BCEG INTERNATIONAL CO., LTD. v. LIU XIU AND ANOTHER

HCMP 3219/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3219 OF 2016

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J U D G M E N T

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1.  The applicant (“BCEG”), a claimed creditor, applies for a declaration that the dissolution of CIF International Construction Co Ltd (“the Company”) was void; that the 1^st Respondent (“Madam Liu”) be removed as liquidator upon restoration of the Company and be replaced by Mat Ng and John Robert Lees of JLA Asia Limited as joint and several liquidators (“the New Liquidators”).

2.  Madam Liu does not oppose the application for declaration and agrees to step down as liquidator.  However, she requests that a different liquidator be appointed instead.

3.  The 2^nd Respondent (“the Registrar”) takes a neutral stance but proposed some revision to the terms of the order, which are uncontroversial.

4.  The issue is therefore the identity of the replacement liquidator.

Background as to the dissolution

5.  To declare the dissolution of the Company void, it must be shown, pursuant to s 290(1) of the Companies (Winding-up and Miscellaneous Provisions) Ordinance (“Cap 32”) that:

(a)   The dissolution was under one of the provisions mentioned in s 290;

(b)   The application must be made within 2 years of the date of the dissolution; and

(c)   The applicant must be a person who appears to be interested for the purpose of s 290.

Re Max Win Engineering Limited, HCMP 1913/2002, 24 May 2002, Kwan J (as she then was).

6.  Pursuant to s 239 of Cap 32, the Company was dissolved on 8 September 2016 upon expiration of 3 months from the registration of the Liquidation Statement signed by Madam Liu and the filing of the Return of Final General Meeting on 8 June 2016.  It stated that the Company had nil assets and nil current liabilities. 

7.  The present originating motion was issued 2 months later, on 18 November 2016. 

8.  BCEG is an interested person, since it intends to sue the Company for an alleged outstanding amount of US$11.85 million pursuant to 5 Construction Contracts.

9.  These 3 requirements under s 290 have been satisfied. 

Replacement of the current liquidator

10.  Upon making the declaration, and on cause shown, the court may make an order for removal of a liquidator and appoint another one as a consequential relief: Re JK International Co Ltd, HCMP 5505/2003, 4 February 2004, §12, Kwan J (as she then was); s 252 of Cap 32.  It is not necessary for the applicant to show personal misconduct or unfitness of the liquidator: Re Matrix Industries Ltd, §§49–54.

11.  If conflict of interest is shown, whether it be actual, or there are reasonable grounds for thinking that the objectivity and impartiality of the liquidators may be seen to be compromised, this would be a cause for removal of the liquidators: M & T International Limited v Winspower Limited (in liquidation), HCMP 621/2006, 20 June 2006, Kwan J (as she then was), §5.

12.  Madam Liu asks that Victor Ling, a liquidator acceptable to the sole shareholder of the Company, Outstanding Pro Investments Limited (“the Shareholder”), be appointed instead. Mr Ng, counsel for Madam Liu submits that, whilst BCEG as an alleged creditor may have a sufficient interest in reviving the Company, it does not have a sufficient interest in influencing the choice of replacement liquidators: Deloitte & Touche AG v Johnson & anor [1999] 1 WLR 1605, at 1611G.  As this is a case of members’ voluntary winding‑up, shareholders of the Company have a say in the liquidation process, including the identity of the liquidator who is to be appointed in general meeting: s 235(1) of Cap 32.

13.  BCEG disagrees. It says that Madam Liu lacks locus and that she may have failed in her duties as a liquidator.

14.  For the following reasons, I agree with BCEG.

15.  Firstly, if Mr Ng is right, only judgment creditors can apply under s 252.  With respect, that is taking too narrow a view.  In Re Greight Pty Ltd [2006] FCA 17, the Federal Court of Australia held that a person with a real interest in the winding‑up is one whose rights or interests will directly be affected by action taken by a liquidator in the course of performing the liquidator’s duties (at §3).  A person who has a possible claim against the company is enough to give him the standing to make an application under the equivalent of s 252 of Cap 32 (at §11).  Accordingly, BCEG does have standing to seek appointment of new liquidators.

16.  Secondly, Madam Liu is not asking for her own continued appointment.  She lacks locus to name a new liquidator as she has no legitimate interest in the relief sought: Deloitte & Touche AG v Johnson. 

17.  Thirdly, the Shareholder has not applied to be joined in the present proceedings, although it is right that the court should taken into account its interests against those of BCEG whose claim has not yet been established.  However, in appropriate circumstances, the court also guards against choosing a liquidator chosen by the entity whose conduct is subject to investigation: Re Goldcone Properties Ltd [2000] 2 HKLRD 16, at 48H, Ribeiro J (as he then was).

18.  Fourthly, Madam Liu’s conduct brought into question her independence as a liquidator.

19.  BCEG has allegedly been a creditor of the Company since October 2015. Following negotiations between the 2 entities and a demand letter dated 31 December 2015, the Company had made part payment in the amount of US$1 million to BCEG.  In the course of the negotiations, the Company made no mention that it had already commenced voluntary winding-up or that Madam Liu had been appointed, both in July 2015.

20.  Madam Liu had not called any creditors’ meeting or asked the creditors to submit any proof of debt before issuing the Liquidation Statement or Certificate of Solvency.

21.  The correspondence subsequent to service of these proceedings between Linklaters (BCEG’s solicitors) and Li & Partners (solicitors for both Madam Liu and the Shareholder) shows a close connection between Madam Liu and the Shareholder such that the Shareholder is in possession of the books and records of the Company.  The correspondence also raises the issue of the connection between Madam Liu and CIF companies, including a BVI company bearing the same name as the Company.  Madam Liu never explained such conduct but instructed Wang Xiangfei (“Wang”), a consultant of the Shareholder, to file an affirmation on her behalf to name a liquidator.

22.  All of these matters raise legitimate concerns on the part of BCEG as to Madam Liu’s independence and impartiality, although it is not necessary for the court to find personal misconduct or unfitness on her part. 

23.  Fifthly, Mr Ng submits that giving weight to the wishes of the creditors only apply to situations of insolvency: Re Dunquil Pty Ltd 9 ACLR 950, 954. I am unable to agree for reasons in paragraphs 24-26.

24.  BCEG is a creditor who is owed substantial sums of money which, if established, would render the Company insolvent.  BCEG’s claim appears to be supported by written Construction Contracts, certificates of interim payment issued by the Company, “final settlement documents” executed in respect of the Construction Contracts, and the Company’s partial payment of US$1 million.

25.  On the other hand, it is Wang’s “understanding” that it was not the Company but a BVI Company with similar name which had signed the Construction Contracts with BCEG.  The source of such understanding is unknown.  However, even if the understanding is true, that is a matter to be decided by another tribunal in the appropriate context at a later stage: Re Yiu Cheung Glass Mirror Company Limited, HCMP 2272/2006, 12 December 2006, §25, Barma J (as he then was).  Mr Ng has already conceded that BCEG’s claim is not shadowy: Re Matrix Industries Limited [2004] 1 HKLRD 44, §§ 43–44, Kwan J (as she then was). 

26.  In such circumstances, interests of the creditor should be given due weight: Re Luen Yick Water and Drainage Works Ltd, HCCW 209/2002, 9 January 2003, §19; Chu Kong v Donald Edward Osborn & ors, HCCW 1/2016, 16 December 2016, Harris J, §24.   

27.  This is a case of a sole shareholder’s preference against that of a (so far as is known) sole creditor over the appointment of new liquidators.  Neither party has evidence to show that the liquidator suggested by the other party lacks independence, impartiality or competence.  Balancing all factors, I find it just to appoint the New Liquidators suggested by BCEG.

Costs

28.  Madam Liu could have maintained a neutral stance like the Registrar. It would have been appropriate for her to point out to the court the need to consider the Shareholder’s interests against the unestablished status of BCEG as a creditor; and that the Construction Contracts could have been signed by another BVI company bearing the same name as the Company’s.  Had she done just that to assist the court, she may be able to obtain costs as the liquidators in Re Matrix Industries Ltd and Re Yiu Cheung Glass Mirror Co Ltd.

29.  However, she has complicated the matter by filing affirmations of Wang, which raised unnecessary issues like application of foreign law, lack of jurisdiction of this court and lack of locus of BCEG in making the application.

30.  Madam Liu has offered on 17 January 2017 to step down as liquidators with no order as to costs.  It was not accepted.  She insisted to contest the identity of the liquidator, a point which she has no locus to raise. This hearing was necessitated by her unreasonable stance.  

31.  Madam Liu has had 5 weeks before the first hearing to consider her position.  This court has queried what grounds of opposition she could have when the substantive dispute should be between BCEG and the Company as alleged contracting parties.  She was granted an adjournment to file evidence but has been warned that an order for indemnity costs might be imposed unless she was able to come up with a “killer point”. She had no “killer point”. Matters in Wang’s 2^nd affidavit filed during the adjournment could have been included in the 1^st.

32.  In the end, the opposition not only wasted time and costs, but also delayed BCEG’s legitimate claim against the Company.

33.  Balancing all factors, I order BCEG to bear costs of Madam Liu for reasonable consideration of the application papers and some correspondence in relation to matters in paragraph 28, summarily assessed at $30,000. 

34.  For costs after the first hearing on 28 December 2016, Madam Liu should bear costs personally on indemnity basis.  This case involves no complicated issues and most of the research would have been done by counsel.  I find it unreasonable for the work to be undertaken by 2 fee earners with the more senior solicitor charging over $7,000 per hour and when there is no issue for a foreign registered lawyer.  I summarily assess BCEG’s costs at $45,000.  After set-off, Madam Liu should pay BCEG $15,000.

Order

35.  I order that the dissolution of the Company be declared void.  Madam Liu Xiu be removed as liquidator upon the Company’s restoration.  Mr Mat Ng and Mr John Robert Lees of JLA Asia Limited be appointed as joint and several liquidators. 

36.  BCEG shall pay costs of $5,000 to the Registrar.  Madam Liu shall personally bear costs of $15,000 to BCEG.

37.  There shall be an order in terms of the draft order submitted during the hearing.

38.  I thank counsel for their assistance.