SUN HUNG KAI STRUCTURED AND ANOTHER v. REGAL SPLENDID LTD

HCCW 66/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 66 OF 2012

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J U D G M E N T

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1.  The debt relied on by the petitioners arises as a result of a final judgment obtained against the company. On 20 January 2010 the petitioners obtained two charging orders absolute in relation to shares owned by the company in First Natural Foods Holdings Limited. First Natural is listed on the main board of the Hong Kong Stock Exchange. First Natural, I understand, is itself insolvent and is currently in the process of a restructuring.

2.  The total amount of the debt now secured by the two charging orders absolute is currently in excess of HK$60 million.  So far as the petitioners are currently aware the company probably has either no or no substantial other creditors and possibly no or no other substantial assets.

3.  The company is legally and beneficially owned by Yeung Chun Lung.  Mr Yeung guaranteed the loans to the company by the petitioners which give rise to the debt relied on in this petition.  Since the company became unable to repay the loans, Mr Yeung has apparently disappeared.  On the evidence currently available it seems fairly clear that the company is insolvent.

4.  The reason for the present application is as follows.  As I have already mentioned, the company owns shares in First Natural.  Its shareholding is very substantial representing 35.13 per cent of its current issued share capital.  The proposed restructuring of First Natural by its provisional liquidators, Mr Stephen Liu and David Yen of Ernst & Young, requires amongst other things the approval of a restructuring of its capital by its shareholders.

5.  The petitioners are concerned that unless provisional liquidators are appointed over the company who are able to exercise its voting rights in the shares it has in First Natural, the restructuring of First Natural may not be approved by its shareholders.  The petitioners anticipate that if the restructuring is approved then there will be a significant value to the company’s shares, out of which part of its debt secured by the charging orders absolute can be satisfied.

6.  The purpose of the present application is therefore primarily to protect the value of those shares by having provisional liquidators appointed who can vote the shares at the anticipated special general meeting of First Natural.

7.  As a consequence of the fact that the petitioners have obtained charging orders absolute over the shares a point was raised by Miss Wu as to the appropriateness of the present application.  The concern is along the following lines.  If the petitioners are fully secured by the charging order absolute and there will be no proceeds of the sale of the shares available to pay any unsecured creditors that in due course it may become apparent the company has, it follows that the sole purpose of appointing provisional liquidators would be to protect the personal secured interests of the petitioners. 

8.  Miss Wu questioned whether these were appropriate circumstances in which to appoint provisional liquidators.  I can see that there is force to the argument that the Companies Court should be reluctant to appoint provisional liquidators purely for the purpose of protecting fully secured interests.  The reason why the Companies Court would probably be reluctant to do this, except in unusual circumstances, is illustrated by the possibility that to some degree the assets of a company which might otherwise have been available for payment to unsecured creditors are absorbed in the payment of the fees of provisional liquidators who have been appointed exclusively for the purpose of protecting secured interests.

9.  Unfortunately I did not have relevant authority cited to me on how the court should approach the appointment of provisional liquidators on the application of secured creditors.  It appears that a secured creditor can petition to wind-up a company without having to expressly waive all or part of its security, even if it is fully secured.  This, of course, does not mean that it automatically follows that provisional liquidators should be appointed to protect what are essentially the personal interests of secured creditors. 

10.  I have concluded, however, in the present case that it is appropriate to appoint provisional liquidators on the terms agreed by the petitioners and the Official Receivers and approved by me for these reasons.

11.  It appears from the limited information that I have available to me that it is inherently highly unlikely that the shares will be worth, assuming First Natural is restructured as is currently proposed, anything like the full value of the petitioners’ debt.  It follows that the petitioners are highly likely to be unsecured for at least part of that debt.

12.  If the petitioners were the only creditors of the company and they were unsecured and the shares were the only assets of the company, then Miss Wu agreed with me that there would be no reason not to make the appointment that the petitioners seek.  It seems to me that the fact that the petitioners are secured in respect of at least part of their debt is not a reason to take a differing view, although I accept that what it does clearly identify is that in practice the reason for the application is to protect the personal interests of the petitioners, who as I have already indicated, so far as anybody currently knows are probably the only creditors or the only substantial creditors of the company.

13.  For those reasons I appoint Mr Kong Chi-how, Johnson and Mr Yeo Boon-ann, Kenneth as joint and several provisional liquidators of the company.

14.  So far as the Official Receiver’s costs of this application is concerned, I assess those in the sum of HK$6,000 to be paid out of the assets of the company.