RE THE JOINT AND SEVERAL LIQUIDATORS OF NERICO BROTHERS LTD

HCMP 2205/2022

[2023] HKCFI 604

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2205 OF 2022

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JUDGMENT

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THE APPLICATION

1.  This is the application made by the joint and several liquidators of Nerico Brother Limited (in liquidation) (“the Company”) by way of an ex parte originating summons filed on 30 December 2022 (“the Originating Summons”), for an order, inter alia, to pay unclaimed cash and securities (“the Unclaimed Assets”) into court and otherwise dispose of them pursuant to sections 56 and 62 of the Trustee Ordinance (Cap.29, Laws of Hong Kong) (“the Ordinance”).

BACKGROUND

2.  The Company has been a securities brokerage firm and a licenced corporation regulated by the Securities and Futures Commission (“the SFC”) to carry out various types of activities.

3.  Upon a creditor’s petition for the winding up of the Company, Mr Lai Kar Yan and Mr Kam Chung Hang had been appointed joint and several provisional liquidators of the Company (“the JPLs”) by the Court on 17 February 2022.

4.  On 3 May 2022, the Company was ordered to be wound up by the Court, and the JPLs were then appointed as the joint and several liquidators (“the JLs”) of the Company.

5.  Shortly before the JPLs were appointed (14 February 2022), the Company provided a Confirmation and Undertaking to the SFC (“the Undertaking”), pursuant to which, save for certain exceptions, the Company was not allowed to receive or hold client assets, and was required to return those assets to the clients as soon as possible. Furthermore, it was required to notify and remind all its clients (except those whom it is unable to contact) in writing that they must give instructions to withdraw all the assets in their accounts with the Company (subject to certain exceptions).

6.  Since 14 February 2022, the Company had been returning client monies and client securities in accordance with the Undertaking.

7.  After the JPLs were appointed, the SFC required the Company to continue to comply with the Undertaking, which the JPLs (or JLs, as the case may be) had spent much effort in doing so.

8.  However, despite such effort, a number of clients have still not responded or failed to provide effective instructions required to enable the Company to return their assets held on their behalf. Hence, this application is made.

THE LEGAL PRINCIPLES

9.  Section 56(1) of the Ordinance provides that:

“Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorized to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.”

10.  Pursuant to the above provision, if the Court considers it expedient to do so, it would confer power(s) on a trustee for the purpose of managing or administering trust properties vested in such a trustee. The powers as provided by the said section 56(1) are wide-ranging. The Court would confer on the trustee such powers which are necessary for the aforesaid purpose. Before making the order, the Court would have to be satisfied that the trustee did not have such powers in the first place.

11.  While conferring such powers on the trustee, the Court may also impose terms and conditions as it thinks fit, and direct the manner in which the authorised expenditure and costs of the transactions involved are to be paid or borne between capital and income.

12.  Section 62 of the Ordinance stipulates that:

“62. Payment into court by trustees

(1)  Trustees, or the majority of trustees, having in their hands or under their control money or securities belonging to a trust, may pay the same into court, and the same shall, subject to the rules of court, be dealt with according to the orders of the court.

[…]

(5)  Every transfer, payment and delivery made in pursuance of any such order shall be valid and take effect as if the same had been made on the authority or by the act of all the persons entitled to the money and securities so transferred, paid or delivered.”

13.  An applicant for an order under section 62 of the Ordinance has to establish that:

(1)  The assets in question are held by the applicant as trustee; and

(2)  Despite reasonable efforts, the beneficiaries cannot be contacted or unresponsive, or the trustee is otherwise unable to obtain instructions as to how to deal with, dispose of or return the trust assets.

DISCUSSION

The Company as trustee

14.  Having perused the relevant contractual documentation signed between the Company and its customers, I am satisfied that the Company has been a trustee of its clients.

The Company’s attempts to return the trust assets

15.  It is evident that the Company has spent reasonable effort in an attempt to return the trust assets to its clients:

(1)  Public notices have been given by the Company, including: (i) press releases in English and Chinese local media published on 1 March 2022; (ii) notices displayed on the Company’s website since 4 March 2022; and (iii) several rounds of notices published in local newspapers of both the Chinese and English languages on 8 different dates;

(2)  Individual notices have also been sent to clients, by email (where a valid email address exists), by post as well as by short message service (i.e. SMS);

(3)  Designated staff of the Company has made regular telephone calls to clients to notify them of the need to withdraw client assets from the Company.

16.  While most of the Company’s clients have responded and given instructions to the Company for the withdrawal or transfer of their monies and/or securities and closure of their accounts, there remains a number of the Company’s clients whose assets could not be returned.

The unclaimed trust assets

17.  The unclaimed trust assets may be categorised as follows:

(1)  Unclaimed securities the physical share certificates of which can be withdrawn from the Central Clearing and Settlement System;

(2)  Unclaimed shares in the FinEX Asia Tech Fund II, LP (“FinEX Fund”) (the share certificate of which cannot be deposited);

(3)  Unclaimed securities the physical share certificates of which cannot be withdrawn;

(4)  Unclaimed cash.

18.  For the unclaimed securities the physical share certificates of which can be withdrawn from the Central Clearing and Settlement System, I agree that the JLs should be granted leave to withdraw those certificates and deposit the same with the Court.

19.  For the unclaimed shares in the FinEX Fund, leave is granted to the JLs to sell or otherwise dispose of the same (including forfeiture thereof) if they remain unclaimed for a period of 3 months from the date hereof, and pay the proceeds into Court.

20.  In relation to the unclaimed securities the physical share certificates of which cannot be withdrawn, leave is granted to the JLs to sell or otherwise dispose of the same (including forfeiture thereof) and pay the proceeds into Court.

21.  In respect of the unclaimed cash, I grant leave to the JLs to pay the same into Court.

ORDER

22.  By reasons of the aforesaid, I make an order in terms of the Originating Summons (as slightly amended in a number of places which have been agreed to by Mr Ho for the JLs).