LEE CHEUNG LAU v. THOMAS LEE HOK LAU AND OTHERS

HCCW 289/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) NO 289 OF 2012

_________________

_________________

_________________

___________________

D E C I S I O N

___________________

1.  I have before me a summons issued by the liquidators of New Denim Limited (“Company”) for an order concerning the sale of the assets of a sub-subsidiary of the Company Chip Tak Textile (Taishan) Company Limited (“CTTS”). CTTS is 99% owned by a subsidiary of the Company Chip Tak Weaving Factory Limited (“CTHK”).

2.  CTTS operates a factory in Taishan in southern China.  It is still being operated by its board of directors which have not been reconstituted by the liquidators.  The Company has three shareholders who through their shareholding have equal beneficial interests in the economic value of CTTS. 

3.  The liquidators have proposed to sell the assets of CTTS.  It seems to have been originally common ground that that should proceed by way of a sale of CTTS as a going concern although it seems to be also uncontentious that the most valuable asset of CTTS is likely to be the land and plant that it owns.  This process has been advanced through a public-listing process in Shenzhen but has not to date resulted in a firm offer for the acquisition of CTTS as a going concern.  

4.  A dispute has arisen between the three shareholders as to what is the best way of proceeding to realise the value of CTTS.  Without going into the history of the matter, the position has now been reached where the liquidators take the view that the better way to proceed is to have one further attempt at a sale of CTTS as a going concern through the listing procedure available on the Shenzhen United Property and Share Rights Exchange, and if that fails to result in an offer, equal to or in excess of a reserve price of RMB 40 million, then the business of CTTS should be shut down and its assets, in particular the land, sold through whatever mechanism is likely to realise the greatest consideration. 

5.  I understand that the liquidators have advised that for a combination of regulatory and tax reasons, an equity transfer would probably be the most advocatious way of proceeding even if CTTS’s business has been closed. 

6.  The order that the liquidators therefore seek today is that they be at liberty if an offer is not made as a result of the public listing at a reserve price of RMB 40 million within 27 days to close down CTTS’s business and to sell its assets.

7.  The petitioner who appeared before me today agrees to that order.  I understand that the 2^nd respondent, who was not before me today has indicated to the liquidators that he agrees to it.  The 1^st respondent however, does not.  The 1^st respondent suggests that the better way of proceeding is to provide for two further attempts at sale of CTTS as a going concern with a reserve price RMB 30 million and RMB 20 million respectively and if that fails, for there to be a shareholders’ closed auction.

8.  As I understand it the 1^st respondent believes that CTTS is currently making an operating profit and that it makes more sense to continue to operate the factory for a continuing period as this will be likely to result in what the 1^st respondent considers to be, the most likely purchaser, namely somebody in the same line of business as CTTS coming forward with an offer to acquire its business and assets.

9.  As I also understand it the 1^st respondent takes the view because CTTS’s factory is in a remote area, the land itself may not be of considerable interest to prospective purchasers, whereas he takes the view that at a suitably competitive price the long‑established and successful business of CTTS might be.

10.  It will be appreciated from what I have said that the current issue which has been debated before me involves exclusively a matter of commercial judgment.  Matters of commercial judgment arising in the course of liquidations are matters to be determined by liquidators.  The Companies Court will only replace a liquidator’s decision with its own if a liquidator’s decision is challenged and the court is satisfied that either the decision has been reached in bad faith, or that it does not fall within the range of commercial decisions which a liquidator, properly addressing any relevant legal principles and giving due weight to relevant factual matters, could make.

11.  I accept that the concerns that the 1^st respondent has raised have some substance.  It may be that in the fullness of time, his own view of the matter might be demonstrated to be correct.  But it does not seem to me that the way in which the liquidator proposes to proceed, which is supported by two of the three shareholders, can sensibly be suggested to be so unreasonable as to be one that the court can properly interfere with.

12.  I therefore will make an order in substantially the terms that the liquidators propose, although I will simplify it.  The order will be in the following terms subject to the parties suggesting any improvements in the language.

13.  If no offer is received for the purchase of the 100% shareholding held by CTHK in CTTS (“the CTTS Shares”), together with the land and the property, plant and the machinery, and the service contracts (on the benefit of the service contracts it currently has) by 5pm on 22^nd September 2016, the liquidators be at liberty:

(i) to direct CTTS to shut down its operations and cease taking further orders from customers;

(ii) to shut down the business operations of CTTS; and

(iii) to sell the land and property and plant and machinery of CTTS by equity transfer or otherwise;

(iv) the costs of and occasioned by the present application and the implementation of the above procedure be paid to the liquidators out of the assets of the Company;

(v) the costs of the petitioner and the 1^st respondent be paid out of the assets of the Company;

(vi) there be liberty to apply.