XCHRX Re Guangnan (KK) Supermarket Ltd.

HCCW 618/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 618 OF 2001

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D E C I S I O N

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1. This is an ex-parte application by Guangnan Supermerket Development Limited, (hereinafter referred to as "the Petitioner") for the appointment of provisional liquidators of Guangnan (KK) Supermarket Limited (which I shall refer to as "the Company").

2. This is an urgent application. I am told by counsel for the Petitioner that notice of the application was given to the Company and its solicitors this morning. However, no other party has sought to attend this application.

3. Section 193 of the Companies Ordinance provides that: "the court may appoint a liquidator provisionally at any time after the presentation of a winding up petition". The purpose of appointing a provisional liquidator prior to the winding up order is to preserve the Company's assets in the period between the presentation of the petition and the making of the winding up order if one is to be made.

4. It has been well established that in deciding whether to exercise the power to appoint a provisional liquidator, the court would primarily consider two matters, first, whether the Petitioner has made out a good prima facie case for a winding up order and secondly, if it is right that a provisional liquidator should be appointed in all the circumstances.

5. As far as the issue whether the Petitioner has made out a good prima facie case for a winding up order is concerned, the Petitioner is the 70% shareholder of the Company and the Company is indebted to the Petitioner in the sum of about $29.5 million. There is no statutory demand as such in that the demand made by the Petitioner for repayment of that sum by the Company was made only on 19 June 2001 for repayment on 20 June 2001. However, there is sufficient evidence of the insolvency of the Company in the affirmation of Mr Yang Sheng Hua, a director of the Petitioner and whose affirmation has been put forward in support of the present application.

6. The evidence in the affirmation shows that the ratio of the current assets to the current liabilities of the Company was in the region of about 27%. It would also appear that the Company's current liabilities as at 30 April 2001, even excluding liabilities due to related companies amounted to about $151 million. The assets of the Company appear to be quite substantially less. Accordingly, there would appear to me to be sufficient evidence to satisfy the first condition for the appointment of provisional liquidators.

7. The second condition for the appointment of provisional liquidators is whether as a matter of commercial reality and balance of convenience and as a matter of urgency, liquidators should be put in provisionally now before the hearing of the petition.

8. In the present case, the Company's principal business is in the operation of supermarkets and apparently there are, at the moment, 39 supermarkets which were shut as of last night. Obviously, in the business of running a supermarket, there are a number of supplies and I have been told that a number of the Company's suppliers have threatened to remove goods which have been delivered to the supermarkets claiming that those goods belong to them.

9. Furthermore, the Company has about 520 employees full time or part time and it is thought that these employees may be demanding payment in various sums which they would claim to be due to them. Further, the premises from which the Company operates have been leased from various landlords and there is certainly a risk that landlords will either take distraint action or exercise their rights of re-entry.

10. Clearly, all this would have an effect on the assets of the Company. Being in the business of supermarkets, the inventory of the Company is made up of perishable foods and products which would decay and lose their value if they are not sold or disposed of before their respective expiry dates. According to the affirmation of Mr Yang, the value of the Company's inventory as on 30 April 2001 was in the region of about $70 million.

11. Clearly, therefore, in order to preserve and protect the assets of the Company and to enable them to be dealt with in the best interests of all parties concerned, provisional liquidators should be appointed so as to ensure the proper management of the Company's affairs pending the hearing of the petition.

12. The proposed provisional liquidators, members of a well-known firm of accountants, are on the Panel A list of the Official Receiver. I have amended the draft order somewhat and on the basis of that draft order as amended. I will make an order in terms.