Re Everbright Chung Cheong Dvd Co Ltd

HCCW 1340/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1340 OF 2003

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Before: Hon Kwan J in Chambers

Date of Hearing: 20 October 2005

Date of Decision: 20 October 2005

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D E C I S I O N

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1.This is a summons taken out by the liquidators of Everbright Chung Cheong DVD Company Limited (“the Company”) on 22 August 2005 under section 200(3) of the Companies Ordinance, Cap. 32, seeking a direction from the court whether a meeting of creditors should be convened.

2.The liquidators have received a request in writing of Starter Investment Limited (“Starter”), a contributory and creditor representing in excess of one-tenth in value of the creditors of the Company, to convene a meeting by virtue of section 200(2).  The purpose of the meeting is to consider whether a member of the committee of inspection, Lam Leung Ho (“LLH”) should be removed and if he is removed whether the vacancy arising should be filled.

3.On 29 August 2005, the court gave directions that the summons should be served by the liquidators on Starter and LLH.  They should be notified of the hearing date and directions were given for the filing of evidence.  Leave was given to Starter and LLH to file evidence in this summons not less than seven days before the hearing.  LLH filed an affidavit on 10 October 2005.  No evidence has been filed by Starter and no one from that company has appeared today.  I understand from the liquidators that they have not received any response from LLH or Starter after they have notified them of the directions given in respect of the summons.

4.The Company was formed pursuant to a joint venture agreement dated 29 October 1997 between Starter and Chung Cheong International Hong Kong Company Limited (“Chung Cheong”) to exploit DVD manufacturing technology developed by Chung Cheong.

5.Pursuant to the joint venture agreement, Starter, which is a subsidiary of China Everbright Holdings Company Limited (“CEHCL”), provided funding to the Company in exchange for 80% of the Company’s total shareholding.  The remaining 20% shareholding was held by Chung Cheong.  Chung Cheong nominated its two equal shareholders, LLH and his brother, Lam Leung Ching (“LLC”) to the board of directors of the Company.  They were responsible for the operation and management.

6.Differences arose between the two camps in late 2002 and early 2003.  On 16 May 2003, Chung Cheong commenced proceedings against the Company and Starter in HCMP No. 2079 of 2003, seeking a buy-out order and other injunctive reliefs.

7.On 1 December 2003, a petition to wind up the Company was presented by a former employee on the basis of insolvency.  On 4 February 2004, a winding-up order was made.  The liquidators were appointed by an order of the court made on 21 January 2005.

8.According to the statement of affairs, the estimated value of the assets of the Company is HK$15.9 million odd.  The total realization by the provisional liquidators is in the region of HK$3 million.  The liquidators are investigating the accounts receivable and the Company’s books and records, to determine if a debt of HK$3.8 million odd allegedly due from CEHCL is recoverable.

9.Creditors’ claims are approximately HK$68.6 million odd, of which 81% represents claims from Starter and CEHCL; 10% is employees’ claims; and 5% represents claims of LLH and LLC for their cash advances to the Company.

10.At the first meeting of creditors and contributories on 3 November 2004, it was resolved that an application would be made to the court for appointment of the committee of inspection consisting of Starter, China Everbright Holdings (Nominee) Limited, CEHCL and LLC.

11.At the hearing on 21 January 2005 before a Master, he expressed the concern that the proposed composition of the committee might not be fairly representative and ordered the liquidators to seek confirmation from other creditors and contributories whether they would wish to be nominated to the committee.

12.At the hearing on 24 May 2005, the court ordered the appointment of the following members to the committee: Starter, LLC and LLH.

13.On 12 July 2005, Starter requested the liquidators to convene a meeting of creditors under section 200(2) to consider and, if thought fit, passing a resolution to remove LLH as a member of the committee and to consider appointing any one creditor nominated and approved at the meeting in his place.

14.By a letter dated 22 July 2005, Starter explained that it is seeking to remove LLH for lack of integrity.  Further, LLH and LLC together would unfairly dominate the committee despite being minority creditors and would place CEHCL at a disadvantage with regard to the Company’s pursuance of the claim against CEHCL.  If one of the representatives of CEHCL were elected to the committee in place of LLH, this would not necessarily prejudice the interest of other creditors, as the liquidators would be at liberty to seek directions from the court.  As a compromise, Starter is prepared to agree for the vacancy arising not to be filled.

15.In the affidavit of LLH, he denied the allegations of Starter of impropriety on his part and asserted his honesty and integrity.

16.It is not for the court to resolve the conflicting allegations in the present application.  The concern is whether the present composition of the committee is fairly representative of the interest of creditors, and if it would be capable of assisting the liquidators in the conduct of this litigation in an effective and cost-efficient manner.

17.The liquidators think Starter would not be prejudiced by not having a majority vote on the committee, as it is at liberty to make representations to the liquidators and the liquidators will, if appropriate, seek directions from the court.  If the liquidators should decline to do so, Starter can give notice in writing to the liquidators under section 200(2) requiring them to convene a creditors’ meeting, as it has done in this instance.

18.As to the alternative suggested by Starter that LLH be removed and his vacancy would not be filled leaving the committee with only two members, as pointed out by the liquidators, this would give rise to problem if the two members should fail to agree.  The liquidators envisage there are matters on which the members of committee would not be barred from voting by reason of any conflict of interest, such as proceedings against third parties and approval of liquidators’ fees.  It is better to have a committee with an odd number of members so that a majority vote could be achieved in these situations.

19.Last but not least, the liquidators think it would not serve any purpose to convene a creditors’ meeting, judging by the attendance of the first creditors’ meeting.  They think it unlikely there would be any new nominations to the committee, other than from the two camps.  And as the creditors in the camp of Starter have claims of over 50% of the total indebtedness of the Company, they would just carry any resolution they propose with their majority votes.

20.I agree with the stance taken by the liquidators.

21.I direct that a meeting of the creditors required by Starter for the purpose of considering the removal or replacement of LLH as a member of the committee of inspection should not be convened.

22.I order the costs of this application to be paid out of the assets of the Company.

Mr Bruno Arboit, one of the Joint & Several Liquidators, appearing in person