RE MYRIAD GOLD CORPORATION

HCCW 340/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 340 OF 2002

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(Heard together)

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DECISION

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Background to the applications

1. On 16 January 2003, I heard three summonses issued by the provisional liquidators in HCCW Nos. 340, 345 and 346 of 2002. Essentially, they are applications seeking directions from the court on the powers of the provisional liquidators and on provisions for their remuneration. On 25 June 2003, I made an order by consent in respect of the summons issued in HCCW No. 340 of 2002, so this decision is concerned only with the two summonses, which seek identical directions, in HCCW Nos. 345 and 346 of 2002.

2. It is necessary to set out the background which gave rise to these applications.

3. HCCW No. 345 of 2002 is a petition for the winding up of Maintain Profits Limited ("Maintain Profits"). HCCW No. 346 of 2002 is a petition for the winding up of Myriad Gold Corporation ("Myriad Gold"). Both petitions are presented by Madam Law Wai Duen Nina ("LWD") as a contributory and creditor on just and equitable grounds. They are opposed by the other contributory, Mr Chan Shiu Chick ("CSC"), who was married to LWD. LWD and CSC each hold one of the two issued shares in these two companies and they are the only directors, so there is complete deadlock on the board of directors of these companies. The two companies do not have any business of their own; their sole assets consist of the entire shareholding in B F Construction Company Limited ("BF"). The allegations of misconduct and misfeasance against CSC in the petitions to justify the winding up of Maintain Profits and Myriad Gold are in respect of the operations and management of BF. CSC was and is the managing director of BF and had the day-to-day management of its business. The board of directors of BF is likewise in complete deadlock.

4. On 31 October 2002, I made an order ("the Appointment Order") upon the application of LWD that Mr Charles Chan Wai Dune and Mr James Wardell be appointed joint and several provisional liquidators of Maintain Profits and Myriad Gold, having formed the view that the appointment is appropriate for preserving the status quo and ensuring that the assets of these companies should remain properly administered pending the determination of the petitions. The Appointment Order in each case limits the powers of the provisional liquidators to the acts as provided therein and the material parts of each of the orders, which are in identical terms, read as follows:

(1) In paragraph 2(1) of each of the orders, the provisional liquidators are empowered to "take possession of, collect, give valid receipts for and protect all books, records, documents, properties, things in action and other assets of the Company [that is, Maintain Profits or Myriad Gold] within or outside the jurisdiction of the this Court." This is followed by a definition provision that the foregoing assets referred to are collectively called "Assets", that is to say, assets of Maintain Profits or Myriad Gold, whenever that term is used in the order.

(2) Paragraph 2(4) gives power to the provisional liquidators to "bring or defend any action or other proceedings in the name and on behalf of [Maintain Profits or Myriad Gold] or [BF] as may be considered by the Provisional Liquidators to be necessary for the protection of the Assets".

(3) Paragraph 2(9) gives power to the provisional liquidators "to exercise all rights which [Maintain Profits or Myriad Gold] may have in relation to any subsidiary, including BF, as may be necessary to obtain control or management of any such subsidiary including the appointment or removal of all or any directors of any such subsidiary and to take all such steps as may be necessary to protect the interests of [Maintain Profits or Myriad Gold] in BF and any joint venture or associated companies".

(4) Paragraph 2(10) provides that the provisional liquidators are to have power to "exercise the rights to which a registered holder of any shares or other securities registered in the name of [Maintain Profits or Myriad Gold] is entitled including but without prejudice to the generality of the foregoing power the right to attend meetings and to exercise any votes pertaining to such shares or shares or other securities and to direct nominees of [Maintain Profits or Myriad Gold] in whose names shares or other securities beneficially owned by [Maintain Profits or Myriad Gold] are registered to exercise all or any such rights as the Provisional Liquidators shall direct".

(5) Paragraph 3 provides that "the basis of the remuneration of the Provisional Liquidators be calculated according to the standard hourly rates charged by the Official Receiver for the services of the Provisional Liquidators and other grades of staff employed by them and be paid out of the Assets."

5. Difficulty was soon encountered by the provisional liquidators when they took steps to safeguard the bank accounts of BF. There was some urgency about this as one of the bank accounts opened by BF, which contained substantial deposits, could be operated by CSC solely and his operation of this account was one of the complaints of misconduct in the petitions. Between 31 October 2002 and 5 November 2002, the provisional liquidators held meetings with the two camps of directors of BF, to try to get them to reach consensus to pass certain resolutions of the directors to close the bank accounts of BF and transfer the proceeds to a new bank account which would be operated by two signatories, one of them being any one of the provisional liquidators, so that the provisional liquidators would have control over the bank accounts of BF. The provisional liquidators also notified LWD and CSC that if the directors did not pass the proposed resolutions of the directors, the provisional liquidators would call a shareholders' meeting on 6 November 2002 in order to pass such resolutions as shareholders' resolutions.

6. In the end, as it was not possible to hold a board meeting to pass the proposed resolutions, the provisional liquidators of Maintain Profits and Myriad Gold, as the only shareholders of BF, passed certain shareholders' resolutions on 6 November 2002 ("the Shareholders' Resolutions") providing for the opening of three new bank accounts, the closure of the old bank accounts and in the event of failure to co-operate on the part of CSC or LWD, the establishment of a fourth bank account under the sole control of the provisional liquidators. The three new bank accounts to be set up, pursuant to the Shareholders' Resolutions, are as follows:

(1) an account for normal income operated by two signatories, one of them being any one of the provisional liquidators;

(2) an account designated as the sub-contractors' account, to which all future income from existing and future contracts would be paid, operated by two signatories, one of them being any one of the provisional liquidators; and

(3) an account operated solely by CSC, for the purpose of enabling him to continue to run the business of BF, to which an amount of HK$2,500,000.00 would be made available to cover the monthly expenditure of BF.

7. The provisional liquidators also resolved, by the Shareholders' Resolutions, that an engagement letter dated 6 November 2002 issued by them, for and on behalf of Maintain Profits and Myriad Gold, be approved and adopted. The engagement letter was addressed to the board of directors of BF. It was stated that the provisional liquidators are to carry out a financial monitoring of BF in order to preserve the assets of BF and the scope of their responsibilities was set out. Initially, the engagement letter had also provided that BF would agree to indemnify the provisional liquidators against all claims or liabilities which might be made or incurred resulting from the carrying out of the arrangements in the letter and that the remuneration of the provisional liquidators would be paid out of the assets of BF. However, as both CSC and LWD had indicated that they would not approve the indemnity or the fees arrangement, these provisions were omitted from the revised engagement letter.

8. On 8 November 2002, the provisional liquidators issued the two summonses that I am concerned with.

The applications

9. The following orders are sought in each of the summonses:

(1) the remuneration of the provisional liquidators be charged on a time-cost basis at the standard scale of fees as agreed from time to time between the Official Receiver and the Hong Kong Society of Accountants under the "Panel A" winding-up cases and be paid out of the assets of Maintain Profits or Myriad Gold, as the case may be;

(2) the provisional liquidators may exercise the powers of Maintain Profits and Myriad Gold as shareholders of BF by shareholders' resolution, to cause BF to indemnify the provisional liquidators against all claims or liabilities, charges or expenses, resulting from the carrying out of any action by or on behalf of the provisional liquidators and to provide for the remuneration of the provisional liquidators of Maintain Profits and Myriad Gold to be charged to BF and be paid out of the assets of BF;

(3) the provisional liquidators be at liberty to appoint solicitors and counsel to advise on the operation of BF, the operation of the bank accounts of BF and generally in relation to the provisional liquidators' powers and duties in relation to BF;

(4) the costs of solicitors appointed by the provisional liquidators be paid out of the assets of BF;

(5) the costs of the provisional liquidators of this application be paid out of the assets of BF;

(6) the Shareholders' Resolutions fall within the scope of the provisional liquidators' powers in the Appointment Order and the directors of BF should comply with those resolutions; and

(7) there be power to the provisional liquidators to present a petition to wind up BF and to apply for the appointment of provisional liquidators of BF.

10. The summonses were first heard on 11 November 2002 and adjourned for argument to 16 January 2003. An undertaking was provided by LWD and CSC and recorded in the order made on 11 November 2002 that on a without prejudice basis and pending the result of the summonses, each of LWD and CSC will pay Maintain Profits and Myriad Gold HK$500,000.00 towards the provisional liquidators' costs. This was because at that time, neither Maintain Profits nor Myriad Gold had held funds, other than sums which were less than HK$5,000.00, from which the provisional liquidators' costs and expenses for supervising the activities of BF could be paid.

11. On 13 November 2002, I made another order, on the ex parte application of the provisional liquidators, that pending the determination of the summonses and without prejudice to the position of the parties interested therein, all bank accounts of BF be closed and the money therein be transferred to new accounts in the name of BF to be set up at Liu Chong Hing Bank Limited in terms of the Shareholders' Resolutions, alternatively that new accounts be set up at such bank or banks as the provisional liquidators consider appropriate. The application was necessitated by a letter dated 12 November 2002 from the solicitors for the Liu Chong Hing Bank to the solicitors for the provisional liquidators stating that the bank felt unable to open a banking account for BF purely on the strength of the Shareholders' Resolutions. Eventually, after the order was made, the bank accounts of BF at the Bank of China were closed and the proceeds therein were transferred to the new bank accounts opened in the name of BF at the Liu Chong Hing Bank.

12. That, however, was not the end of the difficulty encountered in relation to the bank accounts of BF. BF also held an account at the Hang Seng Bank Limited and the provisional liquidators have not been able to procure a transfer of the proceeds in this account to the new accounts at the Liu Chong Hing Bank, on the strength of the Shareholders' Resolutions and the order made on 13 November 2002. By the letters of its solicitors dated 21 and 26 November 2002, Hang Seng Bank took the position that as BF is not in liquidation, the power of management including the power to close bank accounts, continues to be vested in the board of directors, not the shareholders, hence the Shareholders' Resolutions do not constitute valid instructions to the bank and that the bank cannot be bound by the order made on 13 November 2002 as it is not a party to the proceedings. Whilst LWD has agreed to provide a letter to Hang Seng Bank instructing it to close the accounts and transfer the proceeds as directed by the provisional liquidators, CSC has declined to do so.

The provisional liquidators' position

13. The purpose of the summonses is to seek the directions of the court as to what the provisional liquidators should do. As stated in the letter of the solicitors for the provisional liquidators to the respective solicitors for LWD and CSC dated 8 January 2003, and expanded in the submissions of Mr Bartlett, who appeared for the provisional liquidators, there would appear to be the following options:

(1) the provisional liquidators should present a petition to wind up BF on just and equitable grounds and apply for their appointment as provisional liquidators of BF (paragraph (7) of the summons referred to above). They would still need the co-operation of the directors in running the business, unless it should appear proper or necessary for the business to cease. This is the preferred option of the provisional liquidators as the most effective way to preserve the assets of BF, which is not at present before the court. It would be considerably simpler to preserve assets of BF if provisional liquidators were appointed for BF, instead of having resort to the shareholders' rights, which have proved cumbersome and susceptible to challenge. If leave were granted as sought under paragraph (7) of the summons, the provisional liquidators would still seek relief under paragraph (6) of the summons so as to confirm the legitimacy of their actions regarding the Shareholders' Resolutions;

(2) the provisional liquidators should remove the board of BF and replace this with the provisional liquidators or their nominees or appoint additional directors to the board to resolve the deadlock. These are not options favoured by the provisional liquidators. They have no intention to take over the management of BF at present, as taking control of the board of BF in circumstances in which its constitution is in dispute would expose the board members to potential liability. Further, the Official Receiver has in his letter dated 10 December 2002 declined to accept any appointment to the board of directors of any of the companies;

(3) the provisional liquidators should continue with their financial monitoring of BF by the exercise of shareholders' rights, but only in the event that the orders sought in paragraphs (2) to (6) of the summons, or part of the relief sought, were granted. The extent of their involvement in BF would depend on the extent of the relief granted; or

(4) the provisional liquidators should cease to act in BF in any capacity. This would be the option taken if the orders sought in paragraphs (2) to (6) of the summons were wholly refused.

14. LWD supports the proposal of the provisional liquidators to present a petition for the winding up of BF and apply for their appointment as provisional liquidators of BF. CSC's position is that the provisional liquidators should cease to act in BF in any capacity, for a variety of reasons.

Basis of remuneration for provisional liquidators

15. I will first deal with the relief sought in paragraph (1) of the summons, which seeks to alter the basis of the remuneration for the provisional liquidators. The mechanism as provided in paragraph 3 of the Appointment Order, that the basis of remuneration be calculated according to "the standard hourly rates charged by the Official Receiver for the services of the Provisional Liquidators and other grades of staff employed by them", has proved to be unworkable. This is because the grades of staff of the Official Receiver's Office are unique and completely different from those of accounting firms in the private sector. It would be virtually impossible for the provisional liquidators to apply the staff hourly rates of the Official Receiver in calculating their remuneration.

16. In the circumstances, I think it is right to make an order as sought in paragraph (1) of the summons, that the remuneration of the provisional liquidators be charged on a time-cost basis at the standard scale of fees as agreed from time to time between the Official Receiver and the Hong Kong Society of Accountants under the "Panel A" winding-up cases and be paid out of the assets of Maintain Profits or Myriad Gold, as the case may be.

If remuneration could be paid out of the assets of BF

17. According to paragraph 3 of the Appointment Order, the remuneration of the provisional liquidators is to be paid out of the "Assets" as defined, meaning the assets of Maintain Profits or Myriad Gold. This has proved to be problematic as neither company has sufficient funds of their own to pay for the fees and expenses of the provisional liquidators. In the absence of any security from LWD (and I am given to understand that the provisional liquidators were nominated by LWD on the basis that they agreed to accept appointment without seeking security), upon whose application the provisional liquidators were appointed, they could only look to the assets of BF for their costs. To this end, the provisional liquidators have proposed to pass a shareholders' resolution to provide for their remuneration as provisional liquidators of Maintain Profits and Myriad Gold to be charged to BF and be paid out of the assets of BF. They seek an order in paragraph (2) of the summons that they may exercise their power in this way.

18. Mr Chang, SC, who appeared for CSC, raised a number of objections to this.

19. The applicable principles were stated by Mr Chang in this way:

(1) if the company concerned (in this case Maintain Profits or Myriad Gold) has insufficient funds to pay the remuneration of provisional liquidators, that is a risk that the provisional liquidators have to take in accepting the appointment;

(2) if the provisional liquidators should accept the appointment without first obtaining sufficient security or deposit from the petitioner for their costs, expenses and remuneration, or in the absence of any agreement with the petitioner to make up any deficiency if the assets of the company should be insufficient to pay for their fees, they do so at their own peril; and

(3) if the petitioner is unable or unwilling to provide sufficient security it is open to the provisional liquidators to apply for a discharge of their appointment.

20. The authorities cited by Mr Chang in support of the above principles include Re UOC Corp [1997] 2 BCLC 569; Insolvency by Totty and Moss, Part E, para. E1-82; and Corporate Insolvency: Law and Practice by Milman and Durrant, 3rd ed., para. 2-53.

21. Mr Bartlett did not dispute the correctness of the principles stated above but submitted that they do not affect the shareholders' resolution proposed to be passed.

22. Mr Chang has also referred me to the following extract in Palmer's Corporate Insolvency, 1996 ed., para. 1.318.2, which reads as follows:

"If there are no assets the liquidator is not entitled to receive any remuneration and he is personally liable for legal expenses incurred in the liquidation; the legal expenses of the petition are the responsibility of those who instructed it. It is not competent to charge the expense of one liquidation against the assets ingathered in another liquidation, even where the first liquidation was undertaken with a view to securing a benefit for the creditors in the second one." (emphasis supplied)

23. The authority cited in the text in support of the above extract is the Scottish decision of Taylor (Liquidator of Neil Middleton and Co. Ltd), Petitioner (1976) SLT 82, in which the court refused the liquidator's proposal to charge the funds of a closely related company in liquidation with the expenses of the liquidation of the company in question and had this to say at 84:

"The general principle which then has to be observed is that a limited company is a distinct legal person. It may have close relations with other legal persons, but its separate identity remains. In my opinion, this principle continues to apply in a company's liquidation, and it implies that the liquidator's office is held separately from any other such office, that the funds of a liquidation are the separate funds of the separate company in liquidation, and that the liquidator's intromissions can only be with these separate funds. In my opinion, it would be inconsistent with principle that there should be intromissions with the funds of one liquidation to provide remuneration for the liquidator acting in another liquidation.

It follows that if insufficient funds are ingathered, the liquidator may receive no remuneration at all ...

... Accordingly, neither in the case of the liquidator's remuneration nor the solicitor's expenses can judicial sanction be given for their payment from the funds of either of this liquidation, or, for the reasons above given, from the funds of any other liquidation." (emphasis supplied)

24. Mr Bartlett's answer to the above is that BF is not in liquidation and the Scottish decision was not concerned with a situation that all the shareholders of a company are in a position to pass a resolution to fund the expenses of liquidation of its parent company. He submitted that subject to the position of the creditors of BF, there is nothing inherently objectionable about the shareholders of BF passing a resolution to fund the costs of the provisional liquidators of its parent companies, Maintain Profits and Myriad Gold. It is a matter of first principles that a company would have power to do anything that its shareholders unanimously agree upon. Mr Bartlett has not been able to find any direct authority on the point.

25. As for the creditors of BF, Mr Bartlett submitted that they would not be adversely affected. He accepted that it would not be appropriate for the shareholders of an insolvent company to agree to fund the costs of liquidation of a related company, as that would be dealing with the assets without regard to the interests of its creditors. However, in the present situation, it would appear from the management accounts of BF as in July 2002 that it is able to pay its debts as they fall due. It would be beneficial to the creditors if the provisional liquidators should take up the financial monitoring of BF as set out in the engagement letter.

26. Mr Poon, SC, who appeared for LWD, seemed to have changed his stance somewhat in the course of submissions. At first, he submitted that it would be inappropriate for the assets of one company to be applied for the use of another company, and suggested that the only ways for the provisional liquidators to get themselves out of the predicament of not receiving payment for their services due to insufficient funds in Maintain Profits and Myriad Gold are either to petition for the winding up of BF and have themselves appointed as provisional liquidators of BF or to appoint themselves as directors of BF so as to be paid for their work done in relation to BF.

27. In his subsequent submissions, Mr Poon made the point that in order to preserve the assets of Maintain Profits and Myriad Gold in an effective way, it would be necessary for the provisional liquidators to keep an eye on the affairs of BF and preserve the assets of BF. Hence, although there is a distinction between protecting the interests of Maintain Profits and Myriad Gold in BF and protecting the assets of BF, a distinction which Mr Chang was at pains to emphasise, these acts are not mutually exclusive. Mr Poon submitted further that as the acts of the provisional liquidators in supervising the affairs of BF are done for the benefit of BF, there is nothing inherently objectionable for the remuneration of the provisional liquidators to be paid out of the funds of BF.

28. Under paragraph 2(9) of the Appointment Order, the provisional liquidators are empowered to exercise "all rights which [Maintain Profits or Myriad Gold] may have in relation to ... BF, as may be necessary to obtain control or management of [BF] ... and to take all such steps as may be necessary to protect the interests of [Maintain Profits or Myriad Gold] in BF ...". As I have mentioned earlier, Maintain Profits and Myriad Gold have no business or assets of their own, save for the entire shareholding in BF. Whilst the term "Assets" in the Appointment Order is defined to mean the assets of Maintain Profits or Myriad Gold, the provisional liquidators are expressly empowered to take such steps as necessary to protect the interests of these companies in BF. It is true that the interests of these companies in BF are not equivalent to the interest of BF itself, they are after all separate entities. However, I think Mr Poon is right in saying that in this instance the interests of the two parent companies do completely coincide with the interest of BF and if the provisional liquidators should act to preserve the assets of BF, they are in effect preserving the assets of the parent companies. I am persuaded that as a matter of first principles, there is nothing inherently objectionable for the provisional liquidators to exercise their power under paragraphs 2(9) and (10) of the Appointment Order, as shareholders of BF, to resolve that their remuneration for their work (which would be done almost entirely, if not entirely, in relation to BF) is to be paid out of the assets of BF, an apparently solvent company, at a time when no petition for winding up is presented against BF.

29. I have come to this view notwithstanding two other points taken by Mr Chang.

30. Firstly, he submitted that owing to the provisions of a loan agreement ("the Loan Agreement") dated 3 March 1999 made between Presidential Profits Limited ("President Profits") and Bomina Limited ("Bomina") as lenders and BF as borrower, the interests of Maintain Profits and Myriad Gold in BF must be of a very limited nature. Under the Loan Agreement, the lenders have agreed to provide to BF a revolving loan facility up to HK$350 million. In return, it was provided in clause 5.05 that only the lenders are entitled to share any "Retained Profits" (being the audited retained profits of BF after provision is made for a reserve agreed to by the lenders that is necessary for the ongoing operation of the business). In view of this, Mr Chang submitted that the maximum interests of Maintain Profits and Myriad Gold in BF would not exceed the sum of HK$1 million, being BF's paid-up capital. On this basis, the tangible interest of Maintain Profits and Myriad Gold would have been adequately protected by the payment of HK$500,000.00 each by LWD and CSC to these two companies towards the provisional liquidators' costs, pursuant to their undertakings given to the court on 11 November 2002.

31. The transactions in the Loan Agreement have yet to be scrutinised by the provisional liquidators. They are not in any position to accept at this stage that the operation of the Loan Agreement would limit the financial interest of Maintain Profits and Myriad Gold to a maximum interest of HK$1 million at any time. I am not prepared to hold at present that in the event of the winding up of BF, the interests of Maintain Profits and Myriad Gold as shareholders of BF must necessarily be limited to the extent as contended by Mr Chang. The winding up of BF would be an event of default under the Loan Agreement, giving the right to any of the lenders to declare the loan drawn down and all interest and other sums payable as immediately due, by virtue of clause 12.03. It is not entirely clear what effect this would have on clause 5.05 (which made reference to "Retained Profits" premised on there being ongoing operation of the business of BF). In the ordinary case, shareholders would have the right, on the winding up of the company, after the payment of the debts, to receive a proportionate part of the capital or otherwise to participate in the distribution of assets of the company. It is not entirely clear in this situation, whether and to what extent, this right of shareholders would have been affected by clause 5.05.

32. Secondly, Mr Chang submitted that in giving power to the provisional liquidators to take steps as may be necessary to protect the interests of Maintain Profits and Myriad Gold in BF, one must have regard to the settled principle that where a company suffers loss caused by the breach of a duty owed to both the company and the shareholders, the shareholders are not allowed to pursue personal claims to recover or protect any diminution in the value of their shares, as such loss is merely reflective of the company's loss, in respect of which the company has its own cause of action, citing Johnson v Gore Wood & Co. [2001] 1 BCLC 313 at 365h to 366a. As I understand Mr Chang's submissions, this principle is prayed in aid to emphasise the distinction between protecting the interest of BF and protecting the interests of the shareholders of BF. I am unable to see any direct relevance of this principle to the question that I am concerned with, namely, where the interest of BF does appear to coincide with those of Maintain Profits and Myriad Gold, whether there is any objection in principle for the provisional liquidators to resolve that their remuneration may be paid out of the assets of BF.

If the provisional liquidators should be indemnified by BF

33. I turn to consider the other part of the shareholders' resolution proposed by the provisional liquidators, which relates to an indemnity to be given by BF to the provisional liquidators in respect of claims or liabilities, charges or expenses, resulting from the carrying out of any action by or on behalf of the provisional liquidators.

34. For the reasons given earlier, I see no objection in principle for an indemnity to be provided, it being part of the powers of the provisional liquidators to take such steps as may be necessary to protect the interests of Maintain Profits and Myriad Gold in BF, so long as it is made clear in the shareholders' resolution that the indemnity is in relation to action taken in respect of BF.

35. Subject to the above qualification as regards the proposed indemnity, and subject to the further qualification that the proposed indemnity and the proposed payment of remuneration of the provisional liquidators would cease to apply in the event that a petition is presented to wind up BF, I rule that the provisional liquidators may exercise their powers to pass the shareholders' resolution sought in paragraph (2) of the summons.

36. I also rule that the provisional liquidators may be at liberty to appoint solicitors and counsel to advise on the operation of BF and generally in relation to BF, as sought in paragraph (3) of the summons, and that such costs may be paid out of the assets of BF, as sought in paragraph (4) of the summons.

If the Shareholders' Resolutions may be declared valid

37. Under paragraph (6) of the summons, the provisional liquidators seek an order that the Shareholders' Resolutions of 6 November 2002 do fall within their powers in the Appointment Order and the directors of BF should comply with those resolutions.

38. Objection was taken by CSC to the Shareholders' Resolutions on the ground that there was irregularity in holding the extraordinary general meeting of BF on 6 November 2002 to pass the Shareholders' Resolutions in that the provisional liquidators had never properly requisitioned the board of directors of BF to convene any such general meeting in accordance with section 113 of Cap. 32 or Article 51 of the Articles of Association. The answer to this is two-fold. Firstly, as pointed out by Mr Poon, reliance may be placed on section 116B(1) of Cap. 32, which provides, inter alia, that anything which in the case of a company may be done by resolution of the company in general meeting may be done, without a meeting and without any previous notice being required, by resolution in writing signed by or on behalf of all the members of the company who at the date of the resolution would be entitled to attend and vote at such meeting. Secondly, as submitted by Mr Bartlett, reliance may also be placed on the Duomatic principle at common law ([1969] 2 Ch 365), in which the unanimous informal consent of all the shareholders in respect of a matter which a general meeting could carry into effect would be treated as binding as a resolution in general meeting.

39. I turn to consider if the Shareholders' Resolutions fall within the powers of the provisional liquidators in paragraphs 2(9) and (10) of the Appointment Order. For the reasons I have given earlier, the provisional liquidators are in effect preserving the assets of the parent companies when they act to preserve the assets of BF. In my view, the action in relation to BF contemplated by the Shareholders' Resolutions would fall within "such steps as may be necessary to protect the interests of [Maintain Profits or Myriad Gold] in BF" in paragraph 2(9).

40. I will make an order that the Shareholders' Resolutions do fall within the scope of the powers of the provisional liquidators in the Appointment Order. I do not think it appropriate to order further that the directors of BF should comply with the Shareholders' Resolutions as sought in paragraph (6) of the summons, as BF is not before the court and not all of its directors have been served with the summons.

If the provisional liquidators should have power to wind up BF

41. Under paragraph (7) of the summons, the provisional liquidators seek an order that they be given the powers to present a petition to wind up BF and to apply for their appointment as provisional liquidators of BF.

42. When LWD applied for provisional liquidators to be appointed for Maintain Profits and Myriad Gold, it was sought in the draft order that the provisional liquidators should have power to present a petition to wind up BF, as one of the action that may be considered necessary for the protection of the assets of BF. I had deleted this power when I made the Appointment Order, taking the view that it was not necessary for the provisional liquidators to have such power at that time.

43. This power is sought by the provisional liquidators for a number of reasons.

44. The board of directors of BF is likely to remain in deadlock indefinitely. For the provisional liquidators to resort to shareholders' rights to obtain control of BF, this has proved to be cumbersome and controversial. In my decision on 31 October 2002, I have found that there is a prima facie case of misconduct on the part of CSC in the affairs of BF, a complete deadlock of directors and loss of mutual trust and confidence. These matters would have justified the presentation of a petition to wind up BF on just and equitable grounds. No new business has been taken on by BF since the Appointment Order, and apparently since August 1999. If leave were granted for a petition to be presented and if the provisional liquidators were successfully appointed provisional liquidators of BF, they have no present intention of removing CSC from the management of BF or to stop him from participating in its affairs under their supervision.

45. When I made the Appointment Order, I had considered the risk that the appointment of provisional liquidators for Maintain Profits and Myriad Gold might trigger off a takeover of BF by Bomina under an Option Agreement dated 3 March 1999 ("the Option Agreement"). For the reasons given in paragraphs 153 to 160 of my decision, I was not persuaded that the risks of enforcement of the Option Agreement or the Loan Agreement should tip the balance. In the event that Bomina should wish to enforce its right under the Option Agreement to purchase all the shares in BF upon the presentation of a petition to wind up BF and the appointment of provisional liquidators for BF, the transfer of shares in BF or alterations in the status of the members of BF would be caught by section 182 of Cap. 32 and leave of the court would be required for the disposition. I do not think it would be inconsistent with the primary duty of the provisional liquidators to preserve an existing status quo with the least possible harm to all concerned if they are given the further powers to present a petition to wind up BF and to apply for their appointment as provisional liquidators of BF. I am concerned at this stage with whether the powers sought should be given to the provisional liquidators. The merits of an application to appoint provisional liquidators of BF, if and when a petition for winding up of BF is presented, would be a matter for a further hearing.

46. Mr Chang further submitted on the authorities cited earlier that it is not competent to charge the expense of one liquidation against the assets ingathered in another liquidation, even if the first liquidation is undertaken with a view to securing the benefit of those entitled to the assets in the second liquidation. Hence, all expenses in the liquidations of Maintain Profits, Myriad Gold and BF would have to be separate. I do not think this should pose a difficulty here. The position of the expenses of the provisional liquidators before the petition to wind up BF is presented would be dealt with pursuant to the shareholders' resolution proposed in paragraph (2) of the summons. As mentioned earlier, the work done by the provisional liquidators would be done almost entirely, if not entirely, in relation to BF. After the presentation of the petition to wind up BF, the expenses of the provisional liquidators of Maintain Profits and Myriad Gold, insofar as the work done is not in relation to BF, should not be paid out of the assets of BF, so there would be no contravention of the principle of no intromission with the funds of one liquidation to provide for the remuneration for the liquidator acting in another liquidation.

47. I will make an order giving the provisional liquidators the powers sought in paragraph (7) of the summons. This should not be construed as implicit approval for the exercise of the powers. The provisional liquidators would need to consider if it is appropriate, in all the circumstances, to exercise the additional powers given to them, as in the case of all other powers given in Appointment Order.

Orders

48. I make the following orders in each of the summonses in HCCW Nos. 345 and 346 of 2002:

(1) there be an order in terms as sought in paragraphs (1), (3), (4) and (7) of the summons;

(2) the provisional liquidators may exercise the powers of Maintain Profits and Myriad Gold as shareholders of BF by shareholders' resolution, to cause BF to indemnify the joint and several provisional liquidators of Maintain Profits and Myriad Gold and to provide for the remuneration of the provisional liquidators in the terms as stated in paragraph (2) of the summons provided that (a) the resolutions would cease to apply in the event that a petition to wind up BF is presented; and (b) the indemnity to be provided is only in respect of the carrying out of any action by or on behalf of the provisional liquidators in relation to BF; and

(3) the Shareholders' Resolutions dated 6 November 2002 and signed by the provisional liquidators in relation to BF fall within the scope of the provisional liquidators' powers contained in the Appointment Order dated 31 October 2002.

49. I make an order nisi in respect of each of the applications that the provisional liquidators' costs of the initial hearing on 11 November 2002, which were reserved, and their costs of the application be paid out of the funds of Maintain Profits or Myriad Gold, as the case may be, received by the provisional liquidators pursuant to the undertakings given by LWD and CSC on 11 November 2002.