RE HSIN CHONG CONSTRUCTION CO LTD

HCCW 239/2018

[2019] HKCFI 1211

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 239 OF 2018

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REASONS FOR DECISION

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1.  This was an application for a validation order pursuant to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) made by Samsung C&T Corporation (“Samsung”), an interested party in the winding up proceedings against Hsin Chong Construction Company Limited (“the Company”). At the conclusion of the hearing, the court made the validation order sought.

Background facts

2.  A winding up petition was filed against the Company on 27 August 2018. Osman Mohammed Arab and Lai Wing Lun are its provisional liquidators (“the provisional liquidators”).

3.  Samsung and the Company are parties to a joint venture set up in March 2012 (“the Joint Venture”) for the purpose of submitting a tender to carry out certain civil engineering and building works related to the Shatin to Central Link in Hong Kong (“the Project”) for a third party (“the Employer”).  The present application is supported by an affirmation of Hoon Il Jung, a director of Samsung working as a project control manager at the Joint Venture.

4.  The terms of cooperation and management of the Joint Venture were agreed between Samsung and the Company in the event of the tender being successful and they provided, inter alia, for the opening of a bank account in the name of the Joint Venture.

5.  In July 2012, the Employer awarded the Project to the Joint Venture and works commenced in August 2012.

6.  The Joint Venture has three bank accounts held in joint names: an account set up from inception with HSBC (“the HSBC account”) as well as two new accounts opened in May and August 2018, one at Woori Bank (“the WB account”) and another at Standard Chartered Bank (“the SCB account”).  Payments related to or in connection with the Joint Venture and the Project are paid into all three accounts (hereinafter collectively referred to as “the Joint Venture Account”).  Currently, various payments are still being paid out of the Joint Venture Account.

7.  The Project is now 98% complete and, to date, the Joint Venture has been paid in excess of $6.365 billion.  Upon completion of the remaining 2%, the Joint Venture stands to receive a further sum of approximately $300,000,000.

8.  Samsung makes this application for validating payments made in the ordinary course of business in and out of the Joint Venture Account from the commencement of the winding up to the conclusion of the Project anticipated to occur in 2020.

9.  Samsung has filed evidence regarding payments made out of the Joint Venture Account (past payments) including payments made between the date of the petition and 31 March 2019. The evidence includes a breakdown of such payments into seven categories of expenditure, namely, personnel/employees, sub-contractors, suppliers, utilities and waste disposal, employees’ compensation, general and other expenses.

10.  Undoubtedly, derailment of the Project will have serious repercussions on Samsung.  The potential harm to it (in terms of reputational damage, its relationship with the bondsmen, its standing in the industry and prospects when participating in future bids and/or tenders in the event of a bond call) is such that Samsung has injected in excess of $84 million into the Project between 31 January 2019 and 1 March 2019 (being more than its contractual obligations required) in order to keep the Project afloat.

11.  The substantive hearing of the petition is scheduled to take place on 15 May 2019.

12.  In the event of a winding-up order being made, absent a validation order, even if not jeopardized, completion of the Project will inevitably be delayed.  Not only will the Company and Samsung be adversely affected in possibly not receiving the remaining remuneration, the Employer may call on the Company’s and Samsung’s bondsmen to pay significant bonded sums.  In addition, the public and numerous third parties (such as sub-contractors and suppliers) will also be severely prejudiced.

The hearing

13.  The papers for this application were served on the provisional liquidators on 23 April 2019. The relief sought requires the provisional liquidators to provide such consents and/or execute any documents reasonably required by Samsung to give effect to paragraphs 1 and 2 of the summons dated 23 April 2019 (“the summons”) to validate payments made into and out of the Joint Venture Account in the ordinary course of business.

14.  When, several days prior to the hearing, the court enquired whether and, if so, when the written submissions of the provisional liquidators would be submitted, given the midweek public holiday, their solicitors (“W&G”) intimated that the matter was under consideration and (notwithstanding Practice Direction 5.4) the earliest would be the morning of the day prior to hearing.  The court was further given to understand in the afternoon prior to the hearing that the provisional liquidators would not be making written submissions.

15.  When this application came on for hearing, Ms Yuen, counsel representing Samsung, informed the court that W&G representing the provisional liquidators were outside court still endeavouring to seek instructions from their clients.  A short adjournment was granted so that W & G could be informed that the court was proceeding with the hearing.

16.  When the hearing resumed, W&G applied for an adjournment. Initially the stance of the provisional liquidators was not to oppose the validation order as such provided there were certain undertakings. It transpired that immediately prior to the hearing there had been an unsuccessful attempt to negotiate a consent summons.

17.  In response to the court’s enquiry as to the duration of the adjournment sought, W&G replied that it required an adjournment of 42 days for the filing of an affidavit to oppose the application.  No reasons were given as to why such a lengthy adjournment would be necessary or indeed the reasons for opposition. W & G offered to hand up to the court a draft consent summons which offer the court declined since Samsung had not agreed to its terms.

18.  Given the impending substantive hearing on 15 May, the urgency for the immediate disposal of Samsung’s application was obvious.

19.  The provisional liquidators have had ample notice of the application.  They have seen fit not to make known to the court their reasons (if any) for opposing the application which they could have done by way of written submissions. This is no way for officers of the court to be conducting themselves and discharging their duties conscientiously.

Order

20.  I am satisfied that this is a clear case for the making of a validation order.  Accordingly, there is to be an order in terms of paragraphs 1 to 5 of the summons.

21.  Samsung’s costs of this application are to be paid by the Company or out of the Company’s assets.  The provisional liquidators’ application for costs was refused.