RE LAKE AND HOT SPRINGS COUNTRY CLUB (H.K.) LTD

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING-UP)

NO. CWU 30 OF 1986

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JUDGMENT

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1. Judgment was obtained by the China Engineers Limited (hereafter called the applicant) against Lake & Hot Springs Country Club (H.K.) Limited (the company) on the 14th July 1983 for inter alia the recovery of certain goods or in default their value and damages. Damages were later assessed at $222,809.20. Attempts to recover the amounts due by way of execution or to achieve a compromise by payment of a lesser sum resulted in a payment of $100,000 which left a balance outstanding of $287,271.60 interest and costs. However, in December 1985 the applicant discovered that the company was the registered owner of five single decker tour buses. As a result the applicant obtained an injunction on the 14th December 1985 which was continued on the 20th December 1985 restraining the company from disposing or dealing with its assets and proceeded to levy execution. Four of the buses were subject to a hire purchase agreement with the Dah Sing Finance Limited and were subsequently sold by them to North Point Motors Co. Ltd. The other bus registration No. DB 9676 was seized by the bailiff under the applicant's writ of fieri facias and was sold on the 14th January 1986. The net proceeds of the sale amounted to $178,480.00. A creditor's petition to wind-up the company was presented by two employees on the 24th January 1986 in respect,of a claim for arrears of wages and other benefits amounting to $59,046.66. The petition also alleged that the company was indebted to six other employees in the sum of $152,800.00.

2. By virtue of section 270(2) of the Companies Ordinance, Cap. 32 the bailiff declined to pay over the proceeds of sale to the applicants. Section 270(2) reads as follows -

3. A winding-up order was made against the company on the 24th February 1986.

4. By the present summons, the applicant seeks an order under section 270(2A) of the Ordinance that the proceeds of sale or such part of them as the court deems just be released. Section 270(2A) provides -

Mr Griffiths who appeared for the applicants cited In re Grosvenor Metal Co. Ltd. (1950) Ch. 63 where Vaisey J. considered the provisions of section 325(1)(c) of the Companies Act 1948 which is the equivalent of section 269(1)(c) of the Companies Ordinance. Section 269(1)(c) provides -

In his judgment at p. 64 Vaisey J. referred to Armorduct Manufacturing Company Ltd v. General Incandescent Company Ltd. (1911) 2 K.B. 143 where it was held that nothing short of a trick or some actual dishonesty justified interference by the Court. However, under the Act of 1948 he held that the Court's discretion had been widened to do what is fair and right having regard to the circumstances of each case.

5. Mr Knos on behalf of the official Receiver cited Re Redman (Builders) Ltd. (1964) 1 All E.R. 851 where it was held that the basic scheme of the Companies Act was for unsecured creditors to rank pari passu and that where an execution creditor had not completed execution at the beginning of the winding-up he was in the same position as any other unsecured creditor. In that case the Court decided that where the company had been stalling its creditors, it would be unjust and unreasonable to give one stalled creditor, who had not completed execution, preference over other stalled creditors, whether they had or had not commenced execution. Mr Knos also referred me to In re Caribbean Products (Yam Importers) Ltd. Tickler v. Swains Packaging Ltd. (1966) 1 Ch. 331 where it was held that weighty reasons would be necessary to justify the court in exercising its discretion under proviso (c) of section 325(1) so as to interfere with the general rule that all unsecured creditors ranked pari passu in a winding up.

6. In effect the applicants are saying that they should be entitled to preference not only against all unsecured creditors but also against the preferential creditors on the grounds that their judgment was much earlier in time, and because they were unfortunate in not being able to carry out a wholly successful execution Mr Griffiths submitted that the action taken by the applicant has benefited the liquidator so that they should in turn be entitled to benefit. However, these facts do not justify the court exercising its discretion in favour of the applicant at the expense of either class of creditors. There may well be other trade creditors who find themselves in the same position as the applicant. Indeed the petition refers to a company Whars Properties Limited who obtained a judgment against the company on the 2nd December 1985 for $29,577.76. Execution was levied pursuant to that judgment on the 23rd December 1985 on the goods of the company which realised $3,500.00.

7. In order to justify an alteration to the statutory order for the payment of debts very strong grounds must be put forward. This will apply a fortiori as in this case where there are preferential creditors. There are no such grounds to support the applicant's contention that they should have any preference over any other creditor. In fact it would be manifestly unfair and unreasonable to accede to this application which is self serving and devoid of merit. The summons is therefore dismissed with costs.