XCHRX WENDEN ENGINEERING SERVICES CO. LTD. v. LEE SHING YUE CONSTRUCTION CO. LTD.

HCCW 788/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 788 OF 2000

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JUDGMENT

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1. This is the hearing of a petition presented against Young Cruise Company Limited formerly known as Fortune Oil Company Limited ("the Company") by one of its creditors.

Petition

2. The petition was presented in August 2000. It was amended in October 2000 to reflect the change in the Company's name.

3. The petition was first heard on 20 November 2000. The Company disputed its liability to pay the amount said to be due and owing. Chu, J., after giving directions for further evidence to be filed, adjourned the hearing to today 11 December 2000.

Creditors' voluntary liquidation

4. On 1 December 2000, however, an extraordinary general meeting of the Company was held in which it was resolved that the Company be placed in creditors' voluntary winding-up. Liquidators were appointed by the Company and at a meeting of creditors held on the same day, they were confirmed by a majority of the creditors present. However, pursuant to correspondence between the Petitioner's solicitors and the Liquidators' solicitors, no assets of the Company have to date been dealt with by the Liquidators.

Hearing of Petition

5. The Petitioner has appeared today to press on with a compulsory liquidation. Section 257 Companies Ordinance provides that the winding-up of a company shall not bar the right of any creditor to have it wound up by the court.

6. The Liquidators of the Company have appeared today and have adopted a neutral stance on the Petition.

7. No other creditors have appeared to oppose or support the petition even though the hearing today has been advertised, and even though 3 of the 4 other creditors who had attended the creditors' meeting on 1 December 2000 were related companies of the Company and would have been expected to be aware of the hearing today even without the advertisement.

Issues

8. The Petition was opposed by the Opposing Contributory. The issues before the Court at the hearing of the Petition today were:-

(i) whether the debt upon which the petition was based was due and owing;

(ii) even if the answer to (i) is Yes, whether, in the exercise of the Court's discretion, a winding-up order should be made now that the Company has been put into voluntary liquidation.

9. I should add that at the commencement of the hearing today, Mr Rimsky Yuen counsel for the Opposing Contributory at first sought an adjournment to file evidence in reply to an affirmation filed on behalf of the Petitioner last Friday 8 December and served on 9 December. However, upon the Petitioner's withdrawal of that affirmation, the application for an adjournment was not pursued.

(i) No debt due and owing

10. I shall deal first with the argument that there was no debt due and owing. This argument runs as follows. It is not disputed that by a Consent Order dated 6 May 1999, the Company consented to judgment in the sum of over US$10m (together with interest) in favour of the Petitioner. Execution on the judgment was however stayed provided that the Company shall pay to the Petitioner that amount according to a schedule of instalment payments.

11. The schedule provided for 8 instalments payments, beginning in May and ending in November 1999. Paragraph (3) of the Consent Order provided that if the Company should make default in the payment of any instalments on the due dates, the stay of execution would automatically be removed after the expiration of 14 days from the date of the Company's receipt of a default notice, whereupon all unpaid principal and interest would forthwith be immediately payable as if there had been no agreement for payment by instalments. The parties had entered into an agreement dated 4 May 1999 clause 8 of which provided for the delivery of default notices.

12. It is common ground that only the first 2 instalments were paid. On 31 May 2000, the Petitioner's solicitors wrote to the Company alleging that the Company had failed to pay the Petitioner all instalments save the first 2. The letter informed the Company, pursuant to clause 8, of the default and required the Company to remedy the defaults within 14 days, and further or alternatively, pursuant to s178(1)(a) of the Companies Ordinance, demanded the sum of US$6,226,649.54 with interest within 21 days.

13. No payment having been made, the petition was presented. It is to be noted that the petition pleaded the judgment debt, the demand letter, the Company's failure to pay after the expiry of 21 days and that the Company is unable to pay its debts.

14. The argument advanced by the Opposing Contributory now is that under clause 8, the balance did not become due until the expiration of 14 days after the notice of default, so that the entire balance had not become due and owing at the date of the demand.

15. In my view, there is nothing in this argument. It is clear that the Company in unable to pay its debts. Apart from the point that the entire balance was due before 2000 in any event even without the Company's failure to comply with the notice of default, the Company has acknowledged in its List of Creditors tabled at the creditors' meeting that it is indebted to the Petitioner in the sum of more than US$6.9m.

16. The Affirmation of Mr Richard Wong on behalf of the Opposing Contributory has exhibited to it draft minutes of the creditors' meeting at which he (as a representative of a corporate director of the Company) acknowledged that the Company had an excess of liabilities over assets and that by virtue of its liabilities, the Company could not continue its business.

17. The Liquidators of the Company have not disputed its obligation to pay the balance of the amount to the Petitioner.

18. In the circumstances, it is clear that the Company is unable to pay its debts and that s.177(1)(d) Companies Ordinance is proved.

(ii) Creditors' voluntary liquidation

19. I then turn to the 2nd argument. It is common ground that the Court has a discretion to order a compulsory liquidation notwithstanding a creditors' voluntary liquidation. The issue is whether, in the circumstances of the individual case, it ought to exercise its discretion to make such an order.

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 (Re James Millward and Co Ltd [1940] Ch 333).

21. As between the Petitioner and other creditors, it would be relevant to see whether other creditors (and if so, what proportion of them) opposed the Petitioner's application for a compulsory liquidation. In the present case, none of the other 4 creditors has appeared.

22. Mr Yuen for the Opposing Contributory has asked me to infer that the other creditors (even the unrelated bank creditor) opposed the Petitioner's application because they had participated at the creditors' meeting and had not objected to the appointment of the Company's nominated liquidators.

23. I see no adequate grounds to make such an inference. It cannot be inferred from the mere fact of creditors' attendance at a creditors' meeting under s. 241 that they support a creditors' voluntary liquidation. They would need to be there in any event to consider the statement of affairs and the company's choice of liquidators.

24. Further, the mere fact of their concurrence with the company's choice of liquidators does not provide support for any inference that they therefore prefer creditors' voluntary liquidation to compulsory liquidation.

25. As for the Petitioner's application for compulsory liquidation, if any of the other creditors opposed it, they should have appeared, if not on the last occasion, then at least today. None of them has done so.

26. Even if any had done so, it would still have been relevant to see what proportion of creditors are opposed to compulsory liquidation, and to consider any reasons for their opposition.

27. In the circumstances, I am left with the position that as far as the Petitioner's application for compulsory liquidation is concerned, there are no opposing creditors.

28. Finally as between the Petitioner and the Opposing Contributory, more weight must be given to the views of the Petitioner when it would appear from the Company's statement of affairs that its finances are such that it is unlikely that there would be anything left over for distribution amongst contributories.

29. Having considered the relevant parties' positions as set out above, I have also considered the benefit of compulsory liquidation to that of creditors' voluntary liquidation. The doctrine of relation back, applicable only to compulsory liquidation, would enable the winding-up to take effect from 31 August 2000 being the date of presentation of the petition, as opposed to 1 December 2000 being the date of the EGM. It is true that at this stage there is no evidence whether anything of value would be gained by applying the doctrine of relation back. However, the very applicability of the doctrine, in the absence of evidence showing that it would serve no purpose on the facts of the case, is a benefit that is not available in creditors' voluntary liquidation.

30. Moreover, I have considered the fact that the creditors' voluntary liquidation occurred only 10 days ago and that the Liquidators have not dealt with any assets of the Company. I therefore see little or no prejudice to the Company or the Liquidators in ordering compulsory liquidation, nor has any been alleged or substantiated.

31. In the circumstances, I ordered that the Company be wound up by the Court.