RE KENSLAND REALTY LTD.

HCCW 581/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 581 OF 2001

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REASONS FOR DECISION

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1. The applicant of this application was the shareholder and unsecured creditor of Kensland Realty Ltd ("the Company") which has been wound up by order of this court on 10 September 2001. This application was made pursuant to section 200(5) of the Companies Ordinance Cap. 32 which reads:

"If any person is aggrieved by any act or decision of the liquidator, that person may apply to the court, and the court may confirm, reverse, or modify the act or decision complained of, and make such order in the premises as it thinks just."

2. At the beginning of this hearing, the applicant sought, and was granted, leave to amend the application by adding the following paragraph:

"Alternatively for an order under section 199(3) that the Official Receiver be directed to consider whether there is any reason why the Appeal should not be proceeded with before making any decision regarding the hearing dates."

3. I refused the application (as amended) at the end of the hearing. These are the reasons for that decision.

4. The background leading to this application can be summarised as follows. By a Judgment of the Court of Appeal entered on 26 March 2001, the Company became indebted to the petitioner. The winding-up petition was presented on 8 June 2001 on the ground that the Company was unable to make full payment of the judgment sum. The Company has appealed to the Court of Final Appeal against the said Judgment of 26 March 2001 and that appeal had been scheduled for hearing on 9 and 10 October 2001.

5. Subsequent to the making of the winding-up order on 10 September 2001, the Official Receiver became the provisional liquidator of the Company. At a meeting on 14 September 2001 between the Official Receiver in such capacity and the solicitors of the Company, the Official Receiver indicated that he intended to vacate the said hearing dates. The reasons for that decision will be further examined in the paragraphs below. The Official Receiver has filed a report to court dated 18 September 2001 in relation to this application ("the Report"). In short, the Official Receiver wishes to have more time to consider matters relating to the appeal to the Court of Final Appeal, especially with regard to its merits, funding and the possible need for court sanction for prosecuting such appeal.

6. It is common ground that the Official Receiver's decision can only be validly challenged under section 200 Cap. 32 if the Official Receiver:

(a) has not acted in good faith or has acted in a way in which no reasonable liquidator could have acted;

(b) did not act even-handedly.

It is the applicant's case in essence that the Official Receiver has made those mistakes in intending to vacate the appeal hearing dates.

7. Before discussing the specific issues raised by the parties, I should observe that by reason of the limited time available to the Official Receiver (from 10 September 2001 to the date of the hearing), the Official Receiver has no or insufficient information regarding a number of matters; the more important ones being:

(a) the nature and value of the Company's assets;

(b) the nature and extent of the Company's liabilities, particularly the number and identity of its creditors;

(c) the merits of the appeal to the Court of Final Appeal.

8. The grounds on which the applicant's contention is based can be summarised as follows:

(1) the Official Receiver's said decision is of no conceivable advantage to the Company because proceeding with the appeal will not put any asset of the Company at risk but may delay its chance to avoid the winding-up;

(2) it appears that the Official Receiver has succumbed to the pressure of the other parties to the appeal;

(3) whether the Official Receiver may incur personal liabilities for the cost of the appeal is not a sufficient reason for the said decision;

(4) the Official Receiver failed to have regard to the wish of the creditors. In the present case, the applicant is a 95% unsecured creditor;

(5) the applicant is willing to fund the appeal and indemnify the liquidator;

(6) there are merits in the appeal to the Court of Appeal.

9. In relation to point (1) above, the Official Receiver is obliged to have regard to the interest of the general body of creditors when deciding whether to proceed with the appeal. The Official Receiver, as stated above, has not yet had the opportunity to ascertain the applicant's assertion that the Company's assets will not be put at risk. It is accordingly reasonable for the Official Receiver to make the decision under challenge in order to find out more information about this. For this reason, the Official Receiver cannot be faulted for wanting to vacate the hearing dates.

10. There is no evidence to support the applicant's point (2) above and this ground is not established.

11. While it is true that point (3) is per se not a sufficient reason, the applicant has not argued that this is not a proper matter to take into account and there is no evidence to show that the Official Receiver's decision was unduly affected by this matter.

12. I do not agree that the Official Receiver has not taken heed of the applicant's wish (see point (4) above). On the contrary, the Official Receiver must have been aware of the opposition of the Company to vacate the hearing dates from the meeting on 14 September and this stance is the same as that adopted by the applicant now.

13. Similarly the Official Receiver must have taken into account the fact that the applicant is willing to fund the appeal (see point (5) above).

14. In relation to point (6) above, the Official Receiver has indicated that it is precisely because he wished to properly consider the merits of the appeal that the need to vacate the hearing dates arises.

15. Despite the applicant's argument regarding the prejudice which may be caused to the Company by vacating the hearing dates, I find that the only prejudice which the Official Receiver should have taken into account is that the mortgagee bank may enforce the mortgage. The Official Receiver is, however, not obliged to decide in the applicant's favour because this is a risk which the Company must face since at least the date of the winding up. Further, up to today, there is no sign that this will happen.

16. By reason of the matters aforesaid, I do not find that the Official Receiver has failed to act in good faith or has acted unreasonably (as that word is understood in applications of this kind), or that he has not acted even-handedly.

17. The applicant's alternative application is made under section 199(3), Cap. 32 which provides that:

"The exercise by the liquidator in a winding up by the court of the powers conferred by this section shall be subject to the control of the court, and any creditor or contributory may apply to the court with respect to any exercise or proposed exercise of any of those powers."

18. The Official Receiver has indicated at today's hearing that:

(1) he has not informed the applicant or the Company that he would (or in fact would) refuse to continue to consider the Company's or the applicant's wish to proceed with the appeal as scheduled;

(2) he would not be filing the application to vacate the hearing dates until some time towards the end of this week.

By virtue of the above matters, I do not find any valid reason for giving the direction sought by the applicant by way of alternative relief.

19. To conclude, the application should be (and was) refused.