RE LUEN YICK WATER & DRAINAGE WORKS LTD.

HCCW 209/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 209 OF 2002

____________

____________

_______________

D E C I S I O N

_______________

1. This is the hearing of an application to decide the differences between the determinations of the first meeting of the creditors of Luen Yick Water & Drainage Works Ltd ("the Company") and of the first meeting of the contributories over the appointment of the liquidators and the committee of inspection. The Company was wound up by an order of the court on 17 June 2002, whereby the Official Receiver became the provisional liquidator.

2. The first meetings of creditors and contributories were summoned by the Official Receiver and held on 12 July 2002. On 25 July 2002, the Official Receiver reported to the court the results of the first meetings. A summons was issued by three contributories who are also creditors, Lee Cheung Ching, Wong Sik Fai and Cheng Lai Hing, on 30 July 2002, purportedly under r 45 of the Companies (Winding-up) Rules, seeking a hearing for the court to determine the differences on the appointment of liquidators and the committee of inspection. Such an application could only have been taken out by the provisional liquidator according to r 45(2).

3. On 5 September 2002, the Official Receiver made a further report to the court and sought directions for a determination hearing under r 45(2). I gave directions the same day for the Official Receiver's application to be heard on the return day of the summons issued earlier by the three contributories on 19 September 2002, with consequential directions for the advertisement of the notice of the hearing. At the hearing on 19 September 2002, leave was given to the contributories to withdraw their summons and on their application, the determination hearing sought by the Official Receiver was adjourned to today to enable the contributories and certain creditors to file and serve further affirmations.

The first meetings

4. What happened at the first meetings was as follows.

5. As at the date of the first meeting of creditors, 7 proofs of debt were received by the Official Receiver. They were as follows:

Creditor		Amount claimed
(1)	Hyundai Engineering and Construction	(i) HK$7,242,462.00
	Company Ltd ("Hyundai")	(ii) HK$18,040,283.79
(2)	Wong Sik Fai	HK$364,806.70
(3)	The Bank of East Asia Ltd ("BEA")	HK$5,398,327.57
(4)	Chekiang First Bank Ltd	HK$257,977.31
(5)	Bun Kee (International) Ltd ("Bun Kee")	HK$812,594.53
(6)	Cheng Lai Hung	HK$1,917,135.08
(7)	Lee Cheung Ching	HK$10,094,500.29

6. The total amount of claims received was HK$44,128,087.27. With the exception of Chekiang First Bank Limited who did not appoint any proxy, the other six creditors all attended the first meeting of the creditors either personally or by proxy.

7. According to the Statement of Affairs submitted by Lee Cheung Ching on 30 August 2002, the assets and liabilities amounted to HK$15,043,788.49 and HK$32,937,874.79 respectively. Up to the latest report of the Official Receiver on 24 December 2002, the amount of assets collected by the Official Receiver is HK$248,193.47. The Company is clearly insolvent.

8. At the first meeting of creditors, three creditors with the total claims amounting to HK$31,493,667.89 passed the resolution that Messrs Cosimo Borrelli and David John Kennedy, both of RSM Nelson Wheeler Corporate Advisory Services Ltd, be appointed joint and several liquidators of the Company. These three creditors were Hyundai, Bun Kee and BEA. The other three creditors who are also the contributories, holding claims amounting to HK$12,376,442.07, objected to such proposal and they proposed instead that Miss Fenn Kar Bik Lily and Miss Lee Ka Man, both of Messrs Lily Fenn & Partners, be appointed. Thus, by a majority, it was resolved that Messrs Borelli and Kennedy were to be appointed joint and several liquidators.

9. Two creditors with total claims amounting to HK$26,095,340.32 passed the resolution that there should not be a committee of inspection in this winding-up. They were Hyundai and Bun Kee. The other four creditors holding claims amounting to HK$17,774,769.64 objected to such proposal. They were the three contributories and BEA.

10. One other resolution was passed at the first meeting of creditors and that is to convert the winding-up into a creditors' voluntary winding-up. This is not a difference that I would need to resolve today.

11. At the first meeting of contributories also held on 12 July 2002, the only three contributories who are also creditors passed a resolution unanimously to appoint Miss Fenn and Miss Lee as joint and several liquidators and that there should be a committee of inspection made up of the three contributories.

Further proofs of debt

12. Subsequent to the 1st meeting of creditors and before the hearing on 19 September 2002, further proofs of debt were received by the Official Receiver bringing the total number of proofs of debt to 23. The additional proofs of debt are in the total sum of HK$11,628,394.78.

13. After the determination hearing was adjourned in September 2002, three proofs of debt were received by the Official Receiver, bringing the total number of proofs of debt to 26 as at 24 December 2002 with a total claim of HK$58,370,265.99.

14. It was contended by Miss Teresa Wu for the three contributories that the proofs of debt lodged by Hyundai should not be admitted for voting purpose as Hyundai has not obtained judgment in the two actions brought for the recovery of the debts. She referred to r 125 of the Companies (Winding-up) Rules which provides inter alia that "a creditor shall not vote in respect of any unliquidated or contingent debt, or any debt the value of which is not ascertained".

15. Having considered the proofs of debt and the pleadings of Hyundai in the two actions to recover the debts, it does not seem to me that Hyundai's claims for which the proofs of debt are lodged are unliquidated or contingent, nor could it be said that the value of the debt claimed has not been ascertained. This submission is of no substance.

16. In any event, under r 128, the Official Receiver being the chairman of the meeting has power to admit or reject proofs of debt for the purpose of voting, but his decision shall be subject to appeal to the court. There is no appeal against the decision of Official Receiver to admit Hyundai's proofs of debt for the purpose of voting at the 1st creditors' meeting.

The appointment of liquidators

17. Nothing is known to the Official Receiver which suggests that any of the four proposed liquidators is not fit and proper to act. There does not appear to be any question of impartiality or conflict of interest on the part of the proposed liquidators.

18. The court has a wide discretion on the appointment of liquidators, and is not bound by the determinations of the meetings of the creditors and contributories, although the court would of course have due regard to the determinations at such meetings (s 194(1)(c) of the Companies Ordinance, Cap. 32 and Re Akai Holdings Ltd [2001] 2 HKLRD 411 at 417-418)

19. Where it appears that a company is insolvent, the views of the creditors, whilst by no means binding on the court, must be given due weight, for it is they and not the shareholders who would have the primary interest in the outcome of the liquidation (Re Dunquil Pty Ltd 9 ACLR 950 at 954; Re Hung Fung Holdings Ltd HCCW No. 445 of 2000, 9 October 2001, Chu J at page 4).

20. It was submitted by the Official Receiver on these principles that as the Company is insolvent, due weight should be given to the wishes of the creditors as reflected in the resolution passed by the creditors at the first meeting. I agree.

21. I ask to what extent do the wishes of the creditors who have lodged further proofs of debt alter the position? According to the latest report of the Official Receiver, the creditors in favour of the appointment of Messrs Borrelli and Kennedy have a total claim of HK$31,493,667.89, that is 57.86% of the votes, whereas those in favour of the appointment of Miss Fenn and Miss Lee have a total claim of HK$22,934,091.53, and that is 42.13% of the votes.

22. In the absence of any matter which would tip the balance in favour of appointing Miss Fenn and Miss Lee, it seems to me that the majority view of the creditors should prevail.

The Committee of Inspection

23. It was resolved by a majority at the first meeting of creditors that a committee of inspection should not be appointed.

24. The appointment of a committee of inspection is a matter for the discretion of the court (s. 206(2) of Cap. 32).

25. Although Hyundai had voted against the appointment of a committee of inspection at the first meeting of creditors, Hyundai has informed the court at the hearing in September 2002 that it no longer opposes the appointment of a committee and it wishes to become a member of such committee.

26. The Official Receiver submitted that it would be more convenient for the liquidators to deal with a committee representative of the interests of creditors and that more good than harm would result from the appointment of a committee of inspection, citing Re Goodway Ltd [1999] 1 HKC 141 at 148.

27. I am of the view that it is appropriate in these circumstances for a committee of inspection to be appointed, now that a total of 26 proofs of debt have been received.

28. Apart form Lee Cheung Cing, Wong Sik Fai and Cheng Lai Hing, who are contributories and creditors, five creditors have expressed interest and willingness to serve on the committee. They are Hyundai, Lam Ho Lin, Cheung Kwong Engineering Company, Wing Shun Water & Electrical Works and BEA.

29. It was submitted by the Official Receiver that it would be desirable to have an odd number of members for voting purpose and that the membership should not be too big to be unwieldy. I agree five is an appropriate number in this case and that there should be a balanced representation of different interests.

30. I make the following appointments to the committee of inspection:

(1) a representative of Hyundai,

(2) a representative of BEA,

(3) Lee Cheung Ching,

(4) Lam Ho Lin, and

(5) Lin Lam Yim as the representative of Cheung Kwong Engineering Company.

Orders

31. I make the following orders under s 194(1)(c) and 206(2):

(1) Mr Borrelli and Mr Kennedy be appointed joint and several liquidators of the Company;

(2) a committee of inspection be appointed with five members as stated above;

(3) the remuneration of the liquidators shall be as determined by agreement between the joint and several liquidators and the committee of inspection or if they fail to agree, the remuneration shall be determined by the court;

(4) the joint and several liquidators do within 7 days from the date of this order give security to the satisfaction of the Official Receiver as provided by s 195 of Cap. 32;

(5) notice of this order be advertised by the joint and several liquidators in one issue of an English newspaper and in one issue of a Chinese newspaper circulating in Hong Kong and be gazetted by the Official Receiver;

(6) the Official Receiver's costs of this application shall be an expense of liquidation and be paid out of the Company's assets; and

(7) the costs of Hyundai and the three contributories who have appeared on this application are also to be treated as an expense of liquidation and be paid out of the Company's assets.