RE BGA HOLDINGS LTD (Formerly Known as BEIBU GULF OCEAN SHIPPING (GROUP) LTD)

HCCW 251/2019

[2024] HKCFI 51

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 251 OF 2019

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D E C I S I O N

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1.  This is an appeal by two Contributories against the Decision of Master Rita So (“Master”) dated 13 January 2023 (“Decision”) pursuant to which it was ordered that: (1) Mr John Nicholas Greenwood (“Greenwood”) and Mr Roy Bailey (“Bailey”) be appointed joint and several liquidators of the Company, along with Mr Tsui Chi Chiu (“Tsui”) (together “Liquidators”); and (2) there should not be a committee of inspection (“COI”) in this winding-up.

2.  The central complaint of the said Contributories is that there is real doubt as to the ability of Greenwood and Bailey to act impartially, independently and fairly.  Further, there are legitimate concerns as to their competency because they are BVI-based and without Hong Kong winding-up experience.

The winding-up of the Company

3.  By an Order dated 6 December 2021, this Court ordered that the Company be wound up based on the Amended Petition of PBM Asset Management Ltd (“PBM”), whereupon the Official Receiver (“OR”) became the provisional liquidator of the Company.

4.  A meeting of creditors was held on 13 January 2022.  PBM was the only creditor whose debt was admitted for voting purposes. It was unanimously resolved that: (1) Greenwood and Bailey be appointed as joint and several liquidators of the Company; and (2) and there should not be a COI.

5.  The Company has 3 shareholders, namely, PBM (holding 49%), Bright Good Asia Ltd (“Bright Good”) (45%) and Polyrise Team Ltd (“Polyrise”) (6%).  Bright Good and Polyrise are the appellants in this appeal. 

6.  The meeting of contributories was also held on 13 January 2022.  It was resolved that: (1) Mr Osman Mohammed Arab and Mr Wong Kwok Keung be appointed as liquidators of the Company; and (2) there should not be a COI.  Subsequently, Bright Good and Polyrise (hereinafter they are referred to as the “Contributories”) wrote to the OR informing her that they had changed their mind and considered that a COI should be appointed.

7.  On 24 January 2022, the OR took out an ex parte Summons seeking the Court’s directions on the resolutions and determinations of the creditors’ meeting and contributories’ meeting in relation to the appointment of liquidators and COI.

8.  Pursuant to the directions of the Court, the OR filed 4 reports respectively dated 24 January 2022, 12 April 2022, 1 June 2022 and 8 July 2022 to set out her views on the issues.  The appointment of the Liquidators was supported by the OR. 

9.  With the parties’ agreement to paper disposal, the learned Master handed down the Decision.  As for costs, it was ordered that: (1) the costs of and occasioned by the OR in the application be an expense of liquidation and be paid out of the assets of the Company, to be taxed if not agreed; and (2) the Contributories do reimburse the estate of the Company to the extent of the said costs paid to the OR.

Background

10.  The present dispute may be seen as an offshoot of an extensive dispute, involving a large number of litigations, between two ex-business partners, Mr Chu Kong (“Chu”) and Mr Lau Wing Yan (“Lau”).  They had a very successful business, followed by a breakdown of relationship, an acrimonious business divorce and multiple litigations in various jurisdictions. 

11.  The relevant episode started with the winding-up of Ocean Sino Ltd (“OSL”) in the BVI.  Chu and Lau are each holding 50% of the shares of OSL, which in turn wholly owns PBM.  OSL was wound-up by the BVI Court on 29 June 2017.  The winding-up order was upheld by the Privy Council on 12 October 2020 (“PC Judgment”). 

12.  It is relevant to bear in mind, as submitted by Mr Joffe SC, who appeared for PBM with Mr Ho and Mr Sik, that the Privy Council remarked upon the need to investigate into Chu’s misconducts, including: (1) obtaining of control of the Company through the Contributories which are beneficially owned by him or his associates; and (2) procuring the Company to enter into the “Ausca Transaction” and “Lohas Transaction” (“Questionable Transactions”), arguably in breach of his fiduciary duties which warranted investigation by a liquidator.  The efforts by the Liquidators to investigate and pursue the Questionable Transactions featured prominently in the submissions made before this Court.

13.  Greenwood and Bailey, together with another two individuals, were appointed as the liquidators of OSL (“L/OSL”) following its winding-up.  Greenwood was actually one of the appointees proposed by Chu.  The L/OSL then appointed Greenwood as director of PBM on 23 January 2018.  On 23 August 2019, the PBM applied to this Court to wind-up the Company on, inter alia, insolvency ground, based on an outstanding loan owed by the Company to it (“PBM Loan”).

14.  At the time of Petition, the Company was controlled by Chu and Mr Kwok Kai (“Kwok”).  It applied to strike out the Petition, and to challenge the PBM Loan based on the contentions that it: (1) was not repayable on demand; (2) was discharged pursuant to an alleged “Vessel Purchase Agreement”; and (3) had been discharged by an alleged “Novation Agreement”.

15.  The strike out was dismissed by a Decision of this Court dated 26 November 2021[1] (“SO Decision”) in which it was held that the PBM Loan was repayable and the Company’s contentions were rejected.

16.  On 6 December 2021, this Court further ordered the winding-up of the Company on insolvency ground.  Both the SO Decision and the winding-up Order are being challenged on appeal.  However, despite the passage of 2 years, neither appeal had been listed for hearing.

17.  Meanwhile, Chu had commenced a number of other proceedings the purpose of which, according to Mr Joffe, was to obstruct the investigation into the Questionable Transactions.  I note that at §33 of the Decision, the Master stated that she was inclined to accept that Chu’s various manoeuvres were “attempts by Chu’s camp to disrupt the OSL liquidators’ investigations at all costs”.

18.  In the BVI, Chu applied to remove the L/OSL on grounds of bias and misconduct (“Removal Proceedings”).  The application was dismissed at first instance by Wallbank J in his Decision dated 24 November 2021 (“Removal Judgment (1)”).  It is fair to say that much of the arguments raised in the Removal Proceedings were similar to those relied upon here to resist the appointment of Greenwood and Bailey as Liquidators.  The learned Judge rejected Chu’s arguments.

19.  Chu’s appeal against Removal Judgment (1) was rejected by the BVI Court of Appeal on 3 July 2023 (“Removal Judgment (2)”).  The Court of Appeal also rejected Chu’s allegations against the L/OSL.  Mr Joffe submitted that in this appeal Chu seeks to re-run many of the arguments already rejected in the Removal Proceedings.

20.  Chu had also commenced the following proceedings :

(1)  HCA 1891/2020 against PBM issued on 6 November 2020, seeking a declaration that the PBM Loan had been discharged.  Plainly, as submitted by Mr Joffe, this action overlaps and is inconsistent with the SO Decision;

(2)  HCA 1885/2021, a double derivative action issued on 15 December 2021 alleging, inter alia,that Greenwood was in breach of his duties to PBM.  This action was issued shortly after the Order was made that the Company be wound-up.  However, it was struck out by Madam Justice Au-Yeung on 20 October 2023;

(3)  HCA 411/2020, in which the Company (then controlled by Chu) alleged that Lau was guilty of a conspiracy against the Company.

21.  Since their appointment, the Liquidators had commenced an action, HCA 631/2022, against Chu and Kwok (and their associates) in respect of the Questionable Transactions.

Applicable principles

22.  The following principles on appointment of liquidator are not controversial :

(1)  When a company is insolvent, the majority votes of the creditors will in the normal course prevail because they have the primary interest in the outcome of the liquidation;

(2)  However, creditors holding the majority vote do not have an absolute right as to choice of liquidator because the appointment has to be conducive to both (i) the proper operation of the process of liquidation; and (ii) justice as between all those interested in the liquidation;

(3)  The office-holder needs to both act and be seen to act in the best interests of creditors and to properly investigate all claims.  A liquidator should not be a person nor be the choice of a person who has a duty or purpose which conflicts with the duties of the liquidator;

(4)  By contrast, it is not an objection to a liquidator that he is allied to or the choice of a person who is concerned to pursue the claims of the company through the liquidator: see Re Value Food Supply Ltd [2021] HKCFI 2975, [11];

(5)  In deciding the appropriate candidates to be appointed as liquidators, the Court will take into account the benefits that the candidates have acquired knowledge and familiarity with the company’s affairs by reason of their overseas appointment, and that time and costs would be saved as a result thereof: Re Akai Holdings Ltd [2001] 2 HKLRD 411, at 418B-419B;

(6)  It is prima facie in the interests of the general body of creditors to appoint a common liquidator for the companies in the group; and possible conflicts between companies in the group may be effectively managed by appropriate measures such as obtaining independent legal advice, appointing another liquidator from the same or another firm: Re Orient Power Holdings Ltd [2008] 2 HKLRD 494, at [34]:

“In large group insolvencies, the potential for conflicts of interest may arise in a variety of matters, such as inter-company balances, competing claims to assets, allocation of liabilities, guarantee and indemnity claims, issues of set-off or double proof, the validity of security, tax and avoidance or recovery actions. It is recognised that by and large, it is prima facie in the interests of the general body of creditors to appoint a common liquidator for the companies in the group than to have a separate liquidator for each. Instead of a rigid requirement to avoid conflict and not allowing the same individual to act, the courts have taken a common sense approach and made appointments where it is possible to manage the conflict effectively by appropriate measures depending on the circumstances of each case. Examples of such measures include obtaining independent legal advice, the appointment of an additional partner from the same firm, the appointment of an independent partner from a different firm. It matters not if the conflict is potential or actual; the question is whether such conflict is capable of being effectively managed. If it cannot be managed, then the appointment would not be made. …”

23.  Mr Chan SC, who appeared with Mr Sim for the Contributories, laid emphasis on the dicta in Re A-One Investments Ltd, HCCW 448/2008, unrep, 11 September 2009, at [30] :

“As an officer of the court, a liquidator should maintain an even and impartial hand between all individuals whose interests are involved in the winding up. A guiding principle in appointing a liquidator is that he must be independent and seen to be independent, as it is of great importance there should be no possibility of criticism attaching to the liquidator as an officer of the court on the ground of a conflict of interest as liquidator in circumstances where there is some real prospect, even if small, of a conflict of interest and duty when the liquidator is conducting his duties …”

24.  Mr Joffe had referred the Court to, inter alia, Chinachem Charitable Foundation Ltd v Chan Wai Tong [2021] HKCFI 1347, [22]-[24], for the proposition that allegations of fraud or dishonest misconduct must be supported by credible material.  It was submitted that the principle is relevant on the sweeping allegations made by Chu against the Liquidators on their integrity, including bias and improper purpose.   

25.  In Hui Tze Ha v Ho Yuet Lin [2021] HKCFI 1901, [15]-[16], the Court noted that allegations of fraud should not be made against third parties without giving them a chance to respond.  This was cited by Mr Joffe in respect of many allegations made by Chu against Lau, who is not a party to this appeal.

The proper approach by the Court

26.  There is an immense amount of material placed before the Court, the hearing bundles run to over 3,000 pages.  It is an essential requirement that the appointment of liquidators should be resolved quickly so that the liquidation of the company in question may progress speedily in the interest of the creditors.  Arguments over who should be appointed as liquidators are not tried.  The Court can only resolve such arguments on affidavits.  Thus, the nature of the application and the need for speedy resolution do not permit a drawn out battle with endless affidavits and voluminous exhibits.  The Court must fulfil its duty to manage a case of this type by (a) limiting the evidence to what is truly relevant and essential and (b) restricting the length of written submissions.

27.  The fact that this appeal was only set down for a 3-hour hearing bears out the above observations.  It seems that the Contributories might have lost sight of the need for proportionality in this appeal.  In the future, lawyers may be called upon by the Court to explain conduct of this kind, and where appropriate wasted costs order has to be made.

Summary of Parties’ contentions

28.  Mr Chan took no issue with the question (formulated by Mr Joffe) which the Court has to answer in this appeal, namely, who is best placed to carry on the liquidation of the Company, which at its heart involves pursuing Chu for his potential misconduct in respect of the Questionable Transactions.

29.  Perhaps recognising the difficulty in asking the Court to adjudicate on the multiplicity of allegations made by Chu[2], Mr Chan submitted that to answer the forgoing question, there is a simple choice between 2 options, the Liquidators and the Panel A candidates, Mr Lai and Mr Ho, who were identified in the OR’s 2^nd Report (“Candidates”).  There is no issue over the competence or suitability of the Candidates. 

30.  Mr Chan submitted that for the wider interest of all parties the more prudent and lower risk option is the Candidates.  Whereas, the suitability of Greenwood and Bailey is fiercely contested.  The potential conflict of interest on the part of those gentlemen was recognized by the OR in her 3^rd and 4^th Reports.

31.  Mr Joffe took the position that to make good the Contributories’ better option submission, it is necessary for them to demonstrate substance in the doubts over the suitability of the Liquidators. Greenwood and Bailey had been the L/OSL since 2017.  The Removal Proceedings had failed.  They had a detailed knowledge over, inter alia, the Questionable Transactions, and been working on the liquidation of the Company for 10 months now.

32.  Mr Wong SC, who appeared for the OR, had rendered his assistance to the Court whilst maintaining a neutral stance.  His submissions on the issues raised by the Contributories over the integrity of Greenwood and Bailey are very helpful.

Integrity

33.  The allegations of the Contributories over the suitability or integrity of Greenwood and Bailey, including the evidence of the Contributories before the Master, were considered and analysed by the OR in her Reports.  In particular, the OR believed that the conflict which may arise out of HCA 1891/2020[3] could be mitigated by the assurance of Greenwood and Bailey that the Court’s directions would be sought before deciding whether to continue with that action on behalf of the Company. 

34.  In my view, there is little substance to the allegation of conflict of interest arising out of HCA 1891/2020 when the status of the PBM Loan had been adjudicated in the SO Decision.

35.  I have considered all the Reports of the OR (as did the Master).  I take the view that they were informative, well-reasoned and should be given weight by the Court.

36.  There is a highly pertinent consideration to be borne in mind for the liquidation of the Company.  As pointed out in the OR’s 2^nd Report, para 4: [t]he remaining assets of the Company appear to be potential legal claims and recovery actions against those who had allegedly misappropriated the assets of the Company…”.  In other words, the remaining assets are represented by the recovery action against Chu and his associates (HCA 631/2022[4]). 

37.  I agree with both Mr Joffe and Mr Wong that much of the Contributories’ complaints of bias against Greenwood and Bailey had been dealt with and rejected by the BVI Courts in the Removal Proceedings[5].

38.  HCA 1855/2021[6] was disposed of firmly by the Court by striking it out.

39.  Mr Chan complained that it was not sufficient for Mr Joffe to maintain that many of the Contributories’ complaints raised in these proceedings had already been dealt with by the Hong Kong and BVI Courts. With respect, I disagree.  The burden is on the accusers to make out their case of lack of integrity supported by credible evidence.  There is no burden on PBM to chase down every hare.

40.  In respect of the two specific points made in Mr Chan’s viva voce submissions.  Firstly, in relation to the setting aside of a BVI examination order obtained by Greenwood and Bailey as L/OSL against Chu by way of ex parte application, the OR had dealt with it at §§15-24 of her 4^th Report.

41.  It is apparent from the transcript of the reasons of Wallbank J that the examination order was set aside due to lack of jurisdiction under BVI laws to examine person residing outside the BVI. 

42.  It is correct that the learned Judge found that there was non-disclosure in relation to the absence of reference to an authority and that the Court was not informed of the winding-up proceedings in Hong Kong.  However, there was no suggestion of impropriety on the part of either Greenwood or Bailey, who were legally represented in those proceedings. I am unable to see anything sinister in these matters or how they can fairly reflect upon the integrity of Greenwood or Bailey. 

43.  Secondly, as regards the “false” statement made by Greenwood to the effect that he was not present at the setting aside hearing, it is inherently probable that it was a genuine mistake for which Greenwood had apologised.  I agree with Mr Joffe that there was nothing to be gain by such a false statement.  In any case, as pointed out by Mr Wong, the BVI Court of Appeal had considered the point and concluded that it would not carry sufficient weight to support the removal of Greenwood as L/OSL (Removal Judgment (2), [163]).

44.  For these reasons I see no real substance in the Contributories’ complaints over the integrity of Greenwood or Bailey.

45.  Further, I am in agreement with the risk management measure put in place by the Master with the appointment of Tsui. His appointment also addressed the lack of Hong Kong insolvency experience of Greenwood and Bailey.  In any case, I believe that the point of lack of experience is overplayed because both Greenwood and Bailey were experienced international insolvency practitioners from two of the biggest international accounting practices.  As pointed out in the 2^nd Report of the OR (§8), they would have access to advice from their colleagues who are familiar with Hong Kong insolvency.

46.  Further, I agree with Mr Wong that since there is no COI, the exercise any of the powers by the Liquidators which fall within Part 1 or 2 of Schedule 25 to Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“Ordinance”), would have to be sanctioned by the Court according to s.199(2) of that Ordinance.  This also serves to manage any concern of alleged conflicts of interests.

Costs

47.  I agree with the OR’s analysis that the appointment of Greenwood and Bailey would be conducive to minimizing the costs the liquidation.  Para 6 of the OR’s 2^nd Report stated :

“6. Greenwood and Bailey, the joint liquidators of OSL have been involved in the liquidation of OSL in BVI and the wider and more extensive underlying dispute between Lau and Chu since 2017. The dispute concerns not just OSL but also the Company as well as the other companies within the BBG Group. The ORPL takes the view that although they are BVI insolvency practitioners, because of their prior involvement in the liquidation of OSL and the wider and more extensive underlying dispute between Lau and Chu in the BBG Group, it is likely to be more costs and time effective for Greenwood and Bailey to also deal with the liquidation of the Company, to ensure that prompt actions can be taken and legal claims and recovery actions, which are subject to pending limitation issues, can be brought on behalf of the Company against those responsible without any unnecessary delay. In the circumstances, the ORPL submits that the appointment of Hong Kong based liquidators may not necessarily be more efficient in terms of time and costs as compared to the appointment of Greenwood and Bailey who are already familiar with the picture.”

48.  Mr Chan made the point that Tsui is about to resign as one of the Liquidators due to his intention to emigrate and that a replacement will have to be appoint in his place.  Thus, there will be little costs savings compared with instructing the Candidates.  I believe that with the detailed knowledge possessed by Greenwood and Bailey, there is still much costs to be saved by retaining them, albeit with a new colleague. 

49.  I should also mention that Bailey is in the course of making an arrangement with his firm so that he can continue to discharge his duties as Liquidators despite the mandatory retirement policy of his firm.

50.  For completeness, Mr Joffe had asked this Court to appoint a replacement for Tsui.  Mr Wong submitted that Tsui should make an application to the Court for his resignation as Liquidator in accordance with the Rules made under the Ordinance.  I do not believe that the issue was sufficiently considered and researched by Counsel, and I decline Mr Joffe’s request. 

Accountability

51.  Mr Chan submitted that the Court is not in a position to impose sanction on Greenwood and Bailey who are not based in Hong Kong in the event of any breach of duty on their part as Liquidators.  First, I am unable to see any real basis to believe that well-established international practitioners, as Greenwood and Bailey are, would likely breach their duties. Even more unlikely is the prospect of intentional breach. 

52.  Second, I agree with Mr Wong that Tsui is based in Hong Kong and there should not be any concern about enforcement of sanction against the Liquidators, who are jointly and severally liable.

53.  Third, for cause the Contributories may apply to have Greenwood and Bailey removed as Liquidators and to deprive them of the right to have their costs paid out of the Company’s assets.  In addition, they may apply to the Court under s.200(5) of the Ordinance for relief if they are aggrieved by any act or decision of the Liquidators. 

Decision on liquidators

54.  In addition to the above analysis, the Court should bear in mind that the Greenwood and Bailey were (and are) the choice of PBM, whose view should normally prevail with an insolvent company.  Such view was supported by the OR.

55.  For these reasons, I agree with the Master on the choice of liquidators.

COI

56.  Since the Company is insolvent, it is unnecessary for the COI to consist of any contributories: see Re Sunni International Ltd, [2018] HKCFI 2371, [57]-[58].  PBM had of course expressed no wish to have a COI. 

57.  Further, given that the only asset of the Company is represented by the claims against Chu and his associates, it is very difficult to see how a COI, with the participation of the Contributories (acting under the control of Chu) would achieve any useful purpose.  Rather, there is a risk that the legal proceedings may be obstructed.

Disposition

58.  For the above reasons, this appeal is dismissed.  There is agreement that costs should follow the event.  I order that the costs of and occasioned by this appeal be paid by the Contributories to PBM with a certificate for 2 counsel.  The costs of the OR be paid out of the assets of the Company.  The estate of the Company be reimbursed by the Contributories in respect of the costs of the OR. 

59.  The costs are to be summarily assessed.  The Contributories are to respond to the Statement of Costs of PBM within 5 days from today, limited to 3 pages printed in A4 paper with font size 13, 1.5 line spacing and margins not less than 1 inch.  PBM is to reply within 3 days thereafter limited to 2 pages with the same format. 

60.  The OR is to lodge and serve her statement of costs on the Contributories within 5 days from today.  Response and reply are to follow the above directions. 

61.  Lastly, I am grateful to counsel for their assistance.