Re Guangnan (KK) Supermarket Ltd.

HCCW 618/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 618 OF 2001

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D E C I S I O N

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1. This is an application under Sections 227A and 227B of the Companies Ordinance. Section 227A provides that

"where it appears to the court on application being made by the Official Receiver, liquidator or by any creditor at any time after the presentation of a winding-up petition that by reason of the large number of creditors or contributories or for any other reason the interest of the creditors so requires, it may, on or after the making of a winding-up order, order that the winding up of the company by the court shall be regulated specially by the court and such order shall be known as a regulating order."

Section 227A(2) provides that:

"where a regulating order is made it shall be published in such manner as the court may direct, and Sections 227B to 227E inclusive shall apply to the winding up."

Section 227B provides that:

"the court may on the application of the Official Receiver by order -

(a) dispense with the summoning of first meetings of creditors and contributories for the purpose of considering the appointment of a liquidator and a committee of inspection; and

(b) appoint the Official Receiver or such other person or persons recommended by him as liquidator or liquidators; and

(c) appoint such qualified persons as it thinks fit as a committee of inspection, and may remove any member thereof and fill any vacancy therein."

2. Before I deal with the merits of this application, I would first refer to the procedure. It is clear under Section 227A that a private provisional liquidator may make the application to the court for a regulating order. Section 227A(2) also says that where a regulating order is made, Section 227B shall apply to the winding up. However, Section 227B(1) says expressly that the court may "on the application of the Official Receiver" by order dispense with the summoning of first meetings of creditors and contributories, etc. It would appear therefore that under Section 227B, a literal interpretation of the express provisions of sub-section (1) would restrict the application under Section 227B to one made by the Official Receiver and not by a private provisional liquidator.

3. Accordingly, when the present application was made by summons by the Provisional Liquidators only, I queried their locus standi to apply under Section 227B. It may well be that the draftsman was not aware of certain other provisions when he drafted Section 227B(1) to refer to the Official Receiver only, but be that as it may, in light of the express provision of Section 227B(1), it seems to me that there was at least a substantial query as to the Provisional Liquidators' locus standi. Consequently this morning, a joint application was made for the order under Section 227A and 227B by the Official Receiver and the Provisional Liquidators. I am told by the Official Receiver that the attention of the law draftsman will be brought to what would appear to be an unnecessary distinction between Section 227A and Section 227B. I now come to the merits of this application.

4. Section 227A makes it quite clear that a regulating order would be appropriate where there is a large number of creditors or contributories or for any other reason the interest of the creditors so require. The Company in this case is a supermarket with a large number of suppliers and employees. According to the report of the Provisional Liquidators, the Company has about 520 employee creditors and 950 trade creditors. It would appear that the dividends will not be optimistic as the Provisional Liquidators estimate that the unsecured creditors are likely to receive no more than 4.5% by way of dividend.

5. The Provisional Liquidators have done an estimate of the costs for summoning a first creditors meeting if one is to be called. On the basis that 5% of employees, 80% of ordinary creditors and 2% of cash coupon creditors attend the meeting, that would already come up to 802 persons. Venues are not easy to come by for such a large number and it would appear that the offices of the Provisional Liquidators and of the Official Receiver and of the Labour Department would not be able to take such a large number. If a commercial venue were to be used, that would take up a substantial amount of money. The estimated costs for summoning the first creditors meeting have been set out in an attachment to the report, and it would appear that at the very least, something in the region of $145,000 would have to be used, and if the commercial venue were to be used, that would come up to nearly $300,000. Further, the estimated time costs for summoning and attending the first creditors meeting, as far as the Provisional Liquidators staff is concerned, would vary between $121,000 odd to $214,000 odd.

6. The Provisional Liquidators had by way of correspondence sought the views of some of the larger creditors, and to this end they have requested 42 major creditors of the Company who represent 78% of the total amount due to give their views on the first meetings of creditors and contributories, and the appointment of liquidators and the committee of inspection of the Company. I have read the standard form of notice and a summary of the replies given. It would appear to be the majority view of this 78% of the total creditors in value and 42 in number of the major creditors that the first meeting of creditors and contributories should be dispensed with and that these Provisional Liquidators should carry on as Joint and Several Liquidators.

7. I have no doubt that in order to save on the available assets of the Company and in view of the large number of creditors, that a regulating order under Section 227A should be made and I so make it.

8. In relation to the application in Section 227B, it seems to me that it would only be natural for these Provisional Liquidators to carry on as full liquidators. These liquidators first came onto the scene when by an order made by myself on 20 June 2001 on an ex parte application made by the Petitioner, Messrs O'Driscoll and Liu, partners in the firm of Ernst & Young, were made Provisional Liquidators. In light of the fact that some 4 months have passed and that they have been carrying out the work of liquidating (provisionally) this company, it seems to me that it would be natural to let them carry on, thereby saving the estate the costs of any new liquidators coming in and duplicating costs. There seems to be no one who has suggested a different set of liquidators, and the Official Receiver has joined in the present application and has expressed no objection to these Provisional Liquidators being appointed as Joint and Several Liquidators.

9. In relation to the committee of inspection, at first some 11 names had been put forward by the Provisional Liquidators as members of the committee of inspection. However, 11 seems to be too large a number. In England, the Insolvency Rules expressly provide that the committee of inspection should be between 3 and 5 persons, and in Re BCCI Finance International Limited and Re Bank of Credit and Commerce Hong Kong Limited (1992) CWU No. 217 and 218 of 1991, the then companies judge set a maximum limit at 7. Following that case and in light of the fact that having too many members on the committee of inspection would only waste costs and not necessarily be more efficient, the Provisional Liquidators have at the court's request pruned down the list of members to 7, deleting the 4 creditors whose debts are of the least value.

10. Accordingly, I am prepared to make an order

(a) that the winding up of the company be regulated specially by the court under Section 227A of the Companies Ordinance;

(b) that the Regulating Order be published in the Hong Kong SAR Government Gazette and once each in an English language Hong Kong daily newspaper and in two Chinese language Hong Kong daily newspapers which the Provisional Liquidators shall select;

(c) that the summoning of the first meetings of creditors and contributories of the Company as required under the Ordinance for the purpose of considering the appointment of liquidators and the committee of inspection be dispensed with;

(d) that Mr O'Driscoll and Mr Liu, the Provisional Liquidators, be appointed Joint and Several Liquidators of the Company;

(e) that the remuneration of the Liquidators be calculated according to the standard hourly rate charge as agreed from time to time between the Official Receiver and the Hong Kong Society of Accountants, and such remuneration be calculated on the time spent basis, and subject to Section 196 of the Companies Ordinance, be paid out from the assets of the Company; and

(f) that the following firms or companies or their duly authorised representatives be appointed as the committee of inspection:

(1) Guangnan Supermarket Development Limited;

(2) Protection of Wages on Insolvency Fund Board;

(3) Golden Resources Development Limited;

(4) Vitasoy International Holdings Limited;

(5) Nice Fair International Limited;

(6) Winner Food Products Limited; and

(7) Leo Company.

11. Finally, as for the costs of these two summonses, it has been agreed that the costs of the application including the previous summons be to the Official Receiver to be taxed and paid out of the assets of the Company. As far as the Provisional Liquidators' own costs are concerned, these should be costs in the liquidation.