Re Legend International Resorts Ltd

cacv 207/2005 AND CACV 210/2005

CACV 207/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 207 of 2005

(on appeal from HCCW NO. 1139 of 2004)

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CACV 210/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 210 of 2005

(on appeal from HCCW NO. 1139 of 2004)

______________________

Before: Hon Rogers VP and Le Pichon JA in Court

Date of Hearing: 7-9 February 2006

Date of Handing Down Judgment: 1 March 2006

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J U D G M E N T

______________________

Hon Rogers VP:

1.This is an appeal from a judgment of Kwan J given on 6 June 2005.  The judge had before her two applications.  The first was an application on the part of the petitioning creditor, Morgan Stanley Emerging Markets Inc. (“the petitioner”) for the appointment of the provisional liquidators of Legend International Resorts Ltd (“the Company”).  The second application was a summons issued by the Company to strike out the winding-up petition on the grounds that it disclosed no reasonable cause of action, it was scandalous, frivolous or vexatious or an abuse of the process of the court.

2.The judge dismissed the application to strike out the petition but refused the appointment of provisional liquidators.  At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

Background

3.The Company is a Hong Kong company with nominal capital of HK$120 million and a paid-up capital of HK$115,954,000.  Almost 60% of the shares of the Company are held by Metroplex Berhad (“Metroplex”), a Malaysian company which is listed on the Kuala Lumpur stock exchange.  40% of the Companies’ shares are held by Sinophil Corporation, which is incorporated in the Philippines and listed on the Philippine Stock Exchange.  Metroplex holds 22% of Sinophil.  As recorded in the judgment steps are being put in train for Metroplex to take over the shareholding held by Sinophil. 

4.The Company’s business consists of the operation of a casino in Subic Bay in the Philippines.  The premises are leased from the Subic Bay Municipal Authority (“SBMA”).  According to the audited accounts of the Company, the Company has made losses in each of the last six years commencing with the year ended 31 January 2000.  Those losses have been in excess, and in some years greatly in excess, of HK$100 million per year.

5.The operation of the casino in Subic Bay is under a licence from the Philippine Amusement and Gaming Corporation (“Pagcor”).  It is the Company’s position that it holds an exclusive licence to operate such a casino.

6.In July 1997 the Company entered into a Facility Agreement.  The Société Générale Asia (Singapore) Ltd was the coordinating arranger and agent of what was in effect a syndicated loan.  There were a number of financial institutions that were the lenders.  The Facility Agreement provided for a revolving credit facility of up to an aggregated principal amount of US$33 million.  A year later, in July 1998, the Company defaulted on the repayment of advances under the Facility Agreement and in respect of the interest which had accrued and other outstanding amounts.  Naturally, this constituted an event of default under the terms of the Facility Agreement.  In December 1999 Société Générale Asia served a written demand for payment within ten days of the total amount then owing, which was US$26,375,450.93.  This was, but one symptom of the financial difficulties into which the Company and Metroplex had fallen.

7.In December 2000 Metroplex had sought assistance from the Corporate Debt Restructuring Committee in Malaysia but, eventually, that route had proved to be unfruitful.  As set out in the judgment below Metroplex endeavoured to solve its financial difficulties by seeking an order for a scheme of arrangement.  In the course of the applications in Malaysia to restructure Metroplex draft scheme documents in respect of the Company were exhibited as part of that endeavour.  That endeavour also seems to have proved unfruitful and the majority of the creditors did not support the proposed scheme.  One matter which emerged from the scheme documents was that Metroplex owed the Company some US$151,708,107.

8.The petitioning creditor is a Delaware company incorporated under the provisions of the General Corporations Law of Delaware.  It would seem that its business comprises of, or includes in a major respect, the acquisition of distressed debt in the secondary debt market.  Although the law of Delaware does not prevent it from lending money for its corporate purposes, section 126 of the General Corporations Law of Delaware provides that:

“Banking power denied. 

(a)    No corporation organized under this chapter shall possess the power of issuing bills, notes, or other evidences of debt for circulation as money, or the power of carrying on the business of receiving deposits of money. 

(b)   Corporations organized under this chapter to buy, sell and otherwise dealing notes, open accounts and other similar evidences of debt, or to loan money and take notes, open accounts and other similar evidences of debt as collateral security therefore, shall not be deemed to be engaging in the business of banking.”

9.The petitioner has filed specific evidence that it does make loans and buy and sell loans and, as such, contends that it is indeed a financial institution conducting what is commonly referred to as investment banking.

10.As part of its ordinary business the petitioner had, prior to the presentation of the petition, acquired the debt previously owed to Keppel Bank of Singapore Ltd which was part of the syndicated loan referred to above.

11.This petition was presented on 3 November 2004.  Two days later the Company filed a petition in the local court in the Philippines for corporate rehabilitation, that has been referred to as the Rehab Petition.  The Rehab Plan annexed to the Rehab Petition closely followed the draft scheme document which had been exhibited to affidavits in Malaysia.  As part of the proposal for reconstruction, it dealt with the debt owed by the Company to Metroplex and the debt owed as part of the syndicated loan.  It did not deal with either of the debts which were owed to SBMA or Pagcor.  The allegation is that the Company owes SBMA an amount which is equivalent to more than the US$13 million and Pagcor an amount which is equivalent to more than US$4 million.

12.When the petition was presented, the petitioner sought the appointment of provisional liquidators.  The application for the appointment of provisional liquidators was expressed to be in conjunction with an application in Malaysia for appointment of provisional liquidators in respect of Metroplex.  In relation to those proceedings it need only be said that the petitioner had presented a petition to wind up Metroplex but that petition has not been pursued. 

13.The basis upon which the application for the appointment of provisional liquidators was made was that they should be empowered to explore a restructuring scheme for the Company.  It was said that although the business of the Company was such that there was scope for producing value to the creditors it was not in the best interests of the creditors that the restructuring process should remain in the hands of the then current management.  Although it was suggested that the amount which the Company’s casino derived as revenue based on the number of seats at the gaming tables and slot machines was considerably less than might be expected and also that there had been dealings with other companies all of which could be the subject of investigations by the provisional liquidators, it was not overtly suggested or said that the assets of the Company were in jeopardy.  Certainly that was not the basis on which the application for appointment was made.

The hearing of the applications in the court below

14.On the hearing of the applications in the court below the Company sought to strike out the petition on the basis that the petitioner was not a creditor of the Company since it was not entitled to take an assignment of the loans under the syndicated loan.  The point which was raised was that the petitioner did not come within the meaning of an “Eligible Transferee” as used in the Facility Agreement and defined in Clause 1.01 thereof.  The judge dismissed that contention and held that the petitioner did have locus to present a winding-up petition.

15.The second basis for seeking to strike out the petition was that it was said that the presentation of the winding-up petition was an abuse of the process because the petitioner’s predominant purpose was to be able to obtain control of the Company’s administration.  It was also said that the petition had been presented not to achieve a winding-up but in order to have provisional liquidators appointed with a view to proferring a scheme of arrangement.  The judge was not satisfied that there had been any abuse of the winding-up procedure, remarking that the petition should only be struck out in plain and obvious cases.

16.With regard to the appointment of provisional liquidators the judge observed that she did not consider that the protection of assets basis for the appointment of provisional liquidators had been made out.  Indeed, it would appear that the application for the appointment of provisional liquidators had initially been put, not upon the basis that there was a requirement for the protection of the assets which might be in jeopardy but that the provisional liquidators should be appointed for the purpose of exploring, formulating and pursuing a corporate rescue.  In this respect, although the judge said at paragraph 92 that the court had jurisdiction to appoint provisional liquidators to explore, formulate and pursue a corporate rescue, she went on to hold that the circumstances did not warrant such an application at that time, although the judge clearly left open the possibility of a further application being made at a later time.

This appeal

17.On this appeal Mr Barlow, who appeared on behalf of the Company, argued that the petition should be struck out for the same reasons as he had argued in the court below.  At the hearing, this court indicated that it did not consider that the petition should be struck out albeit no order was made immediately.

18.The argument that the petitioner was incompetent to present a creditor’s winding-up petition was on the basis that it could not take a valid assignment of the rights of a lender under the Facility Agreement.  The point at issue was whether the petitioner could bring itself within the definition of “Eligible Transferee”.  In the Facility Agreement that was defined as meaning “any bank, deposit taking company or other financial institution, wherever incorporated, duly authorised to carry on its business and to participate in the Facility”. 

19.The substance of the point was that the Facility Agreement was a “revolving credit” facility.  The Company was entitled to request the making of an advance during the period of the agreement and even if money were repaid the Company was entitled to request further advances.  It was thus said that the identity of any lender was of significance because the lender had to be in a position whereby it could provide the various loan amounts as and when required.  The argument thus ran that the definition of Eligible Transferee had to be read in the context of the Transferee being in the nature of a bank.

20.In this regard reliance was placed by Mr Barlow on the decision of Steel J in The Argo Fund Limited v Essar Steel Ltd [2004] EWHC 128.  However that was a decision on a summary judgment application where, of course, the court had to be satisfied that there was no viable argument.  That case had been tried later by Aikens J.  His decision is reported in [2005] EWHC 600.  In my view, considerable care has to be taken in considering the judgment in relation to the present case.  Whereas “Transferee” was defined in the relevant agreement as meaning a bank or other financial institution and Aikens J held after a trial that the plaintiff in that case did constitute a financial institution, it must still be borne in mind that he did so in the context of the particular contract which he was considering.  His reasoning turned upon the fact that financial institution in the terms of that contract meant an entity which was capable of lending money.  In doing so he rejected the argument that in that case the requirement was that the principle activity of the transferee had to be the provision of finance in the primary lending market.

21.In my view, the assistance to be derived from the reasoning in that case as regards this case is the importance of considering the terms of the particular contract and the significance of the provision.  It was emphasised that the definition in the present contract was that the Transferee should be a bank, deposit taking company or other financial institution and it was said that the words financial institution should be restricted to an entity which was similar to a bank or deposit taking company.  In my view, the words financial institution still should be given their ordinary meaning.  There is no apparent reason emerging from a consideration of the Facility Agreement why the financial institution involved should be restricted to a bank or deposit taking company.  It would have to be an entity which was capable of lending money of the appropriate amount.  Over and above that I see no warrant for restricting the term Eligible Transferee any further.

22.On the evidence filed in this case, it is clear that the petitioner does lend money in the ordinary course of its business and although it is primarily involved with buying distressed debt in the secondary debt market, it is capable of and does lend money.  The fact that it is not entitled under the laws of the state of its incorporation, namely Delaware, to conduct banking business, does not prevent it from lending money and on the basis of the evidence and arguments that have been presented to-date, I have no doubt that the petitioner does come within the definition of Eligible Transferee.

23.This court was made fully aware that some two months, or slightly more, after the presentation of the petition the Company issued proceedings in the Commercial Court in London seeking a declaration that there had been no effective transfer by way of novation of the debt to the petitioner.  In doing so, the Company relied upon the fact that the facility agreement was to be governed by and construed in accordance with the laws of England although under Clause 23.02 of the Facility Agreement the parties irrevocably submitted to the non-exclusive jurisdiction of the courts of Hong Kong and England.  The commencement of those proceedings could hardly be suggested to lead to an acceleration of the resolution of the challenge to the ability of the petitioner to present the petition.  Rather, the commencement of those proceedings and the refusal of the petitioner to accept service of those proceedings without formal orders, has, if anything, led to yet further prolongation of the litigation of the disputes between the parties.

24.With regard to the case presented on the basis that the petition was an abuse of process, it would seem that there are arguments which could be made.  The ultimate question must nevertheless be as to whether the petitioner indeed seeks a winding-up order.  The fact that a petitioner might be content with a reconstruction of the Company or some other arrangement does not mean that, if all else fails, the petitioner will not seek a winding-up order.  If it were the intention of the petitioner never to seek a winding-up order then the matter of abuse would be of significance.  It would seem, however, that if a petitioner chooses not pursue to seek a winding-up order when the time comes, the ultimate outcome would be that the petition would be dismissed with costs against the petitioner.  The net effect is similar, therefore, to that if the petition is struck out at an early stage.  The major difference is one of timing.

The appointment of provisional liquidators

25.The power to appoint liquidators is contained in section 192 of the Companies Ordinance Cap. 32.  That provides:

“For the purpose of conducting the proceedings in winding up a company and performing such duties in reference thereto as the court may impose, the court may appoint a liquidator or liquidators, provisionally or otherwise, in accordance with sections 193 and 194.”

26.Section 193 relates to the appointment and powers of provisional liquidators and section 194(1) relates to the appointment of liquidators but where a winding-up order is made.  Section 193(1) provides that the court can appoint a liquidator provisionally at any time after the presentation of a petition and subsection (2) provides that the appointment may be made at any time before the making of a winding-up order.  Subsection (3) gives the court power to limit or restrict the powers of the provisional liquidator in the order appointing him.  That, no doubt, is a reference to the powers of the liquidator which are dealt with generally in section 199.  Those powers are specifically made subject to section 193(3).  Generally speaking the powers under section 199 are directed to an orderly winding-up of the Company and the eventual dissolution of the business.  There is a power given under section 199(1)(b) for the liquidator to carry on the business of the Company, but even then there is a specific limitation that that may only be done in so far as it may be necessary for the beneficial winding-up the Company.  Section 199(1)(e) provides that the liquidator may compromise or make an arrangement with creditors or persons claiming to be paid as creditors and taken together with the provisions of section 166 it is clear that the liquidator is given power to apply to the court for a scheme of arrangement.

27.Traditionally the primary object of appointing a provisional liquidator has been regarded as the need to maintain the status quo and to prevent anybody from obtaining priority over other creditors.  The appointment was not only provisional but contingent.  The appointment was made where it was clearly shown that the Company was insolvent, either by admission by the Company itself or upon other evidence.  The purpose of the appointment was to protect the assets of the Company and hence some danger to the assets, not limited to malfeasance, had to be shown.

28.Recently there has developed a practice in England that provisional liquidators could be appointed in respect of insurance companies even if it could not be shown that there was jeopardy to the assets.  The reason for the development of that practice lay in the fact that the insurance policies themselves might have otherwise lapsed.  Whilst holders of insurance policies might not be creditors, they were in a position when they might become creditors.

29.In Hong Kong Madam Justice Yuen in the case of Re Keview Technology (BVI) Limited [2002] 2 HKLRD 290 extended the powers of the provisional liquidators in order to enable a corporate rescue to be explored.  It is important to note, however, that the provisional liquidators had been appointed, in the first place, because there was a threat of disruption of the factory and seizure of stock by unpaid employees and other creditors.  There is thus no doubt that the traditional basis for the appointment of provisional liquidators had been made out.  The judge said in paragraph 19:

“It might be thought paradoxical to extend powers to provisional liquidators to attempt to save the company, when they were appointed upon the presentation of a petition to wind it up.  However, the Court retains a discretion whether to order a company to be wound-up, and so long as the Petitioner did have locus to present the petition and intends to seek a winding-up order if the rescue attempt should fail, I do not see any jurisprudential objection to empowering provisional liquidators to proceed along rescue lines at least in a case such as the present.”

30.In doing so the judge observed that it was not the role of the court to legislate and the court could only operate within the existing framework of the law.  That approach was adopted by this court in the case of Re Luen Cheong Tai International Holdings Ltd judgment 23 January 2003.  In that case at first instance the judge had observed at paragraph 29:

“In Keview, it was held by Yuen J (as she then was) that there is no jurisprudential objection in extending the powers of provisional liquidators appointed under section 193 of Cap. 32 to carry out a corporate rescue role.  It seems to me a logical extension of Keview that if provisional liquidators may be empowered by the court to facilitate a restructuring proposal, this recognised function of the provisional liquidators could provide the rationale for appointing them in the first place.”

31.It was in that context that this court whilst dismissing the appeal felt it necessary to say in paragraph 12:

“The judge below referred to decisions in which similar orders had been made in circumstances where administration orders were not available.  In particular, the judge referred to the decision in Re Keview Technology (BVI) Limited[2002] 2 HKLRD 290 where the application had the support of 100% of the company’s outside creditors.  In that case Yuen J (as she then was) held (at paragraph 19) that there was no jurisprudential objection to extending the powers of provisional liquidators in order to enable a corporate rescue to take place provided that a winding up order would be sought should the rescue attempt fail.  Once it has been established that the grounds for the appointment of provisional liquidators exist on the basis that it is likely that a winding up order would be made and that circumstances exist which justify the making of the appointment on the basis of the protection of assets, the fact that the applicant for the appointment wishes that the provisional liquidators be granted powers to facilitate a restructuring of the company can be no bar to the appointment and is not intrinsically objectionable.  Whether such powers should be granted and the scope of those powers including any restrictions would depend on the particular circumstances such as the support of the creditors.” (emphasis added)

32.In the meantime, it appears that before the appeal in the Re Luen Cheong Tai International Holdings Ltd had been heard, other courts at first instance had, at least indicated, that appointment of provisional liquidators could be made on the basis that that a corporate rescue should be explored without reference to the question as to whether the assets were in jeopardy.  This ultimately led to the bald statement in paragraph 92 of the judgment below which was as follows:

“I hold that it is within the jurisdiction of the court to appoint provisional liquidators to explore, formulate and pursue a corporate rescue.”

33.In my view, the court should not attempt to extend the statutory law albeit for expediency.  The appointment of provisional liquidators is a statutory power given to the court.  It is not a common law power which can be extended, as in the case of the development of the law in relation to Mareva injunctions and Anton Piller orders.  As Madam Justice Yuen observed in the Keview case it is not the function of the court to legislate.  In the Report on Corporate Rescue and Insolvent Trading by the Law Reform Commission of Hong Kong published in October 1996, recommendation was made for the introduction of a law which would enable corporate rescues to take place far more conveniently than at present.  Even now, nearly 10 years later, no such law has been enacted.  It is not appropriate for this court to examine the reasons why no such law has been introduced.  The fact of the non-introduction is, nevertheless, indicative that it is not a straight forward matter in respect of which there are no differences of views as to its desirability or what the provisions of any such law should be. 

34.The rationale of corporate rescues is that, if successful, there is almost certainly likely to be a better return to creditors and also shareholders than if the particular company went into liquidation.  Overseas, there have been a number of successful corporate rescues but there have been an equal or perhaps greater number when rescue has failed.  In Hong Kong, there have also been some very high profile successful corporate rescues.  Nevertheless, whether a law should be introduced remains a matter of policy for the administration and the legislature.  Amongst other things, any such law has to cater for the rights of secured creditors, in respect of both fixed and floating charges; it normally has to cater for the need for there to be further borrowing, in practice thus necessitating giving the lenders in respect of any new loans what has been called super priority.  The position of directors also needs to be catered for.  Major difficulties can arise in respect of insolvent trading and the liability of the relevant person(s), namely, for example the provisional supervisor has to be limited.  Some of the relevant matters dealt with in the Report and in overseas corporate rescue legislation are matters of policy.  Not least amongst these are the rights of the employees and the effect introduction of a corporate rescue regime would have on their rights both under contract and under other legislation. 

35.The law on the appointment of provisional liquidators at present is contained in section 192 and the following sections and it is clear on the wording of those sections that the appointment of a provisional liquidator must be for the purposes of the winding-up.  Provided that those purposes exist there is no objection to extra powers being given to the provisional liquidator(s), for example those that would enable the presentation of an application under section 166.  There is, nevertheless, a significant difference between the appointment of provisional liquidators on the basis that the Company is insolvent and that the assets are in jeopardy and the appointment of the provisional liquidators solely for the purpose of enabling a corporate rescue to take place.  The difference, may, in most cases, be merely a matter of emphasis, but in the final analysis the difference exists.

36.Another way of putting the same point is that a scheme of arrangement may well be a viable alternative to winding-up.  If it proves to be so, the winding-up will cease and the scheme will take effect.  The power of the court under section 192 is to appoint a liquidator or liquidators for the purposes of the winding-up not for the purposes of avoiding the winding-up.  Whatever benefits may be said to arise and however convenient it may be said to be for the court to be able to appoint provisional liquidators for other purposes it seems to me that primary purpose of appointing provisional liquidators must always be the purposes of the winding-up.  Restructuring a company is an alternative to a winding-up.

37.I would only make one further observation in this respect that is in relation to the case of SFC v. Mandarin Resources Corporation Ltd.  This case is reported on appeal at [1997] HKLRD 405.  It is suggested in the written submissions of the petitioner that that case is authority for the proposition that provisional liquidators may be appointed to investigate the affairs of a company.  Having re-read my own decision at first instance and that of the Court of Appeal I find it difficult to understand how it can be suggested that the appointment of provisional liquidators in that case was other than to protect the assets which were shown to be likely to be in real jeopardy.

38.In the judgment below in this case, the judge came to the conclusion, as already observed, that the protection of assets basis for the appointment of provisional liquidators had not been made out.  She did so on the basis that there had been appointed a rehabilitation receiver in the Philippines who, every three months, was required to report to the court there on the general condition of the Company.  In the context of the situation which existed at the date of the hearing of the application before the judge below, it appeared that the Rehab proceedings were not merely on going but were potentially viable.  Furthermore the court was presented with a situation where none of the other creditors had supported the application for the appointment of provisional liquidators.  On this appeal evidence was admitted as to what had taken place since the hearing in the court below.  Amongst other matters it now appears that all the debts comprised under the loans of the Facility Agreement are now either owed to the petitioner or Avenue Asia Special Situations Fund III, L. P. (“Avenue Asia”).  The fact that Avenue Asia might be taking over some of those loans apparently became known to the judge after the hearing in the court below and before the written decision was handed down.  Nevertheless, at that stage there had been no confirmation that the transfer had taken place.

39.The appeal was presented primarily on the ground that it was necessary to appoint provisional liquidators for the purpose of entering into discussions with relevant parties, particularly the petitioner and Avenue Asia and the other remaining creditor under the Facility Agreement, Ta Chong Bank Limited, Taiwan, to explore the feasibility of restructuring Company pursuant to a scheme of arrangement under section 166.  It may be noted that it was only after counsel had been questioned by the court as to whether the petitioner’s case was that provisional liquidators were necessary for the purpose of preservation of assets that Mr Crystal QC, who appeared on behalf of the petitioner, began to argue a case on that point in his reply speech.

40.When asked as to the exact terms of the order which was sought, Mr Crystal later produced a proposed draft order.  The first order was limited to the provisional liquidators taking possession of the assets and property of the Company in Hong Kong.  It may be noted that it has not been shown that there are any other assets in Hong Kong other than the statutory books and records, assuming those are here.

41.In addition to calling an informal meeting of creditors and formulating a scheme, the draft order also included giving power to the provisional liquidators to take such steps as they may be advised in the Philippines whether in the court or with the Rehab Receiver but only after further leave from the court had been obtained.

42.On the basis of the matter as it was before the judge I do not consider that there are grounds for disturbing her decision.  The judge came to the conclusion that the assets of the Company were not in jeopardy and although it was considered that there was power in the court to appoint provisional liquidators simply for the purpose of pursuing a corporate rescue, the judge considered it was not then appropriate particularly in the light of the proceedings than being undertaken in the Philippines.

43.On the basis of the evidence before the judge and the circumstances that existed at the time, I do not consider that it can be said that the judge fell into error.  In those circumstances this court must be extremely wary of interfering.  The judge was exercising her discretion.  Unless there are grounds for holding that the discretion was exercised wrongly, this court cannot interfere simply because it might have exercised the discretion another way.  Moreover, if circumstances have changed since the hearing below, that may be grounds for the making of a new application to the judge but not for allowing an appeal.  As already noted, however, the judge specifically had in mind that the circumstances might change and that then there might be grounds for appointing provisional liquidators.

44.This court was informed that the matter would be referred back to the judge within two weeks of the judgment of this court.  It appears to me that it is far more suitable for the judge to be able to reconsider the matter than for this court to do so, even if it were open to this court to interfere with the exercise of the judge’s discretion whether to appoint provisional liquidators.

45.In the first place it seems to me that this court would be asked to act on a different factual basis to that which the judge addressed.  To that extent Mr Barlow’s point that this court was being asked to exercise first instance jurisdiction has validity.  It is particularly undesirable for this court to be asked to appoint provisional liquidators in a situation where it is clearly envisaged that there will have to be substantial monitoring of the role of the liquidators.  This is all the more so where the appointment of the provisional liquidators is very much a matter of discretion based upon the court’s assessment of what is achievable and what is not.  Part of the reason for seeking the appointment of provisional liquidators is that it will give the provisional liquidators status to apply to the courts in the Philippines and to deal with the Rehab Receiver.  No evidence has yet been given that those ends would be accomplished even if provisional liquidators were appointed.

46.If a new application were to be made to the judge, there would appear to be grounds for suggesting that there have been material changes in the circumstances.  In particular, it would appear that the proposed rehabilitation plan presented on 4 November 2004 was now no longer viable.  The proposed plan appears to have envisaged two schemes of arrangement.  They are expressed to have been under section 166A of the Ordinance but that was probably a mistake for section 166.  Nevertheless, Mr Barlow argued that the reduction of capital could be effected under section 58 of the Ordinance and that approval of creditors was not required and creditors could not have opposed under the terms of section 59.  That may be correct but the proposed reduction in what was termed the Scheme B whereby the creditors under the Facility Agreement would have their loans restructured in a major way would no longer appear to be viable.

47.On the assumption of the applicability of the rules relating to the proposed Rehab Plan, which both parties appeared on this appeal to accept as being the relevant rules, any modification of the proposed Rehab Plan had to be submitted to the court not later than one year after the date of the initial hearing.  That date has passed and, indeed, the 18-month period, which appears to be non-extendable, for approving of disapproving the rehabilitation plan is fast approaching in May.

48.The Company appears still to be running at a loss, despite the optimistic view of the Rehab Receiver that, if the bulk of the expenses of the Company are ignored, there may have been a surplus over the last six months.  What is perhaps particularly relevant is that the audited accounts which have been obtained in respect of the last two years have been so heavily qualified by the accountants that they could scarcely be said to be worth the paper they are written on.  That is so even taking into account that they show that the Company was running at a loss.  Once it is appreciated that the Company is running the casino on a day-to-day basis there are, probably, grounds for suggesting that some creditors may be being preferred to others.  There, thus, may well be legitimate grounds for arguing that the assets of the Company are in jeopardy.

49.Even if it were established that the assets of the Company were in jeopardy it would be necessary for the court to consider whether the appointment of provisional liquidators would serve any useful purpose.  From the point of view of the protection of assets the difficulty arises that there is a Rehab Receiver in place still in the Philippines and it is no by no means clear as to what effective steps can be taken by provisional liquidators in respect of those assets.  To-date neither the Rehab Receiver nor the court in the Philippines has acknowledged the rights of the petitioner.  It may well be that even after this judgment, they may not be prepared to deal with the petitioner, or anybody appointed on the petitioner’s application, unless and until the matter has been resolved in the Commercial Court.  In this context, it is also relevant that the order sought in this court did not encompass giving the provisional liquidators any power or authority over the assets of the Company, other than the normal assets, namely, the books and records of the Company.

50.If the appointment of provisional liquidators cannot be shown to be likely to achieve any beneficial effect as regards the preservation of the assets of the Company the purpose of appointing provisional liquidators becomes problematic.

51.I would also add that it is by no means clear as to what scheme could be proposed by provisional liquidators.  Without the cooperation of Metroplex, the financial creditors, namely, primarily the petitioner and Avenue Asia, would appear unlikely to be able to propose any plan which could save the Company.  In those circumstances it may well be that the only viable course is for the petitioner to press for a winding up.  Indeed, it would appear to be rather surprising that the petition has been allowed to linger for so long.  There is no doubt as to the insolvency.  On the face of the evidence which is now before the court, the petitioner’s locus appears clear.  It is by no means apparent as to what evidence in that respect the Company can now adduce.  In my view, as in all other cases of winding up petitions, the court should take control of the proceedings and not permit adjournments and delays unless strictly necessary.

Hon Le Pichon JA:

52.I agree.

Hon Rogers VP:

53.The appeals are therefore dismissed with an order nisi of costs in favour of the respondents to the respective appeals.

Mr Michael Crystal QC & Mr Charles Manzoni, instructed by Messrs White & Case, for the Petitioner/Appellant in CACV 207/2005

Mr Barrie Barlow & Mr William Wong, instructed by Messrs Richards Butler, for the Company/Appellant in CACV 210/2005