RE WO FUNG CONSTRUCTION LTD (in liquidation)

HCCW1055/2002

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) NO. 1055 OF 2002

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J U D G M E N T

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1.  This is an application by Mr Antony Nedderman, the current liquidator of the company Wo Fung Construction Limited (“the company”), for directions under Rule 45(2) of the Winding Up Rules.  Mr Nedderman asked for directions on whether he should continue as the liquidator or whether he should be replaced by Messrs Alan Chung Wah Tang and Wong Kwok Man as joint and several liquidators.  Both Tang and Wong are working in Grant Thornton, Certified Public Accountants.

2.  The first meetings of creditors and contributories of the company were held on 27 July 2004.  The creditors’ meeting favoured the replacement of liquidators but the meeting of the contributories favoured the status quo.  Hence, this application.

3.  This application was heard in the Punti dialect of the Chinese language and the parties have consented to these reasons being given in English. 

4.  The history of this matter can be recounted briefly.  The petition to wind up the company was presented on 18 September 2002 by a creditor, Aegina (B.V.I.) Limited (“Aegina”).  It was not opposed.  A Winding Up Order was then made by a master of the High Court on 20 November 2002.  On the same day, Messrs Antony Nedderman and Chin Kin Wah were appointed by the Official Receiver as the joint and several provisional liquidators under section 194(1A) of the Companies Ordinance (“the Ordinance”).

5.  The first meetings of creditors and contributories, as referred to in section 194 of the Ordinance, were not held within the three months after the Winding Up Order as required by Rule 106 of the Winding Up Rules.

6.  On 26 February 2003, the provisional liquidators filed a report with the court.  It stated that there was a meeting with a director on 2 December 2002 who advised the provisional liquidators the company had debts due from subcontractors, employees’ compensation due from insurance company and payments due from the main contractor.  However, on 7 January 2003, the main contractor, through its solicitors, advised the provisional liquidator that the main contractor may be a creditor of the company. 

7.  A director, by a letter of 2 January 2003, sought extension of a month to file the statement of affairs of the company, but in the end, no statement was filed within the extended date. 

8.  The preliminary investigation by the provisional liquidators showed that there was a sum of $28,300 recovered from a bank and a utilities company, but the liabilities to the creditors were at approximately $42 million.

9.  In the absence of further information and a meaningful statement of affairs, the provisional liquidators said in the report that they had reasonable ground to believe that the property of the company was not likely to exceed in value the sum of $200,000.  They therefore sought an order that:

(1)	the joint and several provisional liquidators shall be the joint and several liquidators but there shall be no meetings of creditors and contributories under section 194 or 206; and
(2)	there shall be no committee of inspection and the joint and several liquidators may do all things which may be done by a liquidator with a sanction of committee of inspection.

10.  An order in terms of this request was made by another master of the High Court on 24 March 2003.  In fact, the petitioner, Aegina had, by a letter which reached the liquidators on 2 March 2004, requested a creditors’ meeting to consider the appointment of alternative liquidators.  Aegina had submitted the biggest proof of debt at $24,717,205.62.

11.  I should also mention that Mr Chin Kin Wah had in the meantime left Mr Nedderman’s firm and the Official Receiver has, by a letter of 15 March 2004, indicated that there was no objection for Mr Nedderman applying to the court for Mr Chin’s resignation to be approved and for Mr Nedderman to continue as the sole liquidator until the completion of this liquidation.

12.  The first meetings of creditors and contributories were then held on 27 July 2004 and they passed different resolutions on whether there should be a change of liquidators.  This has been referred to above.

13.  Mr Nedderman then made another report on 24 August 2004 referring to the different resolutions of the meetings.  The report also revealed that he had, on 12 May 2003, recommended to the Official Receiver to prosecute the former directors under section 168I(3) for their failures to keep proper books of account and to submit an adequate statement of affairs.

14.  Mr Nedderman did not support the change of liquidators as resolved by the creditors’ meeting because of the pending investigation and possible prosecution of the former directors.  He said that the maintenance of the status quo is in the best interests of all concerned.  He also took the view that the prosecution, if any, would force the parties involved to eventually produce the necessary books of account and an adequate statement of affairs to enable him to conclude the liquidation.

15.  He then applied for directions under Rule 45(2) of the Winding Up Rules on whether there should be a change of liquidators. 

16.  On 15 November 2004, he also filed the minutes of the first meeting of the creditors and the contributories.  The minutes of the creditors’ meeting showed that he had confirmed to the creditors that the assets realized was at $28,300.05 and the total liabilities identified was at $78,004,640.48.

17.  The minutes also recorded his reporting to the meetings the non-co-operation of the former directors and the pending investigation with a view to prosecution by the Official Receiver.  He was questioned by the creditors on whether they might receive any money back and he repeated that there was no prospect of any dividend distribution.

18.  At the end of the meeting, 15 out of the 19 creditors who were present or represented resolved in favour of a change of liquidators.  Their proofs of debt came to $55,883,679.41 out of a total proof at $64,076,865.82.

19.  At the hearing today, various criticisms were made by the creditors present, but I do not find these criticisms substantiated.  The creditors, however, take the view that there should be some money due from the main contractor, Hip Hing Construction Company Limited (“Hip Hing”), as Hip Hing used to have several contracts with the company with a total value of several hundred million dollars.  They think that and some of the retention money received by Hip Hing from the government should belong to the company.  They do not accept that the value of the property of the company would be within $200,000.

20.  Mr Nedderman said that Hip Hing had terminated some of the contracts and alleged unsatisfactory performance by the company in the others.  He opined that there was difficulty in litigating with Hip Hing, however, he added that he would have to consider litigation if his appointment is to continue.

21.  He confirmed to the court that his up-to-date costs are at $61,635.15, as shown in a bill prepared this morning, but the value of the assets recovered remains at $28,300.05.  Apart from the case of Hip Hing, he did not know whether there was any prospect of recovering any more assets from other sources unless the former directors could provide the information.

22.  In the middle of the hearing, Aegina produced to the court a letter of agreement it made with Messrs Tang and Wong on 2 March 2004, whereby Tang and Wong agreed to be appointed as the liquidators of the company in place of Mr Nedderman.  Aegina in return undertook in the letter to pay their initial fees and expenses up to $400,000, if they could not recover the same from the assets of the company.  Aegina had also paid Grant Thornton an initial funding of $100,000 on 2 March 2004. 

23.  From the above it is obvious that if the liquidation should be continued by Mr Nedderman, it is unlikely that there would be any dividend for the creditors.  One of the constraints is the apparent lack of funds.

24.  If I should appoint new liquidators, there would be at least a sum of $400,000 available for further work to be done.  Mr Peter Wong, one of the proposed new liquidators, has told me in the hearing that some of the work covered by Mr Nedderman are preliminary works and need not be repeated if there should be an appointment of new liquidators.  Thus, an appointment of new liquidators would not result in complete wastage of the costs already incurred. 

25.  Mr Wong also said that he would consider going after Hip Hing on behalf of company for payment of part of the retention money that Hip Hing had received from the government.

26.  I note that the terms of the agreement between Messrs Tang and Wong, on the one hand, and Aegina on the other, does not fetter the hands of Tang and Wong in their work as liquidators of the company.

27.  I should also mention that the minutes of the meeting of the creditors on 27 July 2004 appear to suggest that Tang and Wong had agreed to work on a contingency fee basis.  After hearing Mr Wong, I think there was an error in the minutes.  I accept that Mr Wong had told the meeting that his fees would come from the company’s assets, in priority to the creditors.  However, if the company had no asset, he would get nothing.  Since his agreement with Aegina was a private matter, he did not disclose it to the meeting or to Mr Nedderman. 

28.  I also deal with Mr Nedderman’s point that it would be beneficial to retain the status quo because of the pending investigation and possible prosecution by the Official Receiver.  However, Mr Nedderman has assured me that even if he should be replaced, he would continue to assist the Official Receiver in the investigation and possible prosecution.

29.  I now come to the stance of the contributories.  They do not favour a change for fear of prejudice by the proposed liquidators against them, but I can find no evidence that would suggest such prejudice.  I also note that one of the two contributories is one of the two former directors who have, according to Mr Nedderman, failed to co-operate in the liquidation process.

30.  I also refer to Re Akai Holdings Limited & Anor [2001] 2 HKLRD 411, where Yuen J (as she then was) said at 417I to 418C:

“It is common ground that the court has a wide discretion when appointing liquidators.  It is not bound by the determinations of the meeting of the creditors or of the meeting of contributories,although the Court would of course have due regard to those determinations…… 

In deciding whom to appoint as liquidators, the Court considers what is in the best interests of all persons interested in the winding up. 

Naturally any appointment that would result in a saving in the time and cost of investigating the companies’ affairs should be preferred.”

31.  In the light of the undertaking of Aegina to pay $400,000 of the costs and expense of Messrs Tang and Wong if the company’s assets should be insufficient to pay them, I am in favour of appointing Tang and Wong to replace Mr Nedderman.  I think this is in the best interest of all concerned in the winding up. 

32.  I do not agree with the stance of the contributories and I repeat that there is no evidence of any prejudice by Tang and Wong against the contributories if they should be so appointed.

33.  I therefore order that Mr Alan Cheung Wah Tang and Mr Wong Kwok Man, both of Grant Thornton, Certified Public Accountants, be appointed the joint and several liquidators of Wo Fung Construction Limited in place of Mr Antony Nedderman and Mr Chin Kin Wah.

34.  Now I will listen to the parties on the question of costs. 

(Explanation by court re costs)

(Submissions re costs)

35.  Since nobody has asked for costs of this application, I will make no order of costs on the application.