XCHRX Re Chit Lee Holdings Ltd.

HCCW114/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.114 OF 2000

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R E A S O N S

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1. This is an application under section 183 for leave to continue execution of an order of possession.

2. In May 1997, the Company executed a mortgage in favour of the Hong Kong & Shanghai Banking Corporation Limited ("the Bank") to secure the indebtedness of Chit Lee Marble & Minerals Company Limited ("the borrower"). In August 1999, a demand was made on the Company pursuant to the mortgage for repayment of the indebtedness of the borrower. In November 1999, Order 88 proceedings were brought against the Company and by order dated 21 January 2000, the Bank was granted possession of the Company's property, subject to a stay of 14 days after service of the order on the Company. The order was served on 8 February 2000.

3. Meanwhile, on 28 January 2000, the Bank presented a petition to wind up the Company. As the stay of execution on the order has now expired, the Bank is keen to realize its security and to take possession through the bailiff.

4. The issue is whether the present summons seeking the court's leave is necessary. The questions which arise are (1) whether section 183 applies and if so (2) whether the court has any discretion under that section to grant leave.

5. It is common ground that as secured creditor, the Bank is entitled to execute on its security. In that sense, there is in effect no opposition to the substance of what the Bank wishes to do. It is therefore a little curious that the summons was opposed by the Company on a purely technical ground, namely, that a summons was not necessary at all. Quite why the Company saw fit to argue a point that had a bearing only as to costs is difficult to understand. Be that as it may, I now turn to the question whether leave is required.

Does section 183 apply?

6. Section 183 provides as follows :

"Where any company is being wound up by the court, any attachment, sequestration, distress, or execution put in force against the estate or effects of the company after the commencement of the winding up shall be void to all intents."

7. As explained by James LJ in Re David Lloyd & Co. (1877) 6 Ch D 334 at 344 :

"...These sections in the Companies Act, and the corresponding legislation with regard to bankrupts, enabling the Court to interfere with actions, were intended, not for the purpose of harassing, or impeding, or injuring third persons, but for the purpose of preserving the limited assets of the company or bankrupt in the best way for distribution among all the persons who have claims upon them... But that has really nothing to do with the case of a man who for the present purpose is to be considered as entirely outside the company, who is merely seeking to enforce a claim, not against the company, but to his own property. The position of a mortgagee under such circumstances is, to my mind, exactly similar to that of a man who said, 'You the company have got property which you have taken from me; you are in possession of my property by way of trespass, and I want to get it back again.' ..."

But in the present case, there is an order of the court for possession against the Company. The Company was a respondent to the Order 88 application and it did not seek to strike out those proceedings as otiose. Execution in its widest sense means the enforcement of judgments or court orders and in a narrower sense, the enforcement of those judgments or orders by a public officer (the bailiff) under the writs of fi fa, possession etc. See Tomasic & Tyler, Hong Kong Company Law at [9551]. That being the case, execution upon the order would come within the terms of section 183. It would be different had there been no court order and the mortgagee's rights enforced without any order for possession.

Does a discretion exist under section 183?

8. The parallel English provision is now section 128(1) of the Insolvency Act. Whilst on the face of the section, no express discretion appears to be conferred on the court, the English Court of Appeal in Re Exhall Coal Mining Company Limited (1864) 4 De G J & Sm 377 in effect held that the English counterpart to section 183 has to be read with the English provision corresponding to section 186 and that the court did have a discretion to grant leave. Although some later cases appeared to doubt the correctness of Turner LJ's view as stated in Re Exhall, the court has held itself bound to adopt it on the ground that it has long been followed in practice. See, for example, Re Lancashire Cotton Spinning Co. (1887) 35 Ch D 656 at 661, 664 and 666 and The Constellation [1966] 1 WLR 272 at 276 B.

9. Although there are no Hong Kong cases on section 183, commentaries on the section assume that the Hong Kong position is no different. See Tomasic & Tyler, Hong Kong Company Law at para.9552, 6 Halsbury's Laws of Hong Kong at 95.1331 and Butterworths Hong Kong Company Law Handbook at 183.07.

10. Given the existence of parallel provisions in England and Hong Kong and the well established practice that exists in England, the court would be slow to hold that a different interpretation applies in Hong Kong unless there are compelling reasons. I can see none.

11. Inasmuch as an order of possession exists, section 183 applies and the Bank cannot be faulted for seeking leave thereunder. At the hearing, leave pursuant to section 183 was granted should it prove necessary. For the avoidance of doubt, I confirm that such leave is granted.

Costs

12. I make an order nisi that there be no order as to costs.