Re Lokfumum Restaurant Ltd

HCCW000002/1975

IN THE SUPREME COURT OF HONG KONG

COMPANIES WINDING-UP

NO. 2 of 1975

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Coram: LI, J. (In Court as Chambers)

Date of Judgment: 21st July 1978 at 4.30 p.m.

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JUDGMENT

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1. This is an application by the Official Receiver and Liquidator of a wound up company-Lokfumun Restaurant Limited - for direction that the balance of the proceeds of sale of VDJ Distraint No. 746/74 are payable to the Hong Kong Macao Development Co., Ltd., (hereinafter referred to as "the landlord") or such directions in relation thereto may be given as the Court thinks fit.

2. The facts of the case may be briefly summarised as follows: On the 19th December 1974 all the goods of the Lokfumun Restaurant Limited were seized under a Writ of Fi Fa in O.J. Action No. 1835 of 74. The goods were then in custodia legis. On the 27th December a Warrant of Distress was issued by the landlord for arrears of rent. On the 28th December 1974 the goods were sold and the proceeds of sale were kept in court. On the 13th January there was a petition to wind up the Lokfumun Restaurant Limited. On the 28th January 1974 (1975?) the landlord applied for payment out of the proceeds of sale then in court.

3. The question then in issue was put in a decision that was given by Registrar Silke as follows, namely:

"Should the Registrar pay out the total of the proceeds of sale now to the landlord or should those proceeds be retained in custodia legis and passed over to the Official Receiver - depending of course on the result of the Petition?"

Then he proceeded in his decision by referring to section 265(5) of the Companies Ordinance which provides that:

"In the event of a landlord or other person distraining or having distrained on any goods or effects of the company within 3 months next before the date of a winding-up order, the debts to which priority is given by this section shall be a first charge on the goods or effects so distrained on, or the proceeds of the sale thereof."

And section 265(1) gives a preference to wages and salary of workers.

4. At that time the Director of Legal Aid represented a number of workers who claimed wages payable by the Lokfumun Restaurant Limited. Subsequent to that decision, the workers wages were paid in full leaving a balance of the proceeds of sale. Now the landlord wants the balance. Mr. Woodlard, for some of the other creditors who are not workers, opposes the application for the landlord to be paid the balance of proceeds firstly on the ground that the subject matter of the present application is res judicata. His contention is that because of the decision by Registrar Silke, as he then was, the matter is finalised and there has been no appeal against that decision.

5. But the decision was one of whether the total proceeds should be paid out of court to the landlord or to be retained in custodia legis and passed over to the Receiver. That had been done indeed. However, that decision did not decide the question of priority of payment after the preferred creditors have been paid in full. Reliance is also made on the fact that it was decided in Mr. Registrar Silke's decision that "there was" - to quote him -

"no distraint on the goods and chattels of the company for the Bailiff cannot, under the provisions of Section 88(f), Cap.7, seize goods in the custody of the law."

He further said that

"Further even if I were wrong on this, Section 265(5) clearly gives the Director of Legal Aid a first charge on any goods or effects seized should the Warrant of Distress be considered executed."

I do not consider the decision of Registrar Silke, as he then was, is res judicata in respect of the matter now before me.

6. The next question is to consider whether there was a valid distress. I have already referred to the provisions of section 265(5) of the Companies Ordinance. Suffice it to say that the operation of that subsection which governs the priority of payment to the landlord depends very much on the question whether there was a valid distress. It is contended before me that as there was no physical taking of the personal property of the debtor or the Lokfumun Restaurant Limited, there was no valid distress at all. However, reading para. 201 of the Halsbury's Laws 4th edition, it says:

"The term 'distress' primarily connotes a summary remedy by which a person is entitled without legal process to take into his possession the personal chattels of another person, to be held as a pledge to compel the performance of a duty, or the satisfaction of a debt or demand. By almost universal sanction the term 'distress' is now used to designate both the process of taking, and the chattels taken, though originally it applied only to the taking."

Thus, the process of taking when it is initiated may be taken as a form of distress.

7. Now I come to section 104 of the Landlord and Tenant (Consolidation) Ordinance Chapter 7. It provides that:

"If personal property, otherwise liable to distress for rent, is, at the time of the issue of a warrant or thereafter before seizure by the bailiff under the warrant, seized under any writ or warrant of the High Court or the District Court, the bailiff shall not seize the personal property, but shall return the warrant into court and deliver copies thereof to the execution creditor or his agent and to the debtor, either personally or by leaving the same at the place where the goods were seized."

Section 104(2) of the same ordinance provides that:

Thus these provisions clearly indicate that where the property seized under a writ of Fi Fa had been liable under the Distress Warrant the landlord's right to recovery of payment would not be affected provided, indeed, that the execution creditors do nothing to apply to the Court to have the warrant discharged under section 93 of the Landlord and Tenant Ordinance. That, precisely as I understand, is the case now because the bailiff had served the copy of the warrant on the execution creditors and to the debtor. Nothing had been done by any of them.

8. The only apparent contrary provision in this case is that of the provision in section 88 para. (f) in which it is provided that "a bailiff shall not seize goods in the custody of the law." In my opinion the conflict is more apparent than real. Taking the situation that the goods of the debtor had been seized under a Writ of Fi Fa, the goods or personal property or proceeds of sale had already been in court. To seize it twice over means a farce and a double seizure. It does not, however, prevent the operation of the provisions in section 104 of the Landlord and Tenant Ordinance and I interpret the Registrar's decision in the previous hearing as that of reconciling the conflict between section 265(5) of the Companies Ordinance and the provisions in 104 of the Landlord and Tenant Ordinance. When it comes to a matter of priority, the provisions of section 265 of the Companies Ordinance should prevail. However, I understand that the conflict has been resolved. The preferred creditors, the workmen, have been paid in full. There is a balance left to be paid to the ordinary creditors of whom the landlord should be entitled to take priority for his rent for 6 months. I don't feel that I need refer to the authorities cited to me in detail because this is already in plain language of the statute as far as I can understand. Accordingly, I would direct that the money be paid to the landlord up to the amount of the 4 months' rent of which he is now claiming.

Representation:

Packwood for O.R./applicant

Lam (Bernard Wong & Co.,) for landlord

Woollard (D.L.A.) for ordinary creditors