BOLD WELL INDUSTRIAL LTD v. PLANET TOYS (HK) LTD

HCCW 248 / 2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 248 OF 2009

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BETWEEN

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D E C I S I O N

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A.   Introduction

1.  On 3 September 2010, Master Hui made the Orders that, inter alia¸ there shall not be a committee of inspection (“COI”) for Planet Toys (HK) Ltd (“Planet Toys”) (under HCCW 248/2009) and Planet Pets (HK) Ltd (“Planet Pets”) (under HCCW 249/2009).  The Orders were made as a result of applications brought by the Official Receiver (“the OR”) under rules 45(2) and 45(3) of the Companies (Winding-up) Rules (“the Rules”).

2.  The Petitioner (Bold Well Industrial Ltd) in both winding-up actions appeals against the Orders in refusing to appoint the COI.

B.   Brief background

3.  These applications before the learned Master were brought in light of the following circumstances:

(1)   The 2 companies were placed under voluntary liquidations by resolutions made on 24 December 2008 pursuant to s. 227A of the Companies Ordinance (Cap 32) (“CO”).   Mr Desmond Chiong and Fok of Ferrier Hodgson were appointed as the joint and several liquidators.

(2)   However, Bold Well thereafter presented winding-up petitions against the 2 companies.  Master J Wong on 23 July 2009 made an order to place the companies in compulsory winding up and the OR was appointed as the provisional liquidator.

(3)   According to the respective Statement of Affairs:

(a)   Planet Toy’s total liabilities were HK$152,211,549.73, of which some HK$91.362,778.53 (approximately 64% of the total liabilities) were said to be owed to one Mr Tam Tat Ming, Ideality Ltd and Root Land Ltd.    The majority of the remaining part of the liabilities was owed to other trade creditors including Bond Well.

(b)   Planet Pets’ total liabilities were HK$12,683,553.04, of which HK$3,309,637.38 were said to be owed to Ideality.  Similarly, the majority of the remaining part of the liabilities was owed to other trade creditors including Bond Well.

(4)   There seems to be no dispute that Ideality and Root Land belong to a group of companies where Planet Toys and Planet Pets are also part of, and Mr Tam control Ideality and Root Land.  For convenience, I would refer to Mr Tam, Ideality and Root Land collectively in this Decision as the Tam Group.

(5)   The 1^st creditors’ meeting of both companies was held on 8 October 2009. At the meeting, amongst other things, a resolution was raised and needed to be passed as to whether to appoint a COI for the companies respectively:

(a)   Before votes were taken, Bond Well and other trade creditors raised their doubts to the Chairman as to the proofs of debt of the Tam Group (for Planet Toys) and Ideality (for Planet Pets) as they alleged that the Tam Group were associated and related to the companies and there were suspected acts of unfair preference.   In effect, they alleged that the Tam Group were not independent creditors.

(b)   The Chairman, acting properly and in accordance to the law, noted the objections but allowed the votes to be cast and taken by the Tam Group (for Planet Toys) and Ideality (for Planet Pets).

(c)    After the votes were taken: (a) for Planet Toys it was resolved by majority that no COI should be appointed in light of the objection raised by the Tam Group as the majority creditors.  The proposed appointment was  however supported by Bond Well and the other trade creditors, (b) for Planet Pets, it was resolved by majority that there shall be a COI comprising of 5 members notwithstanding Ideality’s objection. Bond Well and the other trade creditors this time forming the majority creditors supported the resolution.

(d)   The contributories voted separately against the appointment of a COI for the 2 companies.

(6)   In light of the disputes set out above and the result of these resolutions, the OR brought the applications before the learned Master for consideration of the resolutions and determinations of the meetings of creditors and deciding the differences, and making such order as the court may think fit.

(7)   As mentioned above, after hearing submissions made by Bond Well (which has the support of other trade creditors) and the Tam Group and the evidence filed by them respectively, together with reading the OR’s reports, the learned Master made the orders refusing the appointment of a COI for the 2 companies.

C.   These appeals

C1.   Legal principles

4.  There is no dispute between the parties as the legal principles relevant to the present appeals and applications.  They can be summarized as follows:

(1)   An appeal from a Master is by way of a rehearing, and the court is to consider the matter afresh.

(2)   Under s. 194(1)(c) of the CO, the court is empowered to decide on the differences between the determinations of meetings of the creditors and contributories for the appointment of liquidators and “make such order thereon as the court may think fit”.  Under r. 45(2) of the Rules, in deciding the differences, the court is to make “such order as shall be necessary”:  Re Orient Power Holdings Ltd [2008] 2 HKLRD 494 at para 26 per Kwan J (as she then was).

(3)   The court has a wide and unfettered discretion in the exercise of this power.  It is not bound by the determinations of the meeting of the creditors or of the meeting of the contributories, although the court would give due regard to them:  Re Akai Holdings Ltd [2001] 2 HKLRD 411 at  419J per Yuen J (as she then was);  s. 287(1) of CO.

(4)   In the exercise of its discretion, the court may have regard to the wishes of creditors and contributories.  Where the company is insolvent, the Court will generally give preference to the wishes of creditors over that of the contributories:  Re Kam Kuen Construction Co Ltd [2002] 3 HKC 547 at 553G-554E and 555C per Kwan J; Re Hung Fung Holdings [2001] 3 HKLRD 692 at paras 12 and 14 per Chu J.

(5)   In exercising its discretion whether to give effect to the wishes of creditors as reflected in the creditors’ meetings, the court will consider whether or not the views therein expressed can be regarded as fairly representative of the class in question.  In doing so, account must also be given to the “quality” of the creditors, and certain votes can be discounted or even disregarded where circumstances so require: Re Chyau Fwu Investment Ltd [1986] HKLR 374 at 308B-E per Mayo J; Re Landtrade Engineering & Development Co Ltd (unrep., HCCW 418/1991, 27 July 1992) at para 13 per Jones J; Re Goldcone Properties Ltd [2002] 2 HKLRD 16 at 54H-55B per Ribeiro J (as he then was).

C2.   The Tam Group’s position in these applications and the appeals

5.  In my view, for the present purpose, it is important to consider the position adopted by the Tam Group in relation to the appointment of COI in the court below and for these appeals.

6.  Although they sought to draw the Court’s attention to various observations, the Tam Group both in the affirmations filed on their behalves for these applications and in their Counsel’s skeleton submissions filed for the appeals have confirmed that they would take a neutral stance as to whether a COI should be appointed for the 2 companies. 

C3.   Discussion

7.  In applying the principles set out above, it is clear to me that in the exercise of my discretion, a COI should be appointed for the 2 companies.  My reasons are as follows:

(1)   No matter what happened at the 1st creditors’ meetings, it is now the position that the Tam Group is no longer objecting to the appointment of COI for Planet Toys.  This leaves only the wish of trade creditors (including Bond Well) to have the appointment of a COI. They represent the wish of substantial creditors.   There is no more any countering wish.

(2)   The same must also apply to Planet Pets.  In particular, even in the resolution passed at the 1st creditors’ meeting, it was resolved by majority that a COI should be appointed.

(3)   In the circumstances, given the Tam Group’s present position, the wish of the creditors in general to appoint a COI over the 2 companies should prevail over the contributories’ wish (as reflected in their respective resolutions passed at the 1st creditors’ meeting) not to appoint a COI.

(4)   Moreover, I have read the evidence filed by Bond Well as to the matters they noticed leading to the initial voluntary winding-up and then the subsequent compulsory winding-up of the companies.  I am of the view that those matters further support the appointment of a COI to assist the court in its supervisory role over the liquidators and to obviate the potential need for time-consuming and costly applications to be made to the court.

(5)   With the evidence before me, I am not prepared to draw any inference (an observation that the Tam Group has drawn the Court’s attention to) that, given the disagreement between the other trade creditors and the Tam Group, heated disputes are likely to be encountered in the operation of the COI so appointed, which would render the winding-up process likely to be more costly and time consuming.  My view is further fortified by the facts that (a) the Tam Group has now adopted a neutral position to such an appointment and (b) their Counsel has confirmed to this court that the Tam Group have no intention to block any investigations that the liquidators may see fit to carry out in the winding-up process.

D.   Conclusion

8.  For the above reasons, I would allow the appeals and set aside the Master’s Orders in relation to the refusal to appoint a COI for Planet Toys and Planet Pets.  I further order that a COI comprising of 5 members shall be appointed for Planet Toys and Planet Pets respectively.  The Tam Group shall be entitled to appoint 2 members to sit in the COI of Planet Toys, and Ideality is entitled to appoint 1 member to sit in the COI of Planet Pets.

9.  I further order that costs of these appeals be paid out of the assets of the 2 companies respectively.