RE THE COMPANIES ORDINANCE

HEADNOTE

IRISH SHIPPING LTD.

Petition presented by the official liquidator appointed in Ireland to wind up an unregistered company under Section 327 of the Companies Ordinance - Company already wound up in Ireland where it was incorporated and had its principal place of business on the grounds of insolvency - apart from a small debt admitted to be due to the company the only asset within the jurisdiction was a ship called the Irish Rowan - Petition opposed by five Hong Kong shipowners who claimed to be entitled to about 50% of the company's debts - previous proceedings by some of the opposing creditors in Taiwan resulted in the arrest of the ship - agreement between the official liquidator appointed in Ireland and the opposing creditors to lift the arrest to enable the ship to sail to Hong Kong - ship re-arrested in Hong Kong, but after the filing of the winding up petition - opposing creditors contended inter alia that they were secured creditors and were entitled to preference over the general body of creditors, and that the court had no jurisdiction.

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JUDGMENT

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1. This is a petition for a winding up order of an unregistered company Irish Shipping Limited (the company) pursuant to Section 327 of the Companies Ordinance. The company was incorporated in Ireland on the 21st March 1941. The registered office of the company and principal place of business was in Dublin. The authorised share capital was Ir£22,000,000. 00 divided into 22,000,000 shares of Ir£1 each. 16,347,000 of the shares are fully paid and are held by the Minister of Finance of Ireland. The company was engaged in shipping activities including the operation of its own vessels and vessels owned by third parties. The company has never carried on business nor established a place of business in Hong Kong.

2. On the 14th November 1984 at an Extraordinary General Meeting a special resolution was passed to wind up the company on the grounds that it was insolvent and unable to pay its debts which amounted to over Ir$88,000,000.00 A petition was presented to the Irish High Court on that day and an order was also made appointing Mr. Maurice Tempany to be the provisional liquidator. By the court order he was empowered inter alia to take possession of, secure and preserve all the assets of the company.

3. The petition in Ireland was heard on the 3rd December 1984 when a winding up order was made despite opposition from seven creditors. One creditor had supported the making of the winding up order whilst another remained neutral. Mr. Tempany was appointed to be the official liquidator of the company. An order was also made that the official liquidator should keep Mr. Michael Williams of Messrs. McCann, Fitzerald, Sutton, Dudley, the solicitor acting for the opposing creditors fully informed for the benefit of all the creditors of the company of any matters which came to his knowledge. An application for the appointment of a Committee of Inspection was adjourned to the 17th December 1984 and was refused on that date. At that hearing, two Japanese banks were appointed to represent all the other creditors.

4. A petition to wind up the company in England was presented on the 10th December 1984, and an order was made on the 4th February 1985 when the petition was unopposed.

5. Two ships directly owned by the company were on the high seas at the time when the special resolution was passed on the 14th November 1984. They were the Irish Cedar which was en route to Mombasa Kenya under a voyage charter and the Irish Rowan which was en route to Taiwan on a time charter.

6. A petition to wind up the company was presented to the High Court of Kenya in Mombasa on the 28th November 1984, but has not yet been heard. Mr. Tempany was appointed to be the interim liquidator on the 17th December 1984. This petition is opposed by nine creditors including three who oppose the present petition.

7. The petition before me was presented on the 8th December 1984 on behalf of the company by the official liquidator. Mr. Tempany has sworn the usual verifying affidavit in support of the petition. The petition seeks a winding up order, on the grounds that the company is unable to pay its debts and that it is just and equitable that an order should be made. Jurisdiction was claimed on the basis of the imminent arrival of the Irish Rowan in Hong Kong. Criticism was levelled at Mr. Tempany because this statement was not accurate. The facts show that the Irish Rowan arrived in Taiwan on the 3rd December 1984 and was arrested there on the 7th December 1984. However, it was hoped that it would be possible to lift the arrest so that the ship could travel from Taiwan to Hong Kong. In fact the ship did not arrive in Hong Kong until the 14th February 1985. Although the facts set out in the petition were not strictly accurate, nevertheless it was prudent to present the petition in anticipation that negotiations for the release of the vessel in Taiwan would be successful. If the vessel had been released immediately it would only have taken about a day and a half to reach Hong Kong. No prejudice has been suffered by any party as a result of this statement so that there is nothing in this criticism.

8. Mr. Kaplan who appeared for one of the opposing creditors raised a technical objection to the affidavit verifying the petition as it did not comply with Section 289 of the Companies Ordinance because it was not sworn before one of Her Majesty's Consuls or Vice-Consuls which is required when an affidavit is sworn in any place outside the Commonwealth. However, this defect was cured by a further affidavit which was sworn by Mr. Tempany on the 16th April 1985. I granted leave to the petitioner to file this affidavit out of time pursuant to Rule 208 of the Companies (Winding-Up) Rules for no injustice had been caused by reason of this irregularity.

9. By this petition the official liquidator seeks a winding up order in order to take possession of and arrange to sell the Irish Rowan which, I am told, is valued at about HK$50, 000,000.00 for the benefit of the general body of the creditors both large and small. The petition is supported by one creditor First Line (Liberia) Ltd., and is opposed by five Hong Kong ship owners, Lynn Shipping Ltd. (Lynn), Erdington Shipping Ltd. (Erdington), T.J. Robertson & Co. Ltd. ( T.J. Robertson), Gallant (Panama) S.A. and Nakamura Steamship Co. Ltd. Another creditor Adoria Shipping Inc. (Adoria) has adopted a neutral stance although it has not withdrawn its notice of opposition.

10. Between the 20th September 1979 and the 22nd July 1981 the company entered into seven charter parties with various parties including the opposing creditors. The charter parties which still have several years to run were disclaimed by the official liquidator with the sanction of the Irish Court with effect from the 14th November 1984. As a result of the disclaimers the Irish Rowan was arrested in Taiwan on behalf of Erdington on the 7th December 1984. The vessel was subsequently released, but was re-arrested on behalf of Adoria. Eventually this arrest was lifted after negotiations with the official liquidator and it was agreed that the Irish Rowan should sail to Hong Kong. When the ship arrived in Hong Kong on the 14th February 1985 it was arrested on behalf of Adoria.

11. It is quite clear that it was for the benefit of all parties that the vessel should come to Hong Kong because it could be sold more expeditiously and at a better price than could have been obtained in Taiwan. However, the opposing creditors who participated in the negotiations with the official liquidator for the release of the ship allege that at the time they were unaware that a winding up petition had been presented in Hong Kong and they were under the impression that upon arrival of the vessel in Hong Kong the status quo pertaining in Taiwan would prevail which would enable them to proceed with their admiralty actions in rem. They say that if they had been aware of the winding up petition they would not have agreed to the release of the vessel until they had received a specific undertaking from the official liquidator that the winding up petition in Hong Kong would be withdrawn. Nevertheless it is apparent from the correspondence that although the official liquidator agreed to the re-arrest of the vessel in Hong Kong he reserved all his rights thereafter. The opposing creditors contend that the official liquidator has behaved unfairly and to their detriment as the admiralty actions cannot now proceed and accordingly in the exercise of the court's discretion it would not be just and equitable to make an order.

12. Further complaints made by the opposing creditors are that at the hearing of the petition in Dublin the official liquidator did not disclose to the court that petitions had been presented in other jurisdictions and that the Irish petition followed a meeting of the shareholders. I cannot see any relevance with regard to the non-disclosure that other petitions had been presented and in any event the action taken by the official liquidator has since been specifically authorised by the Irish court. Again, I do not understand the objection with regard to the complaint about the meeting of the shareholders which was specifically for the purpose of passing the special resolution to wind up the company. In any event if the opposing creditors consider that they have any merit they should be directed to the Irish court.

13. One of the objections raised by the opposing creditors to the making of a winding up order is that the official liquidator did not obtain the sanction of the court in Ireland under Section 231(1)(a) of the Irish Companies Acts 1963-1983 which is the equivalent of Section 199(1)(a) of the Companies Ordinance before presenting the petitions in England, Kenya and Hong Kong. Section 231(1)(a) provides:-

"231.    (1)     The liquidator in a winding up by the court shall have power, with the sanction of the court or of the committee of inspection -

 

Although the official liquidator did not consider that it was necessary to obtain a court order under this section he decided as a matter of caution to do so. The application was made ex parte and the Irish court made an order on the 7th February 1985 granting retrospective sanction for the presentation of the petitions. The approval of the court operates to protect the official liquidator from his personal liability as to costs, but does not give third parties a right to object to proceedings brought by the liquidator in the name of the company see Dublin City Distillery Limited v. Doherty (1914) A.C. 823. No steps have been taken to set aside the order by way of an inter partes summons or to apply for a stay, but an appeal has been lodged by two of the opposing creditors. The Japanese banks who had been appointed to represent all the creditors are not parties to the appeal. One of the grounds of the appeal is that the official liquidator applied for the order without giving notice of the application in accordance with the order of the 17th December 1984. This, again, is a matter for determination by the Irish court, but it does appear from the correspondence that the solicitor in fact was informed of the application by telephone, although no formal notice was given. No evidence was adduced to the effect that any prejudice had been caused by the failure to give formal notice.

14. Mr. Yorke, counsel for the petitioner submitted that it was not necessary for the official liquidator to obtain the sanction of the court, but that if it was necessary the order giving retrospective sanction cured the defect for it ratified the original act viz the presentation of the petition. He cited, in support of his argument, In re Associated Travel Ltd. (1978) 1 W.L.R. 547 where retrospective sanction was given by the court to a liquidator who had instructed a solicitor to issue and collect a debt without obtaining the leave of the court under Section 245(1) of the Companies Act 1948. I am of the opinion that the Irish court is entitled to give retrospective sanction. At the conclusion of the delivery of this judgment I was informed that the appeal had been dismissed. The order of the 7th February 1985 is entitled to recognition in Hong Kong.

15. Considerable argument was devoted to the effect of the Irish winding up order with regard to the beneficial ownership of the company's assets. The law on this issue is settled for whilst the legal estate remains with the company the beneficial ownership of the assets is taken out of the company and will be transferred to the official liquidator who will deal with them under a statutory scheme for the benefit of the general body of creditors see In re Oriental Steamship Company (1874) 9 Ch. App. 557, and Ayerst v. C. & K. (Construction) Ltd. (1976) A.C. 167. The custody and control of all the property will therefore vest in the liquidator as an officer of the court for the benefit of those persons who are entitled to share in the proceeds or realisation of the assets under the statutory scheme.

16. Mr. Litton who appeared on behalf of three of the opposing creditors argued that the official liquidator has no duty and no power to present the petition because he derives his authority under the provisions of the Irish Companies Acts and not the Companies Ordinance. His duties are therefore limited to taking into custody assets that are under his control not those that will become under the control of the Official Receiver. Further he is not authorised to delegate his powers to the Official Receiver in Hong Kong as his agent, although he has power to instruct a solicitor to apply to set aside the writs in rem. He contends that if he is allowed to bring these proceedings he will set in train another statutory scheme under the Companies Ordinance which will be a competing scheme unless the assets and liabilities are pooled. Mr. Litton gave an illustration of an anticipated difficulty that may arise by a consideration of what is meant by Crown debts. On the other hand, Mr. McInnes who appeared on behalf of the Official Receiver informed me that he has had experience of petitions that have been presented in Hong Kong by liquidators in other jurisdictions and of cases where the Official Receiver in Hong Kong as liquidator has presented petitions abroad. I am quite satisfied that the official liquidator has authority to present the petition. If difficulties should arise during the course of the liquidation application can be made to the court for directions see In re Hibernian merchants Ltd. (1958) 1 Ch. 76. The Official Receiver will act in his capacity as an officer of the court not as agent for the official liquidator.

17. I will now deal with the question of jurisdiction. It is agreed that the company is an unregistered company under Part X of the Companies Ordinance, Section 327 provides:-

18. The English equivalent of Section 327 is Section 399 of the Companies Act 1948. The matter of jurisdiction was considered by Megarry, J. in In re Compania Merabello (1973) 1 Ch. 75. In this case, it was held:-

At page 88, Megarry, J. had this to say: -

        "Accordingly, in my judgment jurisdiction under section 399 can be established without showing either that the company ever had a place of business within the jurisdiction, or that the company has ever carried on business within the jurisdiction, though from the latter case there is the obvious exception of a case in which the petition is founded upon a past or present carrying on of a business within the jurisdiction. However, a petitioner who can satisfy section 399 must normally go on and show that the company has assets of some sort here, and that there are claimants for those assets over whom there is jurisdiction: but that is all.".

And later on page 89, he went on to say:-

"......the jurisdiction exists unless those opposing the petition can show that no possible benefit can follow from making the winding up order sought'. In the Crigglestone case, the debenture holders claimed all the assets. Buckley -J. pointed out, at p. 332, that it is not a defence to a winding up petition for the company to say that it has no assets. In such a case the court will usually refuse the order, not because there are no assets, but because "the court does not make an order when no benefit can result. If the order will be useful (not necessarily fruitful) there is jurisdiction to make it.".

He summarised the law on pages 91 and 92 in the following terms : -

This case was applied in Re Allobrogia Steamship Corporation (1978) 3 All E.R. 423. It was submitted for the opposing creditors that when the petition was presented there were no assets within the jurisdiction so that the court had no jurisdiction to hear the petition. However, this was not correct for the company was entitled at the time to a credit balance in its favour of $19,887.65 from Jardine Matheson & Co. Ltd. Nevertheless, Mr. Yorke argued that even if there were no assets within the jurisdiction upon presentation of the petition it was sufficient if assets were within the jurisdiction at the hearing of the petition. He drew an analogy with the right to issue a writ in rem which can be filed in anticipation of the arrival of the ship within the jurisdiction at a future date. I accept this argument for it would be manifestly unjust if an admiralty action could be commenced whilst a liquidator had to await the arrival of the ship before he could present his petition. In my judgment the liquidator is not precluded from presenting a petition before the asset is within the jurisdiction. It is sufficient to found jurisdiction if there are assets here when the petition is heard. In this case there were in fact assets within the jurisdiction both at the date of the presentation of the petition and at the date of the hearing.

19. Having held that the court has jurisdiction to hear the petition I must now decide whether in the exercise of my unfettered discretion I should make an order to wind up the company. In this respect the views of the opposing creditors are entitled to be taken into account see In re Southard & Co. (1979) 1 W.L.R. 1198 and In re P. & J. Macrae Ltd. (1961) 1 W.L.R. 229. The opposing creditors are required to give satisfactory reasons why the court should have regard to their wishes in resisting the making of an order. It is also necessary to consider the interests of the unsecured creditors and whether the interests of the public are likely to be better served by making, a winding up order or not. Essentially the opposing creditors contend that the official liquidator should keep to his bargain to recognise their claims to priority as secured creditors and that he should instead contest the actions in rem. However, upon the evidence the petition was presented prior to the issue of the writs with the result that the security claimed by the opposing creditors had not been perfected before the winding up commenced. Accordingly, upon that evidence they are not scoured creditors. If as has been asserted by the opposing creditors the official liquidator had intended to give up his priority by virtue of the negotiations for the release of the vessel in Taiwan, it would have amounted to a serious dereliction of his statutory duty to act in the best interests of the general body of the creditors. His actions which led to the vessel coming to Hong Kong were for the benefit of all the creditors not for the minority. It is significant that the official liquidator put up security for the release of the vessel to enable it to sail to Hong Kong. I am not persuaded upon the evidence before me that the official liquidator had any intention to surrender his priority during the course of the negotiations with the opposing creditors. There was no conceivable reason for him to have done so. In my judgment I am in no doubt that there was no contract or bargain by the official liquidator as contended by the opposing creditors.

20. A very serious allegation that has been made against the official liquidator is that he is going out of his way to protect the interests of the other major creditor, the Irish Government by thwarting or attempting to stifle the admiralty actions in rem commenced by the opposing creditors. However, the evidence reveals that the Irish Government's interest only amounts to about 20% in value of all the claims whilst the official liquidator has been performing his duties as an officer of the court for the benefit of the general body of the creditors. The conflicts that have arisen between the official liquidator and the opposing creditors as to unfair conduct and lack of candour cannot be resolved in these proceedings on the affidavit evidence. The merits will have to be decided in separate actions that the opposing creditors may think fit to institute against the Irish Government, the company or the official liquidator. In any event, if the assertion had been true it would not make any difference to the question of preference.

21. The actions of the opposing creditors have been taken in order to serve their own interests at the expense of the general body of creditors. It has been established that the company is insolvent and is unable to pay its debts. Have the opposing creditors therefore shown that no possible benefit can accrue to the other creditors and that it would not be just and equitable to make an order. There is undoubtedly a considerable benefit to be derived by the general body of the creditors from the sale of the vessel, and it is in the public interest that it should be realised for their benefit rather than for the exclusive benefit of the minority who oppose the winding up order. Another factor that I have taken into account in exercising my discretion is the comity of nations whereby it is desirable that the court should assist the liquidator in another jurisdiction to carry out his duties unless good reasons to the contrary have been put forward and I find none in this case. The jurisdiction of this court in the liquidation would be ancillary as far as possible to the winding up in Ireland and would provide assistance to the official liquidator in the collection and preservation of the assets within Hong Kong. The actions taken by the opposing creditors were in fact the subject of proceedings in the Irish court which resulted Bin an order being made by Lardner, J. on the 29th March 1985 which is in the following terms: -

"An order that the notice parties (respondents), without prejudice to their right to prosecute their appeal in respect of the order made by Mr. Justice Barrington on February 7 1985, shall not be entitled to participate and claim in this liquidation so long as they oppose the petitions for the winding up of the company in Mombasa and Hongkong or so long as they seek to interfere with assets of the company by prosecuting proceedings in regard thereto in HongKong or Mombasa otherwise than for the purpose of establishing their claim as secured creditors in such circumstances where such claim would be recognised as a valid one in this jurisdiction.".

 

May I say that I am in entire sympathy with the order made by the learned judge for the opposing creditors' resistance to this petition has been to try and obtain an unfair advantage over the general body of the creditors. In my judgment, they are not entitled to the preference that they claim. Having regard to all the circumstances in this case I have no hesitation in exercising my discretion to make an order to wind up the company.