RE GRACE GARMENTS LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING-UP NO. 231 OF 1995

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JUDGMENT

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1. This is unfortunately a very hard case. It highlights, in my view, the, perhaps, antiquated nature of our insolvency laws and some of the feature of, our insolvency system as compared with other insolvency systems. I am asked today to grant a stay pending appeal.

2. I can, I hope, summarize the important facts shortly. The company was a garment manufacturing and dealing company. I am told that its difficulties stem from the very fact that the petitioner itself went into liquidation. Since the petitioner was a bank, now in liquidation, the knock on effect on the present company was that its trading activities virtually came to a halt. Much of its assets were locked up. There are a number of other banks which are owed money, I have been shown an affidavit by Mr. Koo today. I am told, some $31 million is owing to other banks. They have stayed any action for a number of years on the basis that they would be paid as and when money could be found. However, I am told, the company is not trading. I assume that these banks have been paid from other sources of which I am not aware. I have a great deal of sympathy because it seems that steps may be being made to satisfy these creditors as far as possible.

3. Nevertheless, I regret that on the authorities which have been shown to me starting with the ABC Chewing Gum case [1975] 1 W.L.R. 579 and progressing through the two Hong Kong cases that under our system of insolvencies, I should not grant any stay pending an appeal, having reached the conclusion, which I have, that a winding up order should be made. Under our system, it is important that matters are crystallized now. This applies particularly in respect of a case such this, as I see it, because there are at least three other major creditors whose rights both as against the petitioner and amongst themselves will be affected. Not least there are matters of interest and whether debts are paid now or later and so on and so forth. There are also apparently some assets of the company which have been the subject of correspondence which was referred to in my Decision. If there is a question that the creditors will be paid in the meantime the position would be even more serious. I appreciate that by refusing a stay there will be a considerable danger that this in itself will in effect bring the pack of cards crashing down. On the face of the affidavit which I have been shown this morning, the other banks will now move in and the prospect of any settlement of the debts by agreement will probably evaporate.

4. However, as I see it, there is nothing I should do about that under our present system because it is right to crystallize matters. Had I power to arrange matters so that there, could be some kind of re-construction of the company and for this purpose grant some kind of stay then the matter might be different. Unfortunately I know too little about the circumstances of the company even to venture into that. I would have to know very much more, it seems to me, about the company its assets, what it has done and what it has not done, before I could venture to say that under such a system it might be appropriate to embark upon a rescue course. Mr. Yu has advanced every argument very properly, that he could on behalf of the company in a most attractive way. I have discussed with him as to whether despite the fact that I feel bound to make the winding up order and not order any stay, I could arrange matters so that the matter could be ventilated in the Court of Appeal without causing too much damage.

5. It seems that my powers under section 209 cannot be used unless a proper application is made to me. The company cannot make such an application. The only other alternative is to persuade the Official Receiver not to take any steps. Again, unfortunately, in the circumstances I do not think that it would be right to force the Official Receiver to do that. It would be an act which, in my view, would be more an act of clemency than anything else.

6. I therefore say with some sympathy for the company and those behind the company that I have to refuse their application for a stay.