Re Cirtex Co Ltd

IN THE COURT OF APPEAL

1987, No. 133
(Civil)

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Coram: Hon. Silke, V.-P., Penlington & Mayo, JJ.

Dates of Hearing: 14^th December 1987

Date of Judgment: 14^th December 1987

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JUDGMENT

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Silke, V.-P.

1. On 30^th November, we adjourned the hearing of an appeal against a winding up order which had been made by Jones J. on 21^st September 1987 and upon which a stay had been placed the same day. The adjournment was in relation to Petitioners three and four getting themselves properly before the Court, in relation to the authority of solicitors and counsel who appeared for them and there were other matters in relation to it.

2. We have for consideration today a Notice of Motion brought on behalf of two of the Petitioners, Tang Wing Cheung and Hung Jin Mui, P1 and P2 respectively, for the stay on the winding up order, which was originally granted on 21^st September 1987 by another Division of this Court and continued by us when that appeal was adjourned, to be discharged or that it be further continued on various alternative terms.

3. There is also a Notice of Motion by the solicitors for Petitioner 3 and Petitioner 4 to come off the record.

4. The background to Mr. Ching’s application is the absence of payment of rent, rates and management fees for the restaurant premises. The rent, at least, is owned to Acegrowth Company Limited the landlord, of which P1 is a director. Some $500,000 odd is due in rent.

5. Our attention has been drawn to In re A. & B.C. Chewing Gum Ltd.(1) Where Plowman J. had for consideration an application to stay a Winding Up Order and he said this:

“As I understand it, the position is this. First of all, as a matter of jurisdiction it is quite clear that I have jurisdiction to grant a stay, because the Act says so. It says I can grant a stay on proof to my satisfaction that the proceedings ought to be stayed. But then there is the question of practice, and as a matter of practice a stay is never granted. The only exception that I think is known to the department is where I myself once went wrong in In re Westbourne Galleries Ltd. [1970] 1 W.L.R. 1378, and not having been alerted to the position, and not knowing it before, I granted a stay, with precisely what consequences nobody has ever told me. But there are very good reasons for the practice of never ordering a stay, and they are these: as soon as a winding up order has been made the Official Receiver has to ascertain first of all the assets at the date of the order; secondly, the assets at the date of the presentation of the petition, having regard to the possible repercussions of section 227 of the Act of 1948; and thirdly, the liabilities of the company at the date of the order, so that he can find out who the preferential creditors are, and also the unsecured creditors.

Supposing there is an appeal and the winding up order is ultimately affirmed by the Court of Appeal, and there has been a stay, his ability to discover all these things is very seriously hampered: it makes it very difficult for him, possibly a year later, to ascertain what the position was at different times a year previously. But assuming a stay is not granted, if the business is being carried on at a profit, as I understand this business now is, no additional harm is done by refusing a stay. As I understand it, if the Official Receiver is given an indemnity, say by the Coakley brothers, who are running this business, he will allow it to be carried on, and the Coakley brothers, in this case, could be appointed special managers and carry on the business as they have been doing. If the business is being carried on at a profit, creditors of the business, after the date of the winding up order, would be paid in priority to the unsecured creditors at the date of the order as part of the expenses of the winding up. Then, if the appeal is allowed, the business is handed back as a going concern, it has not suffered any loss. Of course, if the business can only be carried on at a loss – it should not be carried on at all.”

6. This decision was not drawn to the attention of the earlier Court of Appeal, nor to us on 30^th November when we continued the stay they granted.

7. Some of the complications envisaged by Plowman J. have come to pass here. Miss Eu for the Appellant asks us to give a general dispensation under s.182 of the Companies Ordinance in respect of all trade debts justly due and paid, Mr. Ching as one of his alternatives having asked us to say that ss. 182, 183 and 186 do not apply to Cirtex.

8. She sees no reason why the Appellant personally should pay the rent due.

9. Mr. Chau for the Official Receiver asks us to have regard to the balancing exercise which Re Gray’s Inn Construction Co. Ltd.(2) referred to.

10. The danger is that, validating transactions either for the actual rent, rates and management payments or the general validation which Miss Eu seeks, a pre-liquidation creditor may be paid in full at the expense of other creditors.

11. If there be no stay then, given the business is being run profitably, the Official Receiver can go in and, having ascertained this, continue the business as a going concern in whatever way he thinks fit no doubt bearing in mind that which was said in A. & B.C. Chewing Gum Ltd.(1)

12. If the stay remains the complication which now arise will multiply. How, for example, is the butcher to be paid? Can he sue? Must all individual payments be validated each of themselves?

13. When the stay was originally granted it was thought, and on the papers rightly so, that the Appeal would come on in a short compass of time. This has now changed. Further, deadlock may reinstate itself if P3 and P4 drop out of the proceedings. One at least is a limited company which must appear by counsel and solicitor and the indications are that there is a lack of funds.

14. In all the circumstances as now brought to our attention we consider that the stay should be discharged and we so order.

15. We would also grant Haldane Midgley & Cheung’s application to come off the record, given their undertaking to serve in the usual way. The costs of that application to be borne by P3 and P4.

16. We shall hear counsel as to the costs of the main Notion of Motion.

Having heard counsel

17. Costs of the Notice of Motion to be costs in the appeal.

Charles Ching, Esq., Q.C.  & Miss Alice Mok (Edmund W.H. Chow & Co.) for P1 & P2

Miss Audrey Eu (W.K. To & Co.) for Appellant/Respondent

William Alan, Esq. (Haldane Midgley & Cheung) for P3 & P4

H.Y. Chau, Esq. for Official Receiver

(1) [1975] 1 W.LR. 579 at 592

(2) [1980] 1 All E.R. 814