RE PAN SINO INTERNATIONAL HOLDING LTD

HCCW 144/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 144 OF 2009

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D E C I S I O N

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The Applications

1.  I have before me 3 applications:

(1)	The appeal of a creditor Lawrence CPA Ltd. (“Lawrence”) against the decision of the Official Receiver as provisional liquidator of Pan Sino International Holdings Limited (“Company”) rejecting part of a proof of debt for the purpose of voting at a meeting of creditors held on 18 December 2009 by exercising his discretion under rule 128 of the Companies (Winding-up) Rules (Rules).
(2)	The determination of the Official Receiver’s application by summons made under rule 45(2) of the Rules for the appointment of liquidators of the Company.
(3)	Mighty Gains Holdings Limited’s (“Mighty Gains”) application issued on 10 May 2010 under rule 45(54) of the Rules for leave to be heard on the above 2 applications.

2.  At the outset of the hearing I gave Mighty Gains leave to be heard on both applications as they obviously have sufficient interest in them as a creditor of the Company. On 8 January 2010 Master Ko directed that Lawrence’s application be heard first.

Introduction

3.  The first and second applications are interconnected. Essentially the issues they give rise to are first, whether or not all the debt claimed by Lawrence should have been admitted for the purposes of voting at a meeting to appoint a liquidator of the Company and secondly, who should be appointed liquidators, a decision which is effected by proportion of the debt which Lawrence is able to vote at a meeting of creditors. The Company is listed on Hong Kong Stock Exchange. It was wound-up on 20 May 2009 and is now in the second stage of de-listing.

4.  At the first meeting of creditors on 6 August 2009 Lawrence’s proof for HK$2,119,369 was admitted in full. It represented 64% of the total admitted proofs for voting purposes. At that meeting Lawrence proposed Kenny King Ching Tam be appointed liquidator. The meeting was inquorate as was the adjourned meeting. Subsequently Lawrence changed its mind about the identity of its preferred liquidator and nominated Stephen Liu Yiu Keung and David Yen Ching Wai of Ernst & Young Transactions Limited. The Official Receiver then issued the present application for the appointment Mr. Liu and Mr. Yen as liquidators. The matter initially came before Master Ko. At the call over hearing on 10 November 2009 2 creditors appeared, Mighty Gains and Perfect Raise Investments Limited, who case doubt on the amount of debt owed by the Company to Lawrence who was also represented at the hearing. The Master directed the Official Receiver to look into the matter and adjourned the application. The Official Receiver wrote to Lawrence on 21 November 2009 raising queries concerning the claim for fees in excess of the fee (HK$500,000) agreed in a retainer letter dated 12 February 2008. Lawrence replied on 9 December 2009. Lawrence’s letter primarily consisted of complaints about the affairs of the Company and did not address directly the questions raised by the Official Receiver, but stated that the outstanding fee notes were payable.

5.  At an adjourned meeting of creditors held on 18 December 2009 the Official Receiver having assessed submissions made by other creditors determined that Lawrence’s proof was in respect of an unliquidated claim and accordingly rejected it as the Official Receiver was required to do by Rule 125 of the Rules. As a consequence the majority of creditors resolved that Derek Lai Kar Yan and Joseph Lo Kin Ching of Deloitte Touche Tohmastsu be appointed liquidators of the Company.

Lawrence’s Application

6.  Lawrence challenges the Official Receiver’s decision. It seems to me fairly clear from the evidence that it has filed that Lawrence or its advisers have failed to understand the Official Receiver’s reason for rejecting much of the proof. Lawrence appears to have thought that the Official Receiver was rejecting its claim that the Company had asked it to do additional work on its audit for which it had agreed to pay it at various hourly rates depending on who was doing the work. What was not appreciated was that the reason the Official Receiver had rejected much of the proof was that an assessment had to be made about how much additional work had been done (it not having been agreed by the Company) and this is why the Official Receiver considered that the proof was in respect of an unliquidated claim. Mr. Glen who appeared for the Official Receiver confirmed this at the commencement of the hearing. The Official Receiver is not suggesting that Lawrence is not entitled to be paid for the additional work that it says it has carried out.

7.  Neither the Ordinance nor the Rules define “unliquidated”. In paragraph 6/2/4 of volume 1 of the Hong Kong Civil Procedure 2010 the distinction between liquidated and unliquidated is explained in the following terms:

“A liquidated demand is in the nature of the debt, i.e., a specific sum of money due and payable under or by virtue of a contract.  Its amount must either be already ascertained or capable of being ascertained as a mere matter of arithmetic.  If the ascertainment of a sum of money, even though it be specified or named as a definite figure, requires investigation beyond mere calculation, then the sum is not a “debt or liquidated demand, but constitutes damages”.”

8.  Mr. Wong who appeared for Lawrence accepted this distinction. He argued that the claim was for a liquidated sum because its assessment was merely a matter of arithmetic. His client had demonstrated, so he argued, the time that it had recorded for the work it had carried out and no evidence had been filed to show the records were false or inaccurate and therefore assessing the claim was simply a matter of multiplying time by charging rates. I disagree. Lawrence has failed to appreciate the following. The assessment of the proof for the purpose of voting at a meeting convened in accordance with Rule 124 of the Rules is not the same as the examination of the proof under Rule 94 for the purposes of admitting or rejecting the proof for the purposes of determining distribution of assets. The later is likely only to take place if sufficient assets have been realised to justify the process. It is presumably because the liquidator is not expected to undertake a definitive assessment of the proof that Rule 125 provides that a creditor shall not vote any unliquidated or contingent debt, the determination of which might require considerable work. Assessing whether or not Lawrence is entitled to proof for the amount it claims by way of professional fees for the services that it has provided involves a consideration of the work it has done and whether or not the number of hours claimed are justified. This goes beyond an arithmetical exercise and is not the kind of task that a liquidator is to be expected to undertake in order to determine whether or not to admit a proof for voting purposes. In my view Lawrence’s claim was correctly treated as an unliquidated claim.

9.  At the outset of the hearing I had read Mr. Wong’s submissions as suggesting that any contractual claim that was precisely quantified was a liquidated claim. I so assumed largely on the basis of his citing of the judgment of Farwell L.J. in Lagos v Grunwaldt [1910] 1 KB 41 (CA) in his submissions, but at the hearing Mr. Wong made it clear that the point taken by Lawrence was limited to the argument I have addressed above, namely, that the assessment of the claim was simply a matter of arithmetic and that, as I have already noted, he accepted the extract from the Hong Kong Civil Procedure quoted above as a correct statement of the law. It is not, therefore, necessary for me to consider in any detail the authorities on what constitutes a liquidated claim.

10.  Lawrence took one further point. Mr. Wong argued that having admitted the proof at the first hearing it was not open to the Official Receiver to subsequently change its mind and reject part of it. Mr. Wong argued that Rule 96 of the Rules provides that only the court may do so. Rule 96 provides that “If the liquidator thinks that a proof has been improperly admitted, the court may, on the application of the liquidator, after notice to the creditor who made the proof, expunge the proof or reduce its amount.” In my view this Rules is directed to rejection of a proof or part thereof, which has been submitted pursuant to a notice given under Rule 93 and adjudicated upon under Rule 94. It has no application to the assessment by a liquidator under Rules 124 and 125 of whether or not a proof is in respect of a liquidated or unliquidated claim for the purposes of assessing whether or not a creditor is entitled to vote at a meeting of creditors.

11.  I, therefore, dismiss Lawrence’s application and order that Lawrence pay the Official Receiver’s costs of and occasioned by Lawrence’s application, which I assess at HK$120,000. I also order that Might Gain’s costs of and occasioned by the application be paid out of the assets of the Company.

The Official Receiver’s Application

12.  The 2^nd application is for an order that suitable liquidators be appointed over the Company. As I have already explained initially the Official Receiver proposed Mr. Liu and Mr. Yen who are Lawrence’s preferred candidates, but they have revised that view. They presently argue that Mr. Middleton and Mr. Mitchell of KPMG be appointed notwithstanding that the majority at the creditors meeting on 18 December voted for Mr. Lai and Mr. Lo. There reasons are that given the concerns expressed by Lawrence about the appointment of Mr. Lai and Mr. Lo it is desirable to appoint people who are fully independent. The Official Receiver does not, however, call into question either the integrity or competence of Mr. Lai and Mr. Lo, who are both on the Panel A List of Insolvency Practitioners.

13.  Lawrence has raised the following concerns. Mr. Lai and Mr. Lo are partners of Deloittes Touche Tohmatsu. Mr. David Chau, who is a director of Might Gains was until 3 years ago a partner in that Firm. As Mr. Chau explains in his 2^nd affirmation Mighty Gains is a private investment company predominantly seeking to invest in listed companies. Might Gains became a creditor of the Company as a result of taking an assignment of debt for HK$624,843.38 due to OSK Asia Capital Limited. Mr. Chau disclosed to Master Ko at the hearing on 10 November 2009 that he had gone to Singapore to meet with the ex-management of the Company with Mighty Gains solicitor in Singapore the previous day to find out what had happened to the Company before its shares were suspended and why it had incurred such a large audit fee. In addition there is a suggestion that Mr. Chau had approached Cheung Yuk Ming of Lawrence and asked him to sell Lawrence’s debt in order that Might Gains could secure the appointment of Might Gains’ preferred liquidators. Mr. Chau denies this and says that he spoke to Mr. Cheung in order to understand his expectation in the liquidation and to assess the best way of bringing the Company out of liquidation.

14.  The suggestion appears to be that Might Gains has some ulterior purpose in having Mr. Lai and Mr. Lo appointed. However, neither Mr. Wong nor Mr. Glen could identify what that might be. Mr. Chau says that his reason for preferring them is simply that he is familiar with them and has confidence in their abilities.

15.  The general principles which govern the approach of the court to appointment of liquidators under section 194(1)(c) of the Companies Ordinance is well established and was not in dispute before me.

(1)	The court has a wide and unfettered discretion in the exercise of this power.  It is not bound by the determinations of the meeting of the creditors or of the meeting of contributories, although the court will give due weight to their views: Re Akai Holdings Ltd. [2001] 2 HKLRD 411 at 417J.
(2)	In deciding whom to appoint as liquidator, the court will consider what is in the best interests of all persons interested in the winding up: Re Akai Holdings Ltd., supra, at 418B.
(3)	A liquidator is an officer of the court and should act impartially and in an even handed manner between all those interested in the winding up.  They must be independent and be seen to be independent.  It would be inappropriate to appoint someone as liquidator where there is some real prospect, even if small, of a conflict of interest and duty in the conduct of the liquidation.  However, the conflict must be real not theoretical and must be shown to be so by the person asserting it: Re St Georges Builders Hardware Pty Ltd. (1995) 18 ACSR 451.
(4)	The fact that a creditor is funding the liquidation is not a reason for criticism; rather in the case of an insolvent company a creditor is to be encouraged to make funds available to liquidators: Re Akai Holdings Ltd. supra, 422; Re Orient Power Holdings Ltd. [2008] 2 HKLRD 494, 508-509.

16.  In my view it has not been demonstrated that there is a real reason to believe that Mr. Lai and Mr. Lo will lack the necessary impartiality in dealing with the liquidation. Might Gains has bought debt in an insolvent listed company and must be assumed to wish to see the liquidation managed effectively with a view to making a return on what for it is an investment. It seems to me understandable that Mr. Chau has tried to find out more about the Company and would prefer to have liquidators with whom he is familiar. I do not think I would be justified in departing from the views of the majority of creditors in this case and appointing alternative liquidators. I will make an order appointing Mr. Lai and Mr. Lo.

17.  In addition I will make orders in the terms of paragraphs 19(2) to (5) of the Official Receiver’s report dated 28 December 2009. I make an order that in respect of the Official Receiver’s application, the costs of the Official Receivers, Lawrence and Might Gains be paid out of the assets of the Company.