RE ORIENT POWER HOLDINGS LTD

HCCW 191/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 191 OF 2007

____________

____________

______________

D E C I S I O N

______________

1.  This is a determination hearing under rule 45(2) of the Companies (Winding-up) Rules, for an order to appoint liquidators of Orient Power Holdings Limited (“the Company”).  The issue of substance to be resolved is whether Mr Roderick John Sutton, who is one of the receivers and managers of the Company appointed by the secured creditors under two debentures, should be appointed a liquidator in conjunction with two proposed independent appointees of a different firm of accountants, Mr Cosimo Borrelli and Miss Jacqueline Walsh.  

2.  I gather that there is no reported instance of appointing as a liquidator an individual who is also a privately appointed receiver of the same company.  The Official Receiver is opposed to this and submitted by Mr Godfrey Lam that the potential for conflict of interest in this situation is too great and would set a bad precedent.  

3.  I should mention that the Official Receiver takes no issue with the fitness of Mr Sutton to act as liquidator, but for the fact that he is a receiver of the Company.  Mr Sutton has indicated that he would accept the appointment only with the sanction of the court, in accordance with the requirement in the Code of Ethics for Professional Accountants.  He has no vested interest in the outcome.

4.  Mr Jeremy Bartlett, who appeared for the secured creditors, contended that the proposed appointment of Mr Sutton would be akin to that of a “special purpose” liquidator, in that his powers would be strictly limited in the proposed order for his appointment so the potential for conflict would be sufficiently managed and should not open the floodgates as might be apprehended.   

5.  Other than the secured creditors, no unsecured creditor has filed evidence or appeared at the hearing despite the advertisement of the notice of the determination hearing.  

6.  I will first set out the relevant background matters.

The background

7.  The Company was incorporated in Bermuda in 1991 and was registered as an oversea company under Part XI of the Companies Ordinance, Cap. 32.  The shares of the Company were listed on The Stock Exchange of Hong Kong Limited in September 1991.  It is the holding company of a group of companies (“the Group”) which operated in the manufacture of electronic products, principally for home entertainment.  

8.  In May 2005, substantial claims for damages for breaches of patent and contract were made against the Company and certain other companies in the Group.  This triggered concerns among the financial creditors and they entered into discussions with the Group for debt restructuring.  The restructuring resulted in an arrangement that included a “Standstill Agreement” and a “Guarantee and Debenture” both dated 14 October 2005.  A steering committee of the lenders was set up under the Standstill Agreement.  

9.  By the debenture dated 14 October 2005, the companies listed as chargors in schedule 1, which included the Company and Orient Power Electronics Limited (“OPEL”), created a fixed charge or mortgage or floating charge, as the case may be, over all the assets of each chargor, as security for all present and future obligations and liabilities of each chargor to each of the financial creditors in the Standstill Agreement.  Another debenture dated 9 December 2005 was entered into by a subsidiary of the Company creating a fixed charge or mortgage or floating charge over its present and future assets in similar terms as security for all liabilities of the Group.

10.  The security under both debentures was created in favour of the Standard Chartered Bank (Hong Kong) Limited as the security agent holding the benefit of the deeds on trust for the financial creditors.  The identity of the secured creditors is not static because the debts have been traded on the secondary debt market.  As of 3 December 2007, there are 22 holders of the secured debt.  The lenders are owed approximately HK$1.1 billion.  Four major creditors, including the security agent, hold approximately 57% of the secured debt.  

11.  The secured creditors lost confidence in the management as the Group’s financial position continued to deteriorate.  This led to the appointment of receivers and managers by the security agent under the powers in the debentures.  On 3 May 2006, Mr Sutton and Mr Desmond Chiong, both of Ferrier Hodgson, were appointed as the receivers and managers (“the Receivers”) of 41 out of a total of 56 companies in the Group, including the Company and OPEL.  This is substantial group insolvency.  

12.  As at 3 May 2006, the Receivers estimated that the Company had a deficiency of HK$282 million, before the inclusion of the secured creditors’ cross-collateralised debt and contingent claims.  They believed that the inter-company loans are irrecoverable as there is a significant deficiency of assets to meet liabilities across every entity of the Group.  

13.  From their appointment to the end of November 2006, the Receivers’ focus was on seeking to continue the trading operations of the Group, with a view to a restructuring of the debt, which ultimately proved not to be possible.  There were asset sales for the benefit of the secured creditors.  At the same time, they commenced investigations into what value was left in the Group for the benefit of creditors.  

14.  The Receivers’ investigations have been hindered owing to a freezing order in May 2006 over the Group’s accounting centre in the Mainland; the majority of records in that location have only recently become available after lengthy negotiations.  Further, the Receivers did not have co-operation from the management and the auditors.

15.  Notwithstanding that, they have undertaken substantial work and built up a substantial knowledge of the Group’s affairs.  Their work involved a team of over 30 people at the peak of the engagement and involved stationing a significant number of personnel in the Mainland and Hong Kong.  As such, the Receivers have obtained considerable first hand knowledge of the day-to-day operating activities of the Group and its dealings with customers, suppliers and government authorities.  They believe there is a need to conduct further investigations.

16.  Once the Receivers had recovered all readily available assets, and a restructuring proved not to be feasible, steps were taken to wind up the Company in order for the investigations into the Group’s affairs to be pursued further.  On 2 May 2007, the winding-up petition was presented against the Company by OPEL, acting by the Receivers, on the basis of an inter-company loan of HK$84.7 million.  

17.  In June 2007, the solicitors for the Receivers sought the Official Receiver’s support for an application for a regulating order under section 227A in the event of liquidation of the Company, with a view to having the Receivers and a third person appointed liquidators without holding the first meetings of creditors and contributories.  The Official Receiver turned down the request.  

18.  On 4 July 2007, a Master ordered the Company to be wound up.  The Official Receiver became the provisional liquidator pursuant to section 194(1)(a) and proceeded to hold the first meetings of the creditors and contributories on 7 August 2007.  

19.  The first meeting of creditors was attended by proxy by 29 creditors.  Of these creditors, 13 were Group companies already under the receivership of Mr Sutton and Mr Chiong (they were unsecured creditors with total claims of HK$264 million), another 13 were secured creditors and the remaining three were independent unsecured creditors.  The total amount of the debts claimed by the 13 secured creditors came up to HK$776 million.  Each of them had estimated the value of their security atthe nominal amount of HK$1.00 on the basis that the Group had no or minimal realisable assets, lodged a proof of debt for the balance and voted the unsecured portion of their debt.  They represented 65% of the total claims and comprised the largest group of creditors in value, whether looked at as secured or in effect as unsecured creditors.  

20.  The creditors passed a resolution appointing Mr Sutton, Mr Borrelli and Miss Walsh as joint and several liquidators.  They also voted for a committee of inspection made up of the four major creditors.  None of the creditors had voted against the resolutions, despite the reservations regarding the proposed appointment of Mr Sutton expressed by the senior insolvency officer of the Official Receiver who chaired the meeting.

21.  No resolution was passed at the first meeting of contributories on 7 August 2007 and the meeting was adjourned to 21 August 2007.  The adjourned meeting was inquorate and was not further adjourned.

22.  There being no identical resolutions at the first meetings of creditors and contributories, the Official Receiver sought directions for a determination hearing pursuant to section 194(1)(c) and rule 45 and made his first report on 14 September 2007.  

23.  As at 28 November 2007 being the date of his second report, the Official Receiver has received 48 proofs of debt totalling HK$1,180 million.  In addition to the 29 creditors who had attended the first meeting, the additional 19 unsecured creditors either had not filed a proof before the meeting or had filed a proof but did not attend the meeting.  The value of the debts of these additional creditors amounted to about HK$137 million which was 12% of the total claims.  

24.  In his second report, the Official Receiver applied for an order that only Mr Borrelli and Miss Walsh should be appointed joint and several liquidators of the Company.  The secured creditors who appeared by Mr Bartlett sought an order that Mr Sutton be appointed in conjunction with Mr Borrelli and Miss Walsh and proposed to restrict the powers of Mr Sutton as a liquidator in the terms set out in the draft order and on the basis that he would only exercise his powers with the approval of the other liquidators.  

25.  I should also mention that the Receivers have been appointed as liquidators of two related companies to the Group, Pacific Crown Industrial Limited (“Pacific Crown”) and Dong Kuen Electronics Limited (“Dong Kuen”).  The orders were made by a Master on 27 August 2007 and 21 September 2007 without opposition.  The petitions to wind up Pacific Crown and Dong Kuen were presented by companies in the Group in which the Receivers were appointed as receivers.  

General principles

26.  The general principles relating to the role of the court and its powers in appointing liquidators in a determination hearing are not controversial and may be stated as follows:

(1)     Under section 194(1)(c), the court is empowered to decide on the differences between the determinations of the meetings of the creditors and contributories for the appointment of liquidators and “make such order thereon as the court may think fit”.  Under rule 45(2), in deciding the differences, the court is to make “such order as shall be necessary”.  

(2)     The court has a wide and unfettered discretion in the exercise of this power.  It is not bound by the determinations of the meeting of the creditors or of the meeting of the contributories, although the court would of course have due regard to those determinations (Re Akai Holdings Ltd. & Anr. [2001] 2 HKLRD 411 at 417J; section 287(1)).  

(3)     In deciding whom to appoint as liquidator, the court considers what is in the best interests of all persons interested in the winding up (Re Akai Holdings, supra. at 418B).  The court has undoubted power to decline to appoint any nominated liquidator if his appointment conflicted or was likely to conflict with the best interests of the winding up as a whole including the best interests of all parties concerned in the winding up (Re Obie Pty. Ltd. (1983) 1 ACLC 1353 at 1363).  

(4)     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 (In re Contract Corporation (1872) 7 Ch. App 207).  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 and duty (Re National Safety Council of Australia Victorian Division (1989) 15 ACLR 355 at 360 to 361; Re Biposo Pty. Ltd. (1995) 17 ACSR 730 at 737).  It would be inappropriate to appoint someone as liquidator in circumstances where there was some real prospect, even if small, of a conflict of interest and duty when the liquidator was conducting his or her duties (McPherson’s Law of Company Liquidation by Andrew Keay, 1^st edition published in England and Wales, para. 8.09).

The conflict situation in this instance

27.  Liquidation is a class action designed to protect the interests of unsecured creditors, whereas receivership is designed to protect the interests of the security holders who appointed the receiver.  A liquidator and a receiver operate in separate regimes for different purposes.  Moreover, unlike a receiver appointed by the court, a receiver appointed out of court by a creditor under a security is not an officer of the court and acts for the primary benefit of the creditor who appointed him (The Law of Administrators and Receivers of Companies by Lightman & Moss, 4^th ed., paras. 29-009 and 29-011).  As the interests of the receiver and the liquidator will necessarily be different and in many cases conflicting, the same person who acted as receiver will normally not be appointed liquidator (Gower and Davies’ Principles of Modern Company Law, 7^th ed., page 844; In re Karamelli & Barnett, Ltd. [1917] 1 Ch. 203 at 205; Stead Hazel & Co. v. Cooper [1933] 1 KB 840 at 843).  Only in rare and exceptional cases would the two offices be combined in one person (Buckley on the Companies Acts, 14^th ed., page 591; Loose on Liquidators, 5^th ed., page 267).  

28.  Where a receiver has acted to recover assets subject to a charge for the benefit of the secured creditor, considerations may arise as to the way in which he has performed his duties, making it inappropriate that he should act subsequently as liquidator because in that capacity it may be inappropriate for him to challenge the way in which he performed his previous duties as receiver (Re Southern Cross Airlines Holdings Ltd. (1993) 10 ACSR 466 at 467; Re Sun’s Group Ltd., HCCW No. 425 of 2003, 17 June 2004, paras. 18, 19 and 21).  While a receiver owes a duty of care to the company in the realisation of the charged assets, this duty is subordinated to the protection of the interest of the debenture holders (In re Potters Oils Ltd. [1986] 1 WLR 201 at 206B; Medforth v. Blake [2000] Ch. 86 at 102F to G).  

29.  There are other matters a liquidator is required to investigate and functions he has to perform that may impact on the duties and activities of a receiver.  Mr Lam enumerated some obvious examples, including the following:

(1)     Under the debentures in this instance, the security agent has power to fix the remuneration of the Receivers.  The liquidator may apply to court under section 300 to re-fix the remuneration of the Receivers, prospectively and retrospectively.

(2)     In the adjudication of proofs of debt, a liquidator who is also a receiver may justifiably be perceived to be partial towards the debenture holder in respect of the unsecured portion of his debt.

(3)     The secured creditors in this instance have estimated their security at the nominal value of HK$1.00.  Under rule 127, a liquidator may require a secured creditor to give up his security for the benefit of the creditors generally on payment of the value estimated with an addition of 20%.  A liquidator who is also a receiver may be loath to exercise this power.

(4)     In investigating the affairs of the company, a receiver will be guided by what is likely to produce recovery for the debenture holders, whereas a liquidator will be guided by the prospects of recovery generally as well as his wider duties in carrying out a thorough investigation of the reasons for the collapse of the company and the public interest with the view of enabling appropriate action to be taken against those guilty of commercially culpable conduct (In re Pantmaenog Timber Co. Ltd. [2004] 1 AC 158 at 177E to G, para. 64).

(5)     In choosing what claims to pursue in the liquidation, the secured creditors will prefer to pursue claims that belong as assets to the company because any recovery will be solely to their benefit.  For unsecured creditors, it would be in their interest for the liquidator to pursue antecedent claims such as unfair preference or fraudulent trading where any recovery will form part of the general assets available for distribution to them.  

(6)     The receiver has all, or substantially all, of the assets of the company under his control by virtue of the security created by the debenture and retains the power to manage and realise those assets, so the liquidator must perforce wait on the sidelines as regards his distribution role until completion of the receivership, after which he will take over whatever assets that remain (Principles of Corporate Insolvency Law by Roy Goode, 3^rd ed., paras. 5-02, 9-70).  In selecting assets to be sold and the appropriate method of sale, a receiver may be affected by different considerations from those of a liquidator.  The sale of part of the assets by the receiver may have the effect of preventing the liquidator from selling the business as a going concern or making it difficult to sell the remaining assets (In re John Wiper Ltd. (1972) 5 SASR 360 at 370).  

30.  Mr Lam submitted that the problems of conflict that arise in this situation are legion and pervade the tasks of the liquidator in that the scope for possible conflict will be as wide as the range of functions and activities of the receivers and liquidators.  

31.  The accountancy profession has long recognised the potential for conflict.  In the Code of Ethics for Professional Accountants issued by the Hong Kong Institute of Certified Public Accountants in December 2005, section 432 deals with integrity, objectivity and independence in insolvency.  The present situation is governed squarely by paragraph 432.16, which is under the heading of “Insolvent liquidation following receivership” and reads as follows:

“Where a partner in or an employee of a practice is, or in the previous two years has been, receiver of any of the assets of a company, no partner in or employee of the practice should accept appointment as liquidator of the company in an insolvent liquidation.  This restriction does not apply where the appointment was sanctioned by the court.”

32.  Paragraph 432.18 of the Code deals with potential conflicts in group situations in these terms:

“Members should be particularly aware of the difficulties likely to arise from the existence of inter-company transactions or guarantees in group, associated or ‘family-connected’ company situations.  Acceptance of an insolvency appointment in relation to more than one company in the group or association may raise issues of conflict of interest.  Nevertheless, it may be impracticable for a series of different insolvency practitioners to act.  A member should not accept multiple appointments in such situations unless he or she is satisfied that he or she is able to take steps to minimise problems of conflict and that his or her overall integrity and objectivity are, and are seen to be, maintained.”

Appointments in other conflict situations

33.  Mr Bartlett pointed to some other situations in which the courts have taken a pragmatic approach and appointed a liquidator despite his prior involvement with the company in liquidation.  The rationale is expediency, to promote efficiency, to avoid delay and to save costs.  

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.  The above is a summary of the discussion in Sisu Capital Fund Ltd. & Ors. v. Tucker & Ors. [2005] EWHC 2170 (Ch) at paras. 91 to 120.  

35.  In Re Arrows Ltd. [1992] BCC 121, provisional liquidators were appointed for a company notwithstanding that one of them and a partner from the same firm of accountants were appointed by the court as receivers to 80 companies with which the company was connected, the court having noted that the potential conflicts could be adequately addressed by the provision of independent legal advice or by the appointment of independent members of the same firm to act against their partners in case of conflict (at 123F).  Re Southern Cross Airlines Holdings Ltd., supra. is another instance in which a receiver was appointed the provisional liquidator of the same company, the court drawing the distinction that the receiver there was appointed by the court and not by the secured creditor pursuant to a security.  

36.  In Re Maxwell Communications Corporations plc [1992] BCLC 465, administrators were appointed notwithstanding that the same firm of accountants had acted as the auditors of a sub-subsidiary of the company.  As there was merely a distant possibility that the administrators might have to investigate that audit, the court did not think it necessary to make immediate provision for the appointment of an additional independent administrator and left the matter to be dealt with if and when it arose.

37.  There had been a settled practice as a general rule of convenience, to avoid trouble and expense, for the courts to appoint the liquidators as receivers where debenture holders or mortgagees applied to court for the appointment of receivers after the winding up, unless there was a conflict between the interests of the secured creditors and of the other creditors, see Perry v. Oriental Hotels Company (1870) L.R. 5 Ch. App. 420; In re Henry Pound, Son, & Hutchins (1889) 42 Ch. D. 402 at 411 to 412, 419; and In re Joshua Stubbs, Ltd. [1891] 1 Ch. 475.  

38.  As was stated by Santow J in Advance Housing Pty. Ltd. v. Newcastle Classic Developments Pty. Ltd. (1994) 14 ACSR 230 at 234:

“… the correct balance is struck by permitting a liquidator to act as such even if there be a prior involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited.”

39.  The pragmatic approach was followed in a number of cases in Hong Kong, such as Re Akai Holdings, supra.; Re Luen Cheong Tai Construction Co. Ltd. [2002] HKEC 1544; and Re Yiu Wing Construction Co. Ltd. [2002] HKEC 1438.  

The proposition by the secured creditors

40.  On behalf of the secured creditors, it is accepted that the appointment of a privately appointed receiver as a liquidator is rare and unusual, and Mr Bartlett has not been able to find any reported instance of such an appointment.  He submitted that there is no bar at law for such an appointment and contended that it would be appropriate for such an appointment to be made here where it could be shown that the potential conflicts arising from the appointment of a receiver appointed out of court could be managed effectively.

41.  In the draft order submitted, the powers of Mr Sutton as a liquidator would be curtailed in important respects.  He would be empowered to investigate and identify any causes of action available to the Company or to the liquidators against third parties.  All ancillary powers given to him as provided are for the purposes of the investigation aforesaid.  As for his power to bring or defend legal proceedings for the Company, this would be subject to appropriate sanction of the court and to be exercised in conjunction with the other two independent liquidators.  All the powers conferred on him are exercisable only with the approval of the other two liquidators, who would be in the majority.  

42.  It is further provided in the draft order that the Receivers shall allow the liquidators full access to any books and documents relating to the Company held by them in their capacity as receivers save for any books and documents in respect of which they are entitled to claim legal professional privilege, and that Mr Sutton shall not, without the consent of the other liquidators, release to any secured creditor or to Mr Chiong any information relating to the Company obtained by Mr Sutton in his capacity as liquidator.  

43.  Thus, Mr Sutton would not be required to undertake problematic tasks of ‘self-review’ into matters such as the validity of the appointment of the Receivers under the debentures, the performance of the Receivers’ duties and their dealings with the assets of the Company, and the remuneration of the Receivers.  He would not be carrying out other duties for which he might be perceived to be partial towards the secured creditors, as has been canvassed by Mr Lam.  For the investigation of possible claims and the bringing of legal proceedings for recovery, Mr Sutton would exercise his powers with the approval of the independent liquidators.  If notwithstanding these measures a conflict should arise and is not resolved by discussion with the independent liquidators, Mr Sutton has assured the creditors that he would promptly refer the issue of conflict to the court for direction.   

44.  Mr Bartlett submitted that the proposed appointment of Mr Sutton may be viewed to some extent analogous to the appointment of “special purpose” liquidators on grounds of expediency, in which the court gives the conduct of a particular matter arising in the liquidation to one of several liquidators where there is a position of conflict, as in Re Midland Land and Investment Corporation [1887] WN 58; Re Spedley Securities Ltd. (In Liquidation) (1991) 4 ACSR 555; and Onefone Australia Pty. Ltd. v. One.Tel Ltd. (In Liquidation) [2003] NSWSC 1228.  An order of this nature was made by Hartmann J in Re HIH Insurance (Asia) Ltd., HCCW No. 337 of 2001 on 24 June 2002 for the appointment of an additional provisional liquidator.

45.  Mr Bartlett further made the point that in the present situation, a relatively rare set of circumstances has come together to make it possible for the potential conflict to be effectively managed.  There is the willingness of the creditors, secured and unsecured, to fund the appointment of two additional liquidators from an independent firm of accountants.  There is unanimous support among the creditors, secured and unsecured, for the appointment of Mr Sutton.  The secured creditors as the appointors of the Receivers support the compromises put forward to manage the potential conflict in the limitation of Mr Sutton’s powers and in connection with information sharing.  No competing appointees have been proposed by different stakeholder camps.  Mr Sutton had worked with Mr Borrelli and Miss Walsh on other assignments and he has met with them to discuss the practicalities of this liquidation.  I am given to understand the two independent professionals have indicated that subject to the sanction of the court, they are comfortable with the arrangement proposed and are confident that it is workable.  

The exercise of the discretion

46.  Mr Lam urged the exercise of caution and submitted that the court should approach the matter by asking whether there is a compelling need for Mr Sutton to be appointed so as to attain objects beneficial to the winding up as a whole.  I think that may be putting the requirement too high.  The secured creditors take the view that the investigation could not be done as quickly, efficiently and as cost-effectively if Mr Sutton was not put in charge.  They are keen to utilise to the full extent the considerable knowledge acquired by the Receivers during the course of their appointment to the Group.  It is understandable that they do not want new liquidators to have to start afresh.  Apart from the question of expenses for the ‘re-education’ of new liquidators, which the secured creditors are not inclined to fund, and the implication on efficiency, there is the difficulty of replicating the knowledge acquired by the Receivers given the passage of time and uncertainty of whether the sources of their information would still be available.  

47.  Mr Lam queried whether the proposed appointment of two liquidators with Mr Sutton would result in an obvious saving in costs, as the additional liquidators would need to be brought up to the level of knowledge that Mr Sutton has acquired, if they were not to be excluded from the investigation.  It seems to me that the secured creditors here (they are all financial institutions) must have weighed up the costs involved in the proposed arrangement and they ought to be acutely aware of what is best for them financially.  

48.  The investigation to date by the Receivers has cost the secured creditors very substantial sums.  There are no funds left in the liquidation account for further investigation to be carried out.  The only way forward is with creditor funding.  No funding is forthcoming from the unsecured creditors.  The secured creditors are prepared to fund the appointment of Mr Sutton with two independent professionals, in order that thorough investigations may be completed as quickly and as cost-effectively as possible.  It would be premature to consider funding arrangements for the bringing of claims and the allocation of proceeds of recovery at this stage, as claims have yet to be identified.  

49.  As was stated in Re Akai Holdings, supra. at 422H, creditors who are funding the liquidators are entitled to make sure that the funds are not wasted and be vigilant that the liquidators who will be expending the funds are worthy of their confidence.  In providing funding for the appointment of liquidators in this instance, there is nothing to suggest that any of the liquidators would be yielding their independence to the secured creditors, unlike the position in Re Goodway Ltd. [1999] 1 HKC 141.

50.  There is clearly a public interest in the proper investigation of the circumstances in which this listed company became insolvent.  So far as the investigation of possible claims is concerned, all the creditors are in the same boat.  I am inclined to agree with Mr Bartlett there is little point now to anticipate what is to happen at the next stage when claims are brought and what provision should be made for this, in view of the uncertainty of the outcome of further investigation, and whether any viable claims would be covered by the debentures or whether they would be in the nature of antecedent claims.  For the present, the best thing to do is to leave the liquidators to get on with further investigation, with recourse to the court where necessary.  

51.  In the special circumstances of this case, I am persuaded that if the principle of avoiding the appearance of lack of impartiality were to be strictly adhered to, this would be ‘making the perfect the enemy of the good’.  I am satisfied that the conflicting loyalties of Mr Sutton could be effectively managed with the proposed terms of appointment.  I do not think this should lead to the opening of floodgates in that proposals to manage potential conflict would become the norm rather than the exception.  I emphasise the circumstances here are special and each case would be closely scrutinised to see to it that the liquidator appointed is in the best interests of all persons interested in the winding up.  

The orders

52.  I make an order to appoint Mr Sutton, Mr Borrelli and Miss Walsh as joint and several liquidators of the Company.  The terms of appointment are as per the draft order submitted by the secured creditors with the amendments proposed in the course of the arguments.  

53.  Other orders sought in the determination hearing are not in dispute.  They relate to the appointment of a committee of inspection, and consequential directions for the liquidators to give security and to advertise and gazette a notice of their appointment.  There will be an order in terms as per the draft order submitted by the secured creditors.  The solicitors for the secured creditors are to submit a revised draft order for the approval of the court.

54.  I make an order nisi that the costs of this application, including the costs of the Official Receiver, are to be paid out of the assets of the Company and that such payment is validated pursuant to section 182.