RE THE INCORPORATED OWNERS of FOREMOST BUILDING

HCCW 47/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 47 OF 2004

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D E C I S I O N

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1.  This is an application by a summons issued on 5 October 2004 under section 182 of the Companies Ordinance, Cap. 32 by Wong Wai Man, a contributory of the Incorporated Owners (“the Incorporated Owners”) of Foremost Building (“the Building”), which is situate at Nos. 19-21 Jordan Road, Kowloon, Hong Kong.  The applicant is a co-owner of premises in the Building.

2.  The applicant seeks an order that notwithstanding the winding-up order on 29 March 2004, the following dispositions of the property of the Incorporated Owners by the provisional liquidators of the Incorporated Owners shall not be avoided by virtue of section 182:

(1)     dispositions in the ordinary course of the management of the Building for proper value;

(2)     HK$42,004.50 for settlement of the management expenses of the Building for July 2004;

(3)     HK$42,070.50 for settlement of the management expenses of the Building for August 2004;

(4)     future dispositions in the amount not exceeding HK$40,000.00 a month for the settlement of the management expenses of the Building; and

(5)     an agreement purportedly entered into between the Incorporated Owners and Tak Lee Elevator Engineering Company Limited on 10 September 2004 for the maintenance service of the lifts in the Building starting from 11 September 2004 for 1 year.

3.  The matters giving rise to the application may be stated as follows.

4.  On 3 December 2001, judgment was obtained against the Incorporated Owners for damages in a personal injuries action by 3 plaintiffs.  The total debt owed to them came up to HK$8,229,529.91.

5.  On 15 January 2004, the plaintiffs presented a petition to wind up the Incorporated Owners.  A winding-up order was made on 29 March 2004.  The provisional liquidators were appointed the same date.

6.  Since the winding up of the Incorporated Owners, money in the bank account of the Incorporated Owners had all been withdrawn by the provisional liquidators and the account was closed.  All management fees collected were paid to the provisional liquidators thereafter.

7.  The management fees of the Building were used to pay for various expenses of the Building, including the salaries of a staff, three watchmen and two cleaners, the maintenance of lifts, and utility charges.  The amount came up to about HK$42,100.00 a month in July and August 2004.  Since July 2004, the monthly management expenses of the Building have been in arrears.

8.  The applicant has deposed that he understands the great majority of the owners of premises in the Building “are now prepared” to contribute to the provisional liquidators for satisfying the judgement debt.  He seeks a validation order for the payment of future monthly management expenses of HK$38,100.00 and those in arrears for July and August 2004.

9.  The provisional liquidators received a statement of account from the Incorporated Owners on 25 May 2004, according to which the Incorporated Owners held assets of HK$220,009.78.  This sum was made up of cash of about HK$29,000.00 and the rest were debts due to the Incorporated Owners.

10.  The provisional liquidators were informed by the secretary, Chow Tak Wah (“Mr Chow”), that the Incorporated Owners received HK$130,629.00 from the previous owner of Flat A, 11/F of the Building on or about 15 October 2003 as trust money for his proposed share of the compensation payable to the petitioning creditors in respect of the personal injuries action.  The trust money has since been deposited into the Companies Liquidation Account.

11.  As at present, the provisional liquidators have received a total sum of HK$301,591.48 on behalf of the Incorporated Owners, made up of the balance of the Incorporated Owners’ bank account (this included the sum of HK$130,629.00 being the trust money mentioned earlier), and management fees received from July 2004 to October 2004.  If all the owners had paid their management fees in accordance with the deed of mutual covenants, the total management fees received per month should be HK$42,750.00.  However, the total management fees actually received by the provisional liquidators for these four months varied from HK$25,200.00 to HK$30,900.00.

12.  From time to time, if any money received by the provisional liquidators on behalf of the Incorporated Owners should exceed HK$10,000.00, the provisional liquidators would forward the same to the Official Receiver’s Office for deposit into the Companies Liquidation Account, in accordance with the administrative arrangement provided in the Official Receiver’s Office Circular No. 5 of 1999.  Up to present, the provisional liquidators have accounted for a total sum of HK$300,241.48 to the Official Receiver.  After deducting the trust money, there should be a balance of HK$169,612.48 held in the Companies Liquidation Account for the Incorporated Owners.

13.  Of the five orders sought in this application, I will deal with the fifth one first.  It is not appropriate to seek a validation order in respect of an agreement purportedly entered into by the Incorporated Owners with the contractor for lift maintenance, as section 182 relates to a disposition of the property of the company.  In any event, I understand from the provisional liquidators that they are willing to enter into a new agreement with the contractor on the same terms, so it would not have been necessary for the applicant to apply for a validation order in respect of this agreement.

14.  The petitioning creditors have adopted a neutral stance to the orders sought in this application.  As for the provisional liquidators, they have no objection in principle to a validation order being made in respect of payments for maintenance charges to the lift contractor and for utility charges.

15.  The provisional liquidators also take a neutral stance in respect of the wages paid to the watchmen and the cleaners.  However, they are not agreeable to the payment of wages to Mr Chow in the sum of HK$6,000.00 a month.  Mr Chow is a secretary and committee member of the Incorporated Owners.  The provisional liquidators submitted that a validation order should not be made regarding his salaries until his job duties have been clarified.

16.  I understand from the applicant’s solicitor that Mr Chow is willing to waive his claim for salaries in the past and that no application for a validation order would be sought insofar as this relates to Mr Chow’s salaries in future.

17.  The balance in the Companies Liquidation Account, not taking into account the trust money, is sufficient to cover the expenses for the past due payments.

18.  As for the future management expenses, it is doubtful if the provisional liquidators would have sufficient funds to discharge these expenses in future, if they do not receive management fees from all the owners of premises in the Building as in the past four months.

19.  The present case is different from the usual situation where a validation order is sought in respect of a company which is the subject of a winding-up petition or winding-up order.  The entity here is a corporation of flat owners incorporated under the Building Management Ordinance, Cap. 344.

20.  A corporation of flat owners has statutory functions to perform under section 18(1) of Cap. 344 in the management of a building.  These functions would still have to be discharged notwithstanding that the corporation is ordered to be wound up by the court.

21.  Under section 34 of Cap. 344, it is provided that in the winding up of a corporation registered under that ordinance, the owners shall be liable, both jointly and severally, to contribute, according to their respective shares, to the assets of the corporation to an amount sufficient to discharge its debts and liabilities.

22.  I see nothing wrong in principle to authorise the provisional liquidators to discharge expenses necessarily incurred in the management of the Building, provided of course that the provisional liquidators should have received contribution from the owners for such management expenses, and so long as any contribution received from the owners under section 34 of Cap. 344 in respect of their liability to satisfy the judgment debt of the petitioning creditors is kept entirely separate and is not to be utilised for any other purpose.

23.  I therefore make an order as follows:

                   Notwithstanding the presentation of the petition and the winding-up order made thereon, payments may be made by the provisional liquidators or the liquidators out of the monies accounted for by them to the Official Receiver and held in the Companies Liquidation Account, being contributions made by the owners of the Building for the purpose of paying the monthly management expenses of the Building, in the following amounts:

(1)    in respect of July 2004, HK$36,004.50;

(2)    in respect of August 2004, HK$36,071.50;

(3)    thereafter, not exceeding HK$33,000.00 a month

and that the same shall not be avoided by virtue of section 182 of Cap. 32.

24.  I make no order as to the costs of this application save and except that the provisional liquidators’ costs are to be paid out of the assets of the Incorporated Owners.