Re KEL Holdings Ltd.

HCMP5519/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.5519 OF 1999

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R E A S O N S

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1. This is an application for the court's sanction to Schemes of Arrangement pursuant to section 166 of the Companies Ordinance affecting the three above-named companies ("the Kenworth companies). Not only are the three Schemes identical, they are in substance also similar to the twenty-five schemes considered by this court relating to UDL Holdings (HCMP436/2000) and its various subsidiaries which were approved on 18 April 2000 (unreported).

2. The petition was opposed by Nishimatsu Construction Company Limited, a disputed creditor. Nishimatsu had opposed the petitions in UDL Holdings Limited unsuccessfully. Inasmuch as the issues arising in the UDL Holdings and Kenworth schemes are identical, counsel for Nishimatsu did not seek to re-argue those matters as there is an appeal pending in UDL Holdings. His presence was, inter alia, to preserve Nishimatsu's position in being able to appeal the court's sanction to the Schemes relating to the Kenworth companies.

3. On the eve of the hearing of the petition, Nishimatsu served an affidavit, the purpose of which was to oppose the petition on the ground that there was clear evidence of dissipation of assets by those in control of Kenworth. Counsel for the petitioners opposed the application. It would appear that on the preceding day, in an appeal to Rogers J.A. on my earlier refusal to grant a stay of the UDL Schemes which was dismissed, a similar point was taken although no affidavit had been filed. After hearing counsel's submissions, I refused to admit the affidavit into evidence. I will state my reasons briefly.

4. The basis of the allegation appears to be seemingly irreconcilable statements relating to the financial condition of the Company as at 31 March 1998 contained in the scheme document which was circulated to the creditors and management accounts for Kenworth which was the exhibit marked LKLS-8 to an affirmation of Lee Ka-lun, Stephen, affirmed on 23 May 1998 filed in injunction proceedings that took place two years ago.

5. The scheme document was served on Nishimatsu's solicitors on 7 June 2000. This was well over a month before the hearing of the petition, yet there has been no intimation or notice until the eve of the hearing from Nishimatsu that it would seek to oppose the petition. It took everyone by surprise. Nishimatsu has been involved in supporting the petition to wind up the Kenworth companies since the first hearing before the master. Whilst it did not actively participate at subsequent hearings, its legal representatives were never excluded as interested observers from the numerous chambers hearings that have taken place in the course of this restructuring. Nishimatsu was therefore well aware of the progress of the restructuring. It is unfair for such an allegation to be sprung upon the petitioner at this late stage when the petitioner would only be in a position to offer an explanation for any apparent discrepancy at the cost of an adjournment.

6. Nishimatsu's stance is that the figures are completely irreconcilable and that it wishes to have a liquidator appointed so that an independent person might investigate what actually happened in the trading year in question. But it has to be born in mind that Nishimatsu is only a disputed creditor and therefore someone who does not even qualify to have a winding-up order made in its favour. As noted above, Nishimatsu has known all along the time frame for the Schemes and it could well have given notice so that appropriate directions could have been given for the filing of evidence and for the matter to be dealt with at this hearing. Rather Nishimatsu sought to derail the entire restructuring timetable. The creditors have voted overwhelmingly in support of the Schemes and it would be most unfair to delay the sanction of the Schemes unless there is good reason to do so.

7. Counsel for Nishimatsu could not give a valid explanation as to why his client sought to put in the affidavit at such a late stage. The excuse proffered was that his client was unwilling to incur costs until the very last minute. It is a feeble excuse and I do not accept it. It has all the hallmarks of a last minute attempt to filibuster the restructuring. Having regard to the interests of the many creditors who will be affected by any further delay in a scheme that has not been controversial, it would not be right to admit that evidence at this late stage. Nishimatsu was in a position to file its affidavit in opposition much earlier. That being so, it must bear the consequences of its own delay. In so far as Nishimatsu has a legitimate complaint, there are other avenues of redress. Its central allegation is one of dissipation of assets. If it considers that there is sufficient evidence to support this, it could consider applying for the appointment of a provisional liquidator.