RE JOINT SILVER LTD (IN CREDITORS' OLUNTARY LIQUIDATION)

HCCW 1/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 1 OF 2016

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AND

HCMP 552/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 552 OF 2016

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(HEARD TOGETHER)

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D E C I S I O N

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The Applications

1.  I have before me a Petition issued on 4 January 2016 by Chu Kong, a creditor and contributory, to wind up Joint Silver Limited (“Company”), which is currently in creditors voluntary liquidation.  The liquidators are Donald Osborn and Man Chun So of PricewaterhouseCoppers (“PwC”) Hong Kong (“Liquidators”). On 11 March 2016 Mr Chu issued an originating summons, which is also before me, for orders that the Liquidators be replaced.  Essentially, the originating summons is an alternative to what Mr Jose Maurellet SC, who appeared for Mr Chu, accepted was the principal application, namely, the Petition, although they share a common purpose, namely, to replace the Liquidators.

Background

2.  The Company is a wholly owned subsidiary of Central Shipping Co Limited (“Central Shipping”), which is incorporated in the British Virgin Islands.  Central Shipping is in turn owned by Prime Asia Global Limited (“Prime Asia”) as to 80% and Fortune Bright Global Limited as to the remaining 20%.  Prime Asia is owned equally by Mr Chu Kong and Mr Lau Wing Yan.  Fortune Bright Global Limited is owned equally by four shareholders.  Two are aligned with Mr Chu and Mr Lau respectively. 

3.  The Company was incorporated in 2012 to hold merchant vessel Grain Pearl (“Vessel”), which was purchased in 2013. From 13 October 2014 Mr Chu was the only director of the Company.

4.  Mr Lau and Mr Chu also own other related joint ventures, including a company known as Pacific Bulk Shipping (Cayman) Limited (“PB Cayman”), a company incorporated in the Cayman Islands, which acted as the commercial agent and manager of the Vessel, although its precise role is in issue.  The precise differences are not relevant for present purposes. 

5.  The Company acquired the Vessel in around March 2013 with Credit Suisse AG as the mortgagor under a Facility Agreement dated 13 March 2013.  Subsequently, disputes arose between the respective camps concerning, inter alia, the management and control of Central Shipping. 

6.  In late 2014, by which time Mr Chu was the sole director, he took various steps on behalf of the Company, including to terminate PB Cayman’s role as commercial agent and manager, and to assert a lien over the cargoes being shipped by the Vessel at the time.  On 17 December 2014, PB Cayman and the Lau aligned shareholders applied for an ex parte injunction under HCA 2562/2014 to restrain, inter alia, the Company and Mr Chu from obstructing or interfering with the shipping, delivery and discharge of the cargoes then in transit on the Vessel.  The injunction application was granted upon PB Cayman’s undertaking to deposit the freight income in the sum of US$2,454,375 into the court which, on completion of the voyage, was duly done.

7.  The High Court Action and the injunction application triggered events of default under the Facility Agreement, as a result of which on 5 February 2015, Credit Suisse AG issued a notice of default and acceleration and on 25 March 2015, Credit Suisse AG sought to exercise its powers as mortgagee and take constructive possession of the Vessel.  In order to avoid arrest and possession by Credit Suisse AG, the Vessel was forced to remain in international waters (and therefore could not carry and deliver any cargo), whilst continuing to incur substantial daily expenses in terms of crew wages and other operating costs. 

8.  On 16 April 2015, Mr Chu applied to appoint interim receivers over the Company in Hong Kong.  The hearing was fixed to be heard on 22 April 2015.

9.  On 20 April 2015, Fortune Bright made an ex parte application in BVIHC (Com) 0036 of 2015 to wind-up, and to appoint provisional liquidators in respect of Central Shipping.  As mentioned above, by an order of the British Virgin Islands’ (“BVI”) Court, Mr So and Mr John Ayres of PwC were appointed joint provisional liquidators of Central Shipping (“CS Liquidators”). 

10.  On 30 April 2015, the CS Liquidators caused a Notice of meeting of the Company’s creditors to be advertised in the Gazette, informing creditors to vote on Monday 4 May 2015 in person or by proxy in respect of the voluntary winding up of the Company. 

11.  By a written special resolution dated 4 May 2015 executed by the CS Liquidators on behalf of Central Shipping, the Company was put into voluntary liquidation.  On the same day, the first meeting of the Company’s creditors was held at PwC’s Hong Kong office at which, the Liquidators were nominated by the CS Liquidators to be the liquidators of the Company.  Mr So Man Chun chaired the meeting and accepted the following claims for voting purposes:

Name of Creditor	Value of Debts (USD)	Voting Weight (%)
Central Shipping	12,000,000	93.14
PB Cayman	500,286.14	3.88
Credit Suisse AG	1	0.00
Luck Silver Limited	383,121.00	2.97

12.  Mr Chu did not attend the meeting.  He says in his 2^nd affirmation that this was because he did not have notice of it until after the meeting.  It is his evidence that notice of the meeting was gazetted on Thursday 30 April 2015.  However, Mr So suggests that Mr Chu did have notice of the meeting and exhibits two letters dated 4 May 2015, which make reference to a meeting of creditors and a claim for HK$644,113.40 against the Company, although he does not say when they were received.  Mr So does not dispute that notice of the meeting was given by way of inclusion of the notice in the Gazette and he does not suggest that notice was given to Mr Chu by any other means.  He also does not state in his affirmations that in terms of notice all the creditors were treated in the same way.

13.  Mr Chu does not explain why and when the two letters of 4 May 2015 were sent, but it seems implicit that, although they are dated the same day as the meeting, by the time they had been prepared it was too late to attend the meeting.  If, as the totality of the evidence suggests, notice of the meeting was only given through the Gazette then taking into account the intervening weekend what Mr Chu says is credible particularly in the light of his active interest in this matter and the absence of any apparent reason for him not to attend to the meeting, or send a proxy, if the meeting had come to his attention in sufficient time.

14.  Mr So does not explain in his evidence why it was thought necessary to convene the meeting so quickly or give notice of it through some more direct means.  Mr Ayres in paragraph 6 of his affirmation suggests that it was necessary to quickly restore stability to the Company following appointment of the provisional liquidators over Central Shipping and the order appointing them permitted the provisional liquidators to exercise its powers as shareholder over the Company.  It may well be that at the time the provisional liquidators thought it was desirable to take control quickly of the Company, but this does not explain why Mr Chu was not given direct notice of the meeting or why the provisional liquidators took the view that they were entitled to vote the debt referred to in the table above; a subject and its relevance I return to later in this decision.

15.  As can be seen from the table Central Shipping’s vote would have been crucial to the decision to appoint Mr So and Mr Ayres as the Liquidators, if Mr Chu had attended and voted given the value of this debt as Luck Silver Limited (“Luck Silver”) (which was also in creditors’ voluntary liquidation) abstained.

16.  A committee of inspection was formed with Credit Suisse AG, PB Cayman and Luck Silver sitting as members.  On 15 May 2015, the voluntary liquidation and the appointment of the Liquidators were advertised in the Gazette. 

17.  On 20 May 2015, Mr Chu applied to the Court in the British Virgin Islands for a variation of the BVI appointment order. By a Consent Order dated 26 May 2015, the Court ordered in paragraph 2:

“Save for the exercise of equity control over Joint Silver Limited (‘JSL’) to place that company into creditors’ voluntary liquidation in Hong Kong, the Joint Provisional Liquidators shall not be permitted to sell, transfer, trade or otherwise deal with the assets of the Respondent, save with the prior sanction of the Court. The Joint Provisional Liquidators shall cause the Respondent, in the Respondent’s Capacity as contributory and/or creditor of JSL, to seek the sanction of the Hong Kong Court prior to selling, transferring, trading or dealing with the MV Grain Pearl, an asset of JSL. Any application for sanction from this Court or the Hong Kong Court must be on proper notice to the respective legal practitioners for the Applicant and for Mr. Chu.”

18.  By a Judgment of Leon J dated 29 April 2016 in the British Virgin Islands Proceedings the Court made an order to wind up Central Shipping, and to appoint Mr Ayres and Mr So as the liquidators of the company.

Mr Chu’s Case

19.  Mr Chu’s case is in essence very straightforward.  His debt is undisputed.  The Company is insolvent.  Unless a creditor opposes the Petition, which at the time Mr Chu’s written submissions were being prepared none did, Mr Chu is entitled to a winding-up order ex debito justitae and without an exploration of the more contentious issues that form the background against which the Petition has been brought.

20.  If the court does not accept his principal case Mr Chu says that the interests of creditors generally would be better served by a compulsory winding up order rather than a voluntary liquidation instigated by the person whose conduct he believes needs to be investigated.  For similar reasons the originating summons was issued with a view to appointing alternative different liquidators, who were nominated by the person in control of the Company.

21.  The Petition has become more complicated because on 30 June 2016 Mr Ayres filed an affidavit on behalf of the CS Liquidators opposing the Petition.  It is the CS Liquidators’ case that Central Shipping is a creditor of the Company and owed HK$12,000,000.  I will address this in more detail in paragraphs 36 to 38.

22.  A week after the hearing had finished the Liquidators of Luck Silver wrote to the court stating that Luck Silver is a creditor of the Company and purporting to make representations in relation to the applications supporting the conversion of the voluntary liquidation into a compulsory liquidation.  It would appear from the letter that the liquidators of Luck Silver were aware of the applications before they took place.  I have not taken their submissions into account.  If they had thought it desirable to make any submissions to the court this should have been done prior to or at the hearing; not by a letter after it had been completed.  The Petition is, however, supported by another creditor, Mr Kwong, who is owed US$303,748.47.

The principles that apply to the Petition

23.  A creditor is entitled to petition for the winding up of a company indebted to him under section 177(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“Ordinance”). It is well established that as between a petitioner and a company, the petitioner is entitled ex debito justitiae to a compulsory winding-up order notwithstanding that the company is already in voluntary liquidation.  Section 257 of the Ordinance expressly provides for this:

“The winding up of a company shall not bar the right of any creditor or contributory to have it wound up by the court, but in the case of an application by a contributory, the court must be satisfied that the rights of the contributories will be prejudiced by a voluntary winding up.”

24.  This is unsurprising.  A voluntary liquidation will have been commenced by a resolution of the company’s shareholders or in limited circumstances by a resolution of its directors: sections 228 and 228A of the Ordinance.  If the company is insolvent, as in the present case, it is the interests of its creditors, which are the paramount consideration.  If one of the creditors wishes to convert the voluntary liquidation into a compulsory liquidation, which is the normal consequence of a failure by a company to pay its creditors, it is to be expected that this wish will be acceded to unless there is good reason not to do so.  This has always been the case although the statutory provisions have been amended over time to make this clearer.  Section 197 of the Companies Act 1908 provided that:

“The voluntary winding up of a company shall not bar the right of any creditor or contributory to have it wound up by the court, if the court is of opinion, in the case of an application by a creditor, that the rights of the creditor or, in the case of an application by a contributory, that the rights of the contributories will be prejudiced by a voluntary winding up.”

25.  The Companies Act 1929 introduced section 255, which removed the qualification in the case of an application by a creditor to wind up a company already in voluntary liquidation.  The section reads:

“The winding up of a company shall not bar the right of any creditor or contributory to have it wound up by the court, but in the case of an application by a contributory, the court must be satisfied that the rights of the contributories will be prejudiced by a voluntary wind up.”

26.  In James Millward and Company Limited ^[1] Scott LJ explains these developments in the law:

“The present Act has altered the law in regard to the burden of proof that had to be met by a creditor, who desired a compulsory order for winding up when there was a voluntary liquidation already in progress. He used to have to show that the position of the creditor would be prejudiced in some way, otherwise he did not get the compulsory order. The present Act, by s. 255, explicitly, and without any ambiguity whatever, removes that burden of proof and leaves the position that the creditor is entitled ex debito justitiæ to an order. I may perhaps have overstated the burden upon the creditor even under the previous legislation. The underlying principle undoubtedly was that the creditor was entitled ex debito justitiæ to his order, but there is equally no doubt that the Act has made a difference in the respect of the burden of proof. As it stands to-day he has not to prove any facts beyond his judgment debt, that the debt has not been satisfied, and that he desires a compulsory winding up.”

27.  Section 257 of the Ordinance is in the same terms as section 255 of the Act and the Hong Kong authorities are consistent, as one would expect, with James Millward and Company Limited. In Young Cruise Company Limited ^[2] Yuen J says this at paragraph 20:

“As between the Petitioner and the Company, it is clear that the Petitioner is entitled ex debito justitiae to a compulsory winding-up order notwithstanding that the company is in voluntary liquidation.”

28.  In STX Pan Ocean (Hong Kong) Co Ltd ^[3] Godfrey Lam J is to similar effect:

“An undisputed creditor is generally, as against the company, entitled ex debito justitiae to a winding up order. But where the company is already in voluntary liquidation, and the contest is between creditors, some favouring and some opposing a compulsory winding-up order, the court is not bound to make a winding up order but has an unfettered discretion.”

29.  As this paragraph notes the position is different if there is a dispute between creditors about whether or not the company should remain in voluntary liquidation.  There is a larger body of authority dealing with the principles by reference to which such a contest is to be judged, in particular Re Goldcone Properties Ltd ^[4], which Godfrey Lam J discusses in paragraph 51.  I will return to these principles later in this judgment.  However, if a petition is not contested by another creditor the petitioner is entitled to a compulsory winding-up order.  It is his decision whether or not it is preferable to convert the voluntary liquidation into a compulsory winding up.  If the liquidator accepts that the company over which he has been appointed does owe the petitioner the debt he relies on then he should play no role in the proceedings other than confirming the debt is due.  It will only be in exceptional circumstances that a liquidator needs to file substantive evidence or incur costs in being represented at the hearing.

The Liquidators’ Case

30.  The liquidators are required to remain neutral in respect of contested petitions of this sort.  Their role is limited to providing information, which assists the court in determining the application. However, what that might mean depends on the correct identification of the relevant issues and I shall start by considering the principles, which govern contested applications to convert voluntary into compulsory liquidations and replace incumbent liquidators.

31.  The Liquidators’ position was stated to be neutral in respect of both the Petition and the originating summons.  However, they filed evidence and substantial submissions.  Their position was expressed in Mr Douglas Lam SC’s submissions to be confined to addressing the following matters:

“(1) Assisting the Court in setting out or supplementing the relevant legal principles to be considered in the present applications (Section V);

(2) The status of the liquidation and the work done to date (Section VI);

(3) The status of the creditors and their position in respect of the Petition (Section VII);

(4) Addressing the criticisms against the Liquidators in the conduct of the liquidation (Section VIII); and

(5)   Their observations on the OS (Section IX).”

32.  Evidence was filed by Mr So on behalf of the Liquidators.  In paragraphs 5 and 6 of his first affirmation, made on 11 March 2016 ^[5], he describes the function of his evidence:

“5. The allegations made in Chu’s Affidavit against the liquidators of the Company can broadly be categorised as follows:

a. The liquidation of the Company was wrongful, being ultra vires the powers of the JPLs of Central Shipping, or otherwise without proper basis;

b. Questions regarding the treatment and sale of the M.V. Grain Pearl (the ‘Vessel’); and

c. Concerns over the Liquidators’ impartiality and their conduct of the liquidation generally.

6. I address each of the above allegations in turn.  It will be apparent from the paragraphs to follow, that the Petitioner had ample opportunity to participate at each stage of the liquidation.  Throughout the liquidation, the Liquidators have engaged in dialogue, corresponded, and met with the Petitioner.”

33.  In paragraph 46 Mr So says this:

“The Liquidators will leave it to the Petitioner to demonstrate, to the Court’s satisfaction, that the interests of the creditors are such as to warrant or require a conversion of the Company’s liquidation. That said, the Liquidators do have a few observations which the Court might find of assistance.”

34.  This is not, however, the test unless the Petition is opposed by another creditor and at the time Mr So filed his affirmation on 11 March 2016 it was not opposed. There was no need for Mr So to file any evidence unless the Liquidators disputed the debt, which they did not.  I appreciate that they may have been goaded to some extent into filing evidence by the paragraphs in Mr Chu’s very lengthy affirmation in support of the Petition (which I assume was prepared on the basis that the Petition would be opposed otherwise it was needlessly long), which contained paragraphs, which questioned some of their conduct, but they should have been advised that unless the Petition was disputed there was no need for the allegations to be answered.

35.  As I have already mentioned 12 days before the hearing of the Petition, Mr Ayres filed an affirmation opposing the Petition.  Mr Ayres explains the basis on which Central Shipping is entitled to oppose the Petition in paragraph 4:

“Central Shipping is a creditor of Joint Silver in the sum of US$12 million, by reason of a loan made pursuant to the loan agreement exhibited at pages 352‑3 to the exhibit CK-1 to the Petitioner’s first affirmation. I understand from the papers filed in this action that the Petitioner takes issue with the debt due to Central Shipping. For my part, I consider the loan made by Central Shipping to Joint Silver to be an existing liability, albeit a liability which might be payable on the contingency set out in the loan agreement deposed to earlier (namely the assent of the shareholders of Central Shipping).”

36.  Mr Chu disputes that the sum has become repayable under the loan agreement pursuant to which this sum was advanced to the Company.  The reason why Mr Chu does so is a matter he relies on in paragraph 59 of his Petition as a ground for seeking the conversion of the voluntary liquidation into a compulsory one.  Essentially he complains that the resolution to put the Company into voluntary liquidation was facilitated by the CS Liquidators treating the US$12,000,000 loan as repayable by the Company when it was quite clear from the loan agreement that it could not be recovered unless there was a unanimous vote of the ultimate beneficial owners of the Company in favour of requesting repayment and as the CS Liquidators well knew he had never approved repayment.  It does not seem to me that this is a frivolous point.

37.  The CS Liquidators have drawn to my attention the fact that in the BVI proceedings Mr Justice Leon rejected the argument that the loan should be ignored for the purposes of determining solvency on a balance sheet test.  For present purposes I accept that even if the loan was not recoverable because the necessary approvals had not been obtained it was a contingent debt and could properly be taken into account in assessing solvency.  However, this is not the objection that Mr Chu takes in the present proceedings.

38.  Rule 125 of the Companies (Winding-up) Rules, Cap 32H provides that at a meeting of creditors “A creditor shall not vote in respect of any unliquidated or contingent debt, or any debt the value of which is not ascertained…”.  Mr So chaired the first meeting of the Company’s creditors on 4 May 2015 at which the Liquidators were appointed.  It is clear from Mr Chu’s Petition and his evidence (in particular paragraph 31) that Mr Chu questions the propriety of the CS Liquidators being permitted to vote the debt.  In paragraph 20b of his first affirmation Mr So says that he allowed the debt to be voted because he took the view that it was a present or future debt.  I would have expected Mr So to be aware of Rule 125, and he does not suggest that he was not aware of it, and yet there is no explanation of why he did not treat the debt as contingent or suggest that it is not a contingent debt.

39.  Mr Ayres sets out Central Shipping’s reasons for opposing the Petition in paragraphs 7 and 8 of his affirmation:

“7. Central Shipping opposes the Petition herein. I can conceive of no benefit to Central Shipping, or any creditor of Joint Silver, to the conversion of the voluntary liquidation of Joint Silver into a compulsory one – Central Shipping is as supportive of this mode of liquidation now as it was at the creditors meeting by which the voluntary liquidation was endorsed and the voluntary liquidators appointed.

8. In addition to this general lack of utility in converting the Joint Silver voluntary liquidation, there are clear, substantial and avoidable costs consequences in a conversion for which I see no corresponding benefit.  In this regard, the gross amount obtained from realising the Vessel ‘GRAIN PEARL’ was USD16.9million and the net realisation for the estate, after payment of USD10.3million to Credit Suisse (the mortgagee), amounted to USD6.6million. Given this, and USD2.45million funds paid out from court (being cargo payable to Joint Silver from a pre-liquidation charter), the ad valorem fees payable by the Joint Silver liquidators to the Official Receiver in Hong Kong in a hypothetical compulsory liquidation would be approximately HKD1.5 million.  An additional approximate sum of HKD350,000 would also be payable as court release fees if the liquidation of Joint Silver was converted.”

40.  In my view the way in which the case of the Liquidators and the CS Liquidators has developed is unsatisfactory.  It seems to me that on the basis of the authorities I have referred to above, it should have been quite clear at the outset to those advising both sets of liquidators that they had a choice.  They could either take a genuinely neutral position in which case they would not have needed to take any role in the proceedings, alternatively the CS Liquidators could oppose the Petition on the grounds explained by Mr Ayres in the passages from his evidence that I have quoted above and, if they thought it necessary, explained their own decision to put the Company into voluntary liquidation.  Mr So’s evidence, as is clear from the introductory paragraphs, was filed on behalf of the Liquidators in response only to the Petition as the originating summons had not been served at the time it was prepared.  Mr So did not suggest that any creditor was opposing the Petition.  As I have already explained in the circumstances his evidence was unnecessary.  By proceeding in the way in which they have chosen to the Liquidators have created the impression that their initial response to the Petition was disingenuous.  I think that it is understandable that a creditor in the position of Mr Chu will have formed the view that they were attempting to give the impression of neutrality whilst in reality trying to keep the Company in voluntary liquidation and retain their appointment.  It is noteworthy in this context that Mr Ayre does not explain why the CS Liquidators waited 6 months to oppose the Petition. 

Principles that govern contested petitions

41.  As I have already mentioned the principles that apply where a creditor contests a petition to convert a voluntary liquidation into a compulsory liquidation are, as one would expect, different from that which apply if the petition is unopposed.  Godfrey Lam J provides a convenient summary of the principles in paragraph 51 of his judgment in STX Pan Ocean and it is convenient to quote it:

“51. With that caveat in mind, a number of guiding principles can be found in the authorities, especially those discussed and applied in Re Goldcone Properties Ltd (in creditors’ voluntary liquidation) [2000] 2 HKLRD 16 . They may be summarised as follows:

(1) A helpful way of approaching the court’s decision is to see ‘whether the class remedy of liquidation is better satisfied by the continuation of the voluntary liquidation or is better served by being superseded by a compulsory liquidation’: Re Southard & Co Ltd [1979] 1 WLR 1198 at 1211B; Re Rhine Film Corporation (UK) Ltd (1986) 2 BCC 98,949 at 98,950; Goldcone at 29C-D.

(2) In deciding whether to wind up a company already in voluntary liquidation, the court will have regard to the wishes of the creditors as permitted by s.287(1) of the Ordinance. In doing so, regard shall be had to the value of each creditor’s debt: s.287(2). However, the views of the majority are not decisive: Re Southard & Co Ltd at 1208D.

(3) In general, the court should grant a compulsory winding up order, even where the company is in voluntary liquidation, if the majority of the creditors so wish: Re Falcon RJ Developments Ltd [1987] BCLC 437 at 448f‑449d; Re William Thorpe & Son Ltd (1989) 5 BCC 156 ; Re HJ Tomkins & Son Ltd [1990] BCLC 76 , 78.

(4) If however a voluntary liquidation already in progress is preferred by the majority of creditors, it is incumbent upon the petitioner to show some ‘valid reason’ or ‘special circumstances’ why the majority should not, as the majority of a class ordinarily would, prevail over the minority: Re B Karsberg Ltd [1956] 1 WLR 57 ; Re JD Swain Ltd [1965] 1 WLR 909 , 914; Goldcone at 28B-D.

(5) The court is not bound to give equal weight to all debts of equal amount. It is not simply a head count or value count of creditors. A qualitative, as opposed to a purely quantitative approach to the majority, has to be taken. The court will have regard to other interests which may influence the views of a particular creditor. Less weight is given to creditors who are related to the management of the company, especially where the reason for seeking a compulsory winding up is the need for independent investigation into the management: Re Lowerstoft Traffic Services Ltd [1986] BCLC 81 at 84a-b; Re Palmer Marine Surveys Ltd [1986] 1 WLR 573 at 578D; Re Falcon RJ Developments Ltd [1987] BCLC 437, 445; Goldcone, 55A-B; Re Lummus Agricultural Services Ltd [1999] BCC 953 , 958B-C.

(6) Where the petitioning creditors rely on the need for investigation to seek a compulsory winding-up, the court asks itself whether the matters which they say require investigation are on the evidence questions which rational creditors could think need investigation and in which the outcome may be financially favourable for them: Re William Thorpe & Son Ltd (1989) 5 BCC 156, 159C; Goldcone, 32I-33C.

(7) A factor given significant weight is that liquidators must not only act independently and impartially, they must be seen to be doing so, particularly where possible wrongdoing by the directors has to be investigated and possibly pursued in litigation. It is in the public interest that the creditors should have confidence in the independence of liquidators; Goldcone at 45F‑G; Re Palmer Marine Surveys Ltd [1986] 1 WLR 573; Re Lowerstoft Traffic Services Ltd [1986] BCLC 81, 84. Thus a compulsory order might be made in preference to a voluntary liquidation even though no attack was made on the probity or the competence of the voluntary liquidator: Re Falcon RJ Developments Ltd [1987] BCLC 437, 442e.

(8) The court is entitled to have regard to the general principles of fairness and commercial morality which underlie the details of the insolvency law as applied to companies. A judicial exercise of discretion should not leave substantial independent creditors with a strong and legitimate sense of grievance: Re Palmer Marine Surveys Ltd [1986] 1 WLR 573.

(9) The question of whether additional expenses both in terms of the liquidators’ fees and disbursements and ad valorem fees payable to the Official Receiver should be incurred are usually best left to the majority of the creditors: Re Falcon RJ Developments Ltd, 448; Re Lowerstoft Traffic Services Ltd [1986] BCLC 81; Goldcone at 55C-H.”

42.  Although generally the court will have regard to the relative value of the creditors’ respective debts in weighing the parties’ arguments the court is more concerned with the substance of the arguments.  A particularly important factor is any concern that can be substantiated about the impartiality of the liquidators.

43.  Mr Chu’s principal concern is the Liquidators’ impartiality in investigating the conduct of Mr Lau and those associated with him.  It is Mr Lau who instigated the appointment of the Liquidators and defended it against Mr Chu’s challenges in the BVI.  The authorities recognise that it is not irrational for a creditor to be concerned about the impartiality of liquidators appointed at the instigation of those whose conduct is to be investigated and that this is a material consideration in determining whether to convert a voluntary liquidation into a compulsory one.  Lawrence Collins QC (as Lord Collins was then) sitting as a deputy judge of the High Court summarised the approach in these terms in paragraph 29 of his judgment in Re Zirceram Ltd [6]:

“A liquidator appointed in the voluntary winding up must be seen not to be taking sides, but even if there is no attack on the probity or competence of the liquidator, or any other criticism, it may nevertheless be right to protect the creditors by a full investigation into the affairs of the company by a fully independent liquidator appointed in the context of a compulsory winding up.”

44.  Similar views can be found in the judgment of Robert Walker (as Lord Walker then was) in Gordon & Breach Science Publishers Ltd [7].

The Argument

45.  It is clear that what lies at the heart of the present applications is a dispute between Mr Chu and Mr Lau and others aligned with them, about the conduct of the Company’s affairs and those of other companies in which they have an interest and which have facilitated its commercial activities.  It is unsurprising that Mr Chu is concerned that the liquidator of both Central Shipping and the Company have been chosen by Mr Lau against his objection and, in the case of the Company been appointed in circumstances, which I accept for the reasons summarised in paragraphs 14, 40 and 43, cause him legitimate concern. 

46.  The CS Liquidators have raised legitimate concerns about the ad valorem fees that might be incurred if the voluntary liquidation is converted into a compulsory liquidation.  As Mr Justice Godfrey Lam explains in paragraph 51(9) of his judgment in STX Pan Ocean which is quoted above, generally the court will be guided by the views of the majority of creditors on the significance to be attached to this consideration.  If one includes the claim of Central Shipping the majority in value of creditors favour the Company remaining in voluntary liquidation.  However, as I have explained Central Shipping is in my view a contingent creditor and is not entitled to vote at a meeting of creditors.  Although no authorities have been cited to me it would follow that less weight should be attached to Central Shipping’s views, in practice the views of the CS Liquidators, than the other creditors.

Conclusion

47.  It seems to me that there are disputes of substance between the two competing camps of beneficial owners of the Company and that the way in which the liquidation of Central Shipping and the Company have come about understandably have given Mr Chu cause for concern in particular the meeting of 4 May 2016.  This is not to suggest that the Liquidators have behaved in anyway improperly, but it is not necessary for this to be demonstrated before the court will make an order converting a voluntary liquidation into a compulsory one.

48.  I will therefore make a winding-up order.  So far as costs are concerned I will make an order nisi.  I will order that the Petitioner’s costs are paid out of the assets of the Company.  So far as the costs of the Liquidators are concerned it seems to me that the Liquidators have chosen to take a more active role in these proceedings than was required and it seems to me that their costs should be limited accordingly.  I will therefore order that 50% of the Liquidators’ costs are paid out of the assets of the Company.