Re X Ltd

HCCW 118/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 118 OF 2017

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 119 OF 2017

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(HEARD TOGETHER)

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D E C I S I O N

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1.I have before me identical summonses in the two proceedings seeking the court’s approval of an agreement entered into for the sale of the assets of the two companies (“Companies”). Those assets are the business which they carry on which is that of a kindergarten.

2.On [REDACTED] Madam Justice Au-Yeung appointed provisional liquidators over the Companies.  In both cases the petition is to wind up the company on the grounds of insolvency.  The only creditors of the Companies are their two shareholders, A and B.

3.The kindergarten has not been closed and the provisional liquidators by their application seek approval of an agreement to sell the business of the kindergarten to the purchaser in order that the kindergarten can continue to operate when the school term recommences on 1 September 2017.  As a consequence, it has been the position of the provisional liquidators that they have had to progress the sale of the assets of the Companies with speed and it is necessary for the court to sanction the agreement before the end of this week in order that the matter could proceed to completion within a time period which ensures that the purchaser will take up the operation of the kindergarten without the provision of school services to the pupils being interrupted.

4.B, who petitioned for the winding up of the Companies and the appointment of the provisional liquidators, has objected to the application.  His objection is not to the sale of the business but rather the way in which the sale has proceeded.  In short, the position as I understand it, is that A and B respectively have helped identify prospective purchasers of the kindergarten.  The purchaser introduced by A has made a firm and compliant offer for the purchase of the kindergarten.  This has not been the case with the prospective purchasers introduced by B.  The particular problem would appear to be that they have not been able to produce within the time required by the provisional liquidators proof of their ability to fund the completion of the sale.

5.The objection as formulated by counsel for B can be summarised as follows:  given the fact that the sale will involve the sale of the entire of the Companies’ assets the provisional liquidators should, before coming to court to seek sanction, have obtained an independent valuation of the assets in order, I assume the argument develops, to allow the court to be satisfied that the proposed sale is prudent.  In advancing this submission Mr Maurellet SC relied upon the decision of the Court of Appeal in Re SinoAmerican Telecom Inc [1998] 3 HKC 514.  In that judgment Yuen J (as she then was) says this at 523I to 524C:

“ One noticeable feature of Mr Lees’ affidavits was the absence of any information as to the value of the assets to be sold. The provisional liquidators do not profess to be able themselves to value the assets, but they are nevertheless intending to sell the assets of the company by private tender (limited to parties with knowledge of the existing business) without a valuation from any independent accounting firm or merchant bank. In Mr Lees’ fourth affidavit, he explained that he did not obtain a valuation because it would take at least two months and it would have been expensive (although no fees were quoted in his affidavit).

Clearly where a court is asked to sanction an agreement by provisional liquidators to sell all the company’s assets, in a situation where the value of those assets is unknown, extreme care must be taken to ensure that such a sale is necessary and that a proper price is obtained.

This is because the company would be left with virtually nothing. All the creditors’ (and the contributories’) statutory rights to distribution from the company’s assets (whatever their value is or may become) will be lost forever, in exchange for the consideration offered by the purchaser of the assets.”

6.I accept that in the context of the sale of the assets of a large or sophisticated business by provisional liquidators, it will commonly be desirable and on occasions necessary for the provisional liquidators to adduce evidence which demonstrates that the proposed sale is at, in the circumstances, a realistic valuation.  It does not seem to me, however, that there can sensibly be any hard-and-fast rule about the requirements which apply in all cases. 

7.In the present case, I am satisfied that it is desirable that the business is sold in order that the kindergarten can continue to operate from 1 September 2017.  It also seems to me to be fairly clear that given the nature of its operations, any valuation would be likely to be fairly academic and not of much greater value than what the provisional liquidators describe as a “quick desktop valuation” which they themselves have conducted.

8.It seems to me that in a case of this sort, the correct approach is for the court to be satisfied, as I am, that it is desirable that the business is sold quickly and that in the circumstances the way in which the provisional liquidators have proceeded and the offer that they propose to accept are within the range of reasonable procedures and price. 

9.So far as the facts of this particular application are concerned, it would in any event appear from the evidence that has been filed that the price that the prospective purchaser has agreed to pay is right at the upper end of the range of indicative prices that the prospective purchasers introduced by B have suggested.  Mr Maurellet SC submitted that the court should adjourn the application in order that the provisional liquidators could allow a short period in order for alternative bids to be obtained.  There is, however, no indication from B that there is any other prospective purchaser which is willing to pay more than the current offer, or submit a compliant bid which would involve producing evidence of an ability to complete within the kind of time frame the provisional liquidators require which in the sale agreement before me is within five working days of sanction by the court.  Therefore, as a matter of practicality, not only does it seem to me to be in the interest of the continued operation of the kindergarten that the agreement is sanctioned today, I can see no basis for thinking that adjourning the application even for a short period of time is likely to result in an offer which is sufficiently greater than that that is currently on the table to justify the additional costs that would be incurred in adjourning this application, or justify the possible risk of the current purchaser withdrawing its offer and the provisional liquidators finding themselves in the position in a week’s time of having no purchaser. 

10.I will therefore make an order in substantially the terms of the summonses before me although I will make certain amendments to the precise wording.

Mr Jose Antonio Maurellet SC, Mr Michael Lok and Ms Sharon Yuen, instructed by C. L. Chow & Macksion Chan, for the petitioner (in both actions)

Ms Rachel Lam and Mr David Chen, instructed by J. Chan, Yip, So & Partners, for the joint and several liquidators of the companies (in both actions)

Attendance of Stephenson Harwood, for the companies, was excused

Attendance of Hart Giles, for the creditor A, was excused

Attendance of the Official Receiver was excused