October 2000, the court directed that the liquidator would be justified in recognising the existence of an express trust created on the terms set out in a document entitled "GHF Trading Trust" and in recognising the persons listed in a schedule to the interlocutory process filed in court and any person subsequently filing a proof of debt or other form of claim as beneficiaries of the trust. The court further directed that the liquidator would be justified in treating all assets of Gideon Australia as assets of the trust.

(2) On 31 January 2002, the court directed that the liquidator would be justified in accepting as investors in the trust claims by the parties as named in the order who had lodged funds on trust with either Gideon HK or Gideon BVI or Mr Bastion for investment purposes and in respect of whom the receiver of GHF is satisfied that those funds have been mixed with funds invested in the trust.

9. The idea is to seek the approval of the court for each of the companies to participate in a scheme for the pooling of assets and the discharge of liabilities of the various companies and entities comprising the group. And for Mr Hancock to be placed in a position where he is able to accept proofs of debt in the liquidation of Gideon Australia as trustee for GHF which may be lodged by the creditors of Gideon BVI, Killarney HK and Gideon HK, it is necessary for the court to approve the expunging of proofs of debt and the waiving of claims or potential claims.

10. I turn to consider the position of each of the three companies.

Gideon BVI

11. The position here is straightforward.

12. The orders sought are:

(a) to expunge the proof of debt lodged by the receiver of GHF of A$3,968,311.64; and

(b) to waive the claim of Gideon BVI against Killarney HK of HK$1,249,900.00.

13. Only one proof of debt has been lodged in the liquidation of Gideon BVI, and that is by the receiver of GHF. There are no other known creditors. Notice to creditors to prove their debts under rule 93 of the Companies (Winding-up) Rules was given on 10 May 2002. A creditors' meeting was held on 17 January 2003, at which resolutions were passed unanimously authorising the liquidators to apply to court to enable the company to participate in the scheme proposed by GHF's receiver, for GHF's debt to be expunged and for the approval of the waiving of the claim against Killarney HK. Written consent was also obtained from GHF to its proof of debt being expunged. It is clear from the statement of affairs that the company has insufficient funds to meet the claims made on it.

14. I have no difficulty with the application. I make an order in terms of paragraphs 1 and 2 of the amended summons.

Killarney HK

15. The orders sought are:

(a) to waive the claim by Gideon BVI of HK$1,249,900.00; and

(b) to waive the claim by Gideon HK of HK$532,008.00.

16. Only one proof of debt has been lodged, and that is by Pacific Limited, which is not within the Gideon group, in the sum of HK$19,515.46. This debt has been paid in full by the receiver of GHF in November 2002. There are no other known creditors apart from Gideon BVI and Gideon HK.

17. A notice to creditors to prove their debts was given on 14 June 2002. In a creditors' meeting on 3 January 2003, resolutions were passed unanimously similar to the resolutions in Gideon BVI and authorising the liquidators to apply to court seeking the orders I have mentioned above. Written consent was obtained from Gideon BVI to the waiver of its claim against the company. The liquidators of Gideon HK are the same as the liquidators of Killarney HK, and they have consented to the waiver of the claim of Gideon HK. The statement of affairs shows that Killarney HK has insufficient funds to meet the claims made against it.

18. I make an order in terms of paragraphs 1 and 2(a) of the amended originating summons. Paragraph 2(b) contains an error in that a proof of debt has not been lodged by Gideon HK. I therefore make an order on similar terms as in 2(a), that the claim by the joint and several liquidators of Gideon HK in the liquidation of Killarney HK in the sum of HK$532,008.00 be waived.

Gideon HK

19. The orders sought are as follows:

(a) to expunge the proof of debt lodged by Gideon HK in the liquidation of Killarney Australia of A$449,975.00;

(b) to waive the claim against Killarney HK of HK$532,008.00;

(c) to expunge the proofs of debt lodged by 6 creditors as stated in paragraphs 2(c) to (h) of the amended originating summons; and

(d) to waive 8 claims and potential claims the existence of which the liquidators are aware and in respect of which no proofs of debt have been lodged as stated in paragraphs 3(a) to (h) of the amended originating summons.

20. As mentioned above, 6 proofs of debt were received by the liquidators. There has been no adjudication on the proofs. It is clear from the statement of affairs that the company has insufficient funds to meet the claims by creditors. Notice to creditors to prove was given on 14 June 2002.

21. At a creditors' meeting on 3 January 2003, the creditors unanimously passed a resolution that the liquidators be authorised to apply to court to enable Gideon HK to participate in a scheme for the pooling of its assets with other entities in the group and the bankrupt estate of Mr Bastion. Except for one creditor, Ms P S Forsythe, who voted against a further resolution in respect of expunging her proof of debt, other creditors all voted in favour of expunging the proofs of debt lodged with the company. The liquidators have also received written consent from the other 5 creditors who have lodged proofs of debt agreeing to expunge their own proof of debt. Further, they have received notices from two parties who have not lodged a proof of debt agreeing to waive their claims against the company.

22. According to a letter from the liquidator of Gideon Australia and the receiver of GHF dated 21 May 2003, all creditors who had previously submitted a proof of debt in the liquidation of Gideon HK have submitted proofs of debt in the liquidation of Gideon Australia and as of 21 May 2003, they have all been paid a dividend equivalent to A$0.13 in A$1.00 on their admitted claims.

23. Mr Morley, who appears for Ms Forsythe today, has informed the court that his client no longer has any objection to the order sought regarding the expunging of her proof of debt, in view of the fact that she has received a dividend in respect of her admitted claim.

24. I therefore make an order in terms of paragraphs 1, 2(a), (c) to (h) in the amended originating summons.

25. In respect of paragraph 2 (b), I order that the claim by the joint and several liquidators of Gideon HK in the liquidation of Killarney HK in the sum of HK$532,008.00 be waived.

26. As for paragraph 3, I will substitute the word "expunged" with "waived" and make an order in terms of paragraph 3 as amended. The spelling error of the claimant in paragraph 3(h) should be corrected.