Re Collections Interior Ltd.

HCCW 80/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 80 OF 2001

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D E C I S I O N

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1. This is an application under section 209A of the Companies Ordinance for an order that a compulsory winding-up be conducted as a creditor's voluntary winding-up.

2. Section 209A provides that:

"The court may on the application of the liquidator or any creditor made ... not later than 3 months from the date of a resolution to make such an application passed at any of the meetings ... of creditors and of contributories ... or such further time as the court may permit, order that the winding-up of a company ordered to be wound by the court shall, from the date of the order made on such application, be conducted as if the windingup were a creditors' voluntary winding-up."

Section 209A (2) provides that:

"Where an application is made ... , the court shall have regard to [a number of factors. There are altogether 10 factors and included in these factors is the factor] whether any criminal proceedings in respect of any offence referred to in that subsection are contemplated against any person [referred to in that paragraph, namely whether any director, former director or other officer of the company has been convicted for any offence involving fraud, dishonesty, fraudulent trading, misfeasance or breach of duty in relation to the affairs of the company and further,] ... whether the company forms part of a group of companies the affairs of which are proposed to be investigated or are being investigated under [the Companies Ordinance] or any other law ... the fact that the insolvency of the company is a matter of public concern; [and] any other matters which the court considers appropriate in the particular circumstances."

3. In the present case, the Company, the subject matter of the application, is a member of a group of companies, a number of which have gone into liquidation. The present application has been made by the liquidators at the request of certain creditors of the Company who have taken the view that the winding-up should be converted to a creditors' voluntary winding-up so that no further fees would be payable to the Official Receiver, thereby maximising the level of assets recoverable and available for distribution to the creditors.

4. The Official Receiver has filed 2 reports to the court. They have been filed under cover of confidentiality but the liquidator's solicitors have been given sight of the contents of both reports.

5. The reports indicate generally that in relation to the holding company of the subject Company, liabilities have increased dramatically in the course of 2 years and the increase appeared to have occurred in a year for which financial statements were not made available to the Official Receiver. There is also some evidence to indicate that the company has not complied with various requirements for the keeping of ledgers, vouchers and various other records of that company.

6. In relation to some other companies in the group, it would also appear that accounting records have not been provided to the Official Receiver and that there are no complete sets of ledgers and accounting records. It has been indicated by the Official Receiver that prosecution action is likely against some of the directors.

7. Accordingly, the Official Receiver has indicated that he will not support the application for conversion based on the dramatic change in the financial position of the holding company and the lack of accounting records and the Official Receiver has indicated that fraud could not be ruled out at this stage.

8. I echo with respect the decision of Le Pichon J in Re Peregine Fixed Income Ltd (in liquidation) [1999] 2 Hong Kong LRD 653 at p.660 where it was held that "liquidations that are of public concern and/or which require further investigation, or put shortly, where impropriety or wrong-doing cannot be ruled out" should remain under the court's control.

9. I am mindful of the wishes of the creditors of the subject Company to reduce the fees payable to the Official Receiver which would have to be paid in the compulsory winding-up. However, there are larger factors to be considered.

10. However, in consideration of the fact that the Official Receiver's investigations are still at an early stage and that it may be that nothing may come out of these investigations, I have thought that the most appropriate order to be made today would be to make no order on the application today, with liberty to the liquidators to restore the application. This order would be made upon the undertaking by the Official Receiver to monitor the situation and to notify the liquidators if, after investigation, no further opposition to the application of conversion would be continued by the Official Receiver, and upon the undertaking by the liquidators to inform the court and the Official Receiver if it is thought that no application to restore the present application to convert is to be made.