Re Easy Champ Corporation Ltd (in Liquidation) (The “Company”)

HCCW 38/2020

[2022] HKCFI 769

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO 38 OF 2020

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Before:  Hon Linda Chan J in Chambers

Date of Hearing:  9 March 2022 (remote hearing)

Date of Order:  9 March 2022

Date of Reasons for Decision:  16 March 2022

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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.By summons dated 5 October 2021 (“Summons”) Mr Lau Siu Hung (“Mr Lau”) and Ms Kwok Sin Kwan (“Ms Kwok”), the liquidators of the Company (“Liquidators”), apply under s.200(3) of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap 32) (“Ordinance”) for “directions” as to:

(1)  Whether the provisional liquidator appointed by the Official Receiver (“OR”) pursuant to s.194(1A) of the Ordinance (“S194(1A) PL”) is a “person properly employed by the Official Receiver” under rule 179 of the Companies (Winding-Up) Rules (Cap 32H) (“Rules”), and the payment(s) of the fees, costs, and charges properly incurred by such provisional liquidator shall have the priority over “the taxed costs of the petition, including the taxed costs of any person appearing on the petition whose costs are allowed by the court but excluding the interest on such costs” and “the remuneration of any liquidator, other than the [OR], appointed in the winding up by the court or under the Ordinance” (“1^st Question”); and

(2)  Whether pursuant to rule 153 of the Rules, after payment(s) of the fees, costs and charge of the OR, the fees, costs, and charges properly incurred by the S194(1A) PL shall be discharged from the assets of the company, and have priority over the taxed costs of the petition and the remuneration of any liquidator, other than the OR, appointed in the winding up by the court or under the Ordinance (“2^nd Question”). 

2.At the hearing, I dismissed the Summons.  These are the reasons for my decision.

3.The petition to wind up the Company was presented on 23 January 2020 and a winding up order made on 8 July 2020.  

4.Mr Lau and Ms Kwok, both of Messrs. Sammy Lau CPA Limited, were appointed provisional liquidators of the Company on 8 July 2020 by the OR under s.194(1A) of the Ordinance.  They were subsequently appointed the liquidators of the Company on 28 July 2021.

5.The Liquidators referred to their appointment as provisional liquidators of Sunlite Computronics Limited (“Sunlite”) in HCCW 149/2018 on 15 August 2018 and the issues arising out of the disagreements between them (as provisional liquidators of Sunlite) and the liquidators of Sunlite (appointed on 12 October 2020) over, inter alia, the priority between the remuneration of the provisional liquidators and those of the liquidators.  It is in relation to this disagreement that the Liquidators raised the 2^nd Question in the Summons.

6.The OR in her written submissions dated 7 March 2022 opposed the Summons on the grounds that:

(1)  A S194(1A) PL is not the agent or person employed by the OR and his remuneration ranked in the same priority as the remuneration of “any liquidator, other than the [OR], appointed in the winding up by the court or under the Ordinance” under rule 179(1); and

(2)  The 2^nd Question does not arise in the liquidation of the Company. 

7.The Liquidators make the application pursuant to s.200(3) of the Ordinance which provides that:

“[t]he liquidator may apply to the court in manner prescribed for directions in relation to any particular matter arising under the winding up.”

8.Rule 179(1) of the Rules provides as follows:

“The assets of a company in a winding up by the court … shall, subject to any order of the court, be liable to the following payments, which shall be made in the following order of priority, namely-

  First.—The fees, percentages and charges payable to, or costs, charges and expenses incurred by or authorized by, the Official Receiver, whether acting as Official Receiver or liquidator, including the costs of any person properly employed by him. [“1^st Rank”]

Next.—The taxed costs of the petition, including the taxed costs of any person appearing on the petition whose costs are allowed by the court but excluding the interest on such costs.

…

  Next.—The remuneration of any liquidator, other than the Official Receiver, appointed in the winding up by the court or under the Ordinance.” [“8^th Rank”]

9.Rule 153 of the Rules provides as follows:

“153. Discharge of costs before assets handed to liquidator

(1) Where a liquidator is appointed by the court or under the Ordinance, and has notified his appointment to the registrar of companies, and given security to the satisfaction of the Official Receiver, the provisional liquidator shall forthwith put the liquidator into possession of all property of the company of which the provisional liquidator may have custody:

Provided that such liquidator shall have, before the assets are handed over to him by the provisional liquidator, discharged any balance due to the Official Receiver and provisional liquidator on account of fees, costs, and charges properly incurred by him, and on account of any advances properly made by him in respect of the company, together with interest on such advances at the rate of 8 per cent per annum; and the liquidator shall pay all fees, costs, and charges of the Official Receiver and provisional liquidator which may not have been discharged by the liquidator before being put into possession of the property of the company, and whether incurred before or after he has been put into such possession.

(2) The Official Receiver and provisional liquidator shall be deemed to have a lien upon the company’s assets until such balance shall have been paid and the other liabilities shall have been discharged.”

10.Section 194 of the Ordinance makes provision for 3 types of provisional liquidator after the making of a winding-up order and before the appointment of a liquidator:

(1)  First, the OR as the “default” provisional liquidator under section 194(1)(a):

“subject to paragraph (aa) and subsection (1A), the Official Receiver shall by virtue of his office become the provisional liquidator”;

(2)  Second, the provisional liquidator appointed before the winding-up order and continues in office after the winding-up order under section 194(1)(aa):

“where under section 193 a person other than the Official Receiver is appointed as provisional liquidator, he shall continue to act as the provisional liquidator”;

(3)  Third, the provisional liquidator appointed by the OR under section 194(1A) (i.e. S194(1A) PL):

“Where the OR—

(a) is the provisional liquidator of the company by virtue of subsection (1)(a); and

(b) is of the opinion that the property of the company is not likely to exceed in value $200,000,

he may, at any time, appoint 1 or more persons as provisional liquidator in his place.”

11.“Liquidator” is defined in s.2(1) of the Ordinance to include the 3 types of provisional liquidators mentioned above.  

12.The 2^nd Question does not arise in the liquidation of the Company since the provisional liquidators and liquidators are the same persons. The issue arose in the context of the liquidation of Sunlite and should have been brought in those proceedings.  

13.The Liquidators cited Butterworths, Company Law (Winding Up and Miscellaneous Provisions) Handbook, 4^th ed, §200.07 for the proposition that “[i]t is not essential that all interested parties be before the court as long as the relevant arguments are addressed”.  The argument is misconceived.  An application under s.200(3) can only be brought “in relation to any particular matter arising under the winding up” of the company concerned.  It does not permit the Liquidators to apply for “directions” in relation to a matter which concerns another company.  While the Liquidators said in the affirmation filed in support of the Summons that the liquidators of Sunlite had been notified of the Summons, this does not change the fact that the 2^nd Question does not concern the Company, and the liquidators of Sunlite have (rightly) refrained from participating in the Summons.

14.In any event, the Liquidators’ reliance on rule 153 is misplaced. The rule is not concerned with priority of costs payable out of the assets.  Rather, it sets out the obligation of the liquidator to pay all fees, costs, and charges of the OR and provisional liquidator before being put into possession of the company’s property.  

15.I turn to the 1^st Question.  The Liquidators’ contention rests on 2 main grounds.

16.First, a S194(1A) PL is appointed in the OR’s place and, therefore, should be afforded the same order of priority under rule 179(1) as the OR acting as provisional liquidator.  As far as I understand it, their argument runs like this:

(1)  Prior to the amendments in 2000, the OR was necessarily the provisional liquidator, and a private practitioner under the previous “Panel B” scheme[1] could only act as the OR’s agent, and the OR had to authorise the practitioner to carry out various aspects of the winding-up (Re Goldlory Restaurant Ltd & ors [2006] 3 HKLRD 331, §19, per Kwan J (as she then was)).  Since the OR was only empowered to “appoint an agent to do any business which the liquidator is unable to do himself”[2], the practice of appointing private practitioners to act in effect as liquidators in substitution for the OR was problematic since the agency was for a specific purpose and could not involve the handing over of responsibility for acting as provisional liquidator (Re Bondfield International Ltd & Another, HCCW 99/2002, 27 January 2005, §10, per Barma J (as he then was)).  

(2)  The legislative intent of s.194(1A) of the Ordinance was “to give the OR authority to appoint directly a suitable person as provisional liquidator” in the OR’s place and to eliminate the aforementioned problems arising from previous legislation and practices (Re Goldlory, §19). The S194(1A) PL therefore substitutes the place of the OR appointed as provisional liquidator under s.194(1)(a) and should have the same powers and rights as the OR acting as provisional liquidator.  

(3)  Reliance is placed on following passage in Re MF Global Hong Kong Ltd [2015] 2 HKRLD 325, §25, per Barma JA:

“… I would accept that the difference between the position of provisional liquidator in the periods before and after the making of the winding up order is such that all three types of post-winding up provisional liquidators should be treated as being essentially similar in nature, and so subject to the same treatment under the CO. It follows that I would reject Mr Maurellet’s suggestion that the function of a provisional liquidator is different in nature from that of a liquidator, as that does not, with respect, take account of the difference in the nature of the office of provisional liquidator under section 193, and that under section 194, respectively.” (underlined added)

(4)  The 3 types of post-winding up provisional liquidators under the Ordinance refer to those at §10 above. 

(5)  Since the OR acting as provisional liquidator and a S194(1A) PL should be subject to the same treatment, the latter should enjoy the same right of priority given to the former under the 1^st Rank.  

17.Second, the Liquidators submit in their skeleton that a S194(1A) PL, like the provisional liquidator appointed under the previous “Panel B” scheme, is an agent of the OR, or “a person properly employed by [the OR]” for the purpose of rule 179(1) and, therefore, is entitled to receive their remuneration under the 1^st Rank.  

18.The second point is wholly without merit.  As pointed out by the OR, the Panel T scheme introduced a tender process whereby a contract is made between the Government (as represented by the OR) and the firm successful in the tender.  The appointment takers are not parties to such contract.  More importantly, clause 24 of the Conditions of Contract entered into between Messrs. Sammy Lau CPA Limited and the Government provides that:

“the Firm enters into the Contract with the Government as an independent contractor only and nothing in the Contract shall create a contract of employment, a relationship of agency or partnership, or a joint venture between the Government and the Firm. Unless otherwise expressly provided for in the Contract, neither party is authorised to act in the name of, or on behalf of, or otherwise bind the other party.” (underlined added)

19.It is clear from clause 24 that Mr Lau and Ms Kwok acting as S194(1A) PLs are neither agents of nor persons “employed” by the OR for the purpose of rule 179(1).  

20.At the hearing, the Liquidators confirm that they no longer maintain the second ground.

21.As for the first ground, the OR disagrees with the proposition that a S194(1A) PL stands in the place of or otherwise should have the same rights as the OR under rule 179. The OR points to the following amendments consequential to the enactment of s.194(1A) to show that the remuneration of a S194(1A) PL is covered by the 8^th Rank, rather than the 1^st Rank:

(1)  A definition for “liquidator” was added to s.2 of the Ordinance to include a provisional liquidator holding such office by virtue of s.194.[3]  On the other hand, the definition for “liquidator” in the old Rules, which provided that “liquidator” included the OR when acting as liquidator, was removed. This shows that the amended definition of “liquidator” in the Ordinance was intended to apply to the Rules.

(2)  Rule 179 was amended by adding the words underlined towards the end of the 8^th Rank, which now reads: “[t]he remuneration of any liquidator, other than the Official Receiver, appointed in the winding up by the court or under the Ordinance”.

22.In my view, the definition of “liquidator” under the s.2 of Ordinance applies to the Rules given that:

(1)  The Rules are made for carrying into effect the objects of the Ordinance, and all the rules made under s.296 of the Ordinance “shall have effect as if enacted by this Ordinance” (see s.296A(1)-(2)); and

(2)  The Rules “shall apply to the proceedings in every winding up under the Ordinance of a company” (see rule 1). The Rules do not contain any separate definition for “liquidator”. 

23.It follows that the reference to “liquidator” under the 8^th Rank includes the 3 types of provisional liquidator.  As the remuneration of the OR acting as liquidator (or provisional liquidator) is provided for under the 1^st Rank, it is necessary to expressly exclude the OR acting as liquidator (or provisional liquidator) under the 8^th Rank to make clear that only the S194(1A) PL and provisional liquidator appointed under s.194(1)(aa) are covered by the 8^th Rank.

24.Indeed, the Liquidators’ suggestion that the position of a S194(1A) PL can be equated with that of the OR acting as provisional liquidator (or liquidator) is inconsistent with the wordings of the 1^st Rank and the 8^th Rank, which make clear that the OR acting as provisional liquidator (or liquidator) stands in a different position from the other provisional liquidators (or liquidators) in terms of order of priority.    

25.Further, the Liquidators’ suggestion that the remuneration of a S194(1A) PL may be regarded as “the costs, charges and expenses authorized by the [OR]” under the 1^st Rank cannot be right.  Upon his appointment, a S194(1A) PL becomes provisional liquidator, and the OR ceases to be involved qua provisional liquidator of that company.  The OR does not have the alleged power to authorise the costs, charges and expenses of the S194(1A) PL.  

26.Lastly, the Liquidators’ reliance on Re MF Global is misplaced:

(1)  Re MF Global was concerned with the position of a provisional liquidator appointed under s.193 of the Ordinance before the making of a winding-up order and who, by virtue of s.194(1)(aa), continues to act as the provisional liquidator after the winding up order being made.  Barma JA was concerned with whether the office of such provisional liquidator is similar to the one appointed afresh under ss.194(1)(a) or 194(1)(1A) after a winding-up order is made.  The position of a S194(1)(1A) PL vis-à-vis the OR acting as provisional liquidator under s.194(1)(a) was not a matter which arose for consideration.

(2)  More importantly, the principle that all 3 types of post winding- up provisional liquidators should be “treated as being essentially similar in nature” and “subject to the same treatment” is not an unqualified one.  In Re MF Global, the principle was applied in interpreting the (then) definition of liquidator in s.2(1) of the Ordinance (“including a provisional liquidator holding such office by virtue of section 194”)[4] to include all 3 types of post-winding up provisional liquidators, such that provisional liquidators holding office by virtue of s.194(1)(aa) were caught by provisions governing the charging of ad valorem fees.  As Barma JA made clear (at §22), this was “subject to the possibility that the context of a particular provision in the [Ordinance] may call for the definition not to apply to that provision.”[5]  This is consistent with s.2(1) of the Ordinance which states the definitions therein are applicable “unless the context otherwise requires”.

(3)  As discussed in §§23-24 above, in the context of rule 179, the remuneration of the OR acting as provisional liquidator (or liquidator) is dealt with under the 1^st Rank, while the remuneration of the other 2 types of provisional liquidators (or liquidators) is dealt with under the 8^th Rank.  

27.As the OR did not seek costs, I ordered that there be no order as to costs in respect of the Summons, save that the Liquidators are not entitled to recover their remuneration and costs incurred in preparing the application out of the assets of the Company.  I do not think that the Company’s assets should be used to pay for an application made by the Liquidators for their own benefit.  

Mr Lau Siu Hung and Ms Kwok Sin Kwan, the Liquidators of the Company, appeared in person

Written submissions by Ms Mabel Yuen of the Official Receiver’s Office