CIBA INTERNATIONAL LTD. v. TUNG KA HUNG AND ANOTHER

HCMP 377/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 377 OF 2003

(ON APPEAL FROM HCCW NO. 1193 OF 2002)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a decision of Deputy Judge Lam, given last Friday on 24 January. Such are the law's delays, it was not until 2.30 this afternoon that this matter could be brought on as an appeal from his interim order.

2. The matter before the Deputy Judge was a summons in a winding-up petition. The petition presented against the company can be shortly summarised as a shareholder's dispute in which it was sought to have the company wound up on the just and equitable ground and, in the alternative, relief was sought that the 1st and 2nd respondents should be ordered to buy out the petitioner's shares. There is no allegation in the petition of insolvency.

3. The petition was originally presented on 29 October and on 17 January there was an amendment. On 13 November, a summons was taken out, returnable before Deputy Judge Woolley on 28 November, in which an order was sought which is commonly known as a validation order, in order to allow the company to pay its debts as they became due.

4. In the supporting affirmation of Mr Wong Chi-sang Navis, there is set out a number of what could be described as normal payments, such as staff salaries, mortgage loans, HP loan repayments, electricity charges and so on and so forth. It is said that the monthly requirements of the company are approximately a basic $313,000 per month.

5. The matter came before the Deputy Judge last Friday and shortly before that hearing there had been a flurry of affirmations from both sides. It seems that the petitioner had commenced the most recent flurry. There seems to be some dispute as to whether it was agreed that all the recent affirmations could be disregarded or whether it was insisted that they should all go in. The upshot was that no agreement was come to. The Deputy Judge found the first available date, which was 4 March, when the matter could be restored. He did so in order to enable the evidence to be finalised and also for the Official Receiver to attend. The Official Receiver had not taken any part in these proceedings because they were essentially a dispute between the shareholders.

6. The question of insolvency has only been raised on affirmation. However, the deputy judge expressed himself as not being satisfied that insolvency had been shown. Today, try though she could, Miss Liu has not demonstrated that there is insolvency, as it is understood in winding-up matters. Miss Liu directed our attention to Exhibit 2 of Mr Wong's affirmation, which showed the provisional management accounts for October. However, her argument was based upon presumptions and suppositions and, in the end, was directed to the existence of a balance sheet insolvency. It did not show, at any rate to my satisfaction, that the company was not able to pay its debts as they became due.

7. In those circumstances, the deputy judge proceeded on the basis of considering whether an interim order should be made over until 4 March and he ordered that the company be able to pay up to $400,000 from its accounts until that date, subject to certain restrictions. Part of those restrictions were that the company had to file, on a bi-weekly basis, information as to what payments were made and also that the company was not to be allowed to pay off the shareholders' loans in the interim.

8. One further matter emerges from the papers and that is that there is a Labour Tribunal Award, which, we have been informed, is some $64,000. Mr Lo, who appeared on behalf of the respondents today, says that the respondents are willing to undertake not to pay that amount off until after 4 March. Whether or not the deputy judge should have made that order, that matter is now taken care of.

9. For my part, I consider that the deputy judge was faced with a difficult position because of the fact that the evidence had come in late. He took the decision that the application should be adjourned. Having done that, as far as I can see, he made the correct order. Had he not made the order, the company would clearly be in severe difficulties, particularly over the New Year holiday period, not being able to pay its staff wages or its other accounts. If anything is designed to bring a company to a complete halt, which cannot be in anybody's interests, it is a restriction on its being able to pay its debts as they become due.

10. In my view, I would not alter the deputy judge's order at all. Nothing has been shown which would warrant this court in interfering with the judge's exercise of his discretion. However, this court will accept the undertaking given by the respondents not to pay off the $64,000 debt or any part of it, arising from the Labour Tribunal.

Hon Le Pichon JA:

11. I agree.