RE KAMMY TOWN LTD

HCCW 246/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 246 OF 2004

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J U D G M E N T

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1. I have before me a somewhat unusual application made by a summons issued yesterday seeking the dismissal of a petition presented against Kammy Town Limited ("the Company") by a creditor, Dongguan Shui Hing Computer Knitting Mark Co. Ltd, a mainland company ("the petitioner").

2. The background to the application is as follows. The petitioner instituted proceedings in the District Court last year claiming some HK$523,900 odd for services allegedly rendered and materials allegedly supplied to the Company. The Company's position was that this claim had in fact been settled before the issue of the writ, and that in any case the writ was not properly served on the Company, and that in consequence a default judgment obtained by the petitioner against the Company was irregular. The Company unsuccessfully applied to the Master in the District Court to set aside the default judgment, and has now appealed to a District Court Judge against the Master's refusal to set the judgment aside. The notice of appeal was issued on 24 February 2004, and the appeal is due to be heard on 19 April 2004. No application appears to have been made for any stay of execution on the default judgment pending the appeal.

3. It is also material to note that the default judgment was obtained on 6 November 2003, and that a statutory demand was served on the company in respect of the judgment sum on 13 November 2003. The application to set aside the default judgment was taken out the next day, 14 November 2003, and it was heard and dismissed on 10 February 2004. The petition in this case was presented on 24 February 2004, the same day as a notice of appeal against the District Court Master's refusal to set aside the default judgment was filed by the Company.

4. The petition has been fixed for hearing on 21 April 2004, when, if it is opposed, it will no doubt be adjourned to the Companies Judge for hearing the following Monday.

5. The petition having been presented, it was advertised in two local newspapers and in the Gazette as required by r. 24 of the Winding-up Rules on 12 March 2004.

6. It appears from the evidence filed in support of the application that the company has, yesterday, tendered payment of the amount of the judgment sum, with interest, to the petitioner's solicitors, albeit under protest and without prejudice to its right to recover the payment in the event that it succeeds in its appeal and has the default judgment set aside. Having done this, the Company seeks the dismissal of the petition. The evidence in support of the application makes reference to difficulties that have been caused to the Company as a result of the presentation of the petition, principally the freezing of its bank accounts and facilities, which are likely to hamper its operations.

7. There are, however, a number of problems with this application. The first is that although it seeks dismissal in open court of the petition, it was issued as an ordinary summons. It is clear from rr. 5-7 of the Winding-up Rules that the application, being one which had to be made in the open court, involving as it did the making of an order on a petition, should have been brought by way of notice of originating motion and not by way of summons, and that such notice of originating motion should have been served on all parties at least two clear days before the hearing.

8. Since none of the other parties involved at the hearing today took any particular point on this, I proceeded to hear the matter. However, I would wish to make it clear that it should not be thought that parties are free to ignore the provisions of the rules and that it behoves the parties and those advising them to study and comply with the rules prior to making any application.

9. A more serious problem with the application is that there is, in my view, no evidence properly before me as to any particular urgency in relation to this application. Mr Lau, appearing for the Company, candidly accepted that this was the case. However, he sought to inform me on the basis of instructions that there was a risk that a bank creditor might call in and demand repayment of certain facilities which it had made available to the Company if the petition was not disposed of by today, or in the very near future. This is, however, nowhere stated in the evidence filed in support of the application yesterday, and even the information which Mr Lau was able to provide me with was limited and to some extent somewhat inconsistent, as he also told me that one of the banking creditors (perhaps the same one) had so far been understanding and accommodating in not immediately demanding repayment of facilities which it had made available to the Company.

10. Mr Lau also suggested, as a fallback position, that the fact that the Company had tendered payment, coupled with the generally known consequences (such as the freezing of bank accounts and inability to carry on business as a result of the operation of s. 182 of the Ordinance) of the presentation of a winding-up petition provided a basis for the court to infer that the situation in this case involved some degree of urgency.

11. I do not agree. It seems to me that in any case in which a winding-up petition is presented, the consequences that flow from the operation of s. 182 of the Ordinance will follow. It is also well-known to practitioners that it is open to companies faced with a winding-up petition to make an application for a validation order where it is sought to carry on business or to make particular payments or other dispositions of assets of the Company pending the hearing of the petition against the Company. It does not seem to me that there is any reason to infer from the tendering of payment that the matter is one of any particular urgency, attributable to any particular factor other than these general consequences which I have mentioned.

12. While it is fair to say that the tendering of payment is a clear indication that the Company wishes to dispose of the petition against it, it does not seem to me to follow that there is such urgency as to require the immediate disposition of the petition proceedings.

13. In my view, there is nothing in the evidence before me which indicates that there is any particular urgency in this case. But even if there were, it seems to me that the Company is to a considerable extent itself to blame for the predicament in which it finds itself, since it was always open to it to make payment of the debt at an earlier stage. Moreover, I would point out that the service of the statutory demand could have left the Company and its advisers in no doubt as to the consequences of a failure to meet the statutory demand. It seems to me that it would have been open to the Company to have sought to restrain the presentation of a petition, or at least its advertising had it already been presented, if the Company were seriously concerned about the effect of the presentation of the petition against it.

14. I am therefore not satisfied that the application is one of such urgency that it had to have been dealt with today and that any abridgement of time should be granted for that purpose.

15. Further, even if I had been satisfied of the urgency of this application, there seems to me to be a further difficulty with the application, stemming from the fact that the petition has been advertised. It is well known that a winding-up petition is a proceeding by which a creditor asserts a class right to have an insolvent company wound up. The petition having been advertised, any other creditor of the Company is entitled, if it chooses to do so, to attend the hearing of the petition, and to make submissions as to whether or not a winding-up order should be made. Even where the debt on which the petition is founded is paid prior to the hearing of the petition, the usual course is to make an order for dismissal of the petition (if such an order is to be made) at the hearing. This is because other creditors may wish to be heard, and in a situation in which another creditor wishes to be substituted as petitioner, notwithstanding that the original petitioner is no longer interested in pursuing the petition, it may turn out that it would be inappropriate to dismiss the petition simply because the petitioning creditor happens to have been paid and is therefore no longer a creditor at the date of hearing of the petition, although it was one at the date when it was presented.

16. Mr Lau proposed that this difficulty could be overcome by adopting the novel course of bringing forward the hearing date of the petition, coupled with re-advertising at the Company's expense, more extensively than strictly required by r. 24 of the Winding-up Rules if the court thought it appropriate, of the new hearing date, so as to avoid the risk of prejudice to other creditors who may have intended to appear at the hearing of the petition. Ms Wong, appearing for the Official Receiver, opposed this course, suggesting that there would be a risk of confusion and also pointing out that this would achieve little advantage in this case, since the hearing date could not be brought forward to any worthwhile extent in this particular case.

17. In my view, even if the court were prepared to consider the course of action proposed by Mr Lau (and I would not rule out the possibility that it might be prepared to do so in a case where it was really shown to be appropriate) the court would only do this on the basis of advertisements which are no less extensive than those required by r. 24 of the Winding-up Rules, which requires advertisement in two local newspapers and the Gazette, not less than 7 days before the day fixed for the hearing of the petition. Even assuming that the court were in this case prepared to proceed on the basis of an advertisement on a single day in these publications (and perhaps additional publications as well), it seems to me that the earliest hearing date that could be fixed for the petition would be 14 April 2004, thus bringing forward the hearing of the petition by a matter of only one week. This is because it seems to me that the earliest any relevant notice could be gazetted would be next Friday, 2 April 2004, and allowing for the 7 days necessary before the hearing date, the earliest available hearing date would appear to be that on 14 April 2004.

18. As I have pointed out, this is only one week before the date presently scheduled for the hearing of the petition. It does not seem to me that so small an advancement of the hearing date would make any practical difference in this case, and it certainly does not make a sufficient difference to offset the risk of confusion to creditors that might be caused by it. In these circumstances, even if I had been satisfied that there was an element of genuine urgency to this application, I would not have been inclined to make the alternative order proposed by Mr Lau, much less the order sought by the application itself.

19. I therefore dismiss this application and will hear the parties as to costs. I would add only that, in the light of the tender of the sum allegedly due, unless some other creditor appears to support the petition on the hearing date and seek to be substituted as the petitioning creditor, it would seem likely that the petition will be disposed of by way of dismissal when the petition eventually comes on to be heard, subject perhaps to argument as to the costs of the petition as between the Company and the petitioning creditor.

20. In those circumstances, it may be that when the reasons for my decision are made known, it will be possible for the Company to persuade such creditors as it may have to deal with in the interim that there is no real risk to them in not taking any steps against the Company.