RE CARRIAN HOLDINGS LTD. (IN LIQUIDATION)

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HEADNOTE

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Considerations to be taken into account by the Court when an application is made under section 209A of the Companies ordinance for an order that the compulsory winding up of a company be conducted as if it were a creditor's voluntary winding up.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. I have before me a summons issued on behalf of the liquidators of Carrian Holdings Limited ("C.H.L.") for an order under section 209A of the Companies Ordinance that the compulsory winding-up of the company be conducted as if it were a creditors' voluntary winding-up.

2. C.H.L. was compulsorily wound up on the 7th November 1983 on the grounds of insolvency. According to the liquidators the company is incurably insolvent with a massive shortfall of over $10 billion. C.H.L. was a private company and the holding company of Carrian Investments Limited (C.I.L.) which was a public company, and described as the "public arm" of the Carrian group of companies. C.I.L. is also hopelessly insolvent, and was wound up compulsorily on the same day as C.H.L. Partners from two different firms of chartered accountants were appointed to be the liquidators of the two companies. Mr. T.B. Stevenson, Mr. J.W. Crawford and Mr. W.K. Timso of Ernst & Whinney were appointed for C.H.L. and two partners in Arthur Young for C.I.L. These firms merged on the 1st January 1990 under the name, in Hong Kong, of Ernst & Young with the result that the liquidators of both companies are now partners in the same firm.

3. Both liquidations are complex particularly that of C.I.L. which is one of the largest and most complex liquidations that has been conducted in Hong Kong. Further there are conflicts of interest between the creditors in the two liquidations. It was clearly desirable that the same liquidators should continue to act in both liquidations despite the merger of the two firms of accountants. Accordingly, an application was made to the court to enable them to remain in office despite becoming members of the same firm. An order to this effect was made on the 21st December 1989 which embodies an internal management plan that incorporates various safeguards to ensure the continuance of confidentiality in each liquidation.

4. In his report of the 15th December 1989,  Mr Stevenson states that at the date of the presentation of the petition the authorised share capital of C.H.L. consisted of 124,999,300 $l ordinary shares and 13,888,700 $1 3% redeemable non-cumulative preference shares, which had all been issued to six contributories.

5. A notice calling for the filing of proofs of debt was given on the 23rd August 1989. As at the 1st December 1989, accepted proofs lodged amounted to $330,049,482.87 with contingent proofs of HK$6,184,928,450.32, US$468,122,182.42 and £5,001,344.41. Funds recovered amount to HK$98,032,779.77 whilst contingent recoveries amount to HK$160,000,000.00.

6. There are thirty seven known or anticipated creditors, the majority being banks and other financial institutions. A committee of inspection consisting of four persons, three of whom are lawyers represent 80% of the creditors. The committee meets regularly and inspects the liquidators' accounts which they certify if correct. All the creditors and contributories have been served with notice of the present application.  Of thirty nine letters sent to the creditors, thirty three replies have been received of which thirty one support the application whilst two companies in the Carrian group which are being wound up by the Official Receiver as liquidator have made no comment. Not surprisingly no replies have been received from any of the contributories who have no real interest in the result of the application.

7. The liquidation is over six years old and I am told is about 80% complete. Investigations into the conduct of the former directors and other officers of the company have been made and information as to the likelihood of any criminal conduct has been passed on to the appropriate authorities. No proceedings have been commenced against the former directors or managers of C.H.L. by the liquidators, but the position is constantly under review. The principal directors George Tan and Carrie Woo still face various criminal charges relevant to some of the civil proceedings that could be brought against them but George Tan has obtained a stay of proceedings in almost all of the civil proceedings relating to the Carrian group.

8. Substantial recoveries have been made by the liquidators as a result of litigation whilst four actions are pending in the High Court. In another action C.H.L. and C.I.L. are contesting third party proceedings in which China Underwriters Life and General Insurance Company Limited which is being wound up compulsorily with the Official Receiver as liquidator is suing Bumiputra Malaysia Finance Limited, George Tan and Bentley Ho, a former director of C.H.L. for HK$230,000,000 in a claim for fraudulent conspiracy.

9. Mr Stevenson states that the most substantial proofs of debt have been received from C.I.L. and Bumiputra Malaysia Berhard, but believes that a settlement can be achieved with the liquidators of C.I.L. which if successful could result in a recovery of about HK$80 million.

10. Most of the work outstanding is therefore concerned with the High Court actions which are in the hands of lawyers so that further investigative work is unlikely.

11. Section 209A of the Companies Ordinance provides:-

"209A.   (1) The court may, on the application of the liquidator or any creditor, direct that the winding up of a company ordered to be wound up by the court shall be conducted as if the winding up were a creditors' voluntary winding up.               (2) In the exercise of its power under this section , the court shall have regard to the wishes of the creditors and the contributories of the company, as proved to it by any sufficient evidence, in the same manner and to the same extent as provided in section 287"

Section 287, referred to in section 209A, relates to meetings called to ascertain the wishes of creditors or contributories. I understand that section 209A emanates from a recommendation of the Jenkins Committee in England where, however, it was not adopted. The section appears to be peculiar to Hong Kong, but the reason for its introduction here has not been explained.

12. The application in this case is made solely for the purpose of saving the future payment of fees to the official Receiver acting in his regulatory or supervisory capacity. In his supervisory role the Official Receiver derives his powers from section 204 of the Companies Ordinance which reads:-

 

"204.   (1) The Official Receiver shall take cognizance of the conduct of liquidators of companies which are being wound up by the court, and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by statute, rules, or otherwise with respect to the performance of his duties, or if any complaint is made to the Official Receiver by any creditor or contributory in regard thereto, the Official Receiver shall inquire into the matter, and take such action thereon as he may think expedient.             (2) The Official Receiver may at any time require any liquidator of a company which is being wound up by the court to answer any inquiry in relation to any winding up in which he is engaged, and may, if he thinks fit, apply to the court to examine him or any other person on oath concerning the winding up.             (3) The Official Receiver may also direct an investigation to be made of the books and vouchers of the liquidator."

Section 203 of the Ordinance provides for the liquidator to submit accounts to the official Receiver which he may require to have audited and for copies to be sent to all creditors and contributories. The Official Receiver also has the right to review the remuneration of a liquidator under section 196(2A) of the Companies Ordinance. The Official Receiver's fees are charged under Regulation 7(2) of the Companies (Fees and Percentages) Order, on an ad valorem basis, by reference to the aggregate value of the assets realised at the present rate of l%. The saving if an order is made is anticipated to be between H.K.$1 - H.K.$1.5 million.

13. Mr Hearder, the Assistant Registrar General of the Registrar General's Department, who is in charge of the Official Receivers Office, has the overall conduct of the Official Receiver's supervisory functions in respect of all compulsory liquidations and bankruptcies, including that of C.H.L. In his affidavit of the 3rd January 1990, Mr Hearder submits the following matters, which are not exhaustive, for consideration upon the present application which are as follows:-

14. I have been told that there have been five previous applications under section 209A. Orders were made in four cases whilst the other application was abandoned.

15. Although there is a dearth of authority, Mayo, J. considered the section in In The Matter of Chiefsing Enterprises Limited (In Liquidation) CWU No. 6 of 1983 and In The Matter of Cenko Enterprises Limited (In Liquidation) CWU No. 7 of 1983 where he agreed in his judgment with a submission made by the official Receiver at page 2 of his judgment when he had this to say :-

"I agree with Mr Woollard that I do have to look beyond the interest of the creditors and contributors. The main matter that has to be considered is the public interest ............. the applicants must satisfy the Court that there is no public interest that requires that the order should not be made."

16. Mr Lewis, counsel for the Official Receiver, takes a neutral stance upon the present application but submitted that if an order is made it should be subject to the following two conditions:

With regard to the second condition the liquidators are required by Secton 247 of the Companies ordinance where a winding-up has continued for more than one year to call a general meeting of the company and creditors at the end of each year and to lay before the meeting an account of their acts and dealings and the conduct of the winding-up during the preceding year. Mr Barlow, counsel for the liquidators has agreed to these two conditions.

17. The policy of the legislature with regard to a compulsory winding up and a voluntary winding up was considered by Wynn-Parry J. in In re Phoenix Oil and Transport Co. Ltd. (No. 2) [1958] 1 Ch. 565 where he had this to say at p. 570:-

"A study of the relevant sections of the Companies Act, 1948, dealing with winding up shows clearly that as regards voluntary winding up the legislature has followed (in pursuance of the policy of previous Companies Acts) a different policy from that laid down in the case of compulsory winding up. The reason is not far to seek. In the case of voluntary winding up, the jurisdiction of the court is not invoked in order to place a company in liquidation. In the case of a creditors' liquidation, the creditors, through their committee of inspection, are in control as against the contributories; while in the case of a members' voluntary winding up it is the members who are in control. In both cases the court is given a certain degree of jurisdiction, but I think it can be accurately, though shortly, said that in both forms of voluntary winding up the court is in the background to be referred to if the necessity should arise. In the case of a winding up by the court, however, different considerations arise. In this case the court is conducting an administration, and so, as in the case of an ordinary administration action in the Chancery Division, it retains, under the express provisions of the statute, a much greater degree of control."

18. Section 209A confers a discretion upon the court as to whether an order should be made. The effect of an order will be a continuation of the liquidation by the liquidators without the presence of the official Receiver in the background rather than a conversion of the liquidation from a compulsory winding-up to a voluntary winding-up. In determining the merits of the application I agree with Mayo J. that not only must the interests of the creditors and contributories be taken into account, but whether an order is in the public interest. It is relevant to look at the conduct of the liquidation as a whole, and it is clear that during the six years that the liquidation has been in progress, no complaints have been made against the liquidators by any persons interested or by the Official Receiver. The liquidators who are officers of the Court are undoubtedly men of experience and integrity, and I am in no doubt that they will proceed to act responsibly in carrying out their duties. In the event that problems arise at a later stage, an application can be made to the court under section 257 of the Companies Ordinance by a creditor or a contributory to have the voluntary winding-up conducted by the court. Further I consider that it will be appropriate to grant the Official Receiver liberty to apply to make such an application if it is considered to be necessary. The liquidators, or any contributory or creditor may also seek the assistance of the Court under section 255 of the Companies ordinance to determine any question arising in a voluntary winding up.

19. All the matters that have been drawn to my attention by the official Receiver are clearly relevant to an application under section 209A depending upon the stage reached in the liquidation. However, other factors may have to be considered in a particular case having regard to the circumstances. By way of illustration, in a compulsory winding-up dispositions made by a company after the presentation of a petition in a compulsory winding-up are void under section 182 of the Companies Ordinance subject to the provisions for validation whereas no such provisions apply in a voluntary winding-up. Issues may also arise with regard to claims for interest, the effect of executions and the position as to accrued rights. The type of liquidation is likely to be relevant for in the case of the liquidation of a company with many employees, such as a factory, it is unlikely that such an application would be considered appropriate. These matters and those that have been referred to me may have special relevance to a particular application, but they should not debar the liquidators from making an application.

20. In this case several of the considerations drawn to my attention by the official Receiver do not apply for the bulk of the work required to be done in the liquidation has been completed. The great majority of the creditors are in favour of the application whilst there is no opposition to an order being made. Most of the creditors are big companies or professionals with access to legal advice. The contributories, as I have said, do not have any interest in the matter having regard to the hopeless insolvency of the company. Although the creditors will lose their right to complain to the Official Receiver under s.204 and for the liquidators' fees to be reviewed under s.196(2A) if an order is made, adequate safeguards will be provided by the committee of inspection and a provision for liberty to apply. No reason has been advanced that the public interest will be adversely affected. In fact, the public interest here is that of the creditors who are anxious for the liquidators to realise as many assets as possible.

21. In my judgment and in the exercise of my discretion, I am quite satisfied in the absence of any evidence that the public interest will be affected, it is appropriate to accede to the application made by the liquidators subject to the conditions to which I have referred. There will be consequential orders for the commencement of the winding-up to be the 8th October 1983, the date of presentation of the petition, that the present liquidators will remain as joint and several liquidators and for their remuneration to be on the same basis as authorised by the committee of inspection on the 3rd October 1989 unless and until varied by resolution under section 244(1) of the Companies Ordinance. I shall also grant liberty to apply to interested persons including the Official Receiver.

22. Although Mr Barlow submitted that the costs of the Official Receiver should be paid out of general revenue on the grounds that the Official Receiver appeared in effect as amicus curiae I am of the opinion that in his supervisory role he was entitled as of right to put forward representations to the court. Accordingly, the Official Receiver is entitled to an order for costs to be paid out of the assets of the liquidation to be paid in priority to all other costs. The costs of the liquidators will be paid out of the liquidation.

23. I would like to conclude by expressing my gratitude to both Mr Barlow and Mr Lewis for their very helpful submissions.