RE THE TUNG ON PLUMBING CO, LTD ("TUNG ON")

HCCW 818/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 818 OF 2005

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AND

HCCW 819/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 819 OF 2005

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D E C I S I O N

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1.  This is another application for a validation order by the Tung On Plumbing Company Limited (“Tung On”) and Saiton Engineering Limited (“Saiton”).  The last validation order was made on 10 April 2006 to enable the companies to pay salary to their staff for half a month.

2.  In the present application, Tung On seeks an order to allow payments be made in respect of one month’s salary of the staff employed in its project in the sum of HK$124,500.00.

3.  In Saiton’s application, it seeks an order to allow payment of HK$236,048.00 for the purchase of materials to be used on its project, HK$385,972.00 to pay one month’s salary of the staff and an amount to pay professional fees of Saiton’s lawyers.  I note that Tung On has not made any application to pay the fees of its lawyers.

4.    I need to be satisfied that these payments sought to be made are in the best interest of the companies and that the interest of creditors is not likely to be prejudiced.

5.  The companies still have ongoing works in relation to two projects, one at No. 33 Ka Wai Man Road and the other at the Four Seasons Hotel.  Both are close to completion.  Regarding the payment sought to be made for the purchase of materials to be used in the project in Ka Wai Man Road, it was submitted that the payment is necessary for Saiton to complete the project.  The current delay for Saiton in completing its work is due to the fact that it does not have funds to purchase the required materials, and the main contractor has refused to continue its previous practice of purchasing materials on behalf of Saiton and deducting the costs from retention monies.

6.  If Saiton is unable to complete its work promptly, it will have to indemnify the main contractor for the losses of the latter.  It is anticipated that upon the purchase of materials, Saiton should be able to complete its work within seven days.  There is some urgency in applying for a validation order for these payments, because Saiton would be vulnerable to a claim from the main contractor if it is solely responsible for any delay.

7.  As for the payment of staff salary for the two outstanding projects, it is essential to allow payment at this stage because the staff have threatened to cease work on both projects if they do not receive a full month’s salary.

8.  For the project at the Four Seasons Hotel, Tung On is required to complete its contracted work on or before 30 June 2006.  If work is not completed on time, Tung On would risk potential breach of contract and the processing of its payment application for work done in the sum of HK$7.8 million odd would be delayed.

9.  The Official Receiver has no objection to the payment of one month’s salary for both companies.  He has adopted a neutral stance on the payment of the purchase of materials.

10.  I understand all financial creditors have been notified of the present applications and no one has raised any objection.  I have considered the balance in the two special bank accounts of the companies after the payments sought in the present summonses are made.  Further, KPMG would continue to monitor the special accounts of the companies.

11.  I see no problem with the payment of salaries and the purchase of materials.  So I will make a validation order in respect of these items.

12.  The remaining item sought is for professional fees of Saiton’s counsel and solicitors.  These are the legal fees incurred in the winding-up proceedings, the attempts at restructuring, and the application for a validation order.

13.  The Official Receiver has not supported payment for professional fees.

14.  I am inclined to agree with the Official Receiver that a validation order should not be made in respect of legal fees in the present situation.  The only ground for opposing the winding up is to allow the companies to explore the possibility of restructuring.  I see no reason why the expenses in opposing the winding up and the expenses relating to restructuring should be paid out of the assets of the insolvent companies at the expense of unsecured creditors.  As for the legal fees incurred in the application for a validation order, I have already ordered on previous occasions that such costs should be in the cause of the winding-up proceedings.  I see no need to make any order to validate the payment of legal fees in this respect.

15.  For these reasons, I have not allowed the application for a validation order in respect of professional fees to Saiton’s counsel and solicitors.  For the costs of these summonses, I order that the costs are to be in the cause of each of the petitions.