BESPARK TECHNOLOGIES ENGINEERING LTD v. J.V. FITNESS LTD

HCCW 209/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 209 OF 2016

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D E C I S I O N

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1.  On the 27 June 2016, Bespark Technologies Engineering Limited presented a winding-up petition against J.V. Fitness Limited (“the Company”). On 14 July 2016, the court appointed Mr Kan Lap Kee, Ms Hou Chung Man, and Mr Alan Tang as joint and several provisional liquidators of the Company. On 23 November 2016, the Company was compulsorily wound up by an order of Master S Lo. The provisional liquidators have since then continued to act as the provisional liquidators of the Company.

2.  By a letter dated 20 February 2017, the provisional liquidators made an ex-parte application for a regulating order.  I was not prepared to deal with the application in writing and, accordingly, the provisional liquidators issued a summons. 

3.  On 10 April 2017, the provisional liquidators sought along with a regulating order an order dispensing with the first meeting of the creditors for the same reason that a regulating order is sought, namely, that there are a very large number of creditors, the appointment of Ms Hou and Mr Kan as liquidators, and the formation of a committee of inspection.  The Official Receiver has no objection to the orders that are sought. 

4.  The relevant principles by reference to which applications of this sort are assessed are clear and uncontentious. 

5.  As summarised by Kwan J (as she then was) in Re Legend International Resorts Ltd (No 3) [2006] 3 HKLRD 289 at paras 8 and 15:

(1)   A regulating order is usually made in the situation where by reason of a large number of creditors or contributories, it is impractical to hold a first meeting.

(2)   In the usual case where there is a dispute between creditors and contributories on the choice of liquidators, and the dispute is to be resolved by the court, the court would usually have regard to the wishes of the independent creditors.

6.  As to the appointment of liquidators, Yuen J (as she then was) observed it would normally be natural for the provisional liquidators to carry on as full liquidators: Re Guangnan (KK) Supermarket Ltd [2002] 1 HKLRD 348 at para 8:

“In relation to the application in s.227B, it seems to me that it would only be natural for these provisional liquidators to carry on as full liquidators. These liquidators first came onto the scene when by an order made by myself on 20 June 2001, on an ex parte application made by the petitioner, Messrs O’Driscoll and Liu, partners in the firm of Ernst & Young, were made provisional liquidators. In light of the fact that some four months have passed and that they have been carrying out the work of liquidating (provisionally) this company, it seems to me that it would be natural to let them carry on, thereby saving the estate the costs of any new liquidators coming in and duplicating costs. There seems to be no one who has suggested a different set of liquidators, and the Official Receiver has joined in the present application and has expressed no objection to these provisional liquidators being appointed as joint and several liquidators.”

7.  Regarding the committee of inspection, Kwan J says the following in Re Wah Nam Group Ltd [2002] 2 HKLRD 369:

(1)   The appointment of a committee of inspection is a matter for the discretion of the court.  It is not necessary to ascertain the wishes of the creditors or contributories (at para 14).

(2)   A committee is more than just a consultative body for the liquidators.  Its function is to assist the court in its supervisory role over the liquidators, and avoid the need for time-consuming and costly applications to the court (at para 16).

(3)   The size of the committee should not be too big, as that may prove unwieldy.  There should be balanced representation of the creditors on the committee so that it would be fairly representative of the general body of creditors (at paras 20–‌‌‌21).

8.  The principal concern I had when the application was presented to me in writing concerned the identity of the proposed liquidators. Although the summons, as I have already explained, seeks the appointment of Ms Hou and Mr Kan, the application that was presented to me in February sought also the appointment of Mr Alan Tang.  The application made no reference to the fact that Mr Tang had been found in HCMP 450/2016 to be in contempt of court and, although this part of the order was subsequently overturned by the Court of Appeal, the decision of To J indicated that Mr Tang would be committed for his contempt.  Following the partial overturning of the finding of contempt, Mr Tang was fined HK$300,000, although that order was made subsequent to the written application to me.  

9.  It seems to me clear that, particularly as the provisional liquidators’ application was formulated and presented by solicitors, the fact of the finding of contempt against Mr Tang should have been brought to the attention of the court.  As it transpired I was aware of it.

10.  The provisional liquidators’ excuse is that they did not think it was relevant largely because it was not a matter which falls within section 262(d) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, and therefore did not need to be included in the section 262(c) disclosure statement. 

11.  Whilst it is accepted by the Official Receiver, and I also accept, that the finding of contempt does not fall within section 262(d), it seems to me that certainly the provisional liquidators’ solicitors should have appreciated that the duty on an ex-parte application to make full and frank disclosure required the finding of contempt to be brought expressly to the court’s attention.  It also seems to me to have been directly relevant and I would not have appointed Mr Tang as a liquidator. 

12.  At the hearing today I expressed my concerns about the way the application had been presented, and in particular my concern that Ms Hou and Mr Kan may have been too willing to accommodate Mr Tang, who on various occasions in various matters that have come before this court and other judges has demonstrated unnecessarily confrontational behaviour, and they, as a result, as did their solicitors, failed in their duties to the court and I considered that this possibly justified declining to appoint them as liquidators. 

13.  It is, however, the position of the Official Receiver that the liquidation of the Company is so far advanced that replacing the provisional liquidators with new insolvency practitioners at this stage would incur potentially significant additional costs, to the prejudice of the interests of the unsecured creditors for no real benefit.  I accept that on balance that that is the case and therefore I will appoint Ms Hou and Mr Kan.

14.  I would, however, emphasise the importance of liquidators bringing to the attention of the Companies Court Judge with total candor all matters which are relevant to any decision the court is invited to make, particularly when the applications are made, as is commonly the case, ex-parte and increasingly frequently in writing.

15.  I will therefore make an order substantially in the terms of the summons subject to the various amendments discussed and agreed which I have already dictated to the parties before me.