RE LEGEND INTERNATIONAL RESORTS LTD (IN COMPULSORY LIQUIDATION)

HCCW 1139 /2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1139 OF 2004

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A. Introduction

1.  This is an application by Metroplex Berhad (“the Applicant”) for a number of orders in respect of the liquidation of Legend International Resorts Limited (“the Company”).  The principal application is for the removal of the incumbent joint and several liquidators of the Company and the appointment of other liquidators in their place.  The Applicant also applies for the discharge of a regulating order made by Kwan J (as she then was) on 9 June 2006 (“the Regulating Order”) and for alternative directions to be given by the court in the liquidation, including the unsealing of various documents filed by the liquidators in court.

2.  The application is opposed by the liquidators who contend that the liquidation should continue under the Regulating Order as before.

B.    The background facts

3.  The Company was incorporated in Hong Kong and it owned and operated a hotel, resort and casino complex in Subic Bay in the Philippines on premises leased from Subic Bay Municipal Authority (“SBMA”).  The casino operated under a licence from the Philippine Amusement and Gaming Corp (“Pagcor”) but Pagcor revoked that licence in May 2006.

4.  The Applicant is the largest shareholder of the Company and is also a creditor of the Company.  On its case, it is a creditor for between 10% to 16% of the Company’s debt.

5.  On 3 November 2004, a winding up petition was presented by Morgan Stanley Emerging Markets Inc (“MSEMI”).  MSEMI had acquired a debt owed by the Company to a bank in Singapore which had participated in a syndicated loan to the Company.

6.  On 5 November 2004, the Company filed a petition in the local court in the Philippines for corporate rehabilitation, which has been referred to as the Rehab Petition (or Rehabilitation Proceedings).  In the Rehab Petition, a Rehab Plan was annexed and this proposed a restructuring scheme in respect of the Company’s debts.  A Rehabilitation Receiver was appointed in respect of the Rehabilitation Proceedings.

7.  It was not disputed that the Company was hopelessly insolvent and, by order dated 8 June 2006, the Company was wound up on the grounds of its insolvency.  The petition of MSEMI was supported by two other creditors, namely Philippine Asset Investment (SPV-AMC) Inc. (“PAII”) and Asset Pool A (SPV-AMC) Inc. (“APA Inc.”).

8.  According to a schedule submitted by MSEMI to the Court of Appeal in February 2006, the debts claimed by MSEMI, PAII and APA Inc. together accounted for 95.8% of the Company’s debts to financial creditors and 79.7% of the total debts of the Company, based on figures provided by the Company regarding its liabilities in the Rehab Plan.  It is convenient to refer to MSEMI, PAII and APA Inc. as “the Financial Creditors”.  In monetary terms, the indebtedness due to the Financial Creditors is substantial, being approximately US$90,000,000.

9.  On the application of MSEMI, Kwan J made the Regulating Order whereby, amongst other things, it was ordered that:

(1) The winding up proceedings be regulated under s.227A of the Companies Ordinance, Cap.32 (“CO”);

(2) The summoning of the first creditors’ and contributories’ meeting for the purpose of considering the appointment of a liquidator and committee of inspection be dispensed with under s.227B(1)(a) of the CO; and

(3) Mr Kelvin Edward Flynn and Mr Cosimo Borelli of Alvarez & Marsal Asia Limited be appointed as joint and several liquidators of the Company under s.227B(1)(b) of the CO.

10.  The basis for the making of the Regulating Order is set out in paragraphs 4 to 9 of the judgment of Kwan J dated 9 June 2006[1].  In short, this was to ensure that steps could be taken in the Philippines to challenge various writs of attachment executed by Pagcor on almost all of the assets of the Company in the Philippines, which could potentially constitute a preferential advantage to Pagcor to the exclusion of all the other creditors of the Company.

11.  In about December 2006, Messrs Flynn and Borelli left Alvarez & Marsal Asia Limited and they were replaced by Mr Fernando Gaspar and Mr David Giles Maund of that firm as joint and several liquidators of the Company (“the Liquidators”).

12.  Relations between the Applicant and the Liquidators were not harmonious and, on 16 November 2007, the Applicant issued a summons (“the November 2007 Summons”) seeking an order directing the Liquidators to hold a meeting of creditors and contributories to ascertain their wishes and to provide them with written reports of the liquidation process.

13.  By a consent order dated 18 December 2007, the November 2007 Summons was adjourned sine die with liberty to restore. The order was made on the joint application of the Applicants’ and Liquidators’ respective solicitors.  No undertaking is recorded in the consent order.

14.  Prior to the consent order, the Applicant and Liquidators had been in correspondence through their respective solicitors.  On 17 December 2007, the Liquidators’ solicitors wrote to the Applicant’s solicitors in the following terms:

“Dear Sirs,

Re: Legend International Resorts Limited (In Liquidation) (“Company”)

Companies Winding-Up No 1339 of 2004

We refer to your letter dated 11 December 2007.

Your letter makes the incorrect assumption that other creditors’ proofs of debt have been admitted. No proofs of debt have been called for. No creditor has had their proof of debt and admitted. Your client has not been disadvantaged or neglected in any way in the winding-up of the Company.

Therefore, much of your letter does not fall to be answered, proceeding as it does on this incorrect assumption. Please be assured that if and when proofs of debt are called for your client will be given the same opportunity as any other person to participate in that process.

As to the numbered points on page 2 of your letter, which comprise the conditions for the withdrawal of your client’s summons, we address each of these in turn:

1. Your client will be provided with any and all reports and information sent to the creditors of the Company.

2. Your client will be advised of the convening of the forthcoming meeting of creditors. As to its participation and voting, along with all other parties, your client’s claim to be a creditor will be considered immediately prior to the meeting and an adjudication made as to whether allow [sic] grant it status as a creditor for the purpose of the meeting. If, as you say, your client’s claims can be supported with documentary evidence, we would encourage you to collate that evidence for consideration at the forthcoming meeting.

3. For our clients’ part, they will continue to consider your client’s representations and give them due weight.

4. You will appreciate that our client’s [sic] cannot prospectively advise their position in relation to any court or other application concerning any matter, including the committee of inspection. No such application has yet been made. If and when any application is made our clients will be able to consider it then.

We can reassure your client, in a general sense, that our clients are not in any way be disposed to reject your client’s claims and have not, as your correspondence perhaps suggests, taken a hostile position in relation to your client. When their status as a creditor falls to be determined, an independent and fair and analysis will be brought to that task. You and your client’s assistance in identifying the relevant documents will be appreciated at that time.

Would you please advise your client’s agreement to withdraw its summons on the basis that no party pay costs.

Our clients continue to reserve all rights in relation to this matter.

Yours faithfully,

JOHNSON STOKES & MASTER”

15.  The Applicant contends that the contents of the letter quoted in the preceding paragraph constitute undertakings given by the Liquidators that they would provide reports to the Applicant, hold a creditors’ meeting and give due weight to the Applicant’s representations.  The applicant also contends that the Liquidators did not honour their undertakings.  I shall consider the effect of the letter and the criticisms of the Liquidators’ actions later in this judgment.

16.  The Applicant now advances a number of complaints against the Liquidators. In summary, the Applicant accuses the Liquidators of actual or apparent bias, breach of undertakings, serious dereliction of duties and of making irrational and/or incompetent decisions.  I shall address the basis on which these various complaints are made later in this judgment.

17.  On the basis of these complaints, the Applicant has issued its summons dated 26 May 2010.  It is supported by an affirmation of Mr Mok Pak Hong, the Group General Manager of the Applicant. That affirmation is a lengthy document of 68 pages.  It is answered by the 7th affidavit of Mr Maund, to which Mr Mok has responded by his 2nd affirmation.

C.  The summons dated 26 May 2010

18.  The summons is brought under ss.196(1), 199(3), 200(5), 227C and 287 of the CO and also under the inherent jurisdiction of the court.

19.  In summary, the Applicant applies for:

(1) The discharge or variation of the Regulating Order;

(2) Further or in the alternative to (1), the removal of the Liquidators and the appointment of liquidators to assume their office;

(3) Further or in the alternative to (1), but in the alternative to (2), directions as to the convening of a meeting of creditors and contributories or as to the use of alternative means to consult creditors and contributories to ascertain their wishes; and

(4) Further or in the alternative to (1), (2) and (3), the unsealing of various documents filed by the Liquidators in court.

20.  At the hearing before me, as in their skeleton arguments, the parties addressed the issue of the removal of the Liquidators first, then the question of the uplifting or variation of the Regulating Order and, lastly, the unsealing of the sealed documents filed by the Liquidators. I propose to address the issues in the same order in this judgment.

D.    The court’s jurisdiction to remove the liquidators

21.  Under s.196(1) of the CO, a liquidator appointed under s.193 or s.194 may, on cause shown, be removed by the court.  Thus, if the Liquidators’ predecessors, Messrs Flynn and Borelli, were appointed as liquidators under s.194(1)(d) of the CO, there would be no question of the court’s jurisdiction, on cause shown, to remove them under s.196(1) of the CO.

22.  It would appear, however, that Messrs Flynn and Borelli were appointed as liquidators under s.277B(1)(b) of the CO: see the judgment of Kwan J in this matter dated 9 June 2006 at §§2 and 10-16.

23.  Nevertheless, I am satisfied that the court has jurisdiction to remove a liquidator on cause shown even where the liquidator is appointed under s.277B(1)(b) of the CO.

24.  Under s.277A(4) of the CO, it is provided that:

“Where any order made under section 227B, 227C or 227D prescribes any procedure it shall be deemed to be in substitution for the procedure which would be required by the Ordinance but for the making of such order …”

Thus, the appointment of the liquidators under s.227B(1)(b) of the CO was in substitution for s.194(1)(d) of the CO.  It would make no sense if a liquidator appointed under s.227B(1)(b) of the CO, in substitution for an appointment under s.194(1)(d) of the CO, was immune from removal under s.196(1) of the CO.  It is noteworthy, in this context, that s.196(1) of the CO is not an excluded provision under s.227B(2) of the CO.  Therefore, in my view, s.196(1) of the CO can and should apply to liquidators appointed under s.227B(1)(b) of the CO.

25.  I should add that the Liquidators did not question the court’s jurisdiction to remove them, on cause shown.

26.  It is therefore not necessary to consider the alternative submission made on behalf of the Applicant that the court has inherent jurisdiction to remove the liquidators.

E.    The principles on which the court will remove a liquidator

27.  Under s.196(1) of the CO, an applicant seeking the removal of a liquidator bears the burden of showing cause why the liquidator should be removed.  It is well established that the provision confers a wide discretion on the court which is not dependent on the proof of any particular breaches of duty by the liquidator.

28.  It is not necessary to prove misconduct or personal unfitness on the part of the liquidator and it is sufficient if it can be shown that it is on the whole desirable that the liquidator be removed: Re Marseilles Extension Railway and Land Co (1867) LR 4 Eq 692 per Malins VC at p.694.  It is clear that in removing the liquidator there need not be anything against the individual: Re Adam Eyton Ltd (1887) 36 Ch D 299 per Cotton LJ at p.303.  Due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed: ibid. per Bowen LJ at p.305.

29.  The words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause required and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation: Re Keypack Homecare Ltd [1987]  BCLC 409 per Millet J (as he then was) at p.416, approved in Re Edennote Ltd; Tottenham Hotspur plc v Ryman [1996] 2 BCLC 389 per Nourse LJ at p.398a-c.

30.  As an officer of the court, the liquidator is subject to duties which the law regards as fiduciary.  He is entrusted with the reputation of the court for impartial and proper dispatch of duties and, in that regard, no lesser standard is to be expected of him than of a court or judge: Re Timberland Ltd (1979) 4 ACLR 259 at p.286.  A liquidator should not only be independent and impartial, he should also been seen to be so and any conflict of interest or even over-familiarisation should be discouraged: Re Akai Holdings Ltd [2001] 2 HKLRD 411 per Yuen J (as she then was) at p.421A and McPherson’s Law of Company Liquidation (2nd Ed.) at §8.023.

31.  Where conduct of a liquidator has been such as to demonstrate that he has been biased against a particular creditor or at least to give rise to a perception, on reasonable grounds, that he was biased, or where his conduct has been such as to give rise to a real, and reasonable, loss of confidence in him by the creditor, the court may accede to an application to remove him: Re Gold Pleasure Industrial Co Ltd & Ors, unrep., HCCW 49-52/2006, 7.1.09 per Barma J at §§23-25.  The court must make up its mind by looking at the overall picture, whether there is a manifested tendency of the liquidators to favour certain interests at the expense of others.  If there is that perception, and if in the eyes of a reasonable observer there is not the carrying on of the liquidation to the general advantage of the persons interested in the winding up, the court may act: Re Biposo Pty Ltd (1995) 120 FLR 399 at p.405.

32.  Nevertheless, as Yuen J pointed out in Re Akai Holdings Ltd at p.421B, it is not every connection or action that can give rise to an allegation of an appearance of lack of independence and impartiality on which the court should act.  (Insofar as Mr Richard Zimmern, counsel for the Liquidator, sought to argue, however, that this part of her judgment indicated that lack of independence was dependent on establishing a conflict of interest on the part of a liquidator, I do not agree that lack of independence is limited to that situation.  It is clear that a liquidator is under a duty to avoid a conflict of duty and interest and also, separately, a duty to act impartially: see McPherson’s Law of Company Liquidation (2nd Ed.) at §§8.019-8.023.)

33.  Furthermore, in Re Edennote Ltd, Nourse LJ observed (at p.398f) that the creditors’ loss of confidence must be reasonable: the court does not lightly remove its own officer and will, amongst other considerations, pay a due regard to the impact of a removal on his professional standing and reputation.

34.  The onus of proof on an applicant will not be easy to discharge where the liquidator has become well acquainted with the business and affairs of the company or the process of winding up has almost reached completion: McPherson’s Law of Company Liquidation (2nd Ed.) at §8.046 (pp.474-475).  Even if grounds for removal are made out, it is also necessary to take into account the disadvantages that would arise from the removal of the liquidator in terms of costs and delay: Re Gold Pleasure Industrial Co Ltd & Ors at §§24 & 26.  The confidence of the majority creditors in the liquidators is an important factor when there is little in the way of assets in a company, so that the process of liquidation will have to be financially supported by funds raised from creditors: Re Akai Holdings Ltd at p.419A.

35.  Finally, in this context, it is right to bear in mind the dicta of Neuberger J (as he then was) in AMP Enterprises Ltd v Hoffman & Anor [2003] 1 BCLC 319 at §27:

“On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. Otherwise, it would encourage applications under s.108(2) [of the Insolvency Act 1986[2]] by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.”

F.    Should the Liquidators be removed?

36.  As noted above, the Applicant advances a number of complaints against the Liquidators. The two complaints of actual or apparent bias and breach of undertakings can be taken together and Mr Anson Wong, counsel for the Applicant[3], addressed me on this basis.  Similarly, the two other complaints of serious dereliction of duties and of making irrational and/or incompetent decisions can also be taken together.

F.1    Bias and breach of undertaking

37.  So far as the complaint of bias is concerned, the Applicant contended that the Liquidators had manifested an unjustifiable tendency to favour the interests of the Financial Creditors at the expense of the Applicant.  In his oral submissions, Mr Wong identified a number of instances which, he submitted, supported this contention.

38.  First, he referred to correspondence in which the Liquidators referred to having informed MSEMI and APA Inc. of proposed sales of the Company’s assets of which the Applicant was not informed and in which a meeting to discuss the available options for dealing with a sale of the Company’s assets was proposed between the Liquidators and “the major creditors”, namely Pagcor, SBMA, MSEMI and APA Inc.

39.  Next, Mr Wong referred to correspondence concerning the November 2007 Summons which included the letter dated 17 December 2007 which I have set out in paragraph 14 above on which the Applicant relies as containing the undertakings alleged to have been breached.  That correspondence indicated that a report to creditors about the winding up of the Company was being prepared and that a meeting of creditors would be convened to discuss the matters set out in the report.

40.  Mr Wong then referred to the fact that, on 4 February 2008, a meeting took place between the Liquidators, SBMA, Pagcor, APA Inc. and MSEMI but the Applicant was neither informed of this nor invited to attend.

41.  Finally, Mr Wong referred to a further meeting held on 22 October 2008 organised by the Rehabilitation Receiver between him, the Liquidators and the Financial Creditors, to which the Applicant was not invited.

42.  On the basis of these matters, Mr Wong submitted that the Financial Creditors were being preferred to the Applicant.  He argued that, since no proofs of debt have been called for and there has been no adjudication of debts by the Liquidators, it was illogical to accept the Financial Creditors as the major creditors of the Company and not to consult the Applicant in the liquidation process.  He submitted that their failure to provide a report to creditors and to hold a creditor’s meeting was a breach of undertaking.  He submitted that all this gave rise to actual bias or at least the perception of such bias on the part of the Liquidators in favour of the Financial Creditors which justified their removal from office.  In the Applicant’s skeleton argument, the perception of bias was also said to arise from the fact that one of the Financial Creditors had agreed to advance monies to the Liquidators for the liquidation process. 

43.  It is a fact that the Liquidators have not adjudicated any proofs of debt.  Mr Wong suggested that Companies (Winding Up) Rules r.93 imposed a duty on the part of a liquidator to call for proofs of debt and therefore they were in breach of this duty.  However, I do not agree that r.93 creates such a duty.  Proofs of debt are strictly only required where there is a need to ascertain a creditor’s entitlement to vote at a meeting of creditors or when a distribution is to be made to creditors.  Moreover, I accept that it is usual practice that, if insufficient monies are realised in the winding up, proofs of debt may not be called for by a liquidator.  In any event, the obligation to prove a debt is one which rests on a creditor, not the liquidator: see Companies (Winding Up) Rules r.79.  On the other hand, the fact that the Financial Creditors are in fact the majority creditors of the Company representing approximately 80% of the creditors by value is not seriously in dispute.  It is perfectly usual for a liquidator to consult the major creditors of a company in the course of a liquidation.  I do not therefore consider the Liquidators’ reference to them as major creditors or their consulting with them in respect of particular decisions prior to the adjudication of proofs of debt shows actual bias, nor do I regard this as giving rise to a perception of bias.

44.  As regards the meeting held on 4 February 2008, Mr Maund has given evidence that this meeting was not a meeting of creditors as such but was instead a meeting of stakeholders of the Company.  The meeting was attended by the Liquidators, SBMA, Pagcor, MSEMI, APA Inc. and the Rehabilitation Receiver.  At that time, the Liquidators were hoping to reach a consensual solution of various issues including the Company’s lease and gaming licence so that its casino operations could re-open.  For that reason, Pagcor and SBMA attended as, respectively, the gaming licensing body and the landlord of the Company’s premises.  Moreover, Mr Maund’s evidence is that the Liquidators considered that the Applicant’s presence at the meeting would have caused Pagcor and SBMA not to attend, due to the poor relationship between the Applicant and those two entities.  Independent evidence of the poor relationship between Pagcor and the Applicant is provided by the Rehabilitation Receiver’s report dated 10 March 2008, following the 4 February 2008 meeting. In any event, according to him, the Applicant’s attendance was not relevant to the matters tabled for discussion.

45.  The Liquidators’ failure to invite the Applicant to attend the meeting of 4 February 2008 is relied upon by the Applicant as demonstrating both bias and also breach of undertaking by the Liquidators.  In my judgment, there is no reason to question the reason given by the Liquidators for the holding of the meeting on 4 February 2008 or for their reasons for not inviting the Applicant to attend.  It follows that the meeting of 4 February 2008 was not a creditors’ meeting.  It is not necessary to decide if the Liquidators were right or wrong in not inviting the Applicant to attend the meeting and a decision of this nature is one which, in my view, is properly left to the discretion of the Liquidators.  I am satisfied that the Liquidators were entitled to decide not to include the Applicant in this meeting and I do not consider their failure to do so demonstrates bias against the Applicant.

46.  The meeting of 22 October 2008 was held at the direction of the court in the Philippines in the rehabilitation proceedings in that jurisdiction: see §(3) of the order dated 3 October 2008.  That court order required the Rehabilitation Receiver to organise a meeting between Pagcor, SBMA, the Company and the Financial Creditors with a view to settling their differences and hopefully the re-establishment of the Company’s gaming operations.  Therefore, this meeting was clearly not a creditors’ meeting within the liquidation of the Company in its winding up in this jurisdiction. Nor is there any question of the failure to invite the Applicant to attend that meeting a breach of any undertaking on the part of the Liquidators.

47.  So far as the allegations of breach of undertaking are concerned, this requires consideration of whether the contents of the Liquidators’ solicitors’ letter dated 17 December 2007 amount to binding contractual promises and, if so, whether they were breached.  As to the former question, the contents of the letter are set out in paragraph 14 above.  I do not regard the letter as requiring a report to be furnished to creditors: rather, the Liquidators are to provide any and all reports that are sent to creditors of the Company.  Since no such report has in fact been prepared, it follows that there was no breach of any undertaking in this regard.  It is true that the letter did contemplate a creditors’ meeting being convened but, for the reasons explained by Mr Maund, this did not in fact happen.  I do not regard the terms of the letter as requiring the meeting to be held regardless of whether the Liquidators later formed the view that a meeting should not be held.  In any event, it is legitimate to ask why, if the Applicant considered that a creditors’ meeting was to be held shortly after the adjournment of the November 2007 Summons, it was not until 26 May 2010 (when the Applicant’s summons was issued) that any complaint was made to the court regarding the failure to hold such a meeting.  I therefore do not consider that the Liquidators have been in breach of undertaking in the respects alleged by the Applicant.

48.  On the other hand, I accept that the clear tenor of the letter of 17 December 2007 read with the subsequent letter from the Liquidators’ solicitors to the Applicant’s solicitors dated 31 January 2008 is that a report to creditors was to be distributed and a meeting would be held, so that the Applicant had a reasonable expectation that these events would in fact occur.  Mr Zimmern accepted on behalf of the Liquidators that, with the benefit of hindsight, it would have been prudent for the Liquidators to inform the Applicant that they had decided not to hold a creditors meeting and to prepare a report to creditors in the light of the failure of the 4 February 2008 meeting to reach a consensual solution.  In my opinion, this concession was rightly made by him but I accept that this does not mean that there was a breach of undertaking on the part of the Liquidators.  I also accept that this failure to inform the Applicant of their change of mind does not constitute bias, either actual or perceived.

49.  As to the question of funding by one of the Financial Creditors, the fact is that no funding has in fact been provided. Even if such funding were provided, this would not in itself put the Liquidators “in the pocket of the creditor”, the phrase used by Yuen J in Re Akai Holdings Limited at p.422G.  In any event, it is clear that the fact that MSEMI has been prepared to advance funds to the Liquidators has been disclosed to the court, as reflected in the order of Kwan J dated 12 December 2006.

50.  In his reply submissions, Mr Wong emphasised that the Applicant’s complaint of bias was not limited to the failure to invite the Applicant to the meetings on 4 February 2008 and 22 October 2008 and the absence of a creditors’ meeting and report to creditors.  He stressed that the correspondence shows that throughout the process there has been discriminatory and unfair dissemination of information to different creditors.  For example, in relation to the sale of one of the Company’s assets, the Grand Seasons Hotel, two of the Financial Creditors were aware of this and their support was relied upon by the Liquidators as a general approval of the Liquidators’ proposed sale by the creditors as a whole.  Ultimately, the Applicant’s complaint, as summarised by Mr Wong, was this: the Liquidators promised the Applicant a creditors’ meeting but they did not hold one and did not provide information to the Applicant or obtain its wishes.  This is to be contrasted with the treatment of the Financial Creditors.  Thus, there is a clear case of actual bias or, at least, a reasonable perception of a tendency to favour certain creditors to the exclusion of the Applicant.

51.  I am unable to agree with Mr Wong’s submission in this regard.  In my opinion, the matters complained of do not constitute evidence of actual or perceived bias on the part of the Liquidators either against the Applicant or in favour of the Financial Creditors; nor, in my view, is any breach of undertaking made out.

52.  This liquidation has to date been conducted under the Regulating Order.  As such, it is not a usual liquidation but one specially regulated by the court.  The first creditors’ meeting for the purpose of considering the appointment of a committee of inspection was dispensed with by court order when the Company was wound up.  The Financial Creditors are independent creditors of the Company, whereas the Applicant is not an independent creditor, being a contributory of the Company.  As Mr Maund has explained, insofar as the Financial Creditors and the Applicant have different views, it is only right that the Liquidators have regard to the views of the Financial Creditors since they are independent creditors and the majority creditors, by far, of the Company.  This is not a matter of bias on the part of the Liquidators and certainly not, as Mr Wong submitted, a “personal vendetta” on the part of the Liquidators against the Applicant.

53.  I also bear in mind that, having regard to the evidence filed in respect of this application, there is clearly some hostility on the part of the Applicant towards the Liquidators.  This is clear from the tenor of the criticisms of the Liquidators made in Mr Mok’s affirmations and also the fact that the Applicant pursued contempt proceedings against the Liquidators in the Philippines.  By way of contrast, I do not regard Mr Maund’s characterisation of the application as demonstrating the manifestation of strong personal animosity towards the Applicant, as contended in the Applicant’s skeleton.

54.  It is also material to note that the evidence of Mr Maund, which has not been contradicted by the Applicant, is that the Applicant has met the Liquidators only once on 4 August 2007.  Since then, despite the Liquidators’ continued indication of a willingness to meet with the Applicant, the Applicant has not sought to engage the Liquidators otherwise than through litigation.  In the circumstances, it seems to me that the Applicant’s complaint of being excluded by the Liquidators from obtaining information is somewhat artificial and self-induced.

55.  Although every case must depend on its own facts, this is not a case like In re Tai Sun Plastic Novelties Limited (unrep., HCMP 401/2006, 4 August 2006), where Barma J refused to appoint a particular individual to be liquidator of a company because he considered the fact that his having previously advised the applicant creditor would give rise to a reasonable perception of conflict or bias on the part of other creditors (see §38).  Nor do I think the present case is like the case of Re Biposo, where the liquidators were removed because, amongst other things, their provision to a creditor of detailed information held by the liquidators about the company’s affairs would assist that creditor in litigation against the company (see p.404).

F.2    Serious dereliction of duties and irrational and/or incompetent decisions

56.  In support of this ground of removal, Mr Wong relied on a number of matters.  First, he relied on the fact that the evidence demonstrates that Mr Gaspar has left the employment of Alvarez & Marsal Asia Limited and, since 16 April 2008, has apparently been in full time employment in the Philippines as Chief Administrative Officer and Senior Vice President of International Container Terminal Services Inc. in Manila.  This, submitted, Mr Wong demonstrated a serious dereliction of duty on the part of Mr Gaspar in no longer being able properly to discharge his duties to the court as liquidator of the Company and also on the part of Mr Maund in not informing the court of this situation.

57.  Secondly, Mr Wong relied on the fact that Mr Maund has been unwilling to travel to the Philippines for over a year due to his concerns about a stop order against him which Pagcor have obtained in that jurisdiction.  Coupled with Mr Gaspar’s full time employment for a third party, Mr Wong submitted this additional factor raised questions as to whether the Liquidators could properly attend to their work.

58.  Thirdly, Mr Wong submitted that the Liquidators have acted in contravention of court orders in the Philippines and, arguably, also in Hong Kong by taking steps to dispose of assets of the Company.  The order of the court in the Philippines is dated 13 October 2006.  Pagcor has issued a manifestation in those proceedings dated 25 July 2008 asserting that the sale of the Company’s Grand Seasons Hotel was in breach of the stay order and, in a judgment dated 3 October 2008, the Philippines court accepted this was the case (although it refused to exercise its discretion to declare the sale void).  Mr Wong also referred to the Liquidators’ own motion in the Philippines court to require the former management to transfer control of the Company to the Liquidators for the express purpose of rehabilitating the Company back to robust business.

59.  Further, it was argued that the Liquidators’ actions, which in addition to the sale of the Grand Seasons Hotel including giving up the leases on various other core assets of the Company, were also in breach of continuation orders made by the Hong Kong court on 8 December 2006 and 7 June 2007, by which the Liquidators were given leave to continue operating the business of the Company.  Selling its assets, it was submitted, was inimical to continuing its business.  Yet, by a letter dated 25 September 2007, the Liquidators wrote to the Applicant stating that they were pursuing a course of action to sell the business and assets of the Company as they stood, that is without a gaming licence.

60.  Fourthly, Mr Wong relied on the failure to call for proofs of debt.

61.  Fifthly, it was submitted that the Liquidators had acted wrongfully in failing to consult with the former Chief Executive Officer of the Company, Mr Khoo Boo Boon, and its former Chief Operating Officer, Mr Chua Hwa Phuay.  In doing so, it was argued, the Liquidators were in breach of their duty to make themselves familiar with the operations of the Company.

62.  Sixthly, Mr Wong relied on the fact that the Liquidators failed to honour a cheque restructuring arrangement entered into between the Company and SBMA to enable the Company to discharge its indebtedness to its landlord, SBMA.

63.  I shall take these points in reverse order.  The cheque restructuring arrangement was a rescheduling of a pre-liquidation debt. It cannot therefore be an arrangement which the Liquidators had a duty to comply with.  The evidence discloses that the Liquidators settled post-liquidation debts due to SBMA in an attempt to persuade SBMA not to terminate the Company’s leases.  However, those properly payable debts are to be distinguished from pre-liquidation debts.  In effect, the complaint is one of failing to honour an arrangement to prefer SBMA as a creditor.  In the circumstances, I do not consider the Liquidators can be said to have acted irrationally or incompetently in failing to honour this arrangement.

64.  As to the failure to consult with Messrs Khoo and Chua, Mr Maund’s evidence is that, apart from these two individuals, the Liquidators retained and worked with the entire former management team upon taking control of the business in January 2007. Whilst the Liquidators had a duty to familiarise themselves with the Company’s business and its affairs, it does not follow that they have a duty to consult with particular individuals in order to discharge this duty.  I am therefore not satisfied that this demonstrates the Liquidators have acted in serious dereliction of duty as contended by the Applicant.

65.  I have already dealt, in paragraph 43 above, with the fact that proofs of debt have not yet been called for.  I do not consider this factor establishes a dereliction of duty on the part of the Liquidators sufficient to justify their removal.

66.  As to the contention that the Liquidators have acted in breach of the continuation orders of the Hong Kong court, I do not consider this is made out.  A copy of the continuation order of 12 December 2006 was included in the bundle of court documents.  In my view, this does not preclude the Liquidators from disposing of assets belonging to the Company.  On the contrary, paragraph 4 of the order expressly recognises that the Liquidators may dispose of property of the Company in the course of carrying on its business.  In any event, both continuation orders were limited in time: that dated 12 December 2006 only applied to the next 180 days or until further order and that of 7 June 2007 only gave leave to the Liquidators to continue running the business until 31 December 2007.

67.  Similarly, I do not consider that the actions of the Liquidators have been shown to be in serious dereliction of duty by reference to the order of the Philippine court.  In respect of the sale of the Grand Seasons Hotel, it would appear that the lease of that hotel was not renewed and that this fact preceded the decision of the Liquidators to sell. It would appear that the Liquidators tried to maintain the core assets of the Company but it was the actions of SBMA subsequent to the termination of the Philippines Rehabilitation Proceedings on 9 February 2009 that finally rendered the further carrying on of its business impracticable. At that point, SBMA terminated the Company’s leases and sought to repossess premises in order to recover pre-liquidation debts. Despite efforts to achieve a negotiated solution with Pagcor and SBMA, whose support was essential to the Company continuing its business, Pagcor and SBMA decided to withdraw their support.  I accept that this took away any real prospect of a resumption of the Company’s gaming operations.  After this occurred, I also accept that the Liquidators then switched their focus to a potential sale of the hotel business as a going concern.  It is that attempt that the Applicant seeks to impugn as being in breach of the court order.  As regards the Liquidators’ letter of 27 September 2007 on which the Applicant relied, this was simply an invitation to tender and did not actually achieve a sale.  In the circumstances, I do not consider this complaint of dereliction of duty to be made out.

68.  Turning to Mr Maund’s reluctance to travel to the Philippines, this is obviously an inconvenience but I do not regard it as more than that.  Mr Maund had explained the reason he is unwilling to travel there, namely the risk to his personal safety in the face of contempt proceedings against him brought by the Applicant and Pagcor in the Philippines.  The latter is seeking a stop order to prevent him leaving the Philippines.  It seems to me there would be some merit in the argument that Mr Maund would in fact be acting unreasonably were he to travel to the Philippines in these circumstances, since being detained there would expose him to a risk of possibly being unable to discharge his functions as one of the Liquidators in this jurisdiction.  In any event, I am satisfied that Mr Maund’s difficulty in travelling to the Philippines does not mean that the Liquidators are unable to discharge their duties.  Mr Maund has staff as part of his team who are able to travel to the Philippines and the Liquidators also retain professional advisors in the Philippines.  Modern means of communications renders Mr Maund’s physical absence from the Philippines less important.  It is also relevant to take into account Mr Gaspar’s presence in the Philippines, a point to which I shall now turn.

69.  Mr Gaspar’s taking up employment with International Container Terminal Services Inc. in Manila was not in dispute as a matter of fact.  The question is whether this employment constitutes a serious dereliction of duty.  For the Liquidators, Mr Maund has explained that, in keeping with normal practice, he has the conduct of day-to-day matters as one of the joint and several liquidators and that Mr Gaspar’s departure from Alvarez & Marsal Asia Limited has not compromised the conduct of the winding up.  In addition, Mr Maund states that Mr Gaspar, who is a Philippine national, has extensive contacts in the Philippines which have been an important aspect of his contribution to the winding up.  Mr Maund also states that Mr Gaspar’s status as one of the Liquidators continues to benefit their work.

70.  It might be thought, at first blush, that full time employment for a third party would preclude Mr Gaspar from fulfilling his duties as joint and several liquidator of the Company.  On the other hand, there is no requirement as a matter of law that precludes a liquidator from having other employment in addition to his office as liquidator.  In some cases, full time employment with a third party would almost certainly be incompatible with that office whilst, in others, it may not be an insurmountable obstacle.  All will depend on the facts of the particular case. In the present case, it might have been preferable for Mr Gaspar to provide some evidence of the terms on which he is employed in Manila and whether he has the permission of his employers to devote time to his duties as one of the Liquidators of the Company.  On the other hand, I see no reason to reject the assessment of Mr Maund that Mr Gaspar’s departure from Alvarez & Marsal Asia Limited has not compromised the winding up.  I also consider it material that it is Mr Maund who is running the liquidation rather than Mr Gaspar.  I am also prepared to accept that Mr Gaspar’s presence is an advantage to the Liquidators insofar as the Company’s assets are principally in that jurisdiction and also because of Mr Maund’s difficulties with travelling there.

F.3    Conclusion on removal application

71.  Ultimately, for the reasons set out above, I do not consider that the various complaints of the Applicant, whether viewed singly or cumulatively, are established or at least are sufficiently established to justify the removal of the Liquidators.  Applying, as I think it right to do, the dicta of Neuberger J in AMP Enterprises Ltd (see paragraph 35 above), I bear in mind: the fact that the liquidation is now well advanced, if not nearing its closing stages; the complaints are being made by a creditor generally hostile to the liquidation and the Liquidators; the Liquidators enjoy the support and confidence of the majority (by value) of the creditors of the Company; the additional costs that would be involved in replacing the Liquidators at this relatively late stage of the process; and, the margin of judgment that must be given to the Liquidators in respect of some of the decisions they have had to take in the course of this liquidation.

72.  In my judgment, the removal application therefore fails.

G.    Discharge or variation of the Regulating Order

73.  The provisions of ss.227A to 227E of the CO were added in 1965.  The court’s power to make a regulating order under s.227A is aimed at addressing the problem of insolvencies with a large number of small creditors.  But it is not limited to this situation and may also be exercised where it is otherwise impracticable to hold the first meeting of creditors and contributories: see the judgment of Kwan J in this matter dated 9 June 2006 at §8.

74.  The Applicant’s principal submission in support of the discharge of the Regulating Order is that the reason for making that order, namely the need for urgency to preserve the Company’s assets in the light of the actions of Pagcor in the Philippines, has now gone.  The assets of the Company have now been repossessed and so there was no justification for retaining the special procedure of a Regulating Order.  The subsidiary reason advanced by the Applicant for the discharge of the Regulating Order is that it has enabled the Liquidators to conduct the liquidation in the manner which has led to the complaints referred to above.

75.  Mr Zimmern did not go so far as to submit that the court lacked jurisdiction to discharge a regulating order once made but questioned whether it did.  He submitted that the wording of ss.227B and 227E suggested permanence in relation to any particular regulating order, such that once made it should not be discharged.  I am not persuaded that this is the case and, as I have noted, Mr Zimmern did not press this submission to the point of disputing jurisdiction.  It seems to me that, even where the circumstances justify a regulating order at an earlier stage of a liquidation, the court may conclude at a later stage that this is no longer necessary.  In that event, it seems to me that the court must have jurisdiction to discharge a regulating order either under s.227C (by which the court can vary the procedure for ascertaining the wishes and directions of creditors and contributories) or under its inherent jurisdiction.  No authority to the contrary was cited and, in the absence of such, I see no jurisdictional obstacle to this application.

76.  The Applicant’s subsidiary argument seems to me to be self-serving and to be based on circular reasoning.  For the reasons set out above, I do not consider the complaints made by the Applicant to justify the removal of the Liquidators and, therefore, the fact the complaints have been made does not provide a proper basis, in my view, for discharging the Regulating Order.

77.  However, I think there is some merit in the argument that the original reason for the making of the Regulating Order, namely the urgency of the situation created by Pagcor’s actions in the Philippines, no longer exists.  As such, one may legitimately ask whether it is necessary to continue to conduct the liquidation under the Regulating Order.  This is not a case where the Regulating Order was made due to the large number of creditors or contributories, a state of affairs that would not normally change in the course of the liquidation.  Instead, the Regulating Order here was made for a specific reason and that reason has gone.

78.  On the other hand, the liquidation has proceeded to a relatively advanced stage under the Regulating Order and I am mindful that discharging that order in its entirety could be wasteful of costs. Furthermore, the Liquidators do not see the need or utility for holding a creditors’ meeting or providing a report to creditors but, at the same time, do not object to either of these courses.  It seems to me, therefore, that it would be appropriate to vary the Regulating Order in some form.  This will ensure that the liquidation continues from this point in a more usual manner. There is, of course, no reason to hold a first creditors’ meeting to appoint liquidators.  The Liquidators have been duly appointed and there is no basis, in my opinion, to remove and replace them.  The Applicant seeks a meeting to discuss certain matters defined in the summons as “the 2010 Consultation Matters”.   These are: the question of whether a committee of inspection should be appointed; the litigation in the Philippines being conducted by or in relation to the Company; the steel beams forming part of one of the properties of the Company that are now in storage; the future conduct of the winding up and negotiations between the Company and Pagcor and SBMA; whether and how the business should be carried on for the beneficial winding up of the Company.

79.  In the light of the Liquidators’ evidence as to the falling through of the negotiations with Pagcor and SBMA and the fact that the liquidation is now at the stage of seeking to realise the remaining assets of the Company but that no distribution to creditors is expected, I am sceptical of the utility of a meeting to discuss the 2010 Consultation Matters.  I think there is merit in the submission made on behalf of the Liquidators that matters have moved on since the summons was drafted and the evidence of Mr Maund has explained what is happening in relation to those matters.  In declining to order a meeting of creditors and contributories, I also take into account the fact that it is quite clear the Liquidators have offered to meet with the Applicant and this offer has not been taken up by the Applicant.

80.  I therefore do not propose to make an order to vary the Regulating Order to direct the holding of a creditors’ meeting. However, I do think that there is merit in making directions that the creditors and contributories be consulted as to their wishes as to the future conduct of the liquidation by the Liquidators.  Save that I do not consider it appropriate or necessary to require the Liquidators formally to call for and adjudicate proofs of debt, directions along the lines of those sought in paragraph 6(1)(c) and (d) of the Applicant’s summons are, in my opinion, appropriate to achieve this end, save that the Report to be prepared is that as defined in paragraph 5(3) (rather than paragraph 5(4)) of the summons. Instead of calling for and adjudicating proofs of debt, the Liquidators should send the Report to the Applicant and all others whom they have so far been treating, or now accept should be treated, as creditors and contributories of the Company.  As to timing, I consider that the Liquidators should furnish the Report to such creditors and contributories within 28 days of my order.

H.    Unsealing of court documents

81.  The remaining matter to be addressed is the Applicant’s request for an order that the documents filed in court by the Liquidators that have been sealed be unsealed and made available for inspection and copying by the Applicant.

82.  The Applicant had previously sought the unsealing of these documents by way of an application by letter to the court dated 18 August 2009.  Kwan J declined that application by a letter dated 21 August 2009.  A further letter from the Applicant’s solicitors dated 25 August 2009 repeated the request for the unsealing of the documents on the basis that there should be greater transparency and consultation in the conduct of the liquidation.  In a letter dated 27 August 2009, the Liquidators’ solicitors set out an explanation of why a meeting of creditors was not necessary but indicated the Liquidators would be willing to meet with the Applicant (an offer that was not taken up).  On 28 August 2009, Kwan J referred to the last two items of correspondence and indicated that “[h]aving regard to important developments in the Philippines as stated in the letter of Mayer Brown JSM and the willingness of the liquidators to meet with representatives of Metroplex Berhad … to discuss matters in the liquidation of the Company” it was not appropriate to grant leave to the Applicant to inspect the sealed documents.

83.  It was submitted that the reasons given by Kwan J for her refusal to direct the unsealing of the documents are no longer applicable so that the court should order the unsealing now.

84.  The Liquidators maintain their objection to the unsealing of the documents in question.  Those documents, it was submitted, do not concern the Applicant and were sealed by order of the court.  It was also submitted that if there was any complaint about the exercise of Kwan J’s discretion the proper course should be to appeal that decision rather than make a fresh application as the Applicant has done.

85.  I accept that the Applicant need not appeal Kwan J’s decision and is entitled, upon fresh grounds, to renew its application for the unsealing of the documents.  However, I do not consider that the documents should be unsealed and accept the Liquidators’ submission that these documents do not concern the Applicant.  In any event, in the light of the directions I propose to make for the future conduct of the liquidation, the Applicant will receive a report detailing the work of the Liquidators to date.  In the circumstances, the Applicant’s underlying reason for seeking disclosure of the documents, namely greater transparency and consultation in the conduct of the liquidation, will (or ought to) disappear.

I.     Disposition and costs

86.  In the light of my conclusion on the removal application, paragraphs 2, 3 and 4 of the Applicant’s summons are dismissed.

87.  Since I do not propose to discharge the Regulating Order, paragraph 1 of the Applicant’s summons is also dismissed.  I do not propose to direct a meeting of the creditors as sought in paragraph 5 of the Applicant’s summons.  Instead, I make an order to reflect paragraphs 6(1)(c) and (d) (suitably amended in the light of what I have said in paragraph 80 above) and 7(2) of the summons.

88.  Paragraph 7(1) of the Applicant’s summons concerning the unsealing of the sealed documents in court is dismissed.

89.  Finally, I grant liberty to apply to all parties for further directions or other relief.

90.  As to costs, the major issue argued between the parties was the removal of the Liquidators.  On that issue, the Applicant has failed.  In my judgment, an appropriate order on costs would be that the Applicant should bear a proportion of the costs of the Liquidators in respect of the summons.  I therefore make an order nisi that the Applicant pay 75% of the Liquidators costs of the summons, to be taxed if not agreed.

91.  As to the balance of the Liquidators’ costs which the Applicant is not ordered to bear, I make an order nisi that these be paid from the assets of the Company.  In my view, this reflects the fact that the Liquidators did not object to the directions that I have made by way of variation of the Regulating Order.

[1] Reported at [2006] 3 HKLRD 289.

[2] This provides: “The court may on cause shown remove a liquidator and appoint another.”

[3] Appearing with Mr Hew Yang-Wahn.