Re Hung Fung Holdings Ltd.

HCCW445/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS
NO.445 OF 2000

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REASONS FOR DECISION

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1. This is the application of the Official Receiver and Provisional Liquidator for determination of the differences between the resolutions of the meetings of the creditors and of the contributories over the appointment of liquidators and the composition of the Committee of Inspection. The application was made pursuant to section 206(2) of the Companies Ordinance, Cap.32.

Background

2. A creditor's petition to wind up Hung Fung Holdings Limited (雄豐集團有限公司) ("the Company") was presented on 20 May 2000. It was presented by the China State Bank, Limited ("the Petitioner"). A winding-up order was made on 27 November 2000.

3. The First Meeting of the Contributories ("the Contributories Meeting") was held on 12 January 2001 and the First Meeting of the Creditors ("the Creditors Meeting) was held on 22 March 2001. The Contributories Meeting resolved that Mr Matthew Finbarr O'Driscoll and Mr Stephen Liu Yiu Keung, both of Messrs Ernst & Young, be appointed as joint and several liquidators of the Company. The Creditors Meeting, on the other hand, resolved that Mr Joseph Kin Ching Lo and Mr Darach E. Haughey, both of Messrs Deloitte Touche Tohmatsu, be appointed as joint and several liquidators. Both meetings resolved that there should be a Committee of Inspection ("CI") but they differ as to the composition. At the Contributories Meeting, it was resolved that the CI should comprise Mr Chan Siu Ping ("Mr Chan"), Miss Yu Ka Chun ("Miss KC Yu") and the representative of Hung Fung Glass Development Limited ("HF Glass"). Mr Chan and Miss KC Yu are husband and wife. They are both contributories of the Company. The Creditors Meeting, on the other hand, resolved that the CI should comprise the representatives of the Petitioner and China Everbright Holdings Company Limited ("China Everbright"), a creditor of the Meeting.

4. As a result of the differences, the Official Receiver took out the present application on 29 June 2001. The application was accompanied by the Official Receiver's Report dated 29 June 2001 ("the OR Report").

5. According to the OR Report, apart from the Petitioner and China Everbright, another four companies had also lodged proofs of debt against the Company. They are Hung Fung Enterprises Holdings Limited (雄豐企業控股有限公司) ("HF Enterprises"), Hung Fung Engineering Limited (雄豐工程有限公司) ("HF Engineering"), Hung Fung Aluminium Works Limited (雄豐鋁業有限公司) ("HF Aluminium") and HF Glass. HF Glass had on 5 March 2001 withdrawn its proof of debt. Mr Chan is a shareholder and director of HF Enterprises and HF Aluminium, and a director of HF Engineering. At the hearing, Mr Chan informs the Court that these four companies are the subsidiaries of the Company.

6. At the hearing, the Official Receiver had made known the following additional information. Firstly, Messrs Ernst & Young was the auditor of HF Enterprises in the year 1994 to 1995. It had been invited to be the auditor of HF Enterprises and the Company in 1997, but the offer was declined. Secondly, according to the Statement of Affairs dated 6 March 2001 filed by Mr Chan, the assets of the Company were estimated to be in the sum of HK$181,900,110.29 and the liabilities were given as HK$171,583,096.46. The total amount of the proofs of debt received, however, comes to HK$190,992,184.96 and US$170,078.37. The Official Receiver, on the other hand, has only collected about HK$24,437 odd worth of assets.

Appointment of Liquidators

7. Both the Petitioner and China Everbright stand by the determination of the Creditors Meeting over the choice of liquidators. The Petitioner objects the appointment of Mr O'Driscoll and Mr Liu on the basis that their firm, Messrs Ernst & Young, had been the Company's auditor. According to the Official Receiver, that is not quite correct. Nevertheless, it is true that Ernst & Young had been the auditor of one of the proving creditors within the Hung Fung group of companies.

8. Mr Chan indicates that he does not insist on the appointment of practitioners from Messrs Ernst & Young. He, however, wishes that the liquidators be appointed from the Official Receiver's Administrative Panel of Insolvency Practitioners for court winding-up. He objects to the appointment of Mr Lo and Mr Haughey as he considers that they may act partially because they are nominated by China Everbright.

9. The authorities have established that the Court has a wide discretion over the question of appointment of liquidators : Re Dunquil Pty Ltd (1985) 9 ACLR 950 and Re Australian National Finance Ltd (1992) 7 ACSR 697. An important consideration in the exercise of the discretion is the wishes of the major creditors : Sections 287(1) and (2) of Companies Ordinance, see also Re Goldcone Properties Ltd [1999] 4 HKC 602.

10. In the present case, the wishes of the creditors are reflected by the resolution of the Creditors Meeting. Mr Chan's objection that because they are nominated by China Everbright, whose proof of debt is disputed by the contributories, Mr Lo and Mr Haughey may not act fairly has no sound basis. It is purely a fear harboured by Mr Chan and there is no material to support it. There is also nothing to suggest that Mr Lo and Mr Haughey are not fit and proper persons to be appointed. In the circumstances, I am of the view that the Court should give weight to the wishes of the creditors. Mr Lo and Mr Haughey are to be appointed as joint and several liquidators of the Company.

Appointment of Committee of Inspection

11. The starting point is to note that upon the withdrawal of its proof of debt, HF Glass ceases to be eligible to be a member of the CI. As to the other members nominated by the Creditors Meeting and the Contributories Meeting, it is important to bear in mind the extent of their respective interests in the liquidation of the Company.

12. From the information provided to the Court by the Official Receiver at the hearing, it can be seen that the Company, as it now stands, is insolvent. It is therefore likely that the creditors will not recover their debts in full. Given that the rights of the contributories rank after that of the creditors, it is probable that the contributories will not receive any distribution or dividends. Considering that the main functions and powers of the CI are to act with the liquidators and to oversee the liquidators in the exercise of their powers : see sections 206(1) and 200(1) of Companies Ordinance, I am of the view that it is not necessary for the CI of the Company to consist of the contributories or their representatives when the contributories are unlikely to be paid out of the estate of the Company : see also Re James, Exparte Cowra Processors Pty Ltd (1995) 13 ACLC 1582.

13. Mr Chan disagrees that the Company is insolvent. He says that the Company has assets that worth approximately HK$180 million and the debt owed by the Company to creditors other than its subsidiaries is only HK$40 million odd. He also points out that China Everbright has at the same time instituted HCA10150/2000 against the Company and five other individuals, including himself and Miss KC Yu. The amount claimed is HK$68 million. The individual defendants are sued as guarantors of the Company's liabilities. Mr Chan further hands up an Order dated 28 June 2001 showing that China Everbright had obtained summary judgment against the five guarantors for the sums of HK$45 million and HK$14,340 together with interest. Mr Chan is appealing against the judgment and the appeal is to be heard on 4 October 2001. It is common ground that the part of the action against the Company has been stayed as a result of the winding-up proceedings. Mr Chan says that, in the circumstances, the amount of China Everbright's proof of debt is exaggerated and that it is disputed.

14. In my view, even if China Everbright's proof of debt should be reduced, the Company is still insolvent based upon the information revealed by the Official Receiver. When Mr Chan's claims that the Company is solvent, he has disregarded the debts owed to the other companies within the Hung Fung group. The analysis on the prospect of the contributories being paid out of the estate and the conclusion that they are unlikely to receive a distribution remain good. Accordingly, in determining the differences between the Creditors Meeting and the Contributories Meeting over the composition of the CI, I come to the conclusion that the resolution of the Creditors Meeting should prevail.

Costs

15. The Official Receiver applies for their costs of the application be allowed as an expense of the liquidation and be paid out of the assets of the Company. The Petitioner and China Everbright also apply for their costs to be borne by the Company.

16. I consider that the application has been properly brought by the Official Receiver. Similarly, the Petitioner and China Everbright are entitled to appear and make representations to the Court on the determination of the differences. The costs incurred are properly expended for the purpose of the administration of the liquidation. They should therefore be met by the assets of the Company.

Conclusion

17. The orders I make are as follows :

(1) Mr Joseph Kin Ching Lo and Mr Darach E. Haughey, both of Messrs Deloitte Touche Tohmatsu be appointed the joint and several liquidators of the Company.

(2) There be a committee of inspection comprising The China State Bank Limited and China Everbright Holdings Company Limited.

(3) The Official Receiver's costs of this application be an expense of liquidation and be paid out of the Company's assets.

(4) The costs of the Petitioner and China Everbright Holdings Company Limited of this application be paid out of the Company's assets.