The New China Hong Kong Group Ltd (in Creditors' Voluntary Liquidation) and Anotehr v. Ng Kwai Kai, Kenneth and Others

HCA 519/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 519 OF 2010

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Before: Hon Harris J in Chambers

Date of Hearing: 30 November 2010

Date of Handing Down Decision: 7 December 2010

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D E C I S I O N

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1.On 27 September 2010 the plaintiffs in this High Court Action issued through their liquidators an application for directions under section 200(3) of the Companies Ordinance in relation to the prospective sale of shares in The New China Hong Kong Highway Limited (“Company”) and for the provision of information by the 2^nd, 4^th, 5^th and 7^th defendants (“defendants”) of information in order to allow them to assess an offer for purchase of shares in the Company (“shares”), which gives rise to the prospective sale. As the plaintiffs are in creditors voluntary winding up Mr Alder, who appeared on behalf of the plaintiffs at the 2 hearings before me, accepted that the applications should have been made under section 255. I pointed out that in my view the application should probably have been brought by originating summons, but this was not a point taken by the defendants.

2.The shares are the subject matter of this Action; there being a dispute as to whether or not the plaintiffs or the 4^th defendant own them.  The shares are currently held by stakeholders pending the outcome of the Action.  The 4^th defendant had received an offer from Mega Speedy Investment Limited (“Mega Speedy”) to purchase the shares, which it wishes to accept.  In order for the sale to be concluded it needs the agreement of the plaintiffs.  The liquidators say that they do not have sufficient information to allow them to assess whether or not the offer price is reasonable.  They have asked the 4^th defendant to provide the information, which it has relied on in deciding that the offer is reasonable.  They have been met by refusal and threats to sue the liquidators if they do not agree to the sale.  This has led to issue of this application.

3.The application first came on before me on 6 October 2010.  Mr Alder explained that the liquidators’ position was that they could not responsibly accept the offer on behalf of the plaintiffs without information, which allowed them to make an informed decision.  The liquidators’ principle position was that they were entitled to this information from the relevant defendants under section 221.  If they were wrong about that in the light of the threats that had been made by the 4^th defendant through its solicitors they sought the guidance of the court as to what they should do.  This explains the inclusion of paragraph 1 in the summons.

4.Mr Peter Ng SC argued that even assuming that the plaintiffs were in principle entitled to the documents and information that they sought under section 221, which he did not accept, paragraph 2 of the summons was too vague.  I agreed and the hearing was adjourned in order that the liquidators could provide a schedule of the documents that they require in the light of what seemed to me to be an indication from Mr Ng SC that his clients would consider whether to provide information voluntarily when they had received a schedule of documents.  As matters transpired the defendants refused to provide any information or documents at all and the matter came back before me on 30 November 2010.  By that time the offer had been withdrawn and the matter has become academic although as I understood the liquidators’ position at the hearing they still sought documents in case the offer is revived.

5.The documents that are sought are not documents that the plaintiffs have ever had and are not, therefore, documents that the liquidators require in order to reconstruct the knowledge of the plaintiffs. Neither are the documents relevant to the substantive claim in this Action.  Mr Adler accepted that they are necessary purely in order that the liquidators can assess whether or not Mega Speedy’s offer is reasonable.  Some of the documents that are sought, for example, “any written advice from banks, investment banks, and financial advisers in relation to the sale of” the shares are documents, if they exist at all, that the 4^th defendant has caused to be produced for its own commercial purposes in assessing Mega Speedy’s offer.  Whilst accept that the courts give the expression “dealings, affairs, or property of the company” in section 221 a liberal interpretation it seems to me that what is sought in the present case cannot fairly be characterised as documents relating to the affairs of the Company or its property in the sense intended in section 221, which is in my view the affairs of the Company prior to it going into liquidation: see generally Joint & Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR per Lord Millett WPJ, paras 22 to 27.  In my view the documents are more properly characterised as documents that concern a decision to be made by the liquidators in the conduct of the liquidations.  For this reason I would decline to make an order for production of the documents sought.

6.If I had reached the view that section 221 could be so widely construed that the documents could fairly be said to concern the affairs of the Company or its property I would still have refused the application as in my view it is excessively intrusive particularly as the offer has been withdrawn.  In considering any application under section 221 the court has to exercise its discretion balancing the interests of the creditors of a company in liquidation and the party against whom an order is sought: ibid paras 28-30.  In the present case an application is made against parties who are defendants to the Action and concerns a commercial decision made by one of them.  In my view it is not unreasonable for them to wish to keep the information confidential and the information, even if technically within the scope of section 221, is sufficiently remote from the primary purpose of that section it would be an excessively intrusive use of it to order that the documents sought in this case be provided

7.The consequence of this conclusion is or was, at least when the application was issued, that the liquidators say that they cannot responsibly make a decision.  As I have already noted the application has become academic.  It does seem to me, however, to be unreasonable for the liquidators to have refused to accept the offer if they are not in a position to assess it properly and on the basis of the information presently before me that does seem to be the case.  Having said that I have some doubts whether or not the liquidators would, if the matter had not become academic, be entitled to an order from the court directing them what to do or refrain from doing in respect of the offer as this is ultimately a commercial decision to be made by them.  I accept that the threats that have been made by the 4^th defendants are unhelpful.  If the offer is revived and the 4^th defendant wishes to accept it, it will have to decide whether or not it wishes to provide the liquidators with the information they require in order to make a decision, failing which the sale will, presumably, not be able to proceed.

8.So far as costs are concerned, although I understand the liquidators concerns, I think that they must follow the event. I, therefore, order that the plaintiffs pay the 2^nd, 4^th, 5^th and 7^th defendants’ costs of the application.

Mr Edward Alder, instructed by Messrs Stephenson Harwood, for the 1^st and 2^nd Plaintiffs

Mr Samuel Chan, instructed by Messrs Fred Kan & Co, for the 2^nd, 4^th, 5^th and 7^th Defendants