XCHRX Re Anwell Building Construction Co. Ltd.

HCCW 1120/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 1120 OF 2001

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DECISION ON APPOINTMEN OF
PROVISIONAL LIQUIDATOR

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1. This is an ex parte application for the appointment of provisional liquidators. The Applicant is HSBC. It presented a petition today in CW 1324 of 2001, but it has transpired that the Company is already the subject matter of another petition being CW 1120 of 2001 presented by an employee pursuant to a Labour Tribunal award. However, that does not affect the locus of HSBC in making the present application because any creditor of a company may apply for the appointment of a provisional liquidator under Section 193 of the Companies Ordinance.

2. The evidence shows that HSBC advanced certain facilities to the Company and to another company which the Company guaranteed by the name of Wayne Construction Company. Apparently, Wayne has also been made the subject of a petition for winding up, that one presented by Pioneer Construction Company Limited.

3. As far as the Company is concerned, the evidence shows that HSBC has for the past few months been attempting to resolve the Company's difficulties in meeting overdue repayments. In mid-October 2001, the Company proposed the making of a $1,000,000.00 p.m. payment to HSBC commencing from the end of October. However, no payments have been received. Messages left for the directors of the Company by HSBC staff have not been returned. Since November the Company has only had an answering machine service and the staff of HSBC have not even been able to contact the directors or staff of the Company. Apparently, some senior staff members have also left the employ of the Company in November. The Company's principal place of business has also been deserted apparently for some time.

4. Consequently, on 12 November 2001 HSBC served a statutory demand on the Company in respect of a sum of some $20.35 million odd together with interest, less security by way of a charge over Company deposits in the sum of about HK$3 million.

5. The 21 days prescribed by the statute expired without payment or a reply from the Company. Accordingly, the applicant presented its own petition today. However, as I indicated to Mr Dobby in the course of his submissions, it is inappropriate for there to be more than one petition pending against a company. Therefore, Mr Dobby has indicated that HSBC will withdraw its petition presented today and that he would be making this application under CW 1120. The Director of Legal Aid has indicated that he has no objection to the present application for the appointment of provisional liquidators.

6. The application for the appointment of provisional liquidators has arisen from the fact that the Company has 3 ongoing construction projects which apparently produce cash payments every month. According to a cash flow projection dated 9 October 2001 and presented to HSBC by the Company's directors, there are 3 construction projects, at Arbuthnot Road, Boundary Street and Tai Hang Road respectively, which should have provided the Company with a total cash inflow of $5.39 million in October 2001 and $9.8 million in November 2001. According to that cash flow projection, the Company should have cash in hand of $560,000.00 for October and $650,000.00 in November, even having provided for repayment to HSBC of $500,000.00 in October and $700,000.00 in November. However, as stated above, no payments have been made by the Company to HSBC and it is not known where the balance of cash of $560,000.00 in October and $650,000.00 in November have gone.

7. It is well-established law that a creditor can apply for the appointment of a provisional liquidator at any time after the presentation of a winding-up petition. The relevant factors are that the applicant must establish a good prima facie case for a winding-up order to be made and that the appointment is, in all the circumstances of the case, appropriate.

8. It would appear clear in this case that the applicant has established a good prima facie case for a winding-up order to be made. Apart from the petition presented by the employee under the Labour Tribunal award which was made as far back as February 2001, there is also a failure to pay the applicant pursuant to the many demands that have been made and to the statutory demand.

9. More pressing is the fact that it is not known where the cash balances for the past two months have gone, and it would certainly appear to be worrying that the Company is apparently operating outside its registered office and principal place of business, without the usual staff, and there must arise concerns as to whether these projects are being properly managed and the cash assets properly dealt with. Although it would appear clear that this Company is insolvent, it is apparently still carrying on trading and without any evidence where assets arising from such trading have gone.

10. In the circumstances, HSBC giving the required usual undertakings as to damages in the event it were held that this order is improperly made, I will make an order in terms of the draft order as amended. I will reserve the costs of the application.