XCHRX RE MANAGEMENT RESOURCES INTERNATIONAL, LTD.

HCMP 2629/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2629 OF 2000

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J U D G M E N T

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1. This is an application under Section 255(3) of the Companies Ordinance made on behalf of the Company for an order that all further proceedings in the winding up of the said company be stayed. The affidavit filed by a director of the Company reveals the following facts.

2. The Company was incorporated in Hong Kong in 1981, however, it has substantially ceased trading since 1989. Since that date, the only business of the Company has been the seconding of former managers and employees to other companies in the group to which this Company belongs.

3. In 1999, a meeting of the Board of Directors of the Company was held at which it was resolved that the Company should be wound up voluntarily. Subsequently a week later, an extraordinary general meeting of the Company was held in which a special resolution to this effect was passed and liquidators were appointed. Pursuant to the provisions of the Companies Ordinance, the directors resolved and authorised that one of their number make a Declaration of Solvency. This resolution was arrived at in the knowledge that the Company had been virtually dormant for nearly a decade and during that time no demands had been made on the Company by any creditors or suppliers. The accounts of the Company also show no outstanding liabilities. The financial statements indicated that the Company had assets of US$340,838.00.

4. However, in the process of the winding up of the Company, in March 1999 the liquidators received a letter from a firm of English solicitors acting on behalf of a company in the United Kingdom. This company in the United Kingdom was the landlord of certain premises in England. In 1986 the Company had leased those premises but in 1990 the Company had assigned the lease to a third party. That third party subsequently assigned it to the present tenant. It would appear that under English law, the Company, even though it had assigned the premises, would retain a contingent liability for rent, maintenance and other expenses due under the original lease should the assignee or any subsequent assignee default on its obligations to the landlord.

5. It would appear that the present tenant has been in default of its obligations, although subsequently the outstanding amounts have been paid. Nevertheless, it would appear that the landlord requires the Company to guarantee the tenant's obligations until the end of the lease in 2011.

6. Consequently the Company faces a contingent liability which could surface at any time during the next 11 years if the tenant (from time to time) fails to meet its obligations with respect to the lease. The annual rent of the premises is ￡110,000.00. Accordingly, the directors can no longer declare that the Company would be able to pay its debts under the provisions of the Companies Ordinance. It is in these circumstances that the court is asked to stay the voluntary winding up proceedings in respect of the Company.

7. The case appears to be on all fours with a case called James Smith & Sons (Norwood) Limited v. Goodman [1936] 1 Ch. 216, in which two leases were granted by the plaintiff to a company. Subsequently the company determined the leases but it had previously assigned the leases to a third party. Subsequently the company went into voluntary liquidation, and the liquidator distributed the company's assets without making provision for future rent contingently due under the assigned leases. The plaintiff subsequently claimed against the liquidator for damages and a declaration that in distributing the assets without making provision for the liabilities of the company under the two leases, he had acted wrongfully and in breach of his duty as liquidator.

8. The Court of Appeal held that the liability under those two leases were liabilities which ought to have been admitted to proof by the liquidator under the equivalent section of Section 263 of the Hong Kong Companies Ordinance. Although the liability was a contingent liability only, nevertheless, that liability should have been admitted to proof. What the liquidators ought to have done was to have taken steps to have the value of the contingent liability ascertained before distributing the company's assets.

9. In the circumstances, the liquidators not having appeared today and having indicated in a letter to the Court that they have no objection to the Company's application to stay the voluntary winding up proceedings, I would make an order that the proceedings in the winding up of the Company be stayed.