Re B F Construction Company Ltd

HCCW 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 691 OF 2004

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Before: Hon Kwan J in Chambers

Date of Hearing: 18 June 2004

Date of Decision: 18 June 2004

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D E C I S I O N

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1.This is an application for the appointment of provisional liquidators for B F Construction Company Limited (“the Company”).  On 12 June 2004, a petition to wind up the Company was presented by the two shareholders of the Company, Maintain Profits Limited (“MPL”) and Myriad Gold Corporation (“MGC”), acting through their provisional liquidators, Mr James Wardell and Mr Charles Chan Wai Duen of CCIF Corporate Advisory Services Limited (“CCIF”). 

2.This summons for provisional liquidators was issued on 15 June 2004, seeking an order that Mr Wardell and Mr Jackson Ip of CCIF be appointed provisional liquidators of the Company.

3.MPL and MGC are the subject of winding-up petitions in HCCW Nos. 345 and 346 of 2002.  These companies have no business or assets of their own, save for the entire shareholding in the Company.  The shareholders of MPL and MGC, Dr Chan Shiu Chick and Madam Law Wai Duen Nina, have been involved in a marital dispute for some considerable time and various proceedings have been commenced.  Dr Chan and Madam Law are two of the four directors of the Company.  The directors of the Company have been in deadlock ever since the breakdown of the marriage of Dr Chan and Madam Law, leaving the Company in a most unsatisfactory state of corporate governance.  On 31 October 2002, I made an order appointing provisional liquidators for MPL, MGC and another company, Boldwin Construction Company Limited (“Boldwin”), to preserve the status quo and to ensure that assets should remain undiluted and properly administered, pending the resolution of the dispute which is envisaged would take quite some time. 

4.By further orders I made on 20 August 2003, the provisional liquidators were given power to present a petition to wind up the Company on behalf of MPL and MGC and to apply for their appointments as provisional liquidators of the Company, see paragraph 45 of my decision.  I was then concerned with merely whether the provisional liquidators should have such powers, the merits of an application for appointment of provisional liquidators to the Company would be considered if and when such an application is made.  I should mention that such powers were sought by the provisional liquidators as it was recognised at that time that they had several options open to them (see paragraph 9 of my decision).

5.One option was to present a petition to wind up the Company and apply for their appointment as provisional liquidators for the Company, this was the preferred option of the provisional liquidators as the most effective way to preserve the assets of the Company, as it would be considerably simpler to preserve the assets of the Company if provisional liquidators should be appointed for it, instead of having to resort to the shareholders’ rights of MPL and MGC which have proved cumbersome and susceptible to challenge.  Another option was for the provisional liquidators to continue with their financial monitoring of the Company by the exercise of shareholders’ rights, on the basis that the court would grant them certain orders to provide for their remuneration to be paid out of the assets of the Company, which orders were also made on 20 August 2003.

6.Subsequent to the orders on 20 August 2003, the provisional liquidators have continued with their financial monitoring and supervision of the Company, until they have reached a stage when they felt it would be in the interests of all concerned to resort to their preferred option of winding up the Company.  The reasons for this are given in the petition and the evidence filed by the provisional liquidators.  The financial position of the Company has deteriorated, a monthly cash deficit of $1.2 million has been incurred, although it would appear that the Company is still solvent on the provisional liquidator’s assessment, which is accepted by Dr Chan and Madam Law.  The Company has been rudderless for 18 months, it has not taken on new projects but is still obliged to carry out rectification work for three projects completed.  That has necessitated the maintenance of staff and administrative facilities at considerable expense.  The provisional liquidators have made recommendations to Dr Chan and Madam Law of solutions to improve the financial position of the Company in February 2004, but no co-operation could be secured at board level.  As it is unlikely that co-operation of the board would ever be secured, the provisional liquidators are of the view that managing the Company by way of shareholders’ resolutions is not practicable, and the only effective way to preserve and protect the assets of the Company is to petition for winding up and have provisional liquidators appointed for the Company to exercise direct management control of its affairs.  In the event that a petition is presented, there is a risk that employees may resign, sub-contractors may refuse to do further work, and it is necessary to appoint provisional liquidators to step in immediately to directly regulate the Company, to apply for validation orders, and to ensure that the rectification work would be done properly. 

7.There is also a practical dimension to this and this relates to the remuneration of the provisional liquidators of MPL and MGC in respect of their work done to supervise the affairs of the Company.  It was provided in the orders made on 20 August 2003 that the shareholders’ resolution to cause the Company to indemnify the provisional liquidators of MPL and MGC and to provide for their remuneration to be paid out of the assets of the Company would cease to apply in the event that a petition to wind up the Company is presented (paragraph 48(2) of my decision).  This is because I took the view that there should not be any contravention of the principle of no intromission with the funds of one liquidation to provide for the remuneration for the liquidators acting in another liquidation (paragraph 46 of my decision).  So if no appointment for provisional liquidators is made for the Company, it may be likely that the provisional liquidators of MPL and MGC would not continue with their supervision of the affairs of the Company and they may wish to apply for discharge of their appointment if their remuneration cannot be met out of the funds of the Company.

8.For provisional liquidators to be appointed, two requirements must be satisfied.  Firstly, there must be a good prima facie case for a winding-up order.  Secondly, it must be established that it is appropriate in all the circumstances for provisional liquidators to be appointed.

9.The petition is presented on two grounds, under section 177(1)(a) on the basis of the special resolution passed by MPL and MGC to wind up the Company, and under section 177(1)(f) on the just and equitable ground on the basis there is deadlock in the board of directors.  I am satisfied a good prima facie case for winding up the Company is made out and no one has contended otherwise in this application.

10.I turn to the second requirement whether it is appropriate to appoint provisional liquidators.  The provisional liquidators of MPL and MGC seek provisional liquidators for the Company for substantially the same reasons as provisional liquidators were appointed for MPL, MGC and Boldwin in October 2002.  As mentioned earlier, they do not think managing the Company by way of shareholders’ resolution is a practicable solution.  Madam Law supports the appointment of provisional liquidators for the Company.  It does not appear to me that there is any or any material change insofar as the need to preserve the status quo and to prevent dissipation of assets is concerned. 

11.Dr Chan has opposed the application and Mr Grossman, SC has advanced these reasons on his behalf.

12.Firstly, he submitted that the petition of the Company may be dealt with within a reasonably short time, as Dr Chan and Madam Law do not oppose the petition and there is a hearing date for the petition in just over a month.  I appreciate that may happen but it does not seem to me that no protection should be put in place to safeguard the Company assets, to deal with risks that may arise if essential employees should resign or sub-contractors should refuse to work.  Dr Chan has also suggested it may be possible to wind up the Company voluntarily, to bring about a more palatable situation to everyone.  The provisional liquidators of MPL and MGC say they will explore this, but they foresee difficulties in view of non-cooperation by Madam Law.  Miss Linda Chan for Madam Law submitted that a voluntary winding up is not appropriate, in view of allegations of misfeasance against Dr Chan.  A creditors’ voluntary winding up may or may not materialise.  I agree with Mr Harris for the petitioners this should have little impact on the need for provisional liquidators in the meantime.  

13.Next, it was submitted that provisional liquidators for the Company are not necessary, the provisional liquidators for MPL and MGC will continue to preserve the status quo of the Company and supervise its affairs, which is what they have been doing.  I have mentioned the practical dimension why if provisional liquidators are not appointed for the Company, there may be a situation in which the provisional liquidators of MPL and MGC would cease to monitor and supervise the affairs of the Company.

14.Thirdly, Mr Grossman submitted that if provisional liquidators are to be appointed, they should not be from CCIF but totally independent professionals should be appointed, to avoid any possible conflict of interest.  The possible dispute of MPL and MGC with Bomina Limited, which has an option to purchase over 51% of the issued shares of the Company under an option agreement in the event that Dr Chan should cease to be a director, was mentioned by Mr Grossman as an example. 

15.I agree with Mr Harris and Miss Chan that this concern of potential conflict is more theoretical than real and I should take a pragmatic approach in this.  If actual conflicts should arise, the provisional liquidators of the Company can seek directions from the court.  The provisional liquidators of MPL and MGC have been involved in supervising the affairs of the Company for some time and are familiar with its affairs.  In the short period between the presentation of the petition against the Company and the making of the winding-up order (assuming that the petition against the Company should be unopposed), it seems to me that it would be best for everyone concerned that the provisional liquidators of MPL and MGC should continue to perform their functions in the capacity of the provisional liquidators of the Company.

16.For the above reasons, I make an order appointing the candidates proposed as provisional liquidators of the Company and will hear the parties on the terms of the order. 

17.The petitioners should give the usual undertaking as to damages but I will not require fortification of the undertaking, as the Company has not entered into any new construction projects for some time and there is no intention to tender for any projects.  I think there should be little risk of any significant detriment that the Company may suffer if the appointment of the provisional liquidators should turn out to be wrongly made (see Re I-China Holdings Limited, HCCW No. 1321 of 2002, 11 December 2002, paragraphs 29 and 33 of the Reasons for Decision of Deputy Judge Barma).

Mr Jonathan Harris, instructed by Messrs Stephenson Harwood & Lo, for the Petitioners

Mr Clive Grossman, SC and Miss Chyvette Ip, instructed by Messrs Ng & Partners, for Chan Shiu Chick

Miss Linda Chan, instructed by Messrs Baker & McKenzie, for Law Wai Duen, Nina

Miss Karen Cheung, for the Official Receiver