RE LEGEND INTERNATIONAL RESORTS LTD

HCCW 1139/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1139 OF 2004

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D E C I S I O N

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1.  I have before me a summons by Morgan Stanley Emerging Markets Inc. (“MSEMI”) for an order under section 227A(1) of the Companies Ordinance, Cap. 32 that the winding up of Legend International Resorts Limited (“the Company”) be regulated specially by the court under that provision.

2.  The Official Receiver has been approached by MSEMI in the event that a regulating order is made to apply to the court for an order under section 227B that:

(1) the summoning of the 1^st meetings of creditors and contributories of the Company for the purpose of considering the appointment of a liquidator and a committee of inspection be dispensed with;

(2) Mr Kelvin Flynn and Mr Cosimo Borrelli of Alvarez & Marsal Asia Limited be appointed joint and several liquidators of the Company; and

(3) no order be made as to the appointment of a committee of inspection but the liquidators shall have liberty to apply.

It is necessary that this application should be made by the Official Receiver owing to the wording of section 227B (Guangnan (KK) Supermarket Limited [2002] 1 HKLRD 348).

3.  I have considered the submissions from Ms McKenna for the Official Receiver.  She is satisfied of the propriety of the application under section 227B in the special circumstances of this case.

4.  The basis for the above applications is as follows.

5.  There is a particular matter which is required to be addressed urgently.  Pagcor, the authority for issuing a licence to the Company to operate a casino, has executed various writs of attachment on almost all of the assets of the Company in the Philippines.  These actions could potentially constitute a preferential advantage to Pagcor to the exclusion of all the other creditors of the Company. 

6.  MSEMI has been advised by its lawyers in the Philippines that an application must be made to the court in the Philippines by today if the execution of attachment is to be challenged, to ensure fair and equitable treatment among all creditors.  Hence, it is necessary that liquidators be appointed for the Company forthwith and candidates are proposed by MSEMI.  These candidates have the support of PAII and APA Inc, and together with MSEMI, their claims constitute nearly 80% of the total debts of the Company.

7.  The Official Receiver agrees that it is in the interests of the general body of creditors to have someone appointed as soon as possible to prevent an attachment of the Company’s assets in the Philippines. 

8.  A regulating order is usually made in the situation where by reason of a large number of creditors or contributories, it is impractical to hold 1^st meetings.  I agree with the submissions of the Official Receiver and of Mr Bartlett for MSEMI that the legislative provisions are drafted in very wide terms and does give power to make a regulating order in a situation “for any other reason the interest of the creditors so requires”. 

9.  Nevertheless, the court must be satisfied it is right in these circumstances to make a regulating order and appoint liquidators forthwith, as the creditors’ right to nominate a liquidator of their choice should not be easily overridden.

10.  The Company opposes the appointment of Messrs Flynn and Borrelli, and has made enquiries of other available candidates.  They have come up with the names of 3 insolvency petitioners who are prepared and willing to act as liquidators.

11.  The Company has adduced a letter from a bank in Malaysia stating that at a meeting called by MSEMI in November 2004 regarding the restructuring of Metroplex Berhad (“Metroplex”), Mr Flynn was present, apparently in the capacity of an adviser to MSEMI.  Metroplex is a substantial shareholder of the Company and a creditor of 13% of the liabilities of the Company.

12.  Another letter from Metroplex was adduced that the High Court of Malaysia ordered on 23 May 2006 the appointment of Ms Kuan Mei Ling of RSM Nelson Wheeler, Malaysia as provisional liquidator over Metroplex in respect of the sale of a property known as Putra Place and pursuant to that order, Ms Kuan called a meeting on 29 May 2006 which was attended by personnel of RSM Nelson Wheeler, Malaysia and of Alvarez & Marsal Hong Kong.

13.  The Company is concerned that both RSM Nelson Wheeler and Alvarez & Marsal have a close connection with MSEMI and are not sufficiently independent to act as liquidators of the Company.

14.  I have before me an affidavit from a solicitor from MSEMI who deposes that at no time has Mr Flynn, whether at his former firm or at his new firm, Alvarez & Marsal Asia Limited, been engaged in any capacity by MSEMI or PAII and that Mr Flynn has not been paid any remuneration or other fee whatsoever.

16.  Mr Bartlett has placed before me relevant judgments regarding a conflict situation in the appointment of liquidators and provisional liquidators.  I have considered them and the Code of Ethics for Professional Accountants issued by the Hong Kong Institute of Certified Public Accountants, in particular, the provisions at sections 432.6 to 432.12 and 432.18.  I do not think the proposed candidates of MSEMI would have a “material professional relationship” with MSEMI as would give rise to conflict problems.  Besides, if an actual conflict of interest should arise, there is mechanism in dealing with this.  It seems suitable in the present situation to appoint the candidates proposed by MSEMI as these candidates have the confidence of the majority of independent creditors.  There would be an order in terms of the draft order placed before me on the summons issued by MSEMI under section 227A and the joint application made by MSEMI and the Official Receiver under section 227B.