RE RIGHT TIME CONSTRUCTION COMPANY LIMITED

C.W.U. NO. 97 of 1987

IN THE SUPREME COURT OF HONG KONG

COMPANIES WINDING UP

---------------------

-----------------------

J U D G M E N T

------------------------

1. A petition was presented on the 1st May 1987 to wind up Right Time Construction Company Limited (Right Time) on the grounds that it was insolvent and unable to pay its debts. A winding up order was made on the 2nd June 1987 when the official receiver was appointed to be the provisional liquidator. On the 23rd July 1987, three partners in the firm of accountants Ernst & Whinney were appointed to be joint liquidators.

2. Right Time was the main contractor in respect of a building development at Tuen Mun for which Reality Enterprises (Hong Kong) Limited (Reality) was the employer . There were a number of nominated sub-contractors including the respondents Chevalier (HK) Limited (Chevalier) and Regent Engineering Company (Regent).

3. On the 28th April l987 the architect for the project certified a payment of $.6,433,408.33 as due from Reality to Right Time. Of this sum $3,980,456.65 was paid by cash to Right Time which was used to pay domestic sub-contractors whilst Reality also paid a sum of $2,452,951.70 direct to nominated sub-contractors with the consent of Right Time which included a sum of $2,045,300.00 to Chevalier and $160,000 to Regent. The payments to Chevalier and Regent were made after the presentation of the petition on the 1st May 1987.

4. By the present summons, the joint liquidators contend that the payments made to the respondents constituted dispositions of the property of the company within the meaning of section 182 of the Companies Ordinance and are therefore void. An alternative claim that the dispositions amounted to fraudulent preferences contrary to section 266 of the Companies Ordinance has been abandoned.

5. Section 182 of the Companies Ordinance provides:-

"In a winding up by the court, any disposition of the property of the company, including things in action, and any transfer of shares, or alteration in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void. "

6. Mr Yu, counsel for the respondents, submitted that as the payments were made out of Reality's own funds from their own bank account, the moneys were never the property of Right Time. Mr Yu contended that before the payments were made by Reality to Chevalier and Regent, Reality owed Right Time a debt of the moneys that were paid so that Right Time was entitled to a chose in action against Reality. However, there was no evidence of any specific fund held by Reality that was earmarked for the discharge of the debt or chose in action to which Right Time had a proprietary claim. In support of his submission, Mr Yu referred me to In re J. Leslie Engineers Co. Ltd. [1976]1 W.L.R. 292 where the respondents made a demand for payment in respect of work done for a company, but without knowledge that a petition to wind up had been presented. Part of the debt was paid by means of a cheque drawn on the joint account of the controlling director of the company and his wife which was at the same bank as that of the company. As the joint account was overdrawn, the director paid a cheque from the company's account to cover the overdraft and the cheque. The respondents when they presented the cheque for payment believed that the cheque was being paid by the director and his wife from their own resources. It was held that the credit balance in the joint account was not the property of the company so that the payment by the bank of the cheque in favour of the respondents was not a disposition of the company's property avoided by the section.

7. Mr Yu argued that having regard to that decision a fortiori the payments paid to and received by Chevalier and Regent are not and never were dispositions of the property of Right Time within the meaning of section 182 as they had never come from Right Time. In the alternative, if there was a disposition of the company's property that consisted of the purported discharge, if any, of Reality's debt to Right Time or of Right Time's chose in action against Reality, and if that purported discharge is void under section 182, Reality remains liable to Right Time for the moneys paid direct to the nominated sub-contractors, so that the joint liquidators have no claims against either Chevalier or Regent.

8. I am unable to accept Mr Yu's submission that In re Leslie Engineers Co. Ltd. is relevant to the instant case for on the facts Oliver, J. held that when the payment was made and at the material time the respondents were not aware, or had reason to suspect that the funds to meet the debt had been provided by the company. Accordingly, the liquidator's claim for a declaration was rejected. Further the alternative submission that was put forward was misconceived.

9. Prior to the presentation of the petition, the petitioning creditor, the Bank of Tokyo, had, on the 10th April 1987, delivered a formal letter of demand claiming the sum of $11,300,000 and as payment was not made within the statutory period of three weeks, the petition was presented on the 1st may. The directors of Right Time were therefore fully aware of the financial state of the company and the likelihood that a winding up order would be made.

10. In this case, it is abundantly clear that payments due to the nominated sub-contractors fell to be paid by Right Time. Right Time in turn was entitled to claim payment from the employer, Reality. The payments were only made direct by Reality to both Chevalier and Regent because of the insolvency of Right Time. I am satisfied that the moneys due to Right Time are identifiable as its property and amount to choses in action within the definition of section 182.

11. Accordingly, the joint liquidators are entitled to the declarations that have been sought together with an order nisi for costs on the common fund basis.