Re The Express Builders Co Ltd (The Company)
Read the full judgment text of HCCW 409/2003 on BabelCite. This High Court CFI judgment was delivered on 23 November 2004.
1. This is a hearing convened to resolve a question of jurisdiction of the court to complete the assessment of the fees of provisional liquidators where an order has been made under section 209A(1) of the Companies Ordinance, Cap. 32 to convert the compulsory winding up to a creditors’ voluntary winding up.
Cites 1 case
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HCCW 409/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) NO. 409 OF 2003 ____________
____________ Before: Hon Kwan J in Chambers Date of Hearing: 17 November 2004 Date of Handing Down of Decision: 23 November 2004 _____________ D E C I S I O N _____________ 1.This is a hearing convened to resolve a question of jurisdiction of the court to complete the assessment of the fees of provisional liquidators where an order has been made under section 209A(1) of the Companies Ordinance, Cap. 32 to convert the compulsory winding up to a creditors’ voluntary winding up. The background 2.I will first state the relevant background matters. 3.On 4 April 2003, a creditor’s petition was presented to wind up The Express Builders Company Limited (“the Company”). The petitioning creditor applied for the appointment of provisional liquidators under section 193 and on 9 April 2003, Suffiad J appointed David John Kennedy and Fan Wai Kuen, both of RSM Nelson Wheeler Corporate Advisory Services Limited, the provisional liquidators of the Company (“the Provisional Liquidators”). The order of appointment stated that the remuneration of the Provisional Liquidators shall be charged on a time-cost basis according to the standard hourly rates charged for the services of a liquidator and other grades of staff employed by a liquidator as from time to time agreed between the Official Receiver and the Hong Kong Society of Accountants under the administrative scheme for contracting out of non-summary court winding-up cases, provided always that all such costs, charges and expenses be taxed before being paid. 4.On 24 June 2003, the Provisional Liquidators applied to Suffiad J ex parte to approve their fees for the period of 9 April 2003 to 31 May 2003 and enclosed their fee notes. 5.On about 8 July 2003, the papers for the Provisional Liquidators’ application for approval of their fees were passed on to me, and the Provisional Liquidators were notified accordingly. Thereafter, and from time to time, the Provisional Liquidators submitted to the court for assessment further fee notes for subsequent periods. I did not however deal with the assessment of the Provisional Liquidators’ remuneration until 7 February 2004. 6.In the meantime, and on 9 July 2003, the Company was ordered to be wound up. By virtue of section 194(1)(aa), the Provisional Liquidators continued to act as such until they or others became the liquidators of the Company. 7.On 4 November 2003, the Provisional Liquidators made an ex parte application to the court, to give effect to various resolutions passed in the first meetings. The application for an order under section 209A(1) that the winding up of the Company should be conducted as if this were a creditors’ voluntary winding up was referred to me, as this is not an application that can be determined by a Master under Practice Direction 3.1. The rest of the application, for an order appointing the Provisional Liquidators as the liquidators, for the appointment of members of a committee of inspection, for directions regarding the liquidators’ remuneration, and for other consequential directions, was referred to a Master. 8.The papers for the application under section 209A(1) were not served on the Official Receiver. Although there is no express provision in Cap. 32 or the Companies (Winding-up) Rules regarding the service of the papers for this kind of application on the Official Receiver, it seems to me it must have been envisaged by the provisions in section 209A that the Official Receiver should be notified of such an application, which is made ex parte. It is provided in section 209A(6)(b) that where such an application is made, the Official Receiver may submit to the court a report with regard to the application. Section 209A(7) provides that on the hearing of any such application, the Official Receiver may appear and call, examine or cross-examine any witness if he so thinks fit and may support or oppose the application. If the Official Receiver is not served with the papers of the application, he is not able to decide if he should draw any matter to the attention of the court by submitting a report under section 209A(6), or to participate under s 209A(7) in any hearing of the application, if a hearing should be convened. 9.On 8 December 2003, I granted the application under section 209A(1) and ordered that the winding up of the Company, shall, from the date of the order, be conducted as if the winding up were a creditors’ voluntary winding up. At that time, there were outstanding various applications of the Provisional Liquidators for assessment of their fees, as they had not been processed by the court. This matter was not drawn to my attention when the Provisional Liquidators applied for the order under s 209A(1). 10.On 10 January 2004, Master Kwang made an order on the ex parte application appointing the Provisional Liquidators as the liquidators of the Company (“the Liquidators”) and appointing members to the committee of inspection. I should mention that in the application before the Master, the Provisional Liquidators sought an order that they be entitled, out of the funds of the Company, to remuneration “at an amount equal to the full time costs incurred by them to date” (this must mean the fees of the Provisional Liquidators), reimbursement of all expenses incurred by them, with the liquidators’ remuneration on a time-cost basis at the standard scale agreed between the Official Receiver and the accountancy profession for the contracting out of non-summary cases. I have no submissions from the Liquidators if, by this form of application, they had intended to ask the Master to assess the Provisional Liquidators’ fees (notwithstanding there were pending applications before me), in anticipation of an order to be made under section 209A(1), so as to avoid any difficulty that might arise on jurisdiction after the order for conversion. This was not a matter brought to the attention of the Master, so he did not make any order as to the fees of the Provisional Liquidators. He only provided for the remuneration of the Liquidators as follows: “The remuneration of the Joint and Several Liquidators shall be determined by agreement between the Joint and Several Liquidators and the Committee of Inspection or if they fail to agree, the remuneration shall be determined by the Court.” 11.On 7 February 2004, after I had reviewed the fee notes of the Provisional Liquidators submitted for the period from 9 April 2003 to 7 December 2003, which was up to the date before the order for conversion was made, I wrote to the Provisional Liquidators (by then the Liquidators) setting out my proposed reduction of their fees, raising a number of queries regarding their fee notes, and inviting their comments before I was to finalise my assessment. 12.The Liquidators replied to the court on 26 February 2004, stating that they have sought legal advice before receiving the letter of the court dated 7 February 2004. The legal advice obtained was to the effect that the court’s jurisdiction to assess the fees of the Provisional Liquidators has ceased on the making of the order under section 209A(1), and that thereafter such fees should be approved under the creditors’ voluntary liquidation regime by the committee of inspection, not by the court. A copy of the advice of their solicitors dated 20 February 2004 was enclosed, citing Re Conso Electronics (Far East) Ltd. (in liquidation) [1995] 2 HKC 327 and Re Peregrine Fixed Income Ltd. [1998] 4 HKC 151. The Liquidators sought direction or guidance from the court if they should withdraw the Provisional Liquidators’ fee notes from the taxation process. 13.On 11 March 2004, the Liquidators wrote to the Official Receiver requesting withdrawal from the Companies Liquidation Account the amount of HK$3,443,982.00, being the fees of the Provisional Liquidators which have been approved by the committee of inspection. 14.On 16 March 2004, the Official Receiver wrote to the Liquidators refusing to effect withdrawal from the Companies Liquidation Account on the ground that the committee of inspection has no “retrospective power” to approve the fees of the Provisional Liquidators. 15.On 19 April 2004, and before I had responded to the letter dated 26 February 2004, the Liquidators wrote to the court stating that the committee of inspection has taken into account the comments raised by the court on 7 February 2004 in respect of fees and has completed its review of all outstanding remuneration of the Provisional Liquidators. In view of the legal advice provided earlier, the Liquidators requested to withdraw the fee notes of the Provisional Liquidators from the taxation process. 16.On 21 April 2004, and this was before I became aware of the Official Receiver’s position, I allowed the Liquidators to withdraw the fee notes of the Provisional Liquidators. Following subsequent correspondence with the Official Receiver and the Liquidators, I made an order on 30 June 2004 to set aside the order made ex parte on 21 April 2004 and directed that a hearing be convened to hear argument on the question if the court has jurisdiction to complete the assessment of the Provisional Liquidators’ fees in this situation. The issues 17.Mr Bartlett, who appeared for the Official Receiver, has helpfully framed the issues to be determined as follows: 18.In circumstances where the fees of a provisional liquidator appointed under section 193 have not been recovered prior to the order for conversion under section 209A(1),
19.I should mention that although two decisions were cited in the legal advice given by the Liquidators’ solicitors, these decisions are not directly on the point and do not specifically cover the issues for determination. Sections 209A and 209B are unique to Hong Kong. The language of these provisions is not free from ambiguity and difficulty. 20.Whilst the Liquidators’ primary focus would appear to be the first issue, the Official Receiver pointed out that the second issue would also need to be addressed, as it does not follow from a ruling that the court would have no jurisdiction after the conversion order that the assessment of the Provisional Liquidators’ fees could be dealt with under the creditors’ voluntary liquidation regime. There is the possibility that neither the court nor the committee of inspection would have power to approve the fees of the Provisional Liquidators in this situation. Naturally, this is a result the Liquidators would wish to avoid. The Official Receiver’s position 21.The Official Receiver wished to emphasise that he is not seeking to deprive the Provisional Liquidators of their fees and has no vested interest in the outcome on the issues, provided that some certainty on the issues for determination is achieved. He would have a more direct interest if it were contended by the Liquidators (as appeared from some of the arguments advanced in the legal advice provided by the Liquidators’ solicitors dated 20 February 2004) that upon the making of the order under section 209A(1) the creditors’ voluntary liquidation regime would replace the compulsory liquidation from the outset, in other words a conversion ab initio, as if the compulsory liquidation had never taken place so that what had been done would all have to be unwound. Mr Maurellet informed me at the hearing that he did not wish to take such a position on behalf of the Liquidators. 22.The Official Receiver’s particular concern arose out of the fact that the Liquidators have sought withdrawal from the Companies Liquidation Account. In making payment out of that account, the Official Receiver is not just performing a clerical function at the behest of a liquidator. The funds in the Companies Liquidation Account held by the Official Receiver are trust monies, and he has an obligation to see to it that appropriate sums are received by appropriate beneficiaries (see sections 202(1), 293(2) and 295 of Cap. 32; rule 156 of the Companies (Winding-up) Rules; section 8(1) and (2) and Schedule 1 of the Audit Ordinance, Cap. 122; and section 40A of the Public Finance Ordinance, Cap. 2). Irrespective of the impact of an order under section 209A(1) on the Official Receiver’s role in a liquidation, he continues to have obligations regarding the monies received by a liquidator and paid into the Companies Liquidation Account. If there is uncertainty or legitimate concern whether a particular method of assessment of the Provisional Liquidators’ fees is correct in these circumstances, the Official Receiver simply cannot authorise withdrawal from the account. The relevant provisions 23.It would be convenient to begin with the relevant provisions. For the genesis of sections 209A and 209B, I refer to the judgment of Godfrey JA in Conso, supra. at 329I to 330G. 24.Section 209A(1) provides as follows:
25.Section 209B provides as follows:
The first issue: does the court have jurisdiction 26.There are some dicta in Conso and Peregrine Fixed Income that would appear to provide support to the Liquidators’ contention that the court would have no jurisdiction to continue to assess the fees of the Provisional Liquidators upon the making of an order under section 209A(1). 27.Godfrey JA had said as follows in Conso:
28.In Peregrine Fixed Income, Le Pichon J (as she then was) made this observation at 159F:
29.Thus, Mr Maurellet submitted that once an order is made under section 209A(1), there would be no room for the court’s and the Official Receiver’s continuing involvement in the liquidation, as the original regime has come to an end for all purposes, including the taxation or assessment of pre-conversion expenses. As from the date of the conversion, these expenses would be a matter for the committee of inspection. It would seem to go against the dicta set out above, and would unnecessarily complicate matters, to have two regimes operating side by side, with the court’s involvement remaining in some matters and the committee of inspection being in charge of other matters. 30.Mr Bartlett did not take issue with the decision in Conso to the effect that a conversion under section 209A(1) is “for all purposes”, so that from the date of conversion the liquidation does not continue in some hybrid fashion in the sense as contended and rejected by the Court of Appeal in that case, namely, that matters of substance should continue to be regulated as if the company were still in compulsory liquidation, whilst only matters of procedure were to be regulated under the creditors’ voluntary liquidation regime (at 333B to D). But one must not lose sight of what the Court of Appeal had actually decided in Conso. The finding of “no jurisdiction” there was directed to two matters: firstly, the former liquidators had incorrectly applied under section 200(5) to recover their fees and disbursements, when the procedure under section 200(5) is only available in a compulsory winding up, notwithstanding an order had been made under section 209A(1) (at 329B and 334A); and secondly, they had applied in the alternative, again misguidedly, as creditors pursuant to section 255(1), when they were clearly not qualified as creditors at the relevant time which was the commencement of the winding up of the company (at 334B to D). Godfrey JA had left open to the former liquidators to proceed by ordinary action against the company, with leave of the court under section 186, to recover their fees, although what the nature and amount of their claim might be would need to be resolved (at 334F to G). Mortimer JA thought that if the former liquidators had applied at any time before the final order for their discharge as liquidators, which was made some time after the order for conversion, it would be possible to determine their claim under the provisions of Cap. 32, instead of requiring them to bring separate proceedings with leave of the court (at 335G). So the finding of “no jurisdiction” in Conso does not mean that the court is completely powerless to act. 31.As for the dictum of Godfrey JA at 334D to E cited above that the effect of the previous order appointing the former liquidators and providing for their remuneration was “clearly spent”, this could be understood in a narrow sense just as well as in a wider sense. In the narrow sense, this could mean that as the liquidators were discharged and they had only applied for their fees after the discharge, the order providing for their appointment and remuneration was spent; this would seem to accord with Mortimer JA’s observation at 335G mentioned earlier. In the wider sense, this could mean that the original regime had been brought to an end and so the effect of the order made under that regime was spent, this would be the sense contended for by the Liquidators. 32.Mr Bartlett queried if the fact that the court’s control over the liquidation ceases after the order for conversion would mean that the court can no longer deal with outstanding or partially completed matters that bridge the conversion order. In the case of provisional liquidators, the court exercises supervisory jurisdiction over them as its officers and the only proper route for approval of the fees of provisional liquidators appointed under section 193 is via taxation by the court (Re Peregrine Investments Holdings Ltd. [1998] 2 HKLRD 670). In Re Peregrine Investments Holdings Ltd. (No. 3) [1999] 3 HKC 183, Le Pichon J held that the remuneration of provisional liquidators during the entire term of office, including the period when they continue to act as such by virtue of section 194(1)(aa), is a matter for the court under its inherent jurisdiction, not for the committee of inspection. Section 209B, which provides for various consequences of an order under section 209A(1), makes no mention of the fees of provisional liquidators appointed under section 193, even if “liquidator” in section 209B(d) is meant to include “a provisional liquidator holding such office by virtue of section 194”, as provided in the definition section in section 2(1). 33.In the present case, the process for the assessment of the Provisional Liquidators’ fees under the inherent jurisdiction of the court was put in train before the order for conversion was made. I am inclined to think that the court should have jurisdiction to complete that process. As Mr Bartlett has put it, this may be regarded as completing an existing administrative process rather than continuing to exercise control or asserting fresh control over a liquidation which has been converted to a creditors’ voluntary winding up. And it would be unjust to provisional liquidators if the uncompleted process of court taxation should come to an end with the conversion order and there were no mechanism in place by which their fees could be assessed and paid, which brings us to the second issue. Mr Maurellet informed me that the Liquidators would adopt as an alternative argument, the court does have residuary power to complete the administrative process of taxing the Provisional Liquidators’ fees, and that this would not have amounted to continuing involvement in the liquidation, to avoid being caught in a limbo without any mechanism to assess their fees. The second issue: what would follow on a “no jurisdiction” finding 34.The Liquidators’ position here is that if the court has no jurisdiction to assess the fees of the Provisional Liquidators after the order for conversion is made, the committee of inspection can agree and approve such fees as if they were the fees in a creditors’ voluntary winding up, because of the operation of sections 209A and 209B. 35.I have reservations if the operation of these provisions would have the effect contended for by the Liquidators. 36.The Liquidators laid much emphasis on section 209B(a), contending that by virtue of section 209B(a)(ii), the appointment of the liquidator shall be the date of first appointment of the provisional liquidator for any purpose relevant under the Ordinance; this would mean that the amount of remuneration from the date of the original appointment, should, from the date of the order for conversion, be dealt with by the committee of inspection in accordance with the provisions relating to a creditors’ voluntary winding up. As mentioned earlier, Mr Maurellet has not taken the point that sections 209A and 209B would bring about a conversion ab initio, and I think he is right not to do so, as this proposition cannot be reconciled with the clear demarcation of pre-conversion and post-conversion fees of the liquidator in section 209B(d) and the importance to arrange for the discharge of pre-conversion fees before the application to convert is made under section 209A(1) (see Hong Kong Corporate Insolvency Manual, by Smart, Booth and Briscoe, 2002 ed., para. 4.14). 37.I agree with Mr Bartlett that section 209B(a) merely provides for a deeming provision, as to the commencement date of the creditors’ voluntary liquidation, the date of the liquidator’s appointment, and the date of the winding-up order, for the convenience, continuity and efficacy of the administration in the liquidation. Section 290B(a)(i) is there to address any confusion that may arise by reason of section 230, which deals with the commencement of a voluntary winding up. Section 209B(a)(ii) did not provide that the appointment of the liquidator shall be the date of first appointment of the provisional liquidator “for any purpose relevant under the Ordinance”, as contended by the Liquidators. The deeming provision is merely “for any purpose for which … the date of the appointment of a liquidator … is relevant under this Ordinance”. The effect of this is not to treat a provisional liquidator as the liquidator for all purposes, with the consequence that the fees of the former would be dealt with in the same way as the fees of the latter in a creditors’ voluntary winding up. Mr Bartlett has asked rhetorically if the effect of section 209B(a)(ii) were to treat a provisional liquidator as the liquidator, what would happen if breaches or acts were committed by a provisional liquidator which are actionable, or if an undertaking in damages given for the appointment of a provisional liquidator should become enforceable. I think there is substance in this. 38.Mr Maurellet pointed out that section 209B(d) would appear to mirror to a large extent section 256, which deals with the cost of voluntary winding up, and the latter provision would have applied after the order for conversion is made. The Liquidators’ argument, as I understand it, is that the mirror provision of pre-conversion fees in section 209B(d) is to make clear that the issue of quantifying costs and remuneration has changed as a result of the conversion order. I do not agree with this. Section 209B(d) is not concerned with the assessment of fees; it deals with the regime for the priority in the payment of fees, there being a difference in a compulsory liquidation and a voluntary liquidation in this respect. 39.On the second issue, if I were to find that the court has no jurisdiction to assess the fees of the Provisional Liquidators in this situation, it does not seem to me that the operation of sections 209A and 209B is to impact on the fees of the Provisional Liquidators, by somehow converting them into the fees of the Liquidators in the context of the creditors’ voluntary winding up and to be resolved in the same way as the fees of the Liquidators. Directions and orders 40.For the above reasons, I rule that the fee notes of the Provisional Liquidators should not be withdrawn from the taxation process. If no response is received from the Liquidators to the matters raised by the court in the letter dated 7 February 2004 within 14 days hereof, I will proceed to finalise my assessment of the fees and disbursements of the Provisional Liquidators. 41.The Official Receiver and the Liquidators have made detailed submissions as to the costs of this hearing. 42.In the event the court rules that the Official Receiver is not obliged to pay out the Provisional Liquidators’ fees from the Companies Liquidation Account on the approval of the committee of inspection, the Official Receiver does not pursue a costs order against the Liquidators personally. Mr Bartlett submitted that the Official Receiver should recover his costs, as the public purse should not bear these costs, and if the court is minded to order only one set of costs out of the assets of the Company, these should be to the Official Receiver. The Liquidators have taken a position which is shown to be misconceived and doomed to failure, such that the general rule that a liquidator should be entitled to be recouped for his costs from the assets of the company should not apply (De-Etco International Ltd. (in liquidation) v. Desirable Enterprise Co. Ltd. [1993] 1 HKC 251 at 257E to F). This was compounded by the fact that there was no service of the application for a conversion order on the Official Receiver, so there was no opportunity for the Official Receiver to have input on these issues at the outset. There was also no attempt to resolve issues as to the Provisional Liquidators’ fees at the time of the conversion order or the application to Master Kwang. For these reasons, the hearing was not the equivalent of a standard directions hearing to resolve a problematic legal issue that would have been necessary in any event. 43.Mr Maurellet submitted that the Official Receiver should bear his own costs for the hearing, and the Liquidators’ costs should be paid out of the assets of the Company, as the Liquidators’ conduct has been entirely proper. I was referred to correspondence between the Liquidators and the Official Receiver during March 2004 to May 2004, in that it was only on 24 May 2004 that the Official Receiver set out in detail the legal basis of his stance. Mr Bartlett’s submission at the hearing did not really maintain the stance taken earlier by the Official Receiver but pointed out the various difficulties of different possible interpretations. Further, the matter raised before the court is a difficult question of law and construction and the issue is one of general public interest. As a degree of certainty is now achieved with the decision reached, this would assist the Official Receiver in future cases and there is good reason for the public purse to bear the Official Receiver’s costs. 44.The arguments on each side are finely balanced. I do not think it right that more than one set of costs incurred for this hearing should be borne by the assets of the Company. So it comes down to whether the Official Receiver or the Liquidators should have their costs paid out of the assets. I am inclined to award costs to the Official Receiver. I have ruled that the position taken by the Liquidators is untenable. I also agree with Mr Bartlett that if the Official Receiver were served with the papers for the application to convert at the outset, or if the Liquidators had drawn to the attention of the court the importance to arrange for the discharge of pre-conversion fees before the application was made, the hearing might not have been necessitated. I think it right in the circumstances that the Liquidators should not be entitled to recoup their fees from the assets of the Company. I order that only the Official Receiver’s costs are to be paid out of the Company’s assets.
Mr Jose-Antonio Maurellet, instructed by Tanner De Witt, for the Liquidators Mr Jeremy Bartlett, for the Official Receiver |
Cases cited in this judgment