Re Rock Resource Ltd

HCCW 149/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 149 OF 2016

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D E C I S I O N

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1.On 20 May 2016 the Petitioner presented a petition to wind up the Company on the grounds of insolvency. Directions were made for the further conduct of the proceedings and the parties filed evidence culminating in the filing of the 3^rd affirmation of Hung Yu Pang on 29 August 2016.

2.On 22 September 2016 a petition was presented in HCCW 334/2016 against the Petitioner.  A winding-up order was made against the Petitioner on 5 December 2016.  On 12 May 2017, liquidators were appointed, namely, Mr Fok Hei Yu and Mr John Batchelor, both of FTI Consulting Hong Kong Limited.

3.On 1 August 2016, Mr Justice Anthony Chan made directions for the petition to be set down for trial.  The trial of the petition had been fixed for 8 February 2017.  As at that time the Official Receiver was the provisional liquidator and had limited familiarity with the present petition.  It was adjourned until 28 July 2017. 

4.It would appear that all that has happened in the present proceedings since the winding-up order against the Petitioner was made was the adjournment of the first hearing date of the petition (14 December 2016) and correspondence during the course of July dealing with the basis upon which the costs of the petition be allocated, as the liquidators did not wish to pursue it.

5.The liquidators agree that the Petitioner should pay the costs of the proceedings.  There was some discussion in the correspondence about agreeing the amount, but the reason why the parties attended court today rather than simply agreeing that the petition be dismissed in open court without their attendance is that the Company seeks an order that its costs be paid in priority to the liquidation costs rather, than as the liquidators suggest, that those costs are proved for by the Company as an unsecured creditor.

6.It will be understood from the brief chronology of the proceedings that I have given that nearly all the costs the court is concerned with, occurred before the Petitioner was put into liquidation.  The Company accepts that if immediately before the winding‑up order against the Petitioner had been made the Petitioner had agreed to the dismissal of the petition, then any costs order in its favour would have been provable as an unsecured debt. 

7.The Company suggests that it should however have an order which advances the priority of its claim for the following reasons. First, there are authorities which demonstrate that the court has the discretion to order that costs are given a particular priority in a liquidation: see Extramoney Limited v Chan, Lai, Pang & Co (a firm) [1] and Re Grand Pacific Hotel Limited [2] and that given the adverse impact the Petition has had on the Company’s ability to conduct business it is appropriate for the costs to be given priority over unsecured debts.  I disagree. 

8.I accept that it may be in appropriate cases that the court should make an order which it is empowered to do pursuant to rule 179 of the Companies (Winding-up) Rules (Cap 32H) advancing the priority of a costs order against a company in liquidation, but it seems to me that this should only be done where the facts justify it.  It does not follow automatically that because a petitioner or plaintiff is in liquidation that costs orders made against it should be treated differently from the debts of other unsecured creditors.  This is particularly the case when, as in the present case, the vast majority of the costs that have been incurred were incurred before the winding-up order was made and, therefore, in the normal course of events one would expect only to be recoverable as an unsecured debt. 

9.Ms Chow, on behalf of the Company, referred me to one old authority suggesting that the fact that the costs were incurred before a winding-up order was made is not in itself determinative of the matter: see In re London Drapery Stores [3].  In that case, Wright J held that where liquidators adopt proceedings commenced before the winding-up order ab initio then costs against the company in liquidation incurred prior to the winding-up order can be ordered to be paid effectively as costs of the liquidation.  The decision is very short.  I can see that where a liquidator makes a positive decision to take over proceedings and in fact does prosecute them, there may be justification for this approach.  But that is not what has happened in the present case.  Once the liquidators were appointed in May 2017, after they had had the opportunity to examine the papers they decided not to adopt the petition.  In these circumstances it seems to me that the approach in London Drapery Stores has no application. 

10.I will therefore make an order that the costs of the petition are paid by the Petitioner to the Company and that debt will be an unsecured debt.

11.The remaining matter is the costs of the hearing before me today.  Ms Ling, who appears for the liquidators, asks that those costs are paid by the Company as the only reason why it has been necessary for counsel to attend court is to deal with the issue that I have just considered.  It seems to me, reading the correspondence between the parties, that this is a fair characterisation of the circumstances in which it has been necessary for counsel to appear before the court rather than for the court simply to dismiss the petition in the normal way without requiring the attendance of representatives of either party. 

12.I will therefore order that the costs of today are paid by the Company to the Petitioner.  In addition there are the Official Receiver’s costs which will be paid out of the Petitioner’s deposit and which I assess in the sum of $5,300.

Ms Ebony Ling, instructed by Baker & McKenzie, for the liquidators of the petitioner

Ms Priscilla Chow, instructed by Nixon Peabody CWL, for the company

Ms Sharon Ng, instructed by the Official Receiver’s Office, for the Official Receiver