THE JOINT AND SEVERAL LIQUIDATORS OF DAYS IMPEX LTD (IN LIQUIDATION) v. MAHESH NANIK DAYARAM

HCCW 298/2011 & HCCW 299/2011

(HEARD TOGETHER)

[2025] HKCFI 453

HCCW 298/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 298 OF 2011

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BETWEEN

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AND

HCCW 299/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 299 OF 2011

____________________

____________________

BETWEEN

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(HEARD TOGETHER)

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D E C I S I O N

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1.  On 22 November 2024 I handed down judgment after trial granting orders on a nisi basis because I wished to receive further written submissions in respect of bank interest and bank charges and a claim for interest on the sum awarded, which needed to be determined in order to finalise my decision. The following are my reasons and decision in respect of the outstanding matters.

2.  According to [48] of the judgment, the amount of the interest and bank charges is US$178,447.91. The said amount is derived from the Closing Submissions of the Liquidators dated 7 March 2024 (the “Closing”).

3.  Upon the Liquidators’ further review of the documents, they have realised that the sum suggested in the Closing (i.e. US$178,447.91) was calculated based on an old fund flow analysis which was outdated and superseded. According to the amended fund flow analysis, the correct interest and bank charges incurred by Days Impex and Days International as a result of the 161 Applications should be US$178,490.98.

4.  Mr Dayaram does not dispute these sums, although he points out that it is virtually impossible for him to check them. I will, therefore, order that the revised sum is paid by Mr Dayaram, namely, US$178,490.98.

5.  So far as interest is concerned the Liquidators seek in both proceedings interest from 12 December 2011 until 22 November 2024. Mr Dayaram disputes the entitlement to interest for reasons, which I explain in the following paragraphs. I would, however, note for some reason the Liquidators did not respond to the arguments advanced in Mr Brown’s written submissions. The following paragraphs largely repeat those submissions.

6.  The Liquidators have asked for interest “as the Court thinks just”. The Liquidators have not pleaded or stated in their submissions any basis for such an entitlement.

7.  Pre-judgment interest is typically awarded under section 48(1) of the High Court Ordinance, Cap. 4 while post judgment interest is typically awarded under section 50. Neither sections are referred to in the Summonses.

8.  Even if one assumes that the Liquidators are basing their entitlement to interests on section 48(1) (and they have not suggested they are nor is it accepted that they can now), then there is a difficulty. Section 48(1) provides that:

“Subject to rules of court, in proceedings (whenever instituted) before the Court of First Instance for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the Court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and— (Amended 25 of 1998 s. 2) (emphasis added)

(a) in the case of any sum paid before judgment, the date of the payment; and

(b) in the case of the sum for which judgment is given, the date of the judgment.”

9.  Mr Brown submits that applications under section 275 are not proceedings “for the recovery of a debt or damages” that would engage section 48(1) of the High Court Ordinance.

10.  In Re Overnight Ltd (in Liq.) (No.3)[1], having ordered the Respondents to make a contribution for fraudulent trading under section 213 of the Insolvency Act 1986 in an earlier judgment, Roth J ruled on the quantification of loss. He said at [6] that:

“[T]his is not an application whereby the liquidator is pursuing a cause of action…for a personal debt or damages owed by him to the company that would have engaged the regime for discretionary interest under s.35A of the SCA [the UK equivalent of s.48 of HCO]. It follows that the authorities under that provision have no direct application in the present case.”

11.  Mr Brown further argued that Roth J’s ruling that section 48 (as the equivalent section) is inapplicable must be correct in law and sound in principle for the following reasons:

(1) The obligation of the Respondent to be “personally responsible” for the company’s debt, arises as a result of section 275. It is a statutory invention and not a reflection of any pre-existing obligation to pay a debt or damages to the company as a result of a civil wrong committed against the company.

(2) Second, the right to contribution under section 275 does not accrue to specific individuals. When one speaks of a debt or damages, they involve a liability owed to a person, or a group of persons, as a result of a breach of contractual, tortious, or trust duties. However, section 275 can be invoked by a wide range of applicants, ranging from the Official Receiver, a liquidator, creditor, or contributory of the company, and the benefit of the contribution can be conferred to appropriate recipients the Court deems fit. This is echoed by Lord Denning’s speech in In re Cyona Distributors Ltd[2], concerning section 332 of the Companies Act 1948 (which contains the same wordings as section 275 of the Ordinance), that:

“The court has full power to direct its destination. The words are quite general: “all or any of the debts or other liabilities of the company as the court shall direct.” By virtue of these words the court can order the sum to go in discharge of the debt of any particular creditor; or that it shall go to a particular class of creditors; or to the liquidator so as to go into the general assets of the company, so long as it does not exceed the total of the debts or liabilities.” (emphasis added).

Similarly, Russell LJ held in Cyona Distributors at 907D that:

“I have no doubt that Eve J was correct in holding that the section was not one which conferred the benefit of any declaration exclusively upon defrauded creditors of the company. The present significance of those two cases is that it did not occur to anyone that there was a discretion in the court to decide who was to benefit from the declaration and in what proportions.”

(3) Perhaps the most significant feature that distinguishes a contribution under section 275 from a recovery of a debt and damages, lies in the manner of quantification:

(a) It is trite that damages and debt are remedies that are loss-based and compensatory in nature. However, as the Court held at [38] of the Judgment, section 275 “gives the court a wide power to order payment of such sum as it thinks appropriate, which could be more or less than the amount of the relevant debt.” It is also motivated by the policy reason that if the amount paid results in more becoming available for distribution to creditors, this is regarded as a beneficial result consistent with the general purpose of the insolvency regime and section 275 ([45] of the Judgment).

(b) It is also trite that there must be a factual and legal causation between the loss or damage, and the breach of duty by the wrongdoer (contractual, tortious or otherwise). Such requirements are much more relaxed when it comes to an order under section 275, see the Judgment at [41] and [45]; see also Bouchier v Booth[3]:

“Turning now to questions of causation, there was no attempt made before me to challenge the proposition that principles of causation play no part in determining the compensatory relief that may be granted under section 213; nor was it challenged that the decision to order wrongdoers to contribute to the assets of a company is a matter entirely at the discretion of the court.”

12.  For the above reasons, Mr Brown submitted that the Court’s discretion to grant interest under section 48(1) of the High Court Ordinance is not engaged in a section 275 application. Section 275 does not independently provide for interest on any sums ordered paid and the Liquidators do not assert to the contrary. I disagree.

13.  Roth J was considering a claim in respect of interest payable by the company to the HMRC, which was included in the claim under section 213 of the Insolvency Act 1986. It was, therefore, not a claim, which engaged section 35A of the Supreme Court Act and it seems that Roth J’s statement was a reference to this rather than a statement that a claim under section 213 could never attract an award of interest under section 35A.

14.  The issue is whether a judgment by the Court under section 275 that a respondent should pay a quantified part of the liabilities or debts of a company is a judgment for “debt or damages” under section 48. Section 48(1) is a provision, which is intended to allow the Court to order the payment of compensation for loss caused to a plaintiff by a delay in paying a debt or damages. The language of the section is precise. The relevant parts read: “… in proceedings …… before the Court of First Instance for recovery of a debt or damages there may be included in any sum for which judgment is given simple interest …… on all or part of the debt or damages in respect of which judgment is given”: emphasis added.

15.  Section 275 provides a mechanism for the Court to order that a respondent pays the company a sum in respect of its liabilities and debts, which will normally be the sums due to creditors. If a respondent is ordered to pay a company an amount, which is in respect of a debt owed by the company as a matter of language this might be said to be “recovery of a debt”: section 275. The same would be true if what was ordered was an amount making good the company for a liability to pay damages, which the Court has decided the respondent should be ordered to pay pursuant to section 275.

16.  As I have demonstrated as a matter of language section 48(1) can apply to section 275. In the present case as I understand it at least a substantial part of the claim was in respect of debts owed to banks. Mr Brown is correct that the Liquidators have not, however, made any effort to identify what part of the sum I have determined Mr Dayaram should pay is directly attributable to debts owed by the Company as opposed to a deficit, which has been created by the fraud, which I describe in my earlier judgment. I would like further submissions from the Liquidators on this issue and a breakdown of the amounts awarded in [103] of the judgment in accordance with this decision. I direct that the Liquidators provide further written submissions by 5pm on 14 February 2025 and Mr Dayaram, if he wishes, by 5pm on 7 March 2025.

17.  If I do order interest, it is agreed that the rate should be 1% over prime and I would order that interest is payable from the date of the winding up orders, namely, 12 December 2011.