The Joint and Several Liquidators of Qq Club Ltd (in Liquidation) v. Golden Year Ltd

HCCW 245/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 245 OF 2011

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D E C I S I O N

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1.This is an application by the joint and several liquidators of QQ Club Limited (“Liquidators”) for a declaration under ss 266 and 266B of the Companies Ordinance (Cap 32) that the 4 payments paid by QQ Club Limited (“Company”) to Golden Year Limited (“Respondent”) between 16 March 2011 and 1 April 2011 constitute unfair preferences and are void (“s 266 Summons”).

2.The background fact relevant to the application is not in dispute.

The Parties

3.The Respondent was the company secretary of the Company from 1 June 2005 to 1 June 2011.  Its sole shareholder was (and still is) ISF Asset Manager Limited (“ISF”).  Until 17 August 2012, Ms Lai Mei Kuen Michelle (“Ms Lai”) was the sole director of the Respondent.  She resigned as a director on 18 August 2012, after Mr Leung Tze Hang David (“David Leung”) had been appointed as a director the day before.

4.ISF was described in its website as the project and operation manager of the business of the Company.  The Company, ISF and another related company, ISF Asset Manager (China) Limited, used the same office at Shun Tak Centre as their registered office.  All 3 companies used the Respondent as their company secretary.

5.Before its demise, the Company operated a learning centre for kids under the trade name of “QQ Club”.  Pursuant to a license agreement dated 1 April 2008, the Petitioner granted a license to the Company to use and occupy the premises in North Point at the monthly licence fee from $300,000 to $450,000.

6.Since November 2008, the Company had been in default of payment of the licensee fee, which led to the Petitioner commencing an action (HCA 1594/2010) against it on 27 October 2010 claiming $5,522,688 and mense profit (“Action”).  On 12 November 2010, the Petitioner issued a summons for summary judgment against the Company.

7.According to its annual return, the sole shareholder of the Company was QQ Investment Limited (“QQ Investment”) until 30 March 2011 when all its shares were transferred to a BVI company, Merry Ocean Investments Limited (“Merry Ocean”).  The Company had 2 directors, namely, Ms Lai and Mr Chu Kwok Leung (“Mr Chu”) until they resigned on 1 April 2011 and was replaced by Merry Ocean.

8.However, the Company’s former solicitors informed the Liquidators that the instructions to defend the Action were provided primarily by Mr David Leung, who filed 2 affidavits to oppose the Petitioner’s application for summary judgment qua Chief Executive Officer of the Company.

The Impugned Payments

9.Ms Lai approved[1] the following payments in the aggregate amount of $2,824,286 to be paid by the Company to the Respondent purportedly as “management fee” (collectively “Impugned Payments”):

Cheque No.	Amount (HK$)	Date of Cheque	Clearing date
003294	1,000,000	16 March 2011	16 March 2011
003295	1,000,000	18 March 2011	19 March 2011
003296	500,000	24 March 2011	24 March 2011
005029	324,286	1 April 2011	1 April 2011

10.Although the cheques were cleared on different dates, it is clear from the number of the first 3 cheques that they were issued by the Company at the same time.

Judgment and Petition against the Company

11.On 28 March 2011, the Petitioner obtained summary judgment against the Company for $6,573,202.97 (“Judgment”).  This was followed by a statutory demand served on the Company on 31 March 2011.  Immediately after the service of the statutory demand, on 1 April 2011, Ms Lai and Mr Chu resigned as directors and was replaced by Merry Ocean.

12.Although not a director of the Company, Mr David Leung caused the Company to file a notice of appeal against the Judgment on 11 April 2011.  This was followed by an ex parte application made on 19 April 2011 for an injunction to restrain the Petitioner from presenting a winding‑up petition against the Company, whereupon an undertaking was given by the Petitioner not to present a petition against the Company pending determination of the Company's application for stay.

13.On 3 May 2011, Mr David Leung made an affidavit in support of the Company’s application for stay of execution of the Judgment in which he alleged, inter alia, that the Company “runs a business of education” and, without a stay, the Company’s business would inevitably be put to “a complete cessation” and the Company would be “deprived from using its working capital to continue its operation”.  He further alleged that substantial loss would be suffered by the Company if it “would be unable to generate the high income which would normally generate during summers”.

14.The Company was wound up by the Court on 21 September 2011 pursuant to a petition presented against it by the Petitioner on 22 July 2011.  The Liquidators were appointed to their office on 2 April 2012.

15.Despite what he had stated in his affidavit about the high income that would be generated during summers, Mr David Leung informed the Liquidators in January 2013 that the Company had ceased operations on 31 May 2011.

S 266 Summons and Security Summons

16.The s 266 Summons was issued on 24 October 2012 and returnable on 14 December 2012.

17.On 6 December 2012, the Respondent issued a summons requiring the Liquidators to pay security for costs in the amount of $200,000 and seeking a stay of the s 266 Summons (“Security Summons”).  The application was supported by an affidavit made by Mr David Leung in which he alleged, inter alia, that the Respondent had provided “professional management services to the Company since 1 April 2009 up to 28 February 2011”, that it had been “understood and accepted” in early 2009 that the Respondent should charge an annual management fee of $2 million and that the Company was not insolvent.

18.At the call‑over hearing on 14 December 2012, Harris J refused to stay the s 266 Summons and gave directions on filing evidence in respect of both summonses, which were adjourned for substantive argument.  No further affidavit was filed by the Respondent.

Voluntary Liquidation of the Respondent

19.By letter dated 7 February 2013 from Vision A S Ltd, certified public accountants, the Liquidators were informed that a meeting of creditors of the Respondent would be held on 1 March 2013 pursuant to s 241 of the Companies Ordinance.

20.At the meeting held on 1 March 2013, which was chaired by Mr David Leung and attended by Ms Lai and the Liquidators, a statement of affairs as at 28 February 2013 was tabled, which showed that the Respondent had assets of $207.02 and liabilities of $12,399,093.47, all of which were unsecured.  Amongst them, ISF was the largest creditor to which $9,187,170.67 was owed.  The other major creditors were ISF Pacific Real Estate Limited (“ISF Estate”) ($3,010,028.80), Mr David Leung ($102,600), Ms Lai ($34,794) and accrued charges ($64,500).  The Company was not listed as a creditor and was not allowed to vote on the ground that its claim was a contingent liability.

21.As Ms Lai has since 21 June 2012 been the sole shareholder of ISF and ISF Estate is wholly owned by ISF, she was able to control $12,231,993.47 (or 98.65%) of the unsecured liabilities alleged to be owed by the Respondent. Resolutions were passed at the creditors meeting of 1 March 2013 to put the Respondent into voluntary liquidation on the ground that it cannot by reason of its liabilities continue its business and to appoint Mr Wong Sun Keung (“Mr Wong”) as the liquidator without any committee of inspection.

22.Despite the request of the Liquidators made on 5 March 2013, Mr Wong declined to give an undertaking not to destroy the books and records of the Respondent.  This is surprising given that Mr Wong is said to be a professional accountant independent of the Respondent.  I will say more about the conduct of Mr Wong.

23.At the hearing on 12 March 2013 before Sakhrani J, Mr Wong on behalf of the Respondent withdrew the Security Summons and costs were awarded against the Respondent.

Hearing

24.At this hearing Mr Wong appeared on behalf of the Respondent and produced a skeleton and some documents which he sought to rely on in support of his contention that the s 266 Summons should be dismissed on the following grounds:

(1)   The funding of the Company had been provided by one QQ Investment which, he said, “holds 100% of the Company”.

(2)   As most of the funding of the Company had been provided by ISF “through the account of QQ Investment”, it was ISF which used its money to settle the debts of the Respondent.

(3)   “There was no desire to put the Respondent into a better position”.

25.Mr Wong submitted boldly that the Liquidators should have found out the “simple fact” outlined in the last paragraph from the documents available to them.  Initially, Mr Wong claimed that the allegations and matters set out in his skeleton were his own findings based on his review of the documents available to him.  However, when asked by this court as to when and how he came to such findings and what investigations he had done in relation to the “management fee” of $3 million allegedly owed by the Company to the Respondent, Mr Wong was unable to give any coherent answers.

26.Ultimately, Mr Wong admitted that he had not completed his investigation of the matters, but was “instructed” by ISF to oppose the s 266 Summons as he considered that it was his duty to protect the interests of ISF.  As for the allegations set out in his skeleton, Mr Wong admitted that they were based on the instructions provided by ISF and Mr David Leung who, he said, was a director of the Company (which is clearly wrong as Mr David Leung was never a director of the Company).

27.Mr Wong said that if the Liquidators needed time to respond to his skeleton and the new documents, the Respondent would be willing to pay the costs occasioned by the adjournment. When asked by this court as to how the Respondent could pay such costs in light of its negligible asset, Mr Wong claimed that the creditor who funded his costs would provide the necessary funding.  However, when it was made clear to Mr Wong that the costs occasioned by the adjournment would be imposed on Mr Wong personally, leaving him to seek indemnity from his funders, Mr Wong changed his stance and stated that he would not insist on putting in the new documents and the matters set out in his skeleton.

28.It is clear from the above that Mr Wong was seeking to put forward the allegations made by ISF and Mr David Leung with a view to delay or defeat the s 266 Summons.  The manner in which Mr Wong deals with the s 266 Summons is most unsatisfactory and falls short of the standard one would expect from a professional accountant acting as liquidator of a company.  As a result of the stance adopted by Mr Wong, much time was wasted by the court in dealing with the new allegations and matters raised in his skeleton and the new documents.

Applicable Principles

29.Under s 266B of the Companies Ordinance, a reference in s 266 to a fraudulent preference shall be deemed to be a reference to an unfair preference as provided for in s 50 of the Bankruptcy Ordinance (Cap 6) (“BO”).

30.The relevant provisions in s 50 of BO are as follows:

“(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged bankrupt and he has at a relevant time (defined in section 51) given an unfair preference to any person, the trustee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that debtor had not given that unfair preference.

(3) For the purposes of this section and sections 51 and 51A, a debtor gives an unfair preference to a person if-

(a) that person is one of the debtor’s creditors or a surety or guarantor for any of his debts or other liabilities; and

(b) the debtor does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the debtor’s bankruptcy, will be better than the position he would have been in if that thing had not been done.

(4) The court shall not make an order under this section in respect of an unfair preference given to any person unless the debtor who gave the unfair preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection(3)(b).

(5)   A debtor who has given an unfair preference to a person who, at the time the unfair preference was given, was an associate of his (otherwise than by reason only of being his employee) is presumed, unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in subsection (4).”

31.In the case of an unfair preference, the “relevant time” in s 50(1) is defined in s 51(1)(b)‑(c) of BO as follows:

“(1) Subject to subsections (2) and (3), the time at which a debtor enters into a transaction at an undervalue or gives an unfair preference is a relevant time if the transaction is entered into or the unfair preference given‑

…

(b) in the case of an unfair preference which is not a transaction at an undervalue and is given to a person who is an associate of the debtor (otherwise than by reason only of being his employee), at a time in the period of 2 years ending with that day; and

(c) in any other case of an unfair preference which is not a transaction at an undervalue, at a time in the period of 6 months ending with that day.

(2) Where a debtor enters into a transaction at an undervalue or gives an unfair preference at a time mentioned in subsection (1)(a), (b) or (c) …, that time is not a relevant time for the purposes of sections 49 and 50 unless the debtor‑

(a) is insolvent at that time; or

(b) becomes insolvent in consequence of the transaction or preference …

(3) For the purposes of subsection (2), a debtor is insolvent if‑

(a) he is unable to pay his debts as they fall due; or

(b)  the value of his assets is less than the amount of his liabilities, taking into account his contingent and prospective liabilities.”

32.In the context of a company in liquidation, the relevant time commenced on the date of the commencement of the winding‑up of the company.  Under s 266B(1)(b), a reference in s 266 of the Companies Ordinance to a period of 6 months shall be deemed to be a reference to (i) 6 months or (ii) 2 years in the case of an associate.

33.As for the meaning of “associate”, s 51B(1) of BO provides as follows:

“(1) For the purposes of sections 49 to 51A, any question whether a person is an associate of another person shall be determined in accordance with this section.

…

(4) A person is an associate of a debtor whom he employs or by whom he is employed and for this purpose, any director or other officer of a company shall be treated as employed by that company.

…

(6) A company is an associate of a debtor if that debtor has control of it or if that debtor and persons who are his associates together have control of it.

…

(8) For the purposes of this section, a debtor shall be taken to have control of a company if ‑

(a) the directors of the company or of another company which has control of it (or any of them) are accustomed to act in accordance with his directions or instructions, but a debtor shall not be considered to have control of a company by reason only that the directors act on advice given by him in a professional capacity: or

(b) he is entitled to exercise, or control the exercise of, 1/3 or more of the voting power at any general meeting of the company or of another company which has control of it,

and where 2 or more persons together satisfy either of the above conditions, they shall be taken to have control of the company.

(9) In this section, “company” includes any body corporate (whether incorporated in Hong Kong or elsewhere) …”.

34.To succeed in the s 266 Summons, the Liquidators need to establish the following matters:

(1)   The Respondent was a creditor of the Company at the time the Impugned Payments were made (see s 50(3)(a) of BO).

(2)   The Company did anything which has the effect of putting the Respondent into a position which, in the event of the liquidation of the Company, would be better than the position it would have been in if that thing had not been done (see s 50(3)(b) of BO).

(3)   In deciding to make the Impugned Payments, the Company was influenced by a desire to produce in relation to that person the effect mentioned in s 50(3)(b) of BO (see s 50(4) of BO).

(4)   The Impugned Payments were made within the “relevant time”, being 6 months for any other person or 2 years if the Respondent is an “associate” of the Company (see s 266B(1)(b) of Companies Ordinance).

(5)   The Company was insolvent at the time of the Impugned Payments or became insolvent in consequence of the Impugned Payments (s 51(2) of BO).

35.I turn to consider whether each of the above matters has been satisfied.

Was the Respondent a creditor of the Company?

36.In the Company’s ledgers, there was an entry created on 28 February 2011 which showed that the Company owed the Respondent $3 million for “management fee for 01.04.2009‑28.02.2011”.  Prior to this entry, there was nothing to show that the Company had in the past paid or agreed to pay any “management fee” to the Respondent.  There was no minutes or resolution showing that the directors of the Company had considered or approved the payment of this “management fee” to the Respondent.  This was despite the fact that by virtue of her position as a director of the Respondent, Ms Lai should be regarded as having a material interest in the payment of “management fee” but no disclosure of her interest as required by s 162 of the Companies Ordinance appears to have been made.

37.Be that as it may, in this application, the Liquidators were contented to proceed on the basis that the Company was liable to pay $3 million “management fee” to the Respondent, such that the Respondent was a creditor of the Company.

38.Further, although it was clear that by 28 February 2011, the Respondent owed $175,714 to the Company, which sum was paid by the Company to the Respondent by way of “set‑off” against the $3 million “management fee”, the Liquidators did not seek to avoid the $175,714 as unfair preference and confined their application to the Impugned Payments.

Did the Impugned Payments put the Respondent into a better position?

39.It is now settled that whether an act has the effect provided for in s 50(3) of the BO involve a purely objective test (Trustees of the Property of Hau Po Man Stanley (in bankruptcy) v Hau Po Fun Ivy [2005] 2 HKC 227 at 233B, per Lam J (as he then was), affirmed by the Court of Appeal in [2005] 2 HKLRD 262, at §13 and followed in Re Phantom Records Ltd (in liq), HCMP 2770/2003, 7 December 2003, at §85, per Kwan J (as she then was)).

40.In my view, the Impugned Payments has the effect of putting the Respondent into a better position than it would have been in if the Impugned Payments had not been made.  Without the Impugned Payments, the entire amount of $2,824,286 would remain unpaid and the Respondent would have to prove in the liquidation of the Company and, if there is no surplus available for distribution to the unsecured creditors, the Respondent would not receive any payment.

Relevant desire

41.Under s 50(4) of BO, 2 elements need to be established, namely, a desire to produce the effect of improving the creditor’s position in liquidation and that desire had influenced the decision to make the payment.  The relevant desire is a subjective state of mind.  The existence of this state of mind may be inferred from all relevant circumstances, even contrary to the denials whose state of mind is inquired into (Re Phantom Records Ltd (in liq), supra, at §§86‑87; Trustees of the Property of Hau Po Man Stanley (in bankruptcy) v Hau Po Fun Ivy [2005] 2 HKLRD 262 (CA) at §13).

42.As for influence, it is sufficient if it was one of the factors which operated on the minds of those who made the decision, and need not be the decisive factor.  It is not necessary to prove that if the requisite desire had not been present, the company would not have entered into the transaction (Re Phantom Records Ltd (in liq), supra, at §88).

43.There is a presumption under s 50(5) of BO that the debtor company which gave the unfair preference was influenced by the relevant desire if the unfair preference was given to “an associate of his person (otherwise than by reason only of being his employee)”.

44.Here, the Respondent was the company secretary of the Company and, therefore, an “officer” of the Company (as defined by s 2 of the Companies Ordinance).  Ms Fong, counsel for the Liquidators, submitted that as the Respondent was an officer of the Company, it should by virtue of s 51B(4) of the BO be treated as being employed by the Company and, therefore, an associate of the Company.  I agree.

45.The real issue is whether the Respondent was an associate of the Company “otherwise than by reason only of being his employee” as required by s 50(5) of BO.  As to that, Ms Fong relied on Re Phantom Records Ltd, supra, §81 where Kwan J (as she then was) held:

“The material words are the words in parenthesis in section 50(5) – “otherwise than by reason only of being his employee”. There is some ambiguity about this provision in the case of a director, due to the wording in the latter part of section 51B(4). In my view, a director, although treated as employed by a company under section 51B(4) and hence is an associate of a company by whom he is ‘employed’, is not an associate “by reason only of being [the company’s] employee”. The words in parenthesis in section 50(5) should only apply to an employee who does not hold any other position or office in the company. Most of the provisions in section 51B for determining an associate of a debtor in an unfair preference have no application where the debtor is a company instead of a natural person. One of the most common situation in which an association with a debtor company may arise is by serving as a director of that company. If section 50(5) were construed as not applying to this situation, this would render the presumption largely ineffective in an unfair preference concerning a company.”

46.Ms Fong submitted that the same reasoning should apply to a company secretary.  However, this argument is not free from doubt as the meaning of an “associate” is defined by s 51B of BO which is on its face exhaustive.  It seems to me that unless one can point to another provision under s 51B which shows that the Respondent was an associate “otherwise than by reason only of being [the Company’s] employee”, the presumption in s 50(5) may not be invoked.  Ms Fong fairly drew to the court’s attention the commentary in Tomasic & Tyler, Hong Kong Company Law – Legislation and Commentary, 2012, §[11681], p 3851B, which summarised the counter‑argument against the construction that a director of the company is by itself sufficient to invoke the statutory presumption, the recommendation of the Law Reform Commission in its Report on the Winding‑Up Provisions of the Companies Ordinance, July 1999, para 21.10, that the exclusion of employees should not apply in the company context and the need for amendment the legislation governing unfair preference in the company context.

47.In my view, the Respondent was an associate within the meaning of the second limb of s 51B(6), on the basis that the Company (acting through Ms Lai) and Ms Lai (being a person who is an associate of the Company by virtue her position as its director) together have control of the Respondent.

48.As the Respondent was an associate otherwise than by reason only of being an employee of the Company, the statutory presumption under s 50(5) of BO applies.

49.In the affidavit filed by Mr David Leung on behalf of the Respondent, he did not deal with the Liquidators’ suggestion in their affirmation that in making the Impugned Payments, the Company (acting through Ms Lai) had been influenced by a desire to improve the position of the Respondent in the event of the Company’s liquidation.  There is nothing to rebut the presumption.

50.If I am wrong in my conclusion about the availability of the statutory presumption, I consider that in light of the following matters, an inference can be drawn that in making the Impugned Payments to the Respondent, the Company (acting through Ms Lai) was influenced by a desire to improve the position of the Respondent in the event that the Company is put into liquidation:

(1)   The Impugned Payments were all approved by Ms Lai who was at the time a director of the Company and the sole director of the Respondent.

(2)   Ms Lai chose not to file any evidence to explain the circumstances under which the Impugned Payments were made.  Nor has Mr David Leung said anything in his affidavit to refute the Liquidators’ suggestion in their affirmation that the decision to make the Impugned Payments had been influenced by a desire on the part of the Company (acting through Ms Lai) to improve the position of the Respondent in the event of the Company’s liquidation.

(3)   At the time the Impugned Payments were made, the Company was aware that judgment would likely be or had already been entered against the Company.  As the Company did not have the requisite fund to pay the judgment debt, it was inevitable that the Company would be put into liquidation shortly.

(4)   Since 21 June 2012, Ms Lai has become the sole shareholder of ISF, which is the sole shareholder of the Respondent and its single largest creditor.  There is no explanation as to why the shares in ISF were transferred to Ms Lai, and whether she had any interest in such shares before the transfer.  Coupled with the fact that Ms Lai was until 18 August 2012 the sole director of the Respondent, it is clear that the Respondent was effectively Ms Lai’s corporate vehicle and I so hold.

Relevant time

51.By virtue of s 184(2) of the Companies Ordinance, the winding‑up of the Company shall be deemed to commence on 23 July 2011.  As the Impugned Payments were paid by the Company within 6 months of the commencement of the winding‑up of the Company, they fell within the period prescribed by s 266B(1)(b)(i) of the Companies Ordinance.

52.It is not necessary to consider whether the Impugned Payments were made within the 2‑year period under s 266B(1)(b)(ii), which applies to a person who is an associate as provided for in s 51B of the BO.

Insolvency of the Company

53.It is clear that since at least 31 March 2009, the Company had been insolvent in that the value of its assets was less than the amount of his liabilities:

(1)  As stated in the audited accounts for the year ended 31 March 2009, as at 31 March 2009, the Company had net current liabilities and net liabilities of $6,929,359 and $6,462,097 respectively.

(2)  According to the management accounts prepared by the Liquidators based on the accounting records of the Company, as at 31 March 2010, the Company had net current liabilities and net liabilities of $18,951,007 and $15,121,022 respectively.

(3)  According to the management accounts prepared by the Liquidators, as at 31 March 2011, the Company had net current liabilities and net liabilities of $16,083,644 and $13,087,387 respectively.  It appears from the balance sheet that the Liquidators had not taken into account the Judgment entered against the Company on 28 March 2011, which amounted to $6,573,202.97.  Had the Judgment been taken into account, the net current liabilities and net liabilities would become $22,656,846.97 and $19,660,589.97 respectively.

54.Mr David Leung in his affidavit filed in support of the Security Summons alleged that at the time the Impugned Payments were made the Company was not insolvent for 2 reasons.  First, the amounts due to parent company (QQ Investment) and related companies “would not be called for settlement” and secondly, “if time has come, the parent company has been prepared to capitalize such debts in (sic) shares and in such event, the Company would give positive net asset value”.  Both allegations are misconceived.

55.First, there was no evidence in support of Mr David Leung’s allegation that the Company would not be required to repay the amounts due to parent company and related companies.  In any event, in determining whether a company is insolvent for the purpose of an unfair preference, it is sufficient if the value of the Company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities (see s 51(3)(b) of BO).

56.Secondly, there was no evidence to show that QQ Investment had ever agreed to capitalise the amount owed by the Company into capital, and the capitalisation never took place.  Even if the Company was entitled to capitalise the amount owed to QQ Investment, which amounted to $19,235,644 as at 31 March 2011, the Company still had net current liabilities and net liabilities of $3,421,202.97 and $424,945.97.

Conclusion

57.For the above reasons, I hold that the Impugned Payments constitute unfair preferences under ss 266 and 266B of the Companies Ordinance and are accordingly void.

58.It follows that the Respondent is liable to repay $2,824,286 to the Company and I order the Respondent should pay the amount within 14 days from today.

Interest

59.At the hearing, Ms Fong said that the Liquidators did not seek interest on the $2,824,286 prior to the date of the order and would only seek interest from the date of the order at judgment rate.  However, upon considering rule 88 of the Companies (Winding‑up) Rules (“CWUR”) drawn to their attention by the court, the Liquidators decided to seek interest from the dates of the Impugned Payments (being the dates when the debts were payable) to 1 March 2013 (the commencement of the winding‑up of the Respondent).  This is consistent with the holding of Kwan J (as she then was) in Re Incorporated Owners of Foremost Building [2005] 3 HKLRD 509 at §16.

60.However, the problem with the Liquidators’ claim is that the amounts payable by the Respondent were not “payable by virtue of a written instrument at a certain time”.  Nor was there any evidence that a demand in writing as required by rule 88(1) had been given by the Liquidators to the Respondent.

61.I consider that the appropriate order is to award interest on the Impugned Payments from the dates the Respondent received the Payments up to the date of the order at HSBC prime lending rate plus 1%, which is the usual commercial interest rate.  From the date of the order until payment, interest is at judgment rate.  Whether the amount of interest is provable in the liquidation of the Respondent is a matter which should be dealt with by the Liquidators and Mr Wong.

Costs

62.At the hearing, I have summarily assessed the costs of the s 266 Summons at $132,564 pursuant to Order 62 rule 9(4) of Rules of High Court (“RHC”).  The Liquidators asked for costs to be paid by the Respondent.  Mr Wong did not raise any objection and I order that the Respondent do pay the costs of $132,564 to the Liquidators.

63.The Liquidators also asked the court to assess their time costs spent on the s 266 Summons, which amounted to $9,813 and an order that such time costs be paid by the Respondent. Ms Wong was unable to identify the juridical basis for asking the court to summarily assess the Liquidators’ time costs or to order the unsuccessful party to pay such time costs.  Ms Fong submitted that in her experience, such order had always been sought by the liquidators and granted by the court.  With respect, I do not think that there is such a practice.  Even if there is such a practice, I do not consider that it is a valid basis to extend the jurisdiction of the court to assess the Liquidators’ time costs summarily, or to order the unsuccessful party to pay such time costs.

64.The time costs of the Liquidators (or remuneration of liquidator, as more commonly described) should be determined in the usual way as required by rule 146 of CWUR and in accordance with the Procedural Guide for Taxation of Bills of Provisional Liquidators or Liquidators.

65.Lastly, the Liquidators sought an additional order that “The costs of the Liquidators and legal costs, if not recoverable from the Respondent, be treated as an expense of the liquidation of the Company”.

66.Ms Fong submitted that such order is necessary in light of the English court of appeal’s holding in Lewis v IRC & ors [2001] 3 All ER 499 that a claim to set aside a voidable preference is not a claim to realise or get in any of the “assets” of the company and that therefore, under the scheme laid down in the Insolvency Act 1986, the costs of such a claim were not an expense of the liquidation.

67.In her further written submissions, Ms Fong submitted that as the right of action of a liquidator for preference and the assets recovered by such action are not the property/asset of the Company and, as such, it is likely that the Liquidators’ time costs and legal costs would rank only 6^th and 7^th in the priority prescribed by rule 179 of CWUR, being “necessary disbursements of any liquidator…. other than expenses properly incurred in preserving, realising or getting in the assets” and “the costs of any person properly employed by any liquidator”.

68.If Ms Fong’s submissions are correct, the order sought by the Liquidators must be wrong in law, as they are asking the court to make an order the effect of which is to make their time costs and legal costs incurred in pursuing the s 266 Summons to be treated as an expense of the liquidation when they are not.

69.However, I do not think Ms Fong’s submissions are correct.  As its clear from Lewis v IRC & ors, that holding was based on the statutory scheme of the Insolvency Act 1986, which is different from the statutory scheme of winding‑up under the Companies Ordinance.

70.In my view, the Liquidators’ time costs and legal costs spent and incurred in pursuing the s 266 Summons are “fees and expenses properly incurred in preserving, realizing or getting in the assets” and, therefore, fall to be paid in the first instance out of the assets of the company in priority to all other payments prescribed in rule 179 of CWUR.  This is consistent with the fact that once the court declares the Impugned Payments to be void, the Respondent is liable to repay the entire amount to the Liquidators who, in turn, is obliged to account the same to the Company.

71.I do not agree with the Liquidators’ submission that by virtue of Order 1 rule 2(2) and s 296 of the Companies Ordinance, the rules governing a trustee’s entitlement under Order 62 are not applicable to a liquidator in a compulsory winding‑up.  The submission ignored the effect of rule 210 of CWUR, which provides that “where no other provision is made by the Ordinance or rules, the practice, procedure and regulation shall, unless the court otherwise in any special case directs, be in accordance with the rules and practice of the court.”

72.Order 62 rule 6(2) provides that where a person is a party to any proceedings in the capacity of trustee, “he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee”.  As the Liquidators are undoubtedly trustees of the Company and hold the assets of the Company as such trustees, it is clear that they are entitled to recover any part of their costs not recovered from the Respondent out of the Company’s assets.  I therefore do not consider it necessary for the court to make the additional order proposed by the Liquidators.

Ms Yvonne Fong, instructed by Adrian Yeung & Cheng, for the applicant

Mr Wong Sun Keung, liquidator of the respondent, appeared in person