Re Goldcone Properties Ltd.
Read the full judgment text of HCCW 391/1999 on BabelCite. This High Court CFI judgment was delivered on 19 April 2002.
1. This is an application by the liquidators for an order (1) that a committee of inspection be appointed; (2) that the committee shall consist of one representative of each of Kong Mou Holdings Limited ("Kong Mou"), Young Brothers Development Ltd ("Young Brothers") and Centaline Property Agency Ltd ("Centaline"); and (3) that the resignation of Mr Raymond Chon ("Mr Chon") as one of the joint and several liquidators be accepted. I allowed the application on 19 April 2002. These are the reasons o
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HCCW000391B/1999 HCCW391/1999 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES WINDING-UP PROCEEDINGS NO.391 OF 1999 -------------------
------------------- Coram: Deputy High Court Judge Poon in Chambers Date of Hearing: 19 April 2002 Date of Decision: 19 April 2002 Date of Reasons for Decision: 24 April 2002 -------------------------------------------------------- REASONS FOR DECISION -------------------------------------------------------- Introduction 1.This is an application by the liquidators for an order (1) that a committee of inspection be appointed; (2) that the committee shall consist of one representative of each of Kong Mou Holdings Limited ("Kong Mou"), Young Brothers Development Ltd ("Young Brothers") and Centaline Property Agency Ltd ("Centaline"); and (3) that the resignation of Mr Raymond Chon ("Mr Chon") as one of the joint and several liquidators be accepted. I allowed the application on 19 April 2002. These are the reasons of my decision. Background 2.The background facts leading to this application may be summarised as follows. 3.On 21 May 1998, Goldcone Properties Limited ("the Company") went into creditors voluntary winding up with the appointment of provisional liquidators. A breakdown of the creditors appears below :
Kong Mou, Young Brothers and Centaline represented the majority of creditors in value. 4.The first meeting of the creditors and contributories was held on 16 June. The provisional liquidators were formally appointed liquidators. The meeting resolved that no committee of inspection be appointed. 5.On 3 May 1999, Kong Mou petitioned for the winding-up of the Company. A winding-up order was made on 4 November 1999. The first meeting of the creditors and contributories in the compulsory winding up was held on 30 November 1999. Mr Jeremy Barr ("Mr Barr") and Mr Chon, both of Lew & Barr, were appointed as liquidators replacing the former liquidators. The meeting again resolved that no committee of inspection be formed. 6.On 15 March 2001, Mr Chon resigned as a liquidator upon his departure from Lew & Barr. At about the same time, Mr Barr joined another firm and he took over the conduct of liquidation. 7.After investigation into the affairs of the Company, Mr Barr prepared a report to the creditors dated 15 October 2001. This report referred to potential claims contemplated against the directors who are also contributories, Super Kingsun and Faith On. Claims 8.As at 5 January 1998, the Company's accounts revealed loans to the three directors in the total sum of more than $30 million. On the other hand, the wives of the directors and three companies controlled by the directors, including Super Kingsun, were creditors of the Company in the total of more than $36 million. The debt owed to Super Kingsun was in the region of $10 million. On 20 March and 2 April 1998, various assignments of debt were made by these creditors to the directors. Consequently, their loans to the Company were all set-off. The liquidators took the view that the loans to the directors were made in breach of section 157H(2) of the Companies Ordinance. The directors, however, contended, in essence, that the loans were not really loans but final contribution and that all the shareholders were aware of the transaction and approved of the same. 9.In December 1997, the directors of the Company entered into an agreement on transfer of the right to use certain land in the Mainland for industrial purpose from a Li Chi Kung for RMB$45,903,823.20. The liquidators took issue on the actual value of the land and its title. The purchase price under the agreement was to be paid by three instalments. The 1st instalment of RMB$10 million was borrowed from Faith On. Li owned half of the interest in Faith On. The liquidators suspected that the agreement was a sham because :
The liquidators took the view that the purchase of this property would raise a number of causes of action against the directors by way of misfeasance proceedings pursuant to s.276(1) of the Companies Ordinance. 10.The Company defaulted in paying the balance of the purchase price and in repaying Faith On. However, Li had not taken any action against the Company whereas Faith On obtained a defaulted judgment against the Company on the loan. 11.The above claims are no doubt substantial and likely to be hotly contested. November meeting 12.On 30 October 2001, the liquidators called a meeting of the creditors and contributories. The meeting was adjourned to 20 November 2001 ("the November meeting"). The creditors and contributories were all present. The proposal of appointing a committee of inspection and its constitution were discussed. A committee of inspection was considered appropriate by the liquidators because of the forthcoming legal actions. As the committee would primarily deal with the potential actions, the contributors and these creditors having a conflict of payment should not sit on it. However, Faith On and Super Kingsun wanted to. To allay the fear of conflict of interest, they offered not to take part in the discussion or voting concerning any claim that the Company may have against them or the contributories. In the end, the offer did not find favour with the majority of the creditors. The meeting resolved by majority that a committee of inspection be appointed; that the committee shall only consist of one representative of each of Kong Mou, Young Brothers and Centaline, and that the resignation of Mr Chon be accepted. 13.The liquidators brought the present application under sections 200(3) and 206(2) of the Companies Ordinance, Cap.32 and Rule 154 of the Companies (Winding-up) Rules so that the court can determine the differences arising from the creditors on the appointment and constitution of the committee of inspection and the resignation of Mr Chon. Appointment of a committee of inspection and its constitution 14.It is now common ground that a committee of inspection should be appointed. The only remaining question is its constitution. The court has jurisdiction to summon fresh or further meetings for the purpose of deciding matters setting out in section 206 of the Companies Ordinance, including the appointment of a committee of inspection. Mr Tse, appearing for Faith On, initially asked me to direct further meeting to be held so that the matter could be further discussed. He complained that the November meeting was not conducted in a satisfactory or fair manner. As an alternative submission, Mr Tse asked me to appoint a representative of Faith On on the committee. I agree with Mr Swain appearing for the liquidators that the wishes of the creditors and contributories had already been clearly established in the November meeting. I do not see the need to call a further meeting when it is unlikely to advance the matter any further. I therefore proceed to determine the constitution of the committee. 15.Before addressing the matter, it is, I believe, convenient to first set out the legal principles.
16.In an insolvent liquidation, such as the present case, the wishes of the creditors as to the appointment of a committee of inspection or liquidator normally prevail against those of the contributories. The parties, however, agree that the court's hands are not tied. It still enjoys an ultimate discretion over the matter. 17.It is not disputed that both Super Kingsun and Faith On have a serious conflict of interest. The allegations made against them are grave. Should they be allowed to sit on the committee? In my view, the court should have regard to all the circumstances when considering whether or not to allow a creditor having a conflict of interest representation on a committee of inspection. The relevant considerations include : (1) nature and seriousness of the conflict; (2) how and to what extent the conflict affects the process of liquidation; (3) apart from the matter that gives rise to the conflict, is there any other meaningful business outstanding in the process of liquidation such that the general body of creditors (including those having a conflict of interest) ought to be properly represented to conduct such business; (4) is the creditor prepared to accept the procedural safeguard and to act accordingly; and (5) will the compliance of the procedural safeguard render the smooth operation of the committee disruptive. 18.The liquidation of the Company has gone into such a stage that the standard liquidation matters had already been disposed of. The only meaningful business outstanding is the forthcoming claims against the contributories, Super Kingsun and Faith On and the matters incidental thereto, including costs to be incurred in that connection. As a matter of principle and indeed pursuant to the undertaking offered, Super Kingsun and Faith On should not take part in those business. In the circumstances, no meaningful purpose will be served by allowing them to sit on the committee. Further, if they are represented on the committee, disruption to the smooth operation of the committee is likely to happen. For example, differences may arise over the ambit of the undertaking. The matter will then have to be brought to court again for resolution. It is time consuming and costly and defeats the very purpose of setting up the committee in the first place. 19.Both Mr Kwan for Super Kingsun and Mr Tse were concerned about the level of liquidators' fees and legal costs. They submitted that if their clients were not allowed to be represented in the committee, they would not be able to effect adequate supervision on fees. Mr Swain pointed out that bills for all the fees incurred to date had already been submitted to court for approval. All except the most recent one had indeed been approved. The one that has not been approved yet mainly related to the fees incurred in connection with the forthcoming claims, something which Super Kingsun and Faith On should not be entitled to discuss any way. I agree with Mr Swain and rule that the question of fees incurred in the past should not be a valid objection to disallowing Super Kingsun or Faith On representation on the committee. As to the costs incurred for the claims against the contributories, Super Kingsun and Faith On, there is nothing to suggest that the committee will not act reasonably. After all, the level of costs would affect the amount of recovery from the Company's assets at the end of the day. Mr Kwan further referred to a sum of HK$400,000 paid into court. He is not really pressing the point. So I do not propose to deal with it in detail. Suffice it to say that the committee, even without Super Kongsun and Faith On being represented, should be able to deal with the matter competently and fairly. 20.In the circumstances, I allow the application relating to the appointment of the committee and its constitution. Resignation of Mr Chon and costs 21.All parties agreed that Mr Chon's resignation should be accepted. The only issue arising is on the question of costs. Mr Kwan contended that the costs of Mr Chon's resignation should not be paid out of the Company's assets. That Mr Swain conceded. In the circumstances, I allowed the application that Mr Chon's resignation be accepted. I also made an order that save that there shall be no order as to costs for the costs of and incidental to Mr Chon's resignation and the related application, the costs of the creditors appearing in this application and the costs of the liquidators be taxed and paid out of the Company's assets and the costs of the liquidators be treated as costs in liquidation.
Representation: Mr Patrick Swain of Messrs Freshfields Bruckhaus Deringer, for Joint Liquidators Ms Claudia Ling of Messrs P.C. Woo, for Creditor (Kong Mou Holdings Ltd) Mr Joseph Kwan of Messrs Deacons for Contributories (Super Kingsun Limited) Mr Arnold Tse of Messrs A. Tse & Fung, for Creditor (Faith On Industrial Limited) |
Further hearings and rulings under HCCW 391/1999