Ng Yat Chi v. Max Share Ltd. and Another

HCCW000321E/1996

HCCW 321/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) NO. 321 OF 1996

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Coram: Hon Yuen J in Chambers

Date of Hearing: 25 August 2000

Date of Decision: 25 August 2000

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D E C I S I O N

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1. This is an application by the Respondents for a stay of the winding up order made on 24 May 2000 for the winding up of the 1st Respondent (which I will refer to as "the Company"). The application is made by the Company acting by its directors and also by the 2nd Respondent which is the majority shareholder of the Company. As far as the liquidators are concerned, the position of the liquidators is that they neither support nor oppose the application for a stay.

2. The cases are quite clear that an application for a stay of a winding up order may be made by a company in liquidation acting through its directors. I refer to the case of Brinds Ltd & Ors v. Offshore Oil & Ors (no. 2) 10 ACLR 242, a decision of the Supreme Court of Victoria, of which case I have been given a Lexis copy. In that case, the Full Court of the Supreme Court of Victoria went into the authorities and the law and found that the company had locus standi to make an application for a stay of a winding up order without the need for the consent of the liquidators.

3. I am satisfied that this Court has an inherent jurisdiction to stay a winding up order pending appeal. This is clear from Brinds and also from A & BC Chewing Gum Ltd [1975] 1 WLR 579 which case has been followed by a number of cases in Hong Kong. However, it is clear from A & BC Chewing Gum Ltd that although the Court does have jurisdiction to grant a stay of a winding up order pending appeal, the practice is not to grant such a stay. At page 592 of the report, Plowman J considered the grounds for the exercise of a court's discretion whether or not to stay a winding up order; he said as follows:-

"As I understand it, the position is this. First of all, as a matter of jurisdiction it is quite clear that I have jurisdiction to grant a stay, because the Act says so. It says I can grant a stay on proof to my satisfaction that the proceedings ought to be stayed. But then there is the question of practice, and as a matter of practice a stay is never granted. The only exception that I think is known to the department is where I myself once went wrong in In re Westbourne Galleries Ltd [1970] 1 WLR 1378, and not having been alerted to the position, and not knowing it before, I granted a stay, with precisely what consequences nobody has ever told me. But there are very good reasons for the practice of never ordering a stay, and they are these: as soon as a winding up order has been made the Official Receiver has to ascertain first of all the assets at the date of the order; secondly, the assets at the date of the presentation of the petition, having regard to the possible repercussions of section 227 of the Act of 1948; and thirdly, the liabilities of the company at the date of the order, so that he can find out who the preferential creditors are, and also the unsecured creditors.

Supposing there is an appeal and the winding up order is ultimately affirmed by the Court of Appeal, and there has been a stay, his ability to discover all these things is very seriously hampered: it makes it very difficult for him, possibly a year later, to ascertain what the position was at different times a year previously. But assuming a stay is not granted, if the business is being carried on at a profit, as I understand this business now is, no additional harm is done by refusing a stay. As I understand it, if the Official Receiver is given an indemnity, say by the Coakley brothers, who are running this business, he will allow it to be carried on, and the Coakley brothers, in this case, could be appointed special managers and carry on the business as they have been doing. If the business is being carried on at a profit, creditors of the business, after the date of the winding up order, would be paid in priority to the unsecured creditors at the date of the order as part of the expenses of the winding up. Then, if the appeal is allowed, the business is handed back as a going concern, it has not suffered any loss. Of course, if the business can only be carried on at a loss - it should not be carried on at all."

4. In Brinds, the Full Court set out 5 considerations which would be pertinent to a court exercising its discretion whether or not to grant a stay of a winding up order pending appeal. The first is to consider what prejudice would be caused to the company if the winding up proceeded; secondly, what prejudice or harm would likely be suffered by the petitioner if a stay is granted; thirdly, the length of the stay sought; fourthly, whether there were good prospects of success in the appeal; and fifthly, the time taken in the prosecution of the appeal and in the making of an application for stay of the winding up order. I shall deal with each of these 5 considerations in turn.

5. First of all, I have to consider whether there would be irreparable prejudice done to the Company in this case if the winding up order is not stayed. I have taken into account the fact that the only business of this Company is in the holding of shares of subsidiaries. The Company itself does not carry on any "trading" in the normal sense of the word. The Company itself is within the China Resources Group, the 2nd Respondent being the major shareholder of the Company.

6. I also note that this company has been running at an accumulative loss and quite a substantial one as well.

7. Thirdly, I have taken into account the fact that although para. 11 of Mr Lam's affirmation says that the Company and its subsidiaries employ more than 100 employees, in fact this Company itself only employed 2 persons, and in fact both had had their employment terminated three months ago. Therefore, as far as the possible harm done to employees is concerned, the Company itself no longer has any employees, and what employees have been referred to in para. 11 of Mr Lam's affirmation referred to the employees of the Company's subsidiaries.

8. As far as these subsidiaries are concerned, as far as the evidence goes, they are involved in a number of building projects and their involvement has continued. The subsidiaries have continued in business even though the liquidators have informed the directors of those subsidiaries that this Company would not be able to continue providing a guarantee for the subsidiaries.

9. There is no evidence before me that the subsidiaries have not been able to carry on, or have been unable to provide their co-venturers with a substitute guarantee in the past few months since the winding up order was made. In other words there is no evidence before me now that these projects involving many employees have been jeopardised by the winding up order or will be so jeopardised in the next two months before the appeal is heard.

10. That leads me to the main point that Mr Leong SC, counsel for the Respondents, has focused on this afternoon:- he says that as a result of the making of the winding up order the co-venturers of the subsidiaries are "jittery".

11. I note that as far as the evidence is concerned, one letter only has been exhibited in the affirmation of Mr Lam on behalf of the Respondents. There is a letter dated 5 June 2000 from a Polytown Project Management Ltd in which the writer says that he has noted that the parent company of China Resources Construction Co. Ltd, Max Share, has been "compelled by the High Court to resolve" by which I understand him to mean a reference to the winding up order. In this letter, the writer asks for advice on how the incident could affect CRC and in addition, asks for alternative arrangements for a guarantee to be provided. The writer asks for a response on 5 June 2000.

12. The reply, if any, has not been exhibited and there has been no evidence of what has happened in the more than 2 months since then. No other fears of any other co-venturers have been expressed and there is no evidence before me today of any threat by any co-venturers of the subsidiaries that they would pull out of any projects. As far as the subsidiaries are concerned, as I have said, as far as the evidence goes, they have continued with their building projects.

13. In relation to the liquidation, the liquidators' report has indicated that the liquidators have not had the opportunity to go into the papers of the subsidiaries yet at all. There are 12 subsidiaries and the liquidators not having had the opportunity yet to commission valuations of these subsidiaries or their assets, it is not suggested that in the next two months, all these actions would have been concluded, in other words, it is not suggested that in the next 66 days, the valuations of the subsidiaries and their assets, the liquidators' consideration of these valuations, and a decision as to the course of action for each of these subsidiaries could be completed. Therefore, in my view, no harm or prejudice to the Company would be caused if the application for a stay is refused.

14. I then deal with the next consideration which is whether there would be any harm to the Petitioner if the winding up is stayed. The Petitioner has referred to one part of the liquidators' report that indicates that a sum of $5 million had been withdrawn from the Company's account after the making of the winding up order.

15. In an affirmation handed up to the Court during the hearing this afternoon, the Respondents have sought to explain this, but the liquidators have not yet been able to verify the truthfulness or otherwise of this explanation, it having come so late. If there is an explanation, so much the better. If there is no proper explanation for this, then one can understand the Petitioner's apprehension which would not be eliminated if the winding up order is stayed.

16. The third consideration is the period of stay which is sought. As I have said, it is two months which I accept is a relatively short period and that in itself is a factor in support of a stay. However, as I have indicated, in my view, the Respondents have failed in relation to the first ground.

17. Fourthly, the prospect of success of the appeal. Mr Leong, SC has said that the only law point involved in the appeal requires the Court of Appeal to refuse to follow a decision of the Privy Council in Vujnovich v. Vujnovich, and without going too much into detail on this ground, it can only be said that it would not be easy to suggest that the decision of the Privy Council in Vujnovich was incorrect.

18. Finally, I deal with the time factor. The application for a stay was made by a letter on 24 June 2000. The winding up order was made on 24 May and Mr Leong says that the month taken was reasonable for the Respondents to consider the merits of an appeal. In my view, that is an acceptable time frame and, in my view, no point can be made against the Respondents that the present application is late.

19. Finally, in relation to Mr Leong's submission that although an application for a stay of the winding up order is normally difficult, this is a unique case because of the validation order which had been granted in favour of this Company by Rogers J in 1996. I am afraid I do not follow Mr Leong's submission that it is this particular order that provides re-assurance to the co-venturers dealing with the subsidiaries. I would have thought that with this Company's accumulative losses, it would not be the validation order that would provide any comfort to any co-venturers dealing with the subsidiaries of this Company. It is possible that it is the fact that this Company is owned, as far as the majority is concerned, by a company within the China Resources Group that provides the comfort to such co-venturers.

20. In view of the above, in particular in view of my opinion that the Respondents have failed to show that irreparable prejudice would be suffered by them if the winding up order were permitted to continue in the 2 months pending appeal, in the exercise of my discretion, I would refuse the application for a stay.

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21. There is before me an inter partes summons issued on behalf of the Petitioner for an order that the Respondents do release and return two Letters of Guarantee to the Petitioner within 7 days from the date of order. The two Letters of Guarantee have been issued by a bank in favour of the Respondents. The order giving rise to the provision of these Letters of Guarantee do not assist in the construction of the guarantees to see whether they continue to have effect. The order simply says that the Petitioner do provide security for costs in the sum of $790,000.00 and that credit be given for the sum of $350,000.00 paid into court on a previous day in November 1996 and the balance to be paid within 7 days.

22. Mr Yip, counsel for the Petitioner, has asked me to consider the following. He says that his case is that this guarantee does continue to have effect until discharged by order of the court and he wants an order of discharge. He makes the point that there is no good reason why a respondent to an appeal should have to provide security.

23. Certainly in the general state of things, that would be correct. However, the Respondent here is and remains an undischarged bankrupt and that is an important matter for me to take into account in considering whether I should discharge this guarantee.

24. As far as the terms of the guarantee are concerned, Recital 2 says that the Petitioner was ordered to provide security for the Respondents' costs of "the Proceedings" and "the Proceedings" have been defined in para. 1 of the recital to include any appeals to the Court of Appeal and/or the Court of Final Appeal in respect of High Court Winding-up No. 321 of 1996. I note that it has not been stated that any appeal to the Court of Appeal and/or the Court of Final Appeal should be appeals by the Petitioner only.

25. These two Letters of Guarantee are documents provided by the Petitioner, and if it is to be suggested that it should only be security for costs of the Petitioner's appeals, then no doubt those Letters of Guarantee could have been worded to reflect that case. As far as the application for an order of discharge is concerned, in my view, it is of significance that the Petitioner is still an undischarged bankrupt. Therefore, the fear that he may not be good for costs in the event that he loses, whether in the Court of Appeal or in the Court of Final Appeal, is still important.

26. In my view, therefore, I would not in the exercise of my discretion grant an order for the discharge of these 2 Letters of Guarantee and I would dismiss the summons.

Representation:

Mr Alan Leong, SC & Mr Anselmo Reyes, instructed by Johnson Stokes & Master, for the 1st and 2nd Respondent

Mr Yip Shui Man Simon, instructed by Ho, Lo & Yeung, for the Petitioner

Mr Robert Pang, instructed by Koo & Partners, for Liquidator of the 1st Respondent