Performance Investment Products Corporation Ltd

HCCW 348/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 348 OF 2007

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Before: Hon Kwan J in Chambers (not open to public)

Date of Hearing: 4 October 2007

Date of Decision: 4 October 2007

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D E C I S I O N

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1.There are two summonses before me.  The first is the summons of the petitioning creditor, Juliana S Garrett, issued on 9 August 2007, seeking continuation of the Order I made on 6 August 2007, by which Roderick John Sutton and Desmond Chung Seng Chiong (“the Provisional Liquidators”) of Ferrier Hodgson Limited (“FH”) were appointed provisional liquidators of Performance Investment Products Corporation Limited (“the Company”), until the hearing of the winding-up petition or further order.

2.The second summons was issued on 23 August 2007, by Harvie de Baron and Alfonso Martin Eizmendi (“the Applicant Creditors”), seeking an order that the appointment of Messrs Sutton and Chiong be discharged and that Roderic NA Sage of AFP Management Services Limited and Johnson Chi How Kong of BDO McCabe Lo Limited be appointed provisional liquidators in their place.  The present position of the Applicant Creditors, as appeared from the affirmation of Mr Kong, is that in the place of Mr  Sage, Lo Siu Ki who is also from his firm, has agreed to act as a provisional liquidator if the court is minded to make the appointment.

3.The Provisional Liquidators were appointed on the application of the petitioner made ex parte on notice.  The duration of the order was until hearing of the inter partes summons for the continuation of that order returnable on 15 August 2007.  At the return date, I extended the appointment of the Provisional Liquidators until after the determination of the first and second summonses.

4.The first hearing of the winding-up petition is on 17 October 2007.  The Provisional Liquidators are not aware of any interested party that opposes winding up of the Company, so it is likely that a winding-up order would be made in about 2 weeks’ time, and the first meeting of creditors would be held within 3 months for the creditors to vote on the appointment of liquidators.

5.There is no dispute that the appointment of provisional liquidators should continue.  The only issue is whether the Provisional Liquidators ought to be removed and whether the alternative candidates proposed by the Applicant Creditors or some other professionals should be appointed in their place.

6.I will give the background insofar as it is necessary to understand the present dispute on the appointment of provisional liquidators.

7.The Company was incorporated in Hong Kong.  It is within a group of financial services companies (“the PIPC Group”).  The parent company is Performance Investment Products Corporation (“PIPC”), incorporated in the British Virgin Islands.  The PIPC Group operates a range of investment schemes which conduct spot foreign exchange trading for investors.  The Company holds the investors’ funds in Hong Kong bank accounts as agent for PIPC or on trust for the beneficial investors.

8.The PIPC Group commenced operation in Manila in 1999.  It has over 1,000 investors worldwide, mainly in the Philippines, also in India and Mainland China.  The Group has a large number of associated companies, at least 23 are known, and they are all over the world.  The directors of PIPC are Michael Liew and Albert Chua.  The office that undertakes the majority of liaison with investors of the PIPC Group is in Manila.  The majority of the administration of investors’ accounts was undertaken in PIPC Group’s office in Singapore.  PIPC has no office, staff, place of business in Hong Kong, and does not itself hold any bank accounts in Hong Kong.

9.The investment scheme operated by the PIPC Group ran into serious trouble.  It is likely that the businesses of the companies within the Group have been carried on for an unlawful purpose or fraud.  The conduct of the management calls for urgent investigation.  Michael Liew has sole control of the bank accounts of the Group and of the Company.  He has been missing since early July 2007.  The police in Singapore and the Philippines and the Interpol have been investigating his whereabouts.

10.On a conservative estimate, funds under the management of the PIPC Group are in the region of US$138 million, excluding investments from India and China.  The bank accounts of the PIPC Group on a preliminary investigation only hold about US$2 million.  It is not known if the missing funds from the bank accounts have been misappropriated by Michael Liew or lost in unauthorised forex trading.

11.FH first made telephone contact with some of the investors of the PIPC Group on 18 and 20 July 2007.  They attended two meetings with some of the investors in Manila on 23 and 26 July 2007, and made a presentation on the liquidation process and the appointment of themselves as provisional liquidators.  They also met with the general manager of the PIPC Group, Cristina Gonzales-Tuason, and the training manager of the PIPC Group, Barbara Garcia, to obtain documents and information as necessary to draft the petition and supporting affidavits for the appointment of provisional liquidators.

12.Jamie John Stranger of Stephenson Harwood & Lo was approached on 26 July 2007 to act as solicitor for the petitioner in a petition to be presented to wind up the Company.  During the week commencing 30 July 2007, he was working on the basis that the petition was to be presented by Mr Eizmendi, who had met with FH and indicated his willingness to be the petitioner and would come to Hong Kong to swear affidavits.

13.On 1 August 2007, FH learned that Mr Eizmendi was in Hong Kong, they made over 20 telephone calls to him.  Mr Eizmendi did not return the calls.  So FH made the decision to find another investor willing to be the petitioner, and Ms Garrett was found.  She is the spouse of an executive in Kroll South East Asia.  Kroll has been assisting FH in their investigations.

14.Unknown to FH at the time, Mr Eizmendi and Mr de Baron on behalf of themselves and a group of investors, had on 31 July 2007 issued a writ against PIPC, Michael Liew, Albert Chua and the Company in High Court Action No. 1652 of 2007 and obtained a Mareva injunction on an ex parte application the same day.

15.The first that FH learned of this was from another investor, Luis S Romero-Salas, at a meeting on 3 August 2007 in Manila.

16.A number of affidavits were filed on behalf of the Applicant Creditors in this application in August, September and October 2007, Mr Eizmendi was not among the deponents.

17.The winding-up petition was presented on 3 August 2007, the Provisional Liquidators were appointed on 6 August 2007.  The Mareva injunction over the Company’s assets was discontinued by consent on 10 August 2007.

18.On 13 August 2007, Mr Sutton and 2 individuals from Kroll were appointed provisional liquidators of PIPC by the High Court of the British Virgin Islands.  On 14 August 2007, the Provisional Liquidators obtained a Mareva injunction in Singapore regarding the assets held by the Company and PIPC, along with the assets held by other parties.

19.On 3 October 2007, the High Court of the British Virgin Islands made an order to wind up PIPC and the provisional liquidators were appointed liquidators.

20.The Applicant Creditors sought to remove the Provisional Liquidators and appoint candidates of their choice on 5 grounds that appeared in the submission of their counsel, Mr Grossman, SC.  It is claimed that there was material non-disclosure of the petitioner and the Provisional Liquidators in the ex parte application, and there was non-disclosure by the Provisional Liquidators to the investors regarding funds they had received from Ms Tuason.  Furthermore, criminal investigations for fraud have been commenced against the Provisional Liquidators in the Philippines.  Other grounds are that the proposed candidates of the Applicant Creditors would charge a lower fee than the Provisional Liquidators, and that more than 50% of the investors are in favour of removing the Provisional Liquidators.

21.Mr Grossman said his main grounds for replacing the Provisional Liquidators are that they are hampered in what they can do in the Philippines, owing to the criminal investigation against them, and that a substantial body of investors have objected to their appointment.  These two matters would render the Provisional Liquidators unsuitable for the job.  He submitted that it is not necessary to be concerned with the rights and wrongs of the criminal allegations against the Provisional Liquidators, or if the investors have good or bad grounds for objecting to them, or if the present application of the Applicant Creditors is made bona fide.

22.Ms McKenna for the Official Receiver urged the court to consider the difficulties that the Provisional Liquidators would be faced with in their work in the Philippines, in deciding whether they should be replaced.

23.Before I examine each of the grounds relied on, it would be convenient to set out the legal principles.  They are taken by and large from the submissions of Mr Stock for the petitioner and Mr Sheppard for the Provisional Liquidators.

24.Where material non-disclosure is asserted in an ex parte application to appoint provisional liquidators, the usual principles on an ex parte application apply.  Even if there has been material non-disclosure or mis-statement of facts, the court nevertheless has a discretion whether or not to set aside an ex parte order. This discretion will very rarely be exercised in favour of a person seeking to uphold the ex parte order in cases of deliberate non-disclosure or mis-statement of material facts, and with great caution even in cases where such non-disclosure or mis-statement was not deliberate.  Normally, the court will not assist a party to retain an advantage to which he was not entitled (Re Mount Everest Investments Limited [1988] 2 HKLR 175 at 182A-C).

25.The court has a wide discretion to remove and replace provisional liquidators and liquidators, if satisfied that it is for the general advantage of those interested in the assets of the company, notwithstanding no personal misconduct or unfitness is established in respect of the provisional liquidators or liquidators (Re Keypak Homecare Limited [1987] 3 BCC 558).

26.It is pertinent to bear in mind what Neuberger J said in AMP Music Box Enterprises Limited v Hoffman & Another [2002] BCC 996 at 1001E-1002B, in the context of the removal of liquidators, which I think is equally applicable to an application to remove provisional liquidators:

“While the removal of the liquidator is not necessarily based on any fault on his part, most such cases will involve a degree of criticism.  Although in Keypak Millet J emphasised there was no criticism of the general ability, experience and professionalism of the liquidator, and that, even in relation to the particular case, there was no evidence of his being biased or dishonest, it is nonetheless clear that he was removed because the judge took a dim view of the way in which he had conducted the particular liquidation.  As the judge said, the fact that this may to some extent resound to the discredit to some extent of the liquidator, does not mean that the court should shy away from making the order.  On the contrary, in an appropriate case it is the duty of the court to make such an order, not merely on the merits of the particular case, but also because it sends out a clear message to liquidators that they have an important function which they should conduct in a vigorous, effective and independent manner.

On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him.  It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal.  So to hold would encourage applications under s. 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled.  Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier.  It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better.  It would plainly be undesirable to encourage an application to remove a liquidator on such grounds.  It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort.  Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.”

27.I turn to consider each of the grounds relied on by the Applicant Creditors in the order as raised in Mr Grossman’s written submission.

28.The alleged material non-disclosure to the court was this.  It is alleged that at the meeting of John Batchelor of FH and Mr Stranger with Mr Romero-Salas, Ms Tuason and others on 3 August 2007, FH and Mr Stranger had learned that a “substantive body” of investors were opposed to the appointment of provisional liquidators, and “key affirmants”, being Mr Eizmendi and Ms Tuason, had backed out and refused to support the application to appoint provisional liquidators before the petitioner made her ex parte application.

29.It is not in dispute that FH and Mr Stranger were told at that meeting, for the first time, that a group of investors led by Mr Eizmendi had earlier in the week obtained a Mareva injunction against the Company.  This was disclosed in the affirmations placed before the court in the ex parte application.  The writ in the High Court Action was exhibited to Mr Batchelor’s first affidavit made on 4 August 2007.  A copy of the Mareva injunction was not exhibited, as FH was not given a copy at any time.

30.Mr Stranger accepted Mr Romero-Salas also told him that as a Mareva injunction was already obtained, there would be no need to petition for a winding up of the Company and apply for provisional liquidators.  Mr Stranger disagreed with this and expressed his view to Mr Romero-Salas that it appeared to him from the little information he was given, a “select group” of investors were trying to gain priority over the general body of creditors by this move and explained that by invoking the insolvency regime, this would ensure a class right on behalf of all creditors.  He also explained the role of provisional liquidators.

31.Mr Romero-Salas gave a different version of the exchanges between him, Mr Stranger and Mr Batchelor at the meeting.  He claimed to be advancing the views of a large group of investors against the appointment of provisional liquidators.  Mr Stranger’s impression was that Mr Romero-Salas was advancing his personal views.

32.The subsequent exchanges between Mr Stranger and Mr Romero-Salas were not disclosed in the affidavits in the ex parte application.  I am not persuaded that that was material, or that the non-disclosure was deliberate.

33.As for the refusal of Ms Tuason to sign her affidavit, according to Mr Stranger, this was not due to a refusal to support the appointment of provisional liquidators, but because her lawyer, Mario Luza Bautista, who was present at the meeting, requested an assurance that the affidavit by Ms Tuason made in the Hong Kong winding-up proceedings would be protected under privilege in the Philippines, as it was likely that Ms Tuason would be called to give evidence before a Senate Commission.

34.Ms Tuason did not make any affidavit in this application.  A signed statement from her was produced stating that she did not sign her affidavit, as she was advised by Mr Bautista not to sign the affidavit in the way it was worded, and she claimed she instructed Mr Batchelor and Mr Stranger not to proceed with the application for provisional liquidators until further notice was received from her.

35.This version is disputed by Mr Stranger.  I note the version given by Ms Tuason in her signed statement is a terse one.  Mr Bautista did not make any statement or affidavit.  The fact that Ms Tuason did not sign the affidavit prepared for her was not mentioned in any affidavit in the ex parte application.  Again, I do not think it is material.

36.The second ground related to the alleged non-disclosure to investors.  A large number of investors were asked to sign letters of support for FH to be appointed provisional liquidators, they were not told that the letters of support would be adduced as evidence in court.  412 identical letters from these investors were produced, in which they stated that they wanted to remove the Provisional Liquidators immediately.  They claimed they were not told FH was retained and initially paid by Ms Tuason.  They also said as a Mareva injunction and a bankers’ book order have been obtained, these measures would better serve the interests of all investors than the appointment of provisional liquidators and the liquidation of the Company.

37.Ms Tuason had paid US$125,000 to FH on 23 July 2007, to cover legal fees to be incurred in the appointment of provisional liquidators and bringing winding-up proceedings and to fund the petition in the British Virgin Islands. Ms Tuason has been recommended by the National Bureau of Investigation in the Philippines to be prosecuted for fraud.

38.The receipt of funds from Ms Tuason was disclosed to the court in the ex parte application, as well as the circumstances in which Ms Tuason had agreed to provide the funds.  This was made in a discussion of the investors present at the meeting on 23 July 2007. Ms Tuason was fully made aware that the Provisional Liquidators would discharge their duties impartially and no advantage would be given to her.  The funds provided by Ms Tuason were again disclosed to investors at the meeting on 26 July 2007.  Also, at both meetings with the investors, FH had made clear to them that the costs of the Provisional Liquidators would be paid out of the assets of the Company.  The matter was again addressed by the Provisional Liquidators in their letters to all investors on 13 August 2007.  To date, the Provisional Liquidators have not drawn on the funds provided by Ms Tuason.

39.I do not think there is substance in this ground regarding the payment from Ms Tuason.  The real ground for seeking to remove the Provisional Liquidators was as stated in the identical letters of these investors, namely, that they did not wish to appoint provisional liquidators at all and they wished to follow the strategy devised by the group that has obtained the Mareva injunction.

40.The third and main ground relied on by the Applicant Creditors is the criminal investigation against the Provisional Liquidators.  The matter arose in this way.

41.On 8 August 2007, a complaint-affidavit was made by Francisco Yuseco Junior to the Department of Justice in the Philippines against Michael Liew, Albert Chua, Ms Tuason, Mr Batchelor, Mr Sutton, Mr Chiong, Mr Stranger and others.  Mr Yuseco had invested in an investment scheme of the PIPC Group.  He is among those who had authorized Mr Eizmendi and Mr de Baron to represent him in the High Court Action.  He did not make any affidavit in these proceedings, and there is no explanation why he has not done so.

42.The complaint against Messrs Sutton, Chiong, Batchelor and Stranger was for “estafa” under article 315 in relation to Article 19(1) and (2) of the Revised Penal Code.  “Estafa” is similar to a conspiracy to defraud.  The allegation in the complaint-affidavit was that, according to Mr Bautista, the engagement of FH was a “showhorse”, meaning a cover-up with no real intention of locating Michael Liew and Albert Chua and finding the missing funds, and the Provisional Liquidators, Mr Batchelor and Mr Stranger were charged as “accessories after the fact”.  As mentioned earlier, Mr Bautista never made any affidavit or statement in the present application.

43.On 10 August 2007, the Provisional Liquidators, Mr Batchelor and Mr Stranger were included in the watch list of the Bureau of Immigration in Manila.

44.On 13 August 2007, the Department of Justice in the Philippines issued a subpoena against all the individuals in the complaint-affidavit, by which they were required to submit within 10 days of receipt of the subpoena and the complaint-affidavit, their counter affidavit, supporting documents and affidavits of their witnesses and to appear on 22 August 2007 to testify under oath or answer questions.

45.The complaint-affidavit and the subpoena were not served on the Provisional Liquidators, Mr Batchelor or Mr Stranger, as the address of them given in these documents is the address of PIPC Manila, which is wrong.

46.The Provisional Liquidators first learnt of the complaint on 16 August 2007, when Mr Batchelor and Mr Sutton were prevented from leaving the Philippines.  The Provisional Liquidators say that insofar as the complaint extended to them, the complaint is an absurdity and utterly baseless. In his report to investors on 7 September 2007, Mr Sutton stated that he is taking steps as advised by his lawyers in the Philippines to address and defeat the allegations in the complaint-affidavit.

47.It does not appear to be correct that persons on a watch list are not allowed to leave the Philippines until the conclusion of investigation.  Mr Sutton was advised by his lawyers in the Philippines that only a court of law after an indictment can bar an accused from leaving the country, and that only a court can issue a hold-departure order against any person.  Neither the Provisional Liquidators nor their staff have been indicted as an accused in any criminal case, and no hold-departure order has been issued against them.  On 17 August 2007, the Immigration officials in the Philippines allowed Mr Sutton and Mr Batchelor to leave the country without any incident.  The order or memorandum of the Department of Justice in the Philippines regarding the watch list did not state that the Provisional Liquidators should be barred from entering or leaving the country.  Further, Mr Sutton had requested a meeting with the National Bureau of Investigations and attended their offices on 9 August 2007.  He confirmed to them he would remain at their disposal if the Bureau should require any further assistance and information from the Provisional Liquidators, and he has since received no further requests from the Bureau to attend their office or provide further assistance.

48.The Provisional Liquidators have been making weekly reports to the investors notwithstanding the criminal allegations.  They have also reported to the court.  I understand from Mr Sheppard that the staff of the Provisional Liquidators are continuing to do business in the Philippines and have been attending a Senate hearing.  It did not appear from the reports that I have read the work of the Provisional Liquidators has been significantly hampered.

49.No evidence was adduced before this court to substantiate in any way the criminal complaint.  There is not even a prima facie case that the complaint might somehow be substantiated.  I cannot but think this was used as a ploy, in an attempt to thwart the work of the Provisional Liquidators.

50.If the court were to remove the Provisional Liquidators without regard to how the complaint was made, whether it has any apparent basis or substance at all, this would set a very bad precedent in that a party could simply foist a fait accompli on the court, leaving it to the Provisional Liquidators, who may be wrongly accused, to try to disprove fanciful allegations to the prosecuting authority.  The court should not be giving in to tactics like that.  It is a serious matter to remove the Provisional Liquidators, I do not agree with Mr Grossman that the bona fides of those making the application should not be looked at.  Nor do I accept the submission the mere fact that someone had made a criminal complaint against the Provisional Liquidators, regardless of whether such complaint has any apparent basis, would render the Provisional Liquidators unsuitable to discharge their duties.

51.The fourth ground relates to the costs charged by the Provisional Liquidators and the alternative candidates proposed by the Applicant Creditors.  I will dispose of this shortly.  The cost element is not a ground for replacing the Provisional Liquidators.  In any event, the fees charged by the Provisional Liquidators are subject to the control and approval of this court.

52.The fifth and last ground is that a substantive body of investors have stated that they have lost faith in the Provisional Liquidators and wanted to replace them with their own candidates.  I fail to see any legitimate concerns raised by these investors in the conduct of the Provisional Liquidators.

53.There is a campaign among these investors to replace the Provisional Liquidators for their own purposes.  Information agents who had facilitated the solicitation of investors and may well have a vested interest, are working in this campaign.  I have been taken by Mr Stock to some revealing extracts in an FAQ distributed by this group, in which questions were asked if the group is successful in removing the Provisional Liquidators, and in the event if it is not successful.  These matters were not addressed in any of the affidavits filed on behalf of the Applicant Creditors.  Clearly, these investors have their own agenda to pursue.

54.I note that there is a group of investors expressing support for the Provisional Liquidators, although they are smaller in number.

55.On an objective basis, from the reports I have read so far, the Provisional Liquidators have been working diligently, competently, independently and effectively.  They have co-ordinated their efforts in other jurisdictions apart from Hong Kong and the Philippines. To remove them from their positions and replace them with new provisional liquidators, even though the latter is prepared not to charge for work in reading into the files and documents obtained, is not in the best interests of the general body of creditors.

56.For the above reasons, I dismiss the application of the Applicant Creditors.  I order that the appointment of the Provisional Liquidators is to continue until the hearing of the petition or further order.

57.The petitioner does not seek costs in this application, so no order would be made.  The Provisional Liquidators seek an order that their costs be paid by the Applicant Creditors, not out of the assets of the Company, and on an indemnity basis, as there is no reason why the general body of creditors should lose out on the costs incurred by the Provisional Liquidators to resist this application.  Mr Grossman urged the court to make no order as to costs against his clients, alternatively that costs should come out of the assets of the Company.  He informed the court that there will be a meeting of creditors very soon, and this may have a bearing on the applications today.  I do not think I should take this into account, I see no reason why the losing party should not pay the other side’s costs.

58.I order that the costs of the Provisional Liquidators be paid by the Applicant Creditors on an indemnity basis.  The Applicant Creditors are also to pay the Official Receiver’s costs in this application.

Mr Alexander Stock, instructed by Messrs Stephenson Harwood & Lo, for the Petitioner

Mr Andrew Sheppard, instructed by Messrs Laracy Gall, for the Provisional Liquidators

Mr Clive Grossman, SC & Mr Dennis Kwok, instructed by Messrs Augustine C Y Tong & Co for Mr Harvie de Baron and Mr Alfonso Martin Eizmendi

Ms Phyllis McKenna for the Official Receiver