VIRTYRE LTD v. CENTURY GROUP LTD

HCA3235/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3235 OF 2003

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REASONS FOR RULING

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1. This is an application for stay of proceedings pending the outcome of a winding-up petition, and for the vacation of an Order 14 hearing fixed for 26 February 2004. I allowed the application and now give reasons.

2. The plaintiff is the landlord and the defendant the tenant of premises in Wyndham Street, in which the defendant operates a hair salon. The plaintiff's claim is for arrears of rent, vacant possession and mesne profits. On 30 September 2003 the plaintiff issued two summonses, one for summary judgment and the other for an interim payment. The first was fixed for hearing on 26 February 2004. The second came before Mr Registrar Chan who dismissed it. The plaintiff appealed; on 8 December 2003 I allowed the appeal and made an order for payment of $632,380.44 on account of the defendant's use and occupation of the suit premises from 1 May to 30 November 2004, and thereafter for payment of $106,000.00 per month for its continuing use and occupation of the premises. Apparently nothing has been paid, so the plaintiff on 23 December 2003 served on the defendant a letter of demand for $738,380.44 and then on 16 January 2004 filed a petition for the winding-up of the defendant. The petition is to be heard on 17 March 2004.

3. Section 181 of the Companies Ordinance, Cap.32 gives the court power to stay pending proceedings at any time after the presentation of a winding-up petition and before a winding-up order is made, on such terms as it thinks fit. It is not in dispute that the purpose of the section is to maintain the status quo, preserve the company's assets and put all unsecured creditors on an equal footing. The general principle is that where a petition has been presented, no creditor should gain priority over others of his class. See Attlee Investments Ltd v. Lee Chuen trading as Lee Chuen Furniture Co. [1983] HKLR 420 at 422.

4. The plaintiff argues that it should be allowed to proceed with its claim against the defendant, which is in any event insolvent, in order to recover its own assets. The interest of other unsecured creditors will not be affected if the plaintiff can obtain vacant possession of its own property. The plaintiff has offered an undertaking not to enforce any money judgment obtained without leave of the court.

5. Though no evidence has been given of other trade creditors, there are other creditors. In High Court Action No.2057 of 2003 the plaintiffs are claiming for shareholders' loans in the aggregate amount of $2,250,000.00. The defendant is, it appears, operating a hair salon, and if it cannot or will not pay its rent one may assume that there will be some trade creditors. The plaintiff argues that there is a doubt as to the genuineness of the plaintiffs' claim in the other action. In support the plaintiff's solicitor points to the fact that the action has not been diligently pursued. That may be but it does not mean the money is not owed.

6. It seems to me that if the plaintiff were allowed to proceed with the Order 14 summons at this stage, even with an undertaking not to enforce any money judgment obtained, the result may well be that it would get and enforce judgment for vacant possession. That would probably mean the end of the defendant's business. It might carry on in other premises, but could obviously have difficulty in finding any. So whatever income is being made would cease. I am told, and it does not seem to be in dispute, that money is coming in and is being deposited in an account which is frozen for the benefit of all creditors. I can well see that the plaintiff would want to cut its losses, and get its premises back, so as to re-let them to someone who will pay the rent, but if the business ceases there is an obvious danger that other creditors would lose thereby. Further, the possibility that the liquidator could run the company, or put someone in to run it for the benefit of the creditors would become, if not impossible, much more remote.

7. It seems to me that if the plaintiff were allowed to proceed with the Order 14 summons before the petition is heard, the effect would be to drive the defendant out of business ahead of any consideration by the court of the petition. That is not desirable from the point of view of any other creditor but the plaintiff. The whole point of a stay is to maintain the status quo, preserve the company's assets and put all unsecured creditors on an equal footing pending the hearing of the petition. It therefore appeared to me that a stay should be granted.