RE KONG WAH HOLDINGS LTD

--------------

DECISION

--------------

1. On 9-10 May 2001, I heard an application under s.194(1)(c) of the Companies Ordinance and Rule 45(2) of the Winding-Up Rules that the Court decide the difference between the determinations of the meeting of the creditors and of the meeting of the contributories of each of the two companies, Akai Holdings Ltd and Kong Wah Holdings Ltd, in connection with the appointment of a liquidator for each of the companies.

2. At the meeting of creditors of Akai, 62% of the creditors in value had voted in favour of appointing Christensen, Hodgkinson and Fan and 38% had voted in favour of Lui, Lau and Leung. At the meeting of contributories however, 70% of the contributories had voted in favour of Lui, Lau and Leung. The rest of the contributories abstained.

3. At the meeting of creditors of Kong Wah, 84% of the creditors in value had voted in favour of appointing Christensen, Hodgkinson and Fan. No other liquidators were proposed. At the meeting of contributories however, the 2 contributories who held the entire shareholding of the company voted in favour of Lui, Lau and Leung.

4. In view of the difference between the determinations of the meeting of the creditors and of the meeting of the contributories in each case, a decision of the Court was necessary under s.194(1)(c).

5. The Official Receiver, being the provisional liquidator of both companies, sought directions for the hearing, and the hearing was duly advertised following the English practice in similar situations.

6. In the event, no contributories attended the hearing, even though it was their determination on the appointment of a liquidator, being different from that of the creditors, which had led to the Court hearing.

7. The hearing was however attended by two "camps" of creditors, one "camp" being the petitioners who were in the majority of creditors voting for Christensen, Hodgkinson and Fan, and the other being Crescent Court who had voted for Lui, Lau and Leung, in the Akai winding-up.

8. The background facts and the factors relevant to my decision have been set out in my written Decision dated 24 May 2001 and I shall not repeat them here.

9. After a 2-day hearing, I appointed Christensen, Hodgkinson and Fan as the liquidators of both companies. (I should add that since then, Mr Hodgkinson has resigned as a liquidator due to personal reasons and I have appointed Mr Nicholas Hill as his replacement).

10. The issue of costs was not argued at the hearing and I subsequently heard submissions from counsel for the petitioners and counsel for Crescent Court on this issue.

11. It is clear that the Court has jurisdiction to award costs. Section 194(1)(c) gives the Court the power to make any such order as the Court may think fit, which must include the making of appropriate costs orders.

12. The question is whether the Court should order costs and if so, whether they should be ordered against Crescent Court who had argued at the hearing against appointing Christensen, Hodgkinson and Fan.

13. On this issue, I take the view that the costs of the hearing (other than the costs of the issue of the summons, the filing of evidence by the Official Receiver and the petitioners, the advertisement and the first hour of the hearing) should be borne by Crescent Court.

14. Whilst it is true, as Mr Lam for Crescent Court submitted, that a court hearing was mandated by s.194(1)(c) once there was a difference in the determinations of the meeting of the creditors and of the meeting of the contributories, the fact was that in the event, no contributories attended the hearing to advance the case of their choice of liquidators. One would therefore have expected that only a short hearing would have been required.

15. However the hearing was contested over the course of 2 days between the petitioners, as part of the majority creditors, and Crescent Court, which had been in the minority of creditors, in the Akai winding-up. In my view, Crescent Court in so doing became liable to an order for costs.

16. It is true that under rule 45 Winding-Up Rules, all creditors and contributories had locus standi to attend and be heard at the hearing pursuant to its advertisement. However, in my view, it is clear from the language of s.194(1)(c) that the hearing was between the determination of the meeting of creditors and the determination of the meeting of contributories. The resolution of the meeting of creditors and the resolution of the meeting of contributories were binding on the creditors and on the contributories respectively. The resolution of the meeting of creditors could not be revisited at the request of a creditor, but that was in effect what Crescent Court was seeking to do.

17. Since Crescent Court was not a contributory itself, its appearance and submissions at the hearing did not assist the Court in understanding the reason behind the determination of the meeting of contributories.

18. In those circumstances, in the exercise of my discretion, I would order that Crescent Court bear the petitioners' costs of the hearing other than the costs set out in paragraph 13 above, to be taxed if not agreed. The rest of the petitioners' costs should be regarded as costs in the liquidation and be paid out of the companies' assets.

19. I do not consider that indemnity costs are called for. No delay was effected by Crescent Court nor can it be said that its submissions were so unmeritorious as to be frivolous.

20. As for the Official Receiver's costs, his duties as provisional liquidator required him to report the determinations of the meetings of creditors and of the meetings of the contributories to Court, to seek directions for the s.194(1)(c) hearing and to effect the advertisement. I would order under Table B item II of the Companies (Fees and Percentages) Order, that these costs be paid out of the companies' assets. As for his costs of attending the hearing, similarly the first hour's hearing should be regarded as part of his usual duties as provisional liquidator and should be paid out of the companies' assets. The rest of his costs have been incurred solely by reason of the position taken by Crescent Court and were outside the expected scope of his duties. I would therefore order that those costs be borne by Crescent Court.

21. As for the costs of this hearing, I would make an order nisi that they follow the event of the costs arguments and that the petitioners' and the Official Receiver's costs be borne by Crescent Court.