RE TIFFIT SECURITIES (HONG KONG) LTD

HCCW 86/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 86 OF 2007

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D E C I S I O N

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1.  This is a summons by the provisional liquidators of Tiffit Securities (Hong Kong) Limited (“the Company”), seeking various directions under section 200(3) of the Companies Ordinance, Cap. 32, in matters arising under the winding up of the Company.  The provisional liquidators were formerly the administrators appointed by the court on the application of the Securities and Futures Commission (“the SFC”).

2.  The Company used to provide services of securities brokerage to retail customers in Hong Kong.  There was a deficit of $54 million in the value of securities held on behalf of clients as at 18 July 2006, when the SFC issued a restriction notice to the Company in exercise of its regulatory powers.  The Company was ordered to be wound up on 2 May 2007.  Orders were made on 20 November 2006 and 18 January 2007, giving directions on the mechanism for returning securities to clients.  I understand these measures are being implemented.

3.  Four orders were sought in the present summons.

4.  The purpose of the first order is to streamline the liquidation process for clients and to avoid duplication of steps already taken by the administrators and the provisional liquidators, thereby reducing costs.

5.  They seek an order that in respect of those clients of the Company who have a non-zero balance of securities and/or cash in their accounts with the Company (“Active Clients”), their claims against the Company as set out in their claim forms (as defined in the supporting affidavit) or, if no claim form has been returned, according to the Company’s books and records and the investigations of the administrators and provisional liquidators, be admitted without proof for the purposes of voting at any creditors’ meeting and adjudication by the provisional liquidators or liquidators.  No order is sought for creditors other than the Active Clients, so they will file proofs of debt in the usual way.

6.  I understand there are 517 Active Clients.  Claim forms have been received from 452 of them.  65 Active Clients have not returned claim forms.

7.  It appears that the court would have power to make the order sought under rule 79 of the Companies (Winding-up) Rules.  Mr. Dobby referred the court to In re Theo. Gavin Ltd [1969] 1 Ch 624 at 643C to D. Pennycuick J made a similar order under the equivalent provision in rule  91 of the Companies (Winding-up) Rules, 1949.  The application there involved a deposit-taking company.  A great number of small depositors had not put in any formal proof of debt for their claim for interest.  The liquidator sought a direction that if and so far as any depositor should be entitled to claim for interest, his claim might be admitted under rule 91 without further proof.  The court was satisfied it was clearly a case in which such a direction should be given.

8.  Mr. Dobby also referred to section 227E of Cap. 32 which provides that depositors of a bank in liquidation shall be deemed to have proved their debts for amounts assessed with reference to their net balances in their accounts with the bank.  There is no statutory provision to similar effect regarding other companies.

9.  Ms. Mckenna has drawn my attention to rule 4.67(2) of the Insolvency Rules 1986 in the U.K.  This provides that the court may, “in exceptional circumstances”, by order declare the creditors, or any class of them, be entitled to vote at creditors’ meeting without being required to prove their debts.  Although we do not have an equivalent provision, and there is no restriction how the power in rule 79 may be exercised, Ms. Mckenna submitted that the court should dispense with the requirement to submit a proof of debt only in exceptional circumstances.

10.  I agree that the power under rule 79 should not be lightly exercised.

11.  I am satisfied it is appropriate to dispense with separate proofs of debt in the special circumstances here.  The Official Receiver is not aware of any previous situation where the court has ordered proofs of debt to be dispensed with, but has no objection to this course in the present application, as it does not appear that preduice would be occasioned to creditors in any way.  The claims of Active Clients in relation to their share entitlements have been set out in the claim forms issued to them by the provisional liquidators for the purpose of allocating and returning securities to them, and their claims have already been adjudicated by the provisional liquidators in the context of the share distribution exercise. 

12.  The information that clients were asked to provide in the tailor-made claim forms was very comprehensive – for claims for securities held by the Company on the clients’ behalf, claims for monies owed by the Company, or any other claims clients might have brought against the Company.  The claim forms required the same sort of information that clients would be required to provide in the typical proof of debt in compulsory liquidation.  For Active Clients who have not returned claim forms, the provisional liquidators have verified their claims on the basis of the books and records of the Company and the administrators’ own investigations, pursuant to the order made in November 2006.  There is nothing to be gained by requiring the creditors to repeat the exercise and to submit proofs of debt, quite apart from adding to the costs of the liquidation.  In respect of any further claims of Active Clients, they will submit proofs of debt in the usual way, as will be made clear in the notice of first meeting of creditors to be sent.

13.  I should mention that the provisional liquidators stated that even though no separate proofs of debts would be received from Active Clients, the provisional liquidators or liquidators will nonetheless file with the Registrar of the High Court information similar to that required under rule 101 of the Companies (Winding-up) Rules (being the respective amounts of claims admitted, rejected or to be considered further), to keep the court informed.

14.  So I will make an order in terms of paragraph 1 of the summons.

15.  Paragraph 2 of the summons would appear to be consequential upon paragraph 1.  Under rule 80 of the Companies (Winding-up) Rules, a debt may be proved by delivering a proof of debt in the prescribed form and accompanied by the prescribed fee.  The provisional liquidators seek a declaration in respect of the Active Clients’ claims which have been admitted without proof in accordance with paragraph 1, that the Active Clients are not required to pay the fee of $40.00 per proof of debt to the Official Receiver as required by item 10 of Table A in Schedule 3 to the Companies (Fees & percentages) Order.  To the extent that the Active Clients are not required to prove their debts under paragraph 1 of the summons, there would be no proof of debt and the prescribed fee is not payable.

16.  The provisional liquidators say that paragraph 2 of the summons is sought merely as confirmation.  I agree with the Official Receiver there is no need for any declaration to be made.

17.  Paragraph 3 of the summons relates to the value of the net claims of clients.  The provisional liquidators seek an order that for the purpose of assessing the claims of any client of the Company, the provisional liquidators or liquidators do deduct the number of securities in each line of stock returned in specie to the client pursuant to the order in January 2007, or the number of securities in each line of stock the proceeds of which were paid to the client pursuant to the January order, as the case may be, from the verified claim of the client to securities within that line of stock, and do value the net claim of the client to securities by reference to closing prices as at 2 May 2007, being the date of the winding-up order.

18.  This issue was considered in my earlier decision in Re  Chark  Fung Securities Co Ltd, HCCW No. 362 of 1998, 1 December 2005, paragraphs 9 to 15.  I do not repeat my reasons there, I will adopt the same approach and direct that the net claims of clients be valued on the “proprietary basis”.  The date of valuation should be the date of the winding-up order for reasons given in that decision and having regard to rule 82(1)(b) of the Companies (Winding-up) Rules.  There would be an order in terms of paragraph 3 of the summons.

19.  Paragraph 4 of the summons seeks approval of the draft notice to be sent to all creditors for the first meeting of creditors.  The notice is to include information in addition to that required by rule 109 of the Companies (Winding-up) Rules, to inform creditors of this application and the order made, and what they need to do if they have any further claims against the Company.  There would also be an order in terms of paragraph  4.

20.  The provisional liquidators’ costs and the Official Receiver’s costs of this application are to be paid out of the assets of the Company.  I assess the Official Receiver’s costs on a gross sum basis at $4,000.00.