In re Sun Star Electronics Co. Ltd.

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING-UP)

NO. CWU 489 OF 1994

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J U D G M E N T

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1. There are two petitions before me today and they both raise the same point. These are petitions which are presented on behalf of employees of companies which are now in liquidation. The companies are in voluntary liquidation under Section 228A of the Companies Ordinance.

2. The employees do not come within Section 18 of the Protection of Wages on Insolvency Ordinance for the reason that the companies employed 20 or more employees. For that reason, the only payments to which they could become entitled would be payments under Section 16 of the Protection of Wages on Insolvency Ordinance. In order to trigger the possibility of a payment under Section 16 one of the things that is required is that, in the case of an employer which is a company, a winding-up petition must have been presented against that employer.

3. It can, therefore, be seen that the employees in this situation were in a position where they had, if they wished to take the benefit of a Section 16 ex gratia payment, to present Petitions. It seems to me in those circumstances that the Petitions with which I am dealing today were perfectly properly presented and those responsible for presenting them acted perfectly properly.

4. What is said, however, is that the two companies are in voluntary winding-up and the liquidators in both those cases have undertaken a great deal of work in the course of that winding-up and that if the companies change from being under a voluntary winding-up to a compulsory winding-up, this would entail at the very least the introduction of the Official Receiver. He would have to expend time and effort and therefore costs in taking over the proceedings and thereafter, perhaps, in deciding whether or not the liquidator should be appointed as a liquidator under the compulsory winding-up or whether the liquidator should be appointed as a special manager. Whatever else happens if the proceedings were changed from being a voluntary winding-up to a compulsory winding-up there would be a great deal of extra costs and work and there is a danger that much of the work which has been done would be thrown away.

5. There is a certain amount of law on the question as to what should happen in similar circumstances where creditors present petitions against companies which are already in voluntary winding-up. That has been summarised in the case of Re Medisco Equipment Ltd., [1983] B.C.L.C. 305. In that case, Harman J. reviewed the early authorities including a case of Re J. D. Swain Ltd. [1965]2 All ER 761 at 765 and cited with approval from Diplock L.J. in that case to this effect:

"In the case of a petition for compulsory winding-up, if the only circumstances which are available are that the petitioner seeks a compulsory winding-up and the majority of the creditors seek that there should be no winding-up at all, then prima facie the petitioning creditor is entitled to a winding-up unless there are some additional reasons for deciding to the contrary. If, on the other hand, the petitioner seeks a compulsory winding-up and the majority of the creditors seek a voluntary winding-up, then for the wishes of the petitioner to overrule those of the majority of the creditors there must be some special reason why the wishes of the majority should be overridden. The difference or the distinction seems to me to be an obvious one, namely, in the former case, what is being resisted is any winding-up at all, so that the petitioning creditor, if he fails, will be denied the class remedy which he would otherwise have if the winding-up took place; whereas in the latter case he will get the class remedy anyway under the voluntary winding-up, and the matter then turns on his being able to show some reason why the remedy under the voluntary winding-up is not an adequate remedy for him."

6. I approach this case with one note of caution. In many of the cases which have been cited to me other creditors had appeared at the hearing and had opposed the change from a voluntary winding-up to a creditors' winding-up. Indeed, that was the situation in the case of Re Medisco Equipment Ltd.

7. In this case, none of the creditors had, in fact, opposed the change. Although it is fair to point out that in view of the parlous state of the finances of these companies, the creditors may well feel that there is not much point in throwing good money in attendance in court after bad money which they have already lost in these companies. Therefore, I should not read very much into that.

8. The matter, however, clearly is a matter of discretion. I have to bear in mind whether the creditors who are in this case the employees who have presented these petitions would obtain any advantage if a compulsory winding-up order were made, whether there is any independent opposition to that and what objection if any is made by the voluntary liquidators or the Officer Receiver. I have to bear all these things in mind in deciding what is to happen next.

9. It seems to me in these cases that the only further benefit which the employees could obtain in the circumstances would be that the costs of the petitions would then become recoverable. But since the employees are also preferred creditors, it is quite likely in these cases that to some extent at least, that whatever costs they might recover if there were a compulsory winding-up would come in part from anything that they would be liable to recover from the company. There would be a certain amount of circuity. I also have to bear this in mind that although the costs of presentation of a petition are by no means small and it could entail, I am told, at today's rates something in the region of $40,000 or more, the extra costs involved in converting this from a voluntary winding-up to a compulsory winding-up could very much exceed that.

10. The sensible course in these cases, given the cumbersome nature of Section 16 of theProtection of Wages on Insolvency Ordinance which really makes it mandatory that a winding-up petition is presented, is that the petitions should be stayed until such time as the companies shall be dissolved and upon that event the petitions should be dismissed with no orders as to costs. The dismissal should be automatic without the need for anybody having to come to court, or any further application having to be made to court. That leaves the question of the deposit of $10,000 which is required under rule 22A of the Winding-Up Rules. It seems to me right that the deposits should be returned to the petitioners less any amount which the Official Receiver is entitled to as his costs up to today.

11. It seems to me that it would be perfectly proper for such an order to made almost as a matter of course in cases where similar petitions are presented. In future cases, I see no reason why the order cannot be made by the Master to save further costs in having an adjournment to the court and if the order in the form which I have set out is made the dismissal of the petition will be automatic upon the dissolution of the company.

12. I have to add, nevertheless, that the matter of staying the petition and the matter of whether it should be allowed to proceed is clearly a matter of discretion and that if the circumstances of any particular case would warrant the creditors either as a class or individually proceeding to seek a winding-up order then, of course, they are entitled to ask to proceed. Likewise if the body of creditors or the liquidator or Official Receiver has strenuous objections for other reasons even to the presentation of the petition or its stay, then, of course, they should be entitled to voice their objection on the first hearing. But in normal circumstances I see no reason why, in similar circumstances, those acting for the employees should not on the first hearing apply for a similar order to that which I propose to make today. Clearly if they make that plain to all those concerned, including the Official Receiver at the earliest opportunity, I see no reason why they should incur any further costs.

13. I propose to make an order accordingly.