RE PRESSURE VESSELS MANUFACTURING CO LTD

HCCW 1005/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1005 OF 2002

____________

____________

_______________

J U D G M E N T

_______________

1.  This is a petition to wind up Pressure Vessels Manufacturing Company Limited (“the Company”) presented by the Standard Chartered Bank on the ground that the Company is unable to pay his debts.  The petition was presented in the following circumstances.

2.  On 24 July 2002, a resolution was passed by the board of directors of the Company to wind up the Company under s. 228A of the Companies Ordinance, Cap. 32 as the Company cannot, by reason of its liabilities, continue with business.  It was further resolved that Mr Chan Kin Hang Danvil of K H Chan & Co, certified public accountants, be appointed as the provisional liquidator.  On 26 July 2002 a statutory declaration was made by a director pursuant to s. 228A and filed with the Companies Registry, declaring the aforesaid resolution had been passed.

3.  According to the statement of assets and liabilities made by a director on 22 August 2002, the Company’s liabilities exceeded its assets by some HK$18 million.

4.  The first meeting of creditors was held on 23 August 2002.  Prior to the meeting, the petitioner had filed a proof of debt of HK$6,403,277.83, being the outstanding balance of banking facilities granted to the Company, which became immediately due and payable when the voluntary liquidation proceedings were commenced on 26 July 2002.  The debt owed to the petitioner is secured by a charge over fixed deposits of the Company in the sum of HK$2,551,631.64, a legal charge over the properties owned by another company, and a personal guarantee from Mr Chan Kam Hoo Samson, Mr Chan Kam Chun John and Ms Chan Kong Yin Bing.  I understand that Mr Samson Chan is a director and shareholder and his brother Mr John Chan is a shareholder.

5.  At the first meeting of creditors which was chaired by a director of the Company, resolutions were passed by a majority in value of the creditors to appoint Mr Danvil Chan as the liquidator and to pay him HK$150,000.00 as liquidator’s fees.  The resolutions were passed on the basis of a ruling by the chairman of the meeting, who had legal advice from his solicitor in attendance, that the value of the petitioner’s claim and the claim of another substantial creditor, Wing Hang Bank Ltd, should be discounted by deducting from their claims the value of securities provided by third parties.  In the case of the petitioner, its claim for voting purpose was reduced from HK$3,851,646.19 (after deducting the fixed deposits provided as security to the Company) to HK$2,851,647.00 and in the case of the Wing Hang Bank, its claim was reduced from HK$10 million odd to HK$2.2 million odd.  It is contended by the petitioner that had this deduction not been made, the resolutions would not have been passed by a majority and the resolution proposed by the petitioner for the appointment of other candidates as the liquidators would have been passed.

6.  The decision to deduct the value of third party securities for voting purpose is clearly wrong in law, see Re K & R Wong Construction Co. Ltd [1998] 2 HKC 364.

7.  On 30 August 2002, the petitioner’s solicitors wrote to Mr Danvil Chan advising him of the above error and requesting a further creditors’ meeting to be held.  Mr Chan responded that the petitioner should apply to court for any relief if it considered necessary.

8.  Further, on 26 August 2002, Mr Samson Chan had written to the petitioner on behalf of the past and present directors making a proposal to settle the debt and stating that Mr Danvil Chan is authorized to act on their behalf to settle with the petitioner.  The petitioner took the view that the liquidator would have a conflict of interest in that he was advising the directors in their personal affairs with the petitioner.

9.  The petitioner has felt aggrieved by the decision to deduct the value of third party securities and is concerned that Mr Danvil Chan is not in a position to act impartially and independently as the liquidator.  Hence on 4 September 2002 the petitioner presented a petition to wind up the Company.

10.  Wing Hang Bank has reached an agreement with the Company recently for a debt restructuring.  It neither supports nor opposes the petition.  All the creditors who have given notice of intention to appear are in favour of continuing the voluntary liquidation and oppose a compulsory winding-up.  They are Mr Samon Chan and Mr John Chan, whose claims are HK$1.9 million and HK$4.8 million respectively, three trade creditors and 13 former employees.  The total claims of the 16 independent creditors amounted to about HK$1.5 million. 

11.  The debt of the petitioner after taking into account the security over the Company’s fixed deposits is about HK$3.8 million, so the majority in value of the creditors would appear to be against a winding-up by the court.

12.  Under s. 287(1), the court may, as to all matters relating to the winding-up of a company, have regard to the wishes of creditors or contributories, as proved to it by sufficient evidence.  S. 287(2) provides that in the case of creditors, regard must be had to the value of their debts.  In having regard to the wishes of creditors, this is not a mere mathematical exercise by adding up the value of their claims.  Account must also be given to the quality of their wishes, and whether there are good reasons for opposing a petition where a company is plainly insolvent.  Each case has to be decided on its own particular facts.

13.  In this stance, the reasons for the majority of the creditors in opposing the petition would appear to be their concern that the progress of the liquidation might be delayed if there were to be a change of the liquidator and this might also add to the expense, to the detriment of the unsecured creditors.  I also bear in mind that of the opposing creditors, the aggregate claims of the independent creditors, came up to about HK$1.5 million, less than the unsecured part of the petitioner’s claim.

14.  I do not regard the above concerns as sufficiently weighty reasons here.  The petition was presented not long after the liquidator was appointed, whatever work that has been undertaken by the liquidator in the three-month period would not be wasted as the fruits of his work would be passed on to the new liquidator.  Further, the position of the employees would be protected by the ex gratia payment to be made under  s. 16 of the Protection of Wages on Insolvency Ordinance, Cap. 380.  Although there would be some delay in the progress of the winding-up of the Company if a winding-up order is made, as the procedure for holding the first meetings would have to be complied with for a new liquidator to be appointed, it seems to me that any delay is unlikely to be for very long.

15.  I turn to consider the views of the petitioner in seeking a winding-up order to see whether the wishes of the majority should be overridden.  It is not alleged that there is any irregularity in the affairs of the Company that would require investigation in a compulsory winding-up.  The petitioner asserts that it has a genuine and legitimate sense of grievance in the choice of the liquidator by the majority and that it has no confidence that the liquidator would act impartially and independently in the liquidation.

16.  Mr Danvil Chan has filed two affirmations.  He has asserted that he takes a neutral position.  The petitioner says that the impression from his affirmations is that he is strongly inclined towards a continuation of the voluntary liquidation.  I am not inclined to disagree with this.

17.  In the affirmations filed by Mr Chan, he has taken a number of points against the petitioner, including challenging the validity of the petitioner’s debt and justifying the decision to deduct the third party security of the petitioner’s claim for the purpose of voting.  Most of the points taken by him, whether based on legal advice or otherwise, are untenable.  I should mention that quite a number of letters were exchanged between Mr Danvil Chan and the petitioner’s solicitors on the question whether it was right to deduct third party securities from the petitioner’s claim for voting purpose.  Notwithstanding this, Mr Chan continued to maintain, as he did in his latest affirmation, and in his address to the court today, that the decision was correct.

18.  In my view, the offer of a new creditors’ meeting to be held in the voluntary liquidation cannot address the petitioner’s concerns.  There is still the problem who is to conduct the new meeting and what principle is to be applied regarding the voting rights.

19.  I note that Mr Danvil Chan averred that he has not in fact advised past and present directors of the Company in their personal affairs with the petitioner, notwithstanding the letter of Mr Samson Chan dated 26 August 2002.  Mr Danvil Chan alleged that this was just a mistake or misinterpretation of Mr Samson Chan or the petitioner. 

20.  It is not material to my decision whether there was in fact lack of good faith towards petitioner on the part of Mr Danvil Chan.  What is important here is whether the petitioner is justified in insisting that the position of liquidator should be filled by someone else so that the liquidator is seen to be acting independently and impartially in the discharge of his obligations.

21.  There are special circumstances here why effect should not be given to the wishes of the majority for the voluntary liquidation to continue.  I consider that the petitioner does have a genuine and legitimate sense of grievance in the appointment of liquidator in the voluntary liquidation.

22.  I have considered the matters raised in the affirmation of Mr Samson Chan filed on 4 December 2002 and the submissions of counsel made on his behalf.  In my view, there is nothing of substance in his affirmation, including the allegation that the petition was presented for an improper motive to stifle the Company and to control the affairs of the Company in the liquidation.

23.  For the above reasons, I exercise my discretion in favour of making a winding-up order.  I further order that the petitioner’s costs are to be paid out of the Company’s assets.