RE UNIVERSAL DOCKYARD LTD

HCCW 663/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 663 OF 2002

____________

____________

______________

D E C I S I O N

_____________

1.  This is a determination hearing to consider the resolutions and determinations, if any, of the first meetings of creditors and contributories of Universal Dockyard Limited (“the Company”) under rule 45(2) of the Companies (Winding-up) Rules.

2.  The circumstances giving rise to the determination hearing are somewhat unusual.

3.  The Company was one of 24 participating subsidiaries in a scheme of arrangement (the Scheme”) of UDL Holdings Limited (“UDL Holdings”) and its 24 subsidiaries.  The Scheme was sanctioned by the court on 18 April 2000 and came into effect on 28 April 2000.

4.  On 21 June 2002, Fonfair Company Limited (“Fonfair”) presented a creditor’s petition to wind up the Company on the basis that the Scheme which operated as a bar to all proceedings in respect of claims of creditors of the Company would not apply to liabilities incurred by the Company after the effective date of the Scheme.  The submissions of Fonfair found favour with the court and I ordered the Company to be wound up on 9 June 2003.  In my judgment, I recognised that a winding-up order against the Company would upset the Scheme.  The issues involved in the effect of the winding-up order on the Scheme and vice versa are complex.  No application has been sought by any interested party for a determination of such issues to date.

5.  The Official Receiver became the provisional liquidator of the Company by virtue of his office on the making of the winding-up order.  He is placed in a difficult position.  The legal effect of the liquidation of the Company on the operation of the Scheme has not been fully considered, particularly in relation to the accounts receivable and unencumbered assets of the Company which have an estimated value of HK$14 million.  Enquiries made with the Scheme Administrator revealed that no payment has been made to the creditors under the Scheme at all for 4 years.  Difficulties have arisen regarding the powers to gather in assets for the benefit of Scheme creditors and to modify the Scheme to provide for a mechanism to replace the Scheme Administrator, who has left Hong Kong and wishes to resign his appointment.  Whilst the court has sanctioned a meeting to be convened for the modification of the Scheme and the Trust Deed on 18 September 2003, the modification was not approved by the majority of Scheme creditors at a meeting held on 30 December 2003, so the modification of the Scheme and the replacement of the Scheme Administrator has not been approved by the court.

6.  The cash position of the Company is only HK$20,000 odd.  The affairs of the Company are complex.  The Official Receiver has no resources to take steps to further the progress of the liquidation of the Company and to resolve the stalemate.  The Official Receiver is not prepared to accept appointment as the liquidator.  He is anxious to have liquidators appointed with full powers to enable them to gather in assets and obtain legal advice on the effect of the Scheme on the winding up of the Company.

7.  It was against this background that the first meetings of creditors and contributories were summoned by the Official Receiver.

8.  Despite the efforts of the Official Receiver to raise funds to seek legal advice from the petitioning creditor, from the Scheme Administrator and from possible realisation of the Company assets, The Official Receiver has not been successful.  In the absence of legal advice on the effect of the Scheme on the winding up of the Company, it was difficult for the Official Receiver to come to a firm view if the Scheme creditors should attend the first meeting of creditors or only the creditors with claims for liabilities incurred after the effective date of the Scheme should attend.  The Official Receiver took a pragmatic approach and decided to convene the first meeting in the usual way as if there were no Scheme and all creditors of the Company, be they Scheme creditors or post Scheme creditors, would be entitled to vote.  This would protect the Scheme creditors in the event that the Scheme should be declared ineffective at a later stage as a result of the liquidation of the Company or for some other reason.

9.  A first meeting of creditors was held on 26 August 2004 and attended by 43 creditors by proxy.  43 proofs of debt from these creditors were admitted for voting purposes, the total amount was about HK$666 million.  The Scheme creditors of the Company were allowed to vote.

10.  3 nominations for liquidators were put forward.  The majority voted in favour of Mr Simon Richard Blade and Mr Bruno Arboit of Baker Tilly.  The Official Receiver supports their appointment.  Even if the Scheme creditors had been prevented from voting, and the wishes of the creditors who appeared to be associated with UDL Holdings had prevailed, the Official Receiver would not be willing to accept appointment as liquidator and would have reported to the court and sought the appointment of the next firm of insolvency practitioners on the Panel A Scheme for contracting out of liquidators, as the issues involved in this liquidation are complex and would require the expertise of experienced insolvency practitioners.  I agree with the Official Receiver that experienced insolvency practitioners should be appointed as liquidators for the Company.

11.  Nominations of members of the committee of inspection were put to vote and the majority resolved on the appointment of these 5 creditors to the committee:

(1)    Fonfair;

(2)    The HongKong & Shanghai Banking Corporation;

(3)    Ernst & Young;

(4)    Bank of America (Asia) Limited; and

(5)    American Home Assurance Company.

12.  The first meeting of contributories was held on 26 August 2004 and the adjourned meeting on 2 September 2004.  Both meetings were inquorate.

13.  In these circumstances, a determination hearing under rule 45(2) of the Companies (Winding-up) Rules is required.

14.  An order was made on 8 October 2002 for a determination hearing to be held and directions were given for the notice of hearing to be advertised in two newspapers not less than 7 days before the hearing.

15.  No evidence in opposition has been filed by any creditor or contributory.  Other than Fonfair, no creditor has appeared at the hearing today.  Fonfair supports the orders sought by the Official Receiver to give effect to the resolutions passed at the creditors’ meeting on the appointment of liquidators and the appointment of a committee of inspection.

16.  UDL Holdings, a creditor and contributory, wrote an 8-page letter to the Official Receiver dated 26 October 2004, which was copied to the court, taking a number of points on the orders sought by the Official Receiver.  They wrote further to the court on 29 October 2004 stating that they do not intend to make submissions at the determination hearing and their solicitors would only attend on a watching brief to report the outcome of the hearing to them.

17.  I have taken into account the points made by UDL Holdings in their lengthy letter.  I do not think it improper for the Official Receiver to convene the first meeting of creditors before a determination is to be made on the effect of the Scheme on the winding up of the Company.  It does not appear to me there were any procedural irregularities in summoning the first meetings of creditors and contributories.  I do not think it is a must that the effect of the Scheme on the liquidation must first be determined before an appointment is made for the liquidators and a committee of inspection. 

18.  It is in the interests of all concerned that the liquidation of the Company should be progressed and experienced insolvency practitioners be appointed to take charge with the assistance of a committee of inspection.  It seems unlikely that the Scheme Administrator would take the initiative to act, given the difficulties encountered in the modification of the Scheme and that no progress has been made since a Scheme meeting was called in December last year.  Further, I do not think the Official Receiver should remain as the liquidator in view of his lack of resources to handle the complex affairs in this liquidation.

19.  For the above reasons, I make an order appointing the liquidators and members of the committee of inspection as resolved by the majority in the first creditors’ meeting.  I make an order in terms of paragraph 8 of the further report of the Official Receiver dated 27 October 2004. 

20.  I further order that the costs of Fonfair in this application be treated as a liquidation expense and be paid out of the assets of the Company.