Re San Imperial Corporation Ltd

HCCW000026A/1980

Coram: Liu, J. in Chambers.

Date of Judgment: 20th September, 1980.

Summons filed 10th September, 1980 for an order for avoidance of disposition of property under S.182.

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DECISION

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1. On the 19th March, 1980, Malaysia Borneo Finance Corporation (M) Berhad presented a petition for winding-up San Imperial Corporation Limited, formerly known as the Imperial Hotel Holdings Limited. The petition contains multifarious allegations, culminating in the accusation that the Board no longer enjoy confidence of the petitioner. The petitioner prays for the company to be wound-up under the just and equitable rule. These proceedings have been set down for hearing commencing the 13th October, 1980, and the trial is estimated to last some ten weeks.

2. On the 13th May, 1980, the Official Receiver was appointed Provisional Liquidator and granted powers for, inter alia, control and management of the company. The power of the Provisional Liquidator was enlarged by an order dated the 4th of September.

3. By a summons, two of the shareholders of the company opposing the petition, who are together entitled to almost 15,000,000 fully paid up shares, apply for leave to raise $2,000,000 on the security of 4,000,000 shares with a view to meeting litigation expenses and repayment of a comparatively small loan by one of the applicants to a subsidiary of San Imperial Corporation Limited. The application of these two shareholders receives the blessings of all but the petitioner.

4. Mr. Chang, counsel for the petitioner, prefaced his opposition with an opening remark that the background of the case called for the exercise of great caution. Counsel foresaw the possibility of a transfer of shares by registration which would vest in the lending company a right to appear and to oppose the petition. It was submitted that the petitioner's best interest could not be served by the joinder of a further adversary and the injection of perhaps added irritations. Counsel voiced his anxiety that the sanctioned transfer sought might prejudice prior equities. Insufficient disclosure in the affidavits in support was also made a target for scorn. Mr. Chang dwelt on the want of information as to whether the applicants had alternative revenue for financing their litigation. On behalf of the applicants, Mr. Saville categorically stated that his clients' right to be legally represented would be jeopardized if their application were refused. The portion of the almost 15,000,000 shares of the applicants proposed to be so charged was left unspecified. Counsel also evinced doubts as to the power of the Provisional Liquidator to implement any transfer of shares, even if sanctioned.

5. In re Onward Building Society⁽¹⁾ was cited for the proposition that the court's approval of a transfer of shares after commencement of the winding-up "ought not to be granted except on strong grounds." Whilst the general principle appears to be unassailable, Onward Building Society stands on its own facts as narrated at p.477 in the judgment of Lord Esher, M.R.: The transaction then under consideration was speculative and entered into after the making of a winding-up order.

6. Section 182 of the Companies Ordinance was enacted decidedly to safeguard the company and its creditors. Leading counsel for the applicants relied heavily on the consent of the Provisional Liquidator, a person said to be best qualified to assess the interest of and prejudice to the company and its creditors. The court was informed that it was not the intention of the proposed lender to intervene. On the force of In re Tumacacori Mining Co.⁽²⁾, Mr. Saville contended that before the making of a winding-up order, section 182 might not even begin to apply. In Tumacacori Mining Co., an attempt to object to the opposition of the transferees who had become shareholders only after the presentation of the petition was ruled out of order by Malins, V.C. There, the company against which a petition had been presented was held not to be a company "being wound-up" under section 153 of the Companies Act, 1862. Thus, so it was submitted by Mr. Saville, our local equivalent, section 182 of the Companies Ordinance, may not extend coverage to a company against which no winding-up order has been made.

7. Section 153 of the 1862 Act reads as follows:

"Where any company is being wound-up by the court or subject to the supervision of the court, all dispositions of the property, effects, and things in action of the company, and every transfer of shares or alteration in the status of the members of the company made between the commencement of the winding-up and the order for winding-up, shall, unless the court otherwise orders, be void."

8. Our section 182 is couched in slightly different terms, and the deviation may best be illustrated by setting out verbatim both section 182 and section 183 of our Companies Ordinance:

9. No different meaning seems to have been intended by the variation in the wordings "In a winding-up by the court" and "Where any company is being wound-up". Obviously, an order granted under section 182 would be otiose if no winding-up order is ultimately made⁽³⁾. It is quite unnecessary to express any concluded view on this submission. The applicants are not themselves seeking to argue that section 182 cannot be invoked until a winding-up order is made. Section 182 of the Companies Ordinance is the very section under which the applicants now crave leave to sanction a proposed transfer of shares. In fact, it is common ground that the court may validate transactions under section 182 between the date of presentation of the winding-up petition and the date of the order and that the subject-matter before this court falls within that section⁽⁴⁾.

10. The petitioner will, no doubt, be affected in costs or otherwise by the appearance of yet a further adversary. Granted that the affidavits in support lack particulars, but the bona fide of the applicants has not been seriously impugned. The proposed lending company has signified their present intention of non-interference, and the possibility of their entry must be outweighed by the predicament in which the applicants might find themselves without proper legal representation.

11. The Provisional Liquidator has intimated that there are no known prior equities within the San Imperial group of companies. The applicants through their counsel undertake to repay a debt to the tune of 0.3 million dollars owed by one of the applicants to a subsidiary of the company out of the loan raised on the 4,000,000 shares. The Provisional Liquidator rests content on such assurance.

12. Mr. Saville has advised the court that the Provisional Liquidator can, in his view, be persuaded to implement the registration of the proposed transfer. In any event, so submitted counsel, the Provisional Liquidator is at liberty to apply to court for such additional power, if lacking. It remains for me to order:

Representation:

Mr. M. Saville, Q.C. and Mr. Ronny Wong instructed by Stevenson, Low & Co. for Applicants Siu King Cheung Hing Yip Co. Ltd. and Kar Yiu Co. Ltd.

Mr. Dennis Chang instructed by Johnson, Stokes & Master for the Petitioner Malaysia Borneo Finance Corporation (M) Berhad

Mr. J. To of T.S. Tong & Co. for the Company.

Mr. Allen for Official Receiver and Provisional Liquidator.

(1) (1891) 2 Q.B. 463

(2) (1873-74) 17 Equity Cases, p.534

(3) See p.492 Buckley on Companies Act, 13th edition

(4) See also para. 18 Cap. 32 Gore-Browne on Companies, 43rd edition