Re Geter Industrial Ltd. (In Compulsory Liquidation)

HCCW 802/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO. 802 OF 2000

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D E C I S I O N

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1. This is an application on the part of the joint and several liquidators of Geter Industrial Limited (hereinafter referred to as the 'Company') for an order that the winding-up of the Company be conducted as if it were a creditors' voluntary winding-up.

2. There is also an application in the same summons that Mr Briscoe and Mr Kong should continue to act as the joint and several liquidators of the Company and in respect of remuneration.

3. The application is made under Section 209A. Section 209A(1) provides that:

"the court may, on the application of the liquidator or any creditor made, not later than 3 months from the date of a resolution to make such an application passed at any of the meetings of creditors and of contributories or within such further time as the court may permit, order that the winding-up of a company ordered to be wound up by the court shall, from the date of the order made on such application, be conducted as if the winding-up were a creditors' voluntary winding-up."

4. Section 209A(2) provides that:

"where an application is made under Subsection (1), the court shall have regard to a number of factors"

which I will not list here.

5. In the present case, the petition to winding-up was presented in September 2000 and in November 2000, Mr Briscoe and Mr Kong were appointed provisional liquidators. In February 2001, there were meetings of contributories and creditors and a resolution was passed that an application should be made to the court for conversion under Section 209A. It is clear that the main ground for the application for conversion is to save on the costs of the Official Receiver. On 28 May 2001 within the period of 3 months provided for in Section 209A, the present summons was issued.

6. The first hearing took place in June 2001. There have been two further hearings since then, mainly because the court was not satisfied as to the state of certain evidence that had been put before it.

7. The final position is that the shortfall between the liabilities and the assets of this Company has now been cured. Originally the position was that the Company had liabilities of about HK$273,000 and the liquidators had only recovered assets of about HK$109,000. There was therefore a shortfall of some HK$163,000. The original evidence before me was that it was proposed to satisfy the shortfall by repayment by the directors and shareholders of loans of up to HK$3.8 million made by the Company to them in September 1997 in proportion to their shareholdings.

8. I had not been satisfied that it would be adequate to receive simply an undertaking from one of these directors and shareholders that repayment would be made to the Company, and the court had expressed some concern as to the worth of these individuals, some of whom were residents abroad. There was also a fear expressed in a previous report of the liquidators that there might have been mismanagement.

9. As the evidence now shows, the individuals involved have now repaid some HK$730,000 to the Company. This has now enabled the Company to discharge all liabilities to its creditors. Further, it has now been confirmed by the liquidators that notwithstanding the original fears as to possible mismanagement, there is now no further cause for concern and no further need for enquiry regarding previous management.

10. Before me today, Mrs Sit for the Official Receiver has drawn my attention to one factor which may cause the court to decline to make an order for conversion. It was submitted on behalf of the Official Receiver that the intention of the legislature in passing Section 209A was that the application should be made quite early on in the compulsory liquidation. The general note which appears in 209A.02 in Butterworths Hong Kong Company Handbook shows that the reason for the intention that the application should be made in a timely fashion was to avoid the situation where there were last minute conversions, so that the new liquidator would simply realise assets (which would be the most lucrative part of the administration) leaving the original liquidator, who was presupposed to be the Official Receiver, out of the most lucrative aspect of the winding-up administration.

11. However in the present case, it would appear to me that that aspect does not feature because the provisional liquidators and the liquidators throughout have been the present liquidators and not the Official Receiver.

12. Accordingly, I see no reason why an order for conversion should not be made today. It should be noted that the application had been made within time and it is unfortunate that the lacuna in the evidence presented before the court had caused the number of hearings which have had to be held and which had led to the delay in the determination of this matter.

13. Finally, I should say a word about the summons. I am prepared to make an order in terms of para.1 of the summons which is that the winding-up of the Company be conducted as if it were a creditors' voluntary winding-up. Naturally that would take effect from the date of the order which is today. As for para. 2 of the summons which would seek an order that Mr Briscoe and Mr Kong continue to act as the joint and several liquidators of the Company and with provisions for their remuneration, I do not see why it would be appropriate for the court to make these orders. Once the order is made under para.1 of the summons that the winding-up of the Company be conducted as if it were a creditors' voluntary winding-up, then it would appear to me that the choice of liquidators and their remuneration should properly be a matter for determination by the creditors since this is now a creditors' voluntary winding-up.

14. In the circumstances, I would make an order in terms of para.1 of the summons only.