RE GREATER BEIJING FIRST EXPRESSWAYS LTD

HCCW 338/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 338 OF 2000

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D E C I S I O N

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1.  I have two summonses before me.

2.  The summons issued first in time on 3 December 2005 was by the liquidators of Greater Beijing First Expressways Limited (“GBFE”), under section 205 of the Companies Ordinance, Cap. 32 and rules 189 and 190 of the Companies (Winding-up) Rules.  I shall call this “the Release Summons”.  The liquidators seek an order that they be released as liquidators, they be authorised to destroy the books and records of GBFE 18 months from the date of dissolution, and that Greater Beijing Region Expressways Ltd (“GBRE”), a subordinated creditor and contributory of GBFE, would have liberty to apply to inspect the books and records of GBFE during the 18-month period.

3.  The other summons was issued by GBRE on 15 December 2005, under sections 199(3) and 200(5) of Cap. 32.  GBRE seeks an order that the liquidators be directed to sell to it, by way of legal assignment, the various causes of action held by GBFE, on the principal terms as described in the letter of its solicitors’ dated 22 November 2005 (“the Letter”), or on such other terms as the court thinks fit.  I shall call this “the Assignment Summons”.

4.  I will deal with the Assignment Summons first.

5.  The locus of GBRE to make the application under sections 199(3) and 200(5) is not challenged by the liquidators.  I am satisfied GBRE does have locus.  It is the sole shareholder of GBFE, and a subordinated creditor to the extent of US$110 million odd.  GBRE’s claims are subordinated to a group of holders of notes issued by GBFE (“the Noteholders”), who represent 99.9% in value of GBFE’s unsubordinated debt.  After payment of dividends to the unsubordinated creditors, the estimated shortfall in the liquidation is approximately US$98 million.  GBFE has no funds.  GBRE will be receiving nothing out of the winding up of GBFE and will stand to lose all its investments, whether by way of equity or subordinated debt.  It would appear that the only way GBRE can recoup its loss is to pursue the claims in the various causes of action it has asked the liquidators to assign.  The liquidators have turned down that request, GBRE is clearly a person aggrieved within section 200(5).

6.  The Assignment Summons is opposed by the liquidators.

7.  JP Morgan Chase Bank, as the indenture trustee for the Noteholders, indicated that the Noteholders essentially adopt a non-adversarial stance to the Release Summons and the Assignment Summons.  They express the wish that the winding-up process be concluded as swiftly as possible without cost to the creditors.  They also think it imperative that GBRE should bear all the costs and fees involved in the purchase of the causes of action, otherwise the estate may be prejudiced.  The Noteholders have not taken part in the hearing.

8.  Section 200(5) provides that if any person is aggrieved by any act or decision of the liquidator, that person may apply to the court, and the court may confirm, reverse, or modify the act or decision complained of, and make such order in the premises as it thinks just.

9.  For the court to interfere with the exercise of the liquidator’s power, it must be shown that the liquidator has not exercised his power in good faith, or has acted in a way in which no reasonable liquidator could have acted, or that in the course of administration, when he is called upon to give a ruling which directly affects a party’s right, the liquidator has not acted even-handedly as an impartial neutral (Eagle Queen Co Ltd v. First Bangkok City Finance Ltd [1989] 2 HKLR 71 at 74B to D; Re CA Pacific Securities Ltd [2002] 3 HKLRD 586 at 590G to H).

10.  Here, what I am concerned with is whether the liquidators’ decision not to assign causes of action to GBRE could be characterised as one which no reasonable liquidator could have made. 

11.  Mr Aiken, SC for GBRE cited Hamilton v. The Official Receiver [1998] BPIR 602 as an example.  In that case, Laddie J in an application made under a provision equivalent to our section 200(5) granted the application and directed the Official Receiver as liquidator to assign a potential cause of action that might be proved to be worth £500,000.00 to the applicant for £1,000.00.  The judge held at 605H to 606A that the refusal to accept a reasonable and indeed the only offer on the table for an asset which the receiver has no interest now in realising is perverse.

12.  Mr Harris for the liquidators sought to distinguish the case on a number of grounds, but I do not think the situation I am concerned with is so very different, granted that the request to assign the causes of action was made extremely late in the day, even after an order was made in the court in the British Virgin Islands (“the BVI”) to dissolve GBFE on 10 June 2005.

13.  It seems to me that the liquidators fell into error in applying the same test in considering if they should sell the causes of action to GBRE as when they had considered whether GBFE itself should pursue those causes of action.  I can well understand why the liquidators and the committee of inspection should decide against pursuing the causes of action, in view of the legal advice received on the prospects of success and the strength of the available evidence.  This does not mean that the liquidators should decline to sell the causes of action which GBFE is not minded to pursue, provided that the estate does not end up out of pocket and some consideration is received that may be distributed to creditors.  The fact that the consideration on offer, being US$25,000.00, would only yield a small dividend to unsubordinated creditors is not a sufficient reason for refusing to sell. Nor do I think the liquidators should speculate on the motive of GBRE in seeking to acquire the causes of action or whether GBRE is genuinely serious in pursuing the potential claims.

14.  I disagree with Mr Aiken that the liquidators should assign all the causes of action as identified in the Letter to GBRE, regardless of whether they are assignable owing to a sale and purchase agreement made between GBFE and Smart Watch Assets Limited on 16 December 2002.  The liquidators should be directed to assign only those causes of action that would appear to be assignable.  Mr Aiken has submitted a revised schedule setting out the causes of action that would appear assignable.  He has also confirmed that GBRE would offer the same consideration as in the Letter, even though some of the causes of action mentioned in the Letter would not be assigned. 

15.  I note that it has now been accepted by GBRE that steps must be taken in the BVI court to declare the dissolution void for the liquidators to effect the assignment of the causes of action.  So any order directing the liquidators to assign would be conditional upon an order from the BVI court that the dissolution of GBFE be declared void.

16.  As for the necessity to hold an auction, Mr Harris submitted that there is one other party who might be interested in purchasing the causes of action, and that is the COSCO group.  It is possible that they may offer a price higher than what is offered by GBRE to purchase the causes of action so as to stop GBRE from pursuing any claim against that group.  I would agree with the liquidators that at the very least the COSCO group should be sounded out whether they would be interested in purchasing the causes of action.

17.  In the event that an order is made to direct the liquidators to assign the causes of action, I do not think it is necessary for the liquidators to seek approval from the committee of inspection on the assignment and for the liquidators to take steps to re-activate the committee of inspection.

18.  I also see nothing objectionable for GBRE to resign as a member of the committee of inspection to simplify matters, if it were to take an assignment of the claims.

19.  Subject to the terms to be imposed to see to it that the estate should not be out of pocket as a result of all the steps taken to assign the assignable causes of action or as necessitated by such an assignment, I will make an order directing the liquidators to assign to GBRE, unless a better offer can be obtained within 14 days.

20.  I have also indicated that provision should be made by GBRE to provide security for the costs of the liquidators to be incurred.

21.  I have considered the estimate of the costs of the liquidators.  This comes up to approximately US$380,000.00 odd.  I will fix the amount of security to be provided with regard to the amount of costs that would be recovered after taxation.

22.  I make the following orders:

(1)	Unless the liquidators should receive a higher offer within 14 days hereof, and upon GBRE paying into court US$250,000.00 within 7 days hereof as security for the liquidators’ costs that have been and are to be incurred in respect of and arising from the proposed assignment, the liquidators are directed to assign to GBRE the various causes of action in the revised schedule submitted by Mr Aiken on the principal terms as set out in the Letter.
(2)	The liquidators’ obligation to assign is conditional on an order being made by the court in the BVI declaring the dissolution of GBFE to be void.
(3)	Leave to GBRE to withdraw the amount paid into court pursuant to paragraph (1) hereof if there is no assignment of the causes of action to it.
(4)	Costs of the Assignment Summons be to the liquidators.
(5)	The Release Summons is adjourned sine die with liberty to restore.