CAI SHUYI v. THE JOINT AND SEVERAL LIQUIDATORS OF BLOCKCHAIN GROUP CO LTD (IN LIQUIDATION)

HCCW 118/2019

[2019] HKCFI 1522

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 118 OF 2019

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REASONS FOR DECISION

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Application

1.  By a summons dated 16 January 2019 (the “Summons”), Cai Shuyi (the “Applicant”), applied for, inter alia, the following orders:

“ 1. The regulating order made by The Honourable Mr. Justice Anthony Chan in relation to Blockchain Group Company Limited (the ‘Company’) on 21^st November 2018 (the ‘Regulating Order’) be discharged or varied;

2. Further or in the alternative, within 14 days of the Order to be made herein, the Respondents do convene the first meeting of creditors and contributories of the Company for the purpose of determining and/or voting on the nomination of new liquidators for appointment by the Court in place of the Respondents.”

2.  The Summons was first heard by Deputy High Court Judge Maurellet SC on 27 February 2019.  The learned Judge made the following orders:

“ Within 28 days of this Order, the Respondents do, by way of letter correspondence, ascertain from all known creditors and contributories of Blockchain Group Company Limited in respect of:-

(a) their votes on a resolution of whether or not an application should be made to the Court for appointing liquidator(s) in place of the Respondents (‘the Resolutions’) and

(b) the nomination of liquidator(s) by these known creditors and contributories of the Company (if any),

and the Respondents do report to the Court on (1) the entitlement of these known creditors and contributories of the Company to vote on the Resolutions; and (2) the outcome of the vote on the Resolution within 7 days thereafter.” (Deputy High Court Judge Maurellet SC’s Orders”)

3.  From the Second Report filed by the current liquidators dated 23 April 2019, it can be seen that:

(1)  On the votes in relation to the Resolutions, the current liquidators received a total of 185 votes.  162 creditors with a total claimed amount of HK$1,788,060,000 voted in favour of an application to be made to the Court for appointing liquidator(s) in place of the Respondents.  23 creditors with a total claimed amount of HK$907,929,975.06 voted against.

(2)  Of the 162 “Yes” votes, 160 creditors with claims totalling HK$1,563,060,000 nominated Mr Lai Kar Yan Derek and Mr Yip Wa Ming Ben of Deloitte Touche Tohmatsu and the remaining two creditors with claims totalling HK$225,000,000 had no nomination.

(3)  One creditor with a claim totalling HK$2,190,041.09 had voted “Yes” and nominated the current liquidators, Ms So Kit Yee Anita and Mr Koo Chi Ho Andrew.

(4)  11.4% of the contributories of the Company voted for the Resolutions and 88.6% voted against.

4.  The current liquidators take a neutral position to this application.

5.  It is important to note that although the current liquidators raised some concerns about some of the known creditors’ entitlement to vote,they did not determine that any of the known creditors are definitively not entitled to vote.  I am of the view that it is not appropriate for this Court to disenfranchise or discount any of the votes on the evidence before this Court.  

6.  In any event, in the 4^th Affirmation filed by the Applicant, it shows that if one were to calculate just the written confirmations, at least a total number of 88 bondholder creditors of the Company who represent 54.09% ofthe total debts owed by the Company to its creditors, support an application to court for appointing new liquidators in place of the Respondents.  I accept Mr Ho’s submission that, from the existing evidence, the views of the majority creditors are clear. 

7.  In paragraph 85 of the Second Report of the current liquidators, it is stated that:

“ For the Court’s information, under section 194(1)(c) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), when the meetings of contributories and creditors have different results, a determination hearing is required. We set out below the summary tables showing the summarised number and value of creditors votes, the number and value of creditors’ votes which are affected by all issues, and the voting of contributories.

Creditors’ votes

	Per voting forms received:		Voting creditors impacted by all issues:
Vote	No. of votes	Claimed amount HK$	No. of votes	Claimed amount HK$
Yes	162	1,788,060,000.00	147	1,644,560,000.00
No	23	907,929,975.06	11	81,949,836.36
Total	185	2,695,989,975.06	158	1,726,509,836.36

Contributories’ votes

Vote	No. of shares	%
Yes	7,660,105	11.40
No	59,522,336	88.60
Total	67,182,441	100.00

”

Applicable legal principles

8.  Section 194(1)(c) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (the “Ordinance”) provides:

“ the court may make any appointment and order required to give effect to any such determination, and, if there is a difference between the determinations of the meetings of the creditors and contributories in respect of the matter aforesaid, the court shall decide the difference and make such order thereon as the court may think fit.”

9.  The principles governing the Court’s discretion under section 194(1)(c) are well established.  They are in summary as follows:

(1)  When a company is insolvent, the majority votes of the creditors will in the normal course prevail because they have the primary interest in the outcome of the liquidation.

(2)  However, the creditors holding the majority vote do not have an absolute right as to the choice of liquidator because the appointment of a liquidator has to be conductive to both (i) the proper operation of the process of liquidation, and (ii) justice as between all those interested in the liquidation.

(3)  The office-holder needs to both act and be seen to act in the best interests of creditors and to properly investigate all claims.

(4)  A liquidator should not be a person nor be the choice of a person who has a duty or purpose which conflicts with the duties of the liquidator.

(5)  By contrast, it is not an objection to a liquidator that he is allied to or the choice of a person who is concerned to pursue the claims of the company through the liquidator.

(See Re Luen Yick Water & Drainage Works Ltd HCCW 209/2002, unreported, 9 January 2003 at §§18 – 20, per Kwan J (as she then was); Stanley International Betting Ltd v Stanleybet UK Investments Ltd [2011] BCC 691 at §§35 – 36, per Stuart Isaacs QC sitting as a deputy judge of the High Court and Re Cumulus Eastern European Property Fund Ltd [2018] SC (Bda) 31 Com, 5 April 2018 at §§17 – 18, per Kawaley CJ)

Analysis

10.  This is, at the end of day, a dispute as to which set of liquidators should be appointed into the Company.  There is no dispute that both sets of liquidators are competent and professional.  The cardinal principle that this Court follows is the principle of creditors’ democracy.  In the case of an insolvent liquidation, it is the interests of creditors that are of paramount importance and their views should carry weight.

11.  There are disputes as to the effect of Deputy High Court Judge Maurellet SC’s Orders, namely, whether it is a mere ascertainment of the creditors’ indicative voting intention as submitted by Ms Chan for the Respondents, or a paper meeting under section 194(1) of the Ordinance as submitted by Mr Ho for the Applicant.  In my judgment, Deputy High Court Judge Maurellet SC’s Orders were not made just for the purpose of ascertaining an indicative voting intention as first, the said orders refer to (i) the Resolutions and (ii) the entitlement of those known creditors and contributories to vote on the Resolutions.

12.  Secondly, what is important is that the known creditors have actually, by correspondence, voted on the Resolutions and the voting results are ascertained.  The objective of the exercise is to ascertain the majority creditors’ views and that has been done.  Deputy High Court Judge Maurellet SC must have intended that his orders were to achieve some useful purposes and not a mere academic exercise.  The purpose of an order under section 227C of the Ordinance has been achieved.

13.  As far as entitlement to vote is concerned, as I set out above, albeit that the current liquidators have some concerns or reservations over some of the known creditors’ entitlement to vote, in the Second Report, they did not go so far as to suggest that any of them should be disallowed from voting and their votes were duly counted in the Second Report.

14.  Further, even if one were to discount some of the votes, some 54.09% of all known creditors still support an application to court for appointing new liquidators in place of the Respondents.

15.  Mr Lee for the Official Receiver very fairly pointed out that this Court could give effect to the wishes of the majority creditors under section 194(1) of the Ordinance.  He very responsibly pointed out that the Court may like to consider:

(1)  the current liquidators have already spent more than six months in the investigation of the Company’s affairs and recovery of the Company’s assets; and

(2)  the current liquidators have been working on a restructuring plan for the Company and have located potential investors.

16.  I am of the view that the choice of liquidators is a matter of commercial decision of the creditors of the Company.  The creditors of the Company have full knowledge of the matters as set out in paragraph 15(1) and (2) above and they still voted for a new set of liquidators.  This is a matter entirely for the creditors.

17.  Further, I do not think that a change of liquidators at the present stage will affect whether the Company will or will not lose its listing status on 19 May 2020. I am sure the newly appointed liquidators will do what is in the best interests of the Company, including preserving its listing status. 

18.  Importantly, I am of the view that liquidators of a company needto enjoy the support of its majority creditors.  For example, any restructuring plan will need the support of its majority creditors.  With the backing of its majority creditors, the liquidation and/or restructuring of the Company can then move on smoothly without any unnecessary disputes.

19.  Finally, I would stress that there is no misconduct on the part of the current liquidators.  It is entirely a result of the democratic decision of the majority creditors.  I have pointed out during the hearing that the creditors are at liberty to convene further creditors meetings to change liquidators again if they so wish.

Disposition

20.  For the reason stated above, I make the following orders:

(1)  The regulating order made by the Honourable Mr Justice Anthony Chan in relation to Blockchain Group Company Limited (the “Company”) on 21 November 2018 be discharged;

(2)  Mr Lai Kar Yan (Derek) and Mr Yip Wa Ming (Ben) be appointed as the Joint and Several Liquidators of the Company;

(3)  The Joint and Several Liquidators shall be entitled to remuneration charged on a time-costs basis or such other basis as may be determined by the court under section 196(2) of the Ordinance;

(4)  The Joint and Several Liquidators do within 21 days from the date of this order give security to the satisfaction of the Official Receiver as provided by section 195 of the Ordinance;

(5)  Notice of the order should be advertised by the Joint and Several Liquidators in one issue of an English newspaper and in one issue of a Chinese newspaper published and circulating in Hong Kong and gazette by the Official Receiver; and

(6)  General liberty be given to creditors and contributories of the Company to convene creditors’ and/or contributories meeting by giving 14 days’ prior notice to the Joint and Several Liquidators.

(7)  The costs of this application incurred by the Applicant, the Official Receiver and the outgoing liquidators be an expense of the liquidation and paid out of the assets of the Company.

21.  Finally, it remains for this Court to thank Mr Ho for the Applicant, Mr Lee of the Official Receiver’s Office and Ms Chan for the Respondents for their helpful assistance to this Court.