XCHRX KENNIC LAI HANG LUI v. SUNLIGHT PAPER PRODUCTS CO. LTD.

HCMP 2923/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2923 OF 2001

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J U D G M E N T

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1. This is the second hearing of an originating summons issued on behalf of Receivers. The Company is the Respondent. On the last occasion, two directors of the Company appeared and made various allegations which I required to be put into affidavits. Accordingly, on that occasion, I adjourned the hearing to enable the Company acting through those directors (to whom I had given leave to represent the Company) to adduce evidence.

2. On that occasion, upon the Company's undertaking not to remove assets from the premises of the Company to the value of $2.3 million, I ordered that leave be granted to the Company to file an affidavit in opposition, and I also gave a certificate of urgency for hearing in the vacation. That order having been made on 21 June 2001, the Company chose not to file any affidavits in opposition and this case has come before me again today.

3. Today, the Company has not appeared, whether by those two directors or anyone else, although a notice of hearing has been sent to them by both the Court and by the Applicants. Accordingly, I heard this matter in the absence of the Company.

4. The Applicants are Receivers and this morning, I have raised with Mr Ho various queries, in particular, a query as to whether the debenture in relation to clause 3.02 has been complied with. Clause 3.02 of the debenture says that the Lender may at any time after the occurrence of an Event of Default by notice in writing to the Borrower convert the floating charge created under clause 3.01 into a specific charge as regards any asset specified in the notice which the Lender may reasonably consider to be in danger of being seized or sold under any form of distress, execution or other process, levied or threatened, and may appoint a receiver thereof.

5. Consequently, it appears to me that any receiver appointed under clause 3.02 would only be appointed a receiver of assets specified in the notice which the Lender may reasonably consider to be in danger of being seized or sold under any form of distress, execution or other process, levied or threatened. There was no evidence before me from the Applicants that the Lender had reasonably considered, or considered at all, any assets to be in danger of being seized or sold under any form of distress, execution or other process, levied or threatened.

6. Consequently, I have my doubts as to the validity of the conversion on 17 May 2001 by way of a notice issued by the Lender which said: "pursuant to clause 3.02 of the debenture, we hereby give you notice to convert the floating charge created under 3.01 of the debenture into a specific charge with immediate effect as regards all stocks, cash and bank balances whatsoever and wheresoever both present and future including book and other debts now and from time to time due or owing to your company."

7. Notwithstanding this doubt as to the validity of the conversion of the floating charge into a specific charge over the assets set out in that purported crystallisation notice, Mr Ho has referred me to clause 9.01 of the same debenture which provides that "at any time after the security constituted shall have become enforceable, the Lender may in writing appoint any person to be a receiver of the Borrower's undertaking, properties, assets and rights hereby charged (hereinafter referred to as "the undertaking") or any part thereof". Therefore, a receiver may be appointed under clause 9.01 even though any conversion under clause 3.02 may not be valid.

8. I am persuaded that the Lender could have appointed the Applicants receivers under clause 9.01 even though any purported crystallisation under clause 3.02 may be in doubt.

9. Accordingly, I am prepared to grant the order in the form of the draft order but with amendments to delete all references to specific charged assets due to the doubts as to the conversion of the floating charge into a fixed charge but with references to "that part of the undertaking" that is referred to in the notices from the bank and from the Receivers to the Company.

10. As for the substance of the application, I have read the affirmation of Mr Kennic Lai Hang Lui, one of the Receivers, and I am satisfied from the evidence set out in it that the Company has not been cooperative with the Receivers and that it is necessary for there to be the order sought from me today to enable them to take possession and to carry out their duties as receivers although I have declined to make an order to enable them to enter the premises by force. It seems to me that upon service of this order upon the Company, if the Company through any of its servants or agents, nevertheless refuse entry to the Receivers, then the Receivers would be entitled to enforce this order by other means.

11. Accordingly, I gave an order in terms of the draft order as amended and I gave leave to Mr Ho to amend the originating summons in the way specified.