RE HSIN CHONG CONSTRUCTION CO LTD

HCCW 239/2018

[2021] HKCFI 559

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 239 OF 2018

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D E C I S I O N

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Application

1.  I have before me an application by the Provisional Liquidators of the Company for a regulating order pursuant to s 227A of the Companies (Winding Up and Miscellaneous) Ordinance, Cap 32 (“Ordinance”) and the appointment of the Provisional Liquidators Osman Mohammed Arab and Lai Wing Lung as liquidators.  The Company was part of the Hsin Chong Group and an indirect subsidiary of the listed company Hsin Chong Group Holdings Limited, which is also in liquidation.  As the Company’s name suggests it was a construction company.  One of its most recent high profile projects was work at the West Kowloon Cultural District Authority (“WKCDA”). WKCDA believes that it has substantial claims against the Company arising from the termination of the relevant construction work of somewhere in the order of HK$2 billion.

2.  A number of the major creditors of the Company support the application.  HSBC and WKCDA do not.  They are of the view that the creditors should meet and determine which insolvency practitioners are appointed as liquidators as they have reservations about the way in which the Provisional Liquidators have carried out their duties.

Legal Principles

3.  The relevant principles are not controversial.  Section 227A(1) of the Ordinance provides as follows:

“Where it appears to the court on application being made by the Official Receiver, provisional liquidator or liquidator or by any creditor at any time after the presentation of a winding up petition that by reason of the large number of creditors or contributories or for any other reason the interest of the creditors so requires, it may, on or after the making of a winding-up order, order that the winding up of the company by the court shall be regulated specially by the court, and such order be known as a regulating order.”

4.  A regulating order is usually made in a situation where, by reason of a large number of creditors or contributories, it is impractical to hold a first meeting (as required under section 194(1)(b) of the Ordinance): see Re JV Fitness [1].

5.  The legislative provisions under sections 227A and 227B of the Ordinance are drafted in very wide terms and give power to make regulating orders in a situation for any reason the interest of the creditors so requires.  However, the Court must be satisfied that it is right in the circumstances to make a regulating order: Re Legend International Resorts [2].

6.  Section 227B of the Ordinance provides:

“(1) The court may, on the application of the Official Receiver or provisional liquidator, by order—

(a) dispense with the summoning of first meetings of creditors and contributories as required under sections 194 and 206 for the purpose of considering the appointment of a liquidator and a committee of inspection;

(b) appoint one or more persons that the court thinks fit as a liquidator or liquidators; and

(c) as regards a committee of inspection—

(i) appoint any qualified persons that the court thinks fit as a committee of inspection;

(ii) remove any member of the committee; and

(iii) fill any vacancy in the committee.

…”

7.  As noted in Butterworths Hong Kong Company Law (Winding Up and Miscellaneous Provisions) Handbook [3], on making a regulating order, the Court may also make various directions regarding dispensation of the first meeting of creditors/contributories and/or appointment of liquidators, as provided for in section 227B(1).

8.  In Re Guangnan (KK) Supermarket Ltd [4], the estimated costs for summoning a first creditors’ meeting were a significant factor taken into account by Yuen J (as she then was) when deciding to dispense with the same [5]–[7].

9.  As to the appointment of liquidators in the usual case where there is a dispute between creditors and contributories on the choice of liquidators, and the dispute is to be resolved by the Court, the Court would usually have regard to the wishes of the independent creditors: see Re Legend International Resorts [5].

10.  As explained by Kwan J (as she then was) in Re Wah Nam Group Ltd [6]:

(1)  The appointment of a COI is a matter for the discretion of the Court.  It is not necessary to ascertain the wishes of the creditors or contributories [14]; and

(2)  A committee is more than just a consultative body for the liquidators.  Its function is to assist the Court in its supervisory role over the liquidators, and avoid the need for time-consuming and costly applications to the Court [16].

The Competing Arguments

11.  Only what the Provisional Liquidators characterise as the major creditors of the Company have been approached by the Provisional Liquidators for their views on whether or not a regulating order should be sought.  Some such as AIG support the regulating order, WKCDA and HSBC oppose the application and about 2/3 have not expressed a view.  There was argument before me as to the value of the total debt held by those creditors who support the application and those who oppose focusing largely on WKCDA in respect of which the position is unclear as it turns on a dispute as to whether or not WKCDA was entitled to terminate its construction contract with the Company and, if it was, the total loss that it is entitled to recover.  AIG argue that at present WKCDA is at best a contingent creditor.  The value of the debt held by the opposing camps is relevant when considering the weight to be given to their views, but not determinative.

12.  The reasons said to justify the application focus to a large extent on the impact of Covid-19 on the convening of meetings, which is the reason the Official Receiver supports the application.  This is a material consideration, however, I can see no reason why a remote meeting could not be conducted and I know from other matters that I have dealt with that it is possible to conduct successfully large meetings at which voting can be conducted on line.  The Provisional Liquidators have filed no evidence demonstrating that they have considered this possibility, which given the increasing use of remote meetings is an unsatisfactory omission.

13.  We are here considering a very large liquidation.  HSBC’s debt is in excess of HK$130 million.  Although the position in respect of WKCDA is unclear it already has sizable claims for liquidated damages, which as I understand the position is only likely to increase when practical completion is certified as it shortly will be.  I appreciate that the Company disputes WKCDA’s entitlement to terminate the Company’s contract, but the fact is that at present it is a creditor in respect of its claim for liquidated damages. The fact that these two sophisticated creditors wish to have a meeting and canvass properly the options when it comes to the appointment of liquidators is a matter, which is relevant as the Provisional Liquidators are seeking an order that would deprive creditors of the opportunity, which the Ordinance gives them unless there is good reason to do otherwise.

14.  There is no evidence to suggest that HSBC and WKCDA’s opposition is frivolous or tactical.  They express some concerns about the conduct of the Provisional Liquidation.  They are not the only people to have done so.  Two different judges have criticised the Provisional Liquidators in relation to two separate applications in these proceedings.  The first is a decision of Deputy Judge Le Pichon dated 7 May 2019 concerning an application for a validation order by Samsung.  The Deputy Judge was critical of the Provisional Liquidators’ conduct and ordered that the Provisional Liquidators bear their own costs.  The second are decisions of Linda Chan J dated 18 September 2020 and 31 December 2020, which culminated in the Judge ordering that the Provisional Liquidators are not entitled to receive payment for work done in relation to the relevant summons and personally to be liable for the other parties’ costs.  Also in the present application the Provisional Liquidators were expressly directed to notify all interested parties of the application and did not do so.  Instead they chose only to notify “major creditors”.  It did not seem to occur to either the Provisional Liquidators or their solicitors that if they thought it was impracticable or unnecessary to notify all interested parties they should seek my agreement. The failure to provide the Court with any evidence of the feasibility of a remote meeting is another example of what appears to be a pattern of sloppiness. It may be that given the size of the liquidation such mistakes are forgivable and simply a function of the amount of work, problematic time lines and additional difficulties caused by the current pandemic.  However, they are matters, which creditors are entitled to explore and debate before arriving at their choice of liquidators.

15.  Although the application seeks the appointment of a Committee of Inspection of named creditors and it might be said that this should go some way to allay any concerns that might be harboured by the opposing creditors, I consider there to be force in Mr Maurellet’s submission that the whole purpose of having a meeting of contributories and creditors to decide who they wish to conduct the winding-up and protect their interest, is to allow views to be canvassed and concerned creditors to have the opportunity to bring their concerns to the attention of other creditors and seek to persuade them if they wish that an alternative candidate might be appropriate.  In my view this is not a case in which a regulating order should be granted.  I dismiss the application.  The Provisional Liquidators, the Official Receivers, AIG and WKCDA’s costs of the application are to be paid out of the assets of the Company such costs to be taxed if not agreed and paid forthwith.  I will not make any orders for two counsel.