UDL ARGOS ENGINEERING & HEAVY INDUSTRIES CO LTD v. LI OI LIN AND OTHERS

FAMV No. 12 of 2001

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 12 OF 2001 (CIVIL)

(ON APPLICATION FOR LEAVE TO

APPEAL FROM CACV Nos. 157, 258-262 OF 2000)

_____________________

____________________

________________________

DETERMINATION

________________________

Chief Justice Li :

1. This is the determination of the Appeal Committee.

2. The applicants are preferential creditors of the seven respondent companies ("the respondents") in respect of debts owed to them as employees. Schemes of arrangement were proposed between the seven respondents and their creditors for the compromise of their debts. The preferential creditors would be paid the full amount of their preferential debts and the balance of their debts would be treated in the same way as debts of unsecured creditors. In these circumstances, in each instance, only one meeting of creditors was held when the scheme was approved by the requisite statutory majority.

3. The seven respondents are subsidiaries of UDL Holdings Ltd, a public listed company, and their schemes are part and parcel of the debt restructuring of the UDL Holdings Ltd group. This involved 25 schemes of arrangement between UDL Holdings Ltd and 24 of its subsidiaries, including the seven respondents, and their creditors. The schemes are in identical terms and are part of a global scheme with one scheme document. As we understand the position, if the schemes of the seven respondents fail, the other schemes and the whole restructuring exercise would fail.

4. The 25 schemes, including those of the seven respondents, having all been approved by the requisite statutory majority at the respective meetings of creditors, the Judge was asked to sanction them. The applicants opposed sanction. They contended that the Court had no jurisdiction to sanction the schemes on the ground that separate class meetings should have been convened of the preferential creditors and internal creditors (that is, internal to the UDL Holdings Ltd group of companies) respectively. Alternatively, they contended that the Court should in its discretion refuse sanction. The Judge rejected these contentions and sanctioned the schemes. The Judge was affirmed by the Court of Appeal which refused leave to appeal to the Court of Final Appeal. The facts are fully set out in the judgments in the courts below. See UDL Holdings Ltd before the Judge, Le Pichon J. [2000] 3 HKC 405 and the Court of Appeal (Rogers V-P, Woo JA and Seagroatt J) [2001] 1 HKLRD 156 and also at [2000] 4 HKC 778.

5. On the applicants' application for leave to appeal to this Committee, the seven respondents were not represented. Their solicitors wrote stating that the respondents "do not wish to advance any particular submissions ... but at the same time, they consider that it would not be appropriate to give their consent" to the application for leave "due to possible adverse impact on the implementation of the combined UDL Scheme of Arrangement". However, the Committee has had the benefit of the helpful submissions both written and oral of counsel for the applicants led by Mr Martin Lee SC. The applicants rely on both limbs in s.22 of the Hong Kong Court of Final Appeal Ordinance, Cap.484 for the grant of leave.

6. First, the applicants contend that an appeal lies as of right. They accept that the total amount of the debts owed by the seven respondents to the applicants is less than $1 million. But Mr Lee SC points out that the total amount of the debts owed to all opposing preferential creditors by the seven respondents amount to about $4.8 million, including about $2.3 million in the case of one of them. Further, he points out that it is the practice of the Legal Aid Department to grant legal aid only to one employee for each company in order to save costs.

7. In our view, the applicants are not entitled to appeal as of right under s.22(1)(a). Applied to the present case, in order to satisfy the $1 million threshold in that provision, the applicants' debts must exceed $1 million, even assuming without deciding that it is the face value of their debts which is relevant in a situation where the companies are insolvent. However, considerations such as those pointed out by Mr Lee SC in this case may be relevant to the exercise of discretion under the discretionary limb in s. 22(1)(b).

8. We turn to that limb. Mr Lee SC submits that the questions involved in the appeal are questions which by reason of their great general or public importance ought to be submitted to the Court for decision. They concern principally the test that should be applied in considering the constitution of a class for the purposes of schemes of arrangement under s.166 of the Companies Ordinance, Cap.32. They also concern the principles applicable to sanction by the Court. In our view, these questions relating to schemes of arrangement, an important aspect of company law, are debateable and satisfy the criteria for leave in the discretionary limb.

9. Accordingly, we grant leave to appeal. Costs will be costs in the appeal.

10. The Appeal Committee will sit on 10 May 2001 at 9.15 am (1) to hear any application which any party may wish to make on stay of any order or on any other matter and (2) to consider the dates for the hearing of the appeal. Any party wishing to make any application should by letter to the Registrar on or before 5 pm on 8 May 2001 set out the order sought and skeleton arguments in support.