Re C. A. Pacific Finance Ltd

HCCW 36/1998 & HCCW 37/1998
(HEARD TOGETHER)
[2019] HKCFI 2152

HCCW 36/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 36 OF 1998

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AND

HCCW 37/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 37 OF 1998

____________________

____________________

(HEARD TOGETHER)

Before: Hon Harris J in Chambers

Dates of Hearing: 6 November 2018

Date of Decision:  6 November 2018

Date of Reasons for Decision:  10 September 2019

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R E A S O N S  F O R  D E C I S I O N

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1.The Liquidators of C A Pacific Finance Limited and C A Pacific Securities Limited have applied for orders approving the final allocation and distribution of trust monies held by the Liquidators on behalf of the clients of the respective companies. The trust monies consist of three tranches: approximately HK$2 million being residual trust monies being left after the previous rounds of allocations; approximately HK$16.5 million being a refund of bank interest on trust monies paid into the companies’ liquidation accounts and approximately HK$0.9 million being surplus processing fees which need to be returned to specific clients.

2.The liquidations commenced in 1998 and were associated with the Asian financial crisis of that period.  They have been the subject of various decisions and the background details of the liquidations do not need to be repeated [1].

3.The Court has previously made a series of orders for the distribution of securities and trust monies. There have, prior to the present applications, been three distributions: 30 June 2003, 30 April 2004 and 23 March 2007.  As I indicated at the outset the orders sought are intended to be final and bring the liquidations to a conclusion and provide for assessment and payment of the Liquidations costs and disbursements.

4.The applications are, as one might expect by this stage, straightforward.  There are only two issues that requires some comment. There are over 5,000 clients of the companies who are eligible to receive trust funds and surplus processing fees.  In some cases the sums to which they are entitled are minimal.  Over 680 clients are eligible to receive less than HK$200.  It will be appreciated that the costs involved in processing applications for such small sums will exceed the amount to be distributed.  In these circumstances the Liquidators have sought a direction that, without prejudice to the Securities and Futures Commission’s (“SFC”) right of subrogation, where any client’s allocation pursuant to the directions sought above totals less than HK$200, the Liquidators are not required to distribute that sum to that particular client and may apply such amount towards settlement of the Liquidators’ remuneration, fees and expenses. 

5.The direction does not affect the payment of any sum due to the SFC pursuant to its rights of subrogation (recognised in the previous orders of the Court); any amounts due to the SFC pursuant to its rights of subrogation will be calculated by the Liquidators and paid to the SFC as one, composite payment.

6.Seven hundred and twenty-eight clients previously failed to collect distributions or cash cheques sent to them.  It is anticipated that, at least, the same number (if not more) will similarly be non-responsive in respect of this final distribution. To avoid the need to return to Court in the future to obtain further directions at a separate hearing, the Liquidators seek directions that:

(1)  In circumstances where any corporate client has, as at the date the cash distribution is to be made with these been dissolved, the Liquidators are not required to distribute any sums allocated, in accordance with these directions, to that dissolved corporate client and the Liquidators are at liberty to immediately pay any such distribution to the Government of the Hong Kong Special Administrative Region (together with all further interest accrued thereon (if any)) pursuant to s752 of the Companies Ordinance (Cap 622) (“CO”); or

(2)  In respect of cheques for cash distribution which have not been banked by clients within six months after the date on which the cheques in respect of the further cash distribution were posted, such assets be regarded as unclaimed assets and;

(a)  In the case of any corporate client which has been dissolved, the Liquidators be at liberty to pay any such distribution to the Government of the Hong Kong Special Administrative Region (together with all further interest accrued thereon (if any)) pursuant to s752 of the CO; or

(b)  In any other case

(i)  The Liquidators be at liberty to pay any such unclaimed distribution into Court pursuant to s62 of the Trustee Ordinance (Cap 29) (“TO”) and

(ii)   The Liquidators shall advertise in an English and Chinese language newspaper a notification of the order made, the payment into court and the rights of the affected clients to apply for payment out of such monies under Order 92 Rules of the High Court and any unclaimed monies be dealt with in accordance with Rule 23 High Court Suitors Fund Rules (Cap 4B).

7.The proposed direction above to pay unclaimed monies into Court pursuant to s62 of the TO (as opposed to s67 of the TO as provided for in the 24 July 2009 Order) differs from that initially proposed in the draft order annexed to the Summons.  The Liquidators engaged the Official Solicitor in correspondence to solicit his views on the proposed directions.  In summary, the Official Solicitor’s response was:

(1)  One of the “crucial” factors that the Official Solicitor will consider in determining whether consent should be given under s67 of the TO is the value of the trust and the amount involved;

(2)  The Official Solicitor was concerned if a meaningful administration of trust assets could be conducted in light of the fact that previously (in distributing the unclaimed monies previously paid to the Official Solicitor’s account) the Official Solicitor was only able to distribute monies to 64 out of the 719 clients who failed to collect their previous allocations;

(3)  In view of the foregoing, the Official Solicitor was unable to consent to the Liquidators’ proposal until the number of clients and amounts were ascertained; and

(4)  There was an alternative to dispose of unclaimed trust assets pursuant to s62 of the Trustee Ordinance which has been held, in Re Drake & Morgan Ltd [2] and in Re Gainwell Securities Co Ltd [3], to be a “flexible and pragmatic solution”.

8.Given the passage of further time and the increasingly small value of the final distribution to be made, it is highly likely that the same number (if not more) clients will fail to claim their final distributions.

9.S62 of the TO provides:

“Trustees, or the majority of trustees, having in their hands or under their control money or securities belonging to a trust, may pay the same into court, and the same shall, subject to the rules of court, be dealt with according to the orders of the court.”

10.It is well established that monies and securities held by a broker on behalf of its clients are trust monies: Re CA Pacific Finance Ltd [4], Re Gainwell Securities Co Ltd ibid.  In these circumstances where trust monies cannot, despite all reasonable efforts having been made, be returned to clients, s62 of the TO provides a “flexible and pragmatic” solution.

11.In a letter dated 22 October 2018, the Official Solicitor confirmed, having reviewed the evidence, that he “maintained [its] view that section 62 arrangement is more appropriate to the present situation”.  In my opinion this is correct.

12.I will make an order in the terms appended to these reasons.

Mr Christopher Dobby, of Hogan Lovells, for the liquidators (in both actions)

Attendance of Official Solicitor’s Office, for the Official Trustee was excused (in both actions)

Attendance of the Official Receiver was excused (in both actions)

Order

1.  In respect of the residual trust monies representing fractional amounts resulting from the rounding of allocations of shares to clients or of allocations of cash proceeds of the sale of shares to clients in accordance with paragraph 15 of the Order of the Honourable Madam Justice Yuen JA dated 1 November 2006, together with any interest accrued thereon, the Liquidators do allocate and distribute these monies (after payment of fees, costs and other deductions as permitted by this Order) to those affected clients of CAP Finance and CAP Securities (i) whose share allocations included an entitlement to fractional share(s) and / or (ii) who received allocations of cash proceeds of the sale of shares on a pari passu basis in accordance with the relevant proportions by which securities were previously allocated to such clients.

2.  In respect of the surplus provisional processing fees collected from clients of CAP Finance and CAP Securities in accordance with the Orders of the Honourable Madam Justice Yuen dated 20 November 2001 and 1 November 2006, the Liquidators do return such surplus provisional processing fees (after payment of fees, costs and other deductions as permitted by this Order) to the clients of CAP Finance and CAP Securities on a pari passu basis calculated in accordance with the relevant proportions by which the provisional processing fees were paid by the clients.

3.  In respect of the monies received in refund of the total bank interest earned and retained by the Official Receiver pursuant to sections 294(3) and 295(4) of the former Cap 32 on the trust monies received and paid into the Companies Liquidation Account by the Liquidators of CAP Finance and CAP Securities during the period from August 1998 to November 2011 received by the Liquidators pursuant to the Orders of the Honourable Mr Justice Harris made in HCCW 36/1998 and HCCW 37/1998 dated 9 November 2016, together with any interest accrued thereon, the Liquidators do allocate and distribute these monies (after payment of fees, costs and other deductions as permitted by this Order) to the clients of CAP Finance and CAP Securities who (i) received allocations of Available Corporate Actions (as defined in paragraph 1 of  the Order of the Honourable Madam Justice Yuen dated 1 November 2006) and / or (ii) received allocations of cash proceeds of the sale of their securities (in accordance with paragraphs 7 and 8 of the Order of the Honourable Madam Justice Yuen dated 20 November 2001) on a pari passu basis in accordance with the relevant proportions by which the aforesaid allocations were made.

4.  The distribution to any client of an allocation of cash under this Order shall be subject, as the case may be, to:

(a)  Payment of any outstanding provisional processing fees;

(b)  Deduction of any outstanding debt owing to CAP Securities or CAP Finance;

(c)  Deduction in respect of any legal costs owing to CAP Securities, CAP Finance or the Liquidators;

(d)  The statutory subrogation rights of the Securities and Futures Commission (“SFC”) under s118 of the former Securities Ordinance (Cap 333) to participate in the allocation of cash to the client arising from any compensation payments received and retained by the client.

5.  Subject to paragraphs 6 and 9 below:

(a)  Where there is to be an allocation and distribution of cash to a client pursuant to paragraphs 1 to 3 above, the Liquidators do send to each client a further allocation statement (substantially in the same form as that exhibited at Tab 3 of exhibit “MCR-1” to Rowbotham 1) providing details of the sums allocated and to be distributed to the client after taking into account permitted deductions as permitted by this Order; and

(b)  The payments of monies to be distributed to clients pursuant to this Order shall be made by way of cheque to be sent by the Liquidators together with the further allocation statements by ordinary post to the last known address of the client according to the records (including updated records) of CAP Finance and CAP Securities.

6.  Notwithstanding the foregoing:

(a)  Where any client’s allocation pursuant to paragraphs 1 to 3 above (net of permitted deductions authorised by the Order) totals less than HK$200, the Liquidators are not required to distribute that sum to that particular client and shall apply such amount towards the discharge of the costs associated with the distribution; and

(b)  In the event that any surplus trust monies remain as consequence of the further rounding down of clients’ cash allocations to be made pursuant to this Order, the Liquidators are not required to further allocate and distribute those remaining sums to clients and are authorised to pay these sums to the general liquidation estate of CAP Securities.

7.  In respect of cheques for cash distributions sent to clients in accordance with the provisions of this Order which have not been banked with three months after the date of distribution, the Liquidators do advertise the availability of such cash distribution entitlements no less than three months following the making of the further cash distribution.

8.  In respect of cheques for cash distributions (sent to clients in accordance with the provisions of this Order) which have not been banked by clients within six months after the date on which the cheques in respect of the further cash distribution were posted, such assets be regarded as unclaimed assets and;

(a)  In the case of any corporate client which has been dissolved, the Liquidators be at liberty to pay any such distribution to the Government of the Hong Kong Special Administrative Region (together with all further interest accrued thereon (if any)) pursuant to s752 of the Companies Ordinance (Cap 622); or

(b)  In any other case; the Liquidators be at liberty to pay any such unclaimed assets into Court pursuant to s62 of the Trustee Ordinance (Cap 29) and

(i)  the Liquidators shall advertise in an English and Chinese language newspaper a notification of the order made, the payment into court and of the rights of the affected clients to apply for payment out of such monies under Order 92 Rules of the High Court; and

(ii)  any unclaimed monies be dealt with in accordance with Rule 23 High Court Suitors Fund Rules (Cap 4B).

9.  In circumstances where any corporate client has, as at the date the cash distribution is to be made by the Liquidators in accordance with this Order, been dissolved, the Liquidators are not required to attempt to distribute any sums to that dissolved corporate client (in accordance with paragraphs 5, 7 and 8 above) and the Liquidators are at liberty to immediately pay any such distribution to the Government of the Hong Kong Special Administrative Region (together with all further interest accrued thereon (if any)) pursuant to s752 of the Companies Ordinance (Cap 622).

10.  In respect of any payments to be made into court under paragraph 8(b) above, at the time of making any payments into Court, the Liquidators do provide the Registrar of the High Court with a schedule identifying the unclaimed assets to be paid into Court on behalf of designated clients specifying the name and address of the client and the amount being paid into court on behalf of that client.

11.  The Liquidators’ remuneration, fees, and expenses incurred in relation to the trust estates, to be incurred in respect of this application and the allocation and distribution of the remaining trust monies in accordance with the directions and orders herein (as particularised at Tabs 4, 5 and 6 of exhibit MCR-1 to Rowbotham 1) (“Trust Fees”) be hereby assessed and approved by the Court in the total sum of HK$13,629,289.10.

12.  The Liquidators be authorised to receive the sum of HK$13,629,289.10 from the account of the provisional processing fees in respect of the Trust Fees to be paid to the Liquidators in respect of their approved remuneration, fees and expenses.

13.  There be liberty to the Liquidators to apply.