Re Fullbright Co Ltd

HCCW 208/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 208 OF 2008

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D E C I S I O N

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1.I have before me a notice of motion issued on 30 April 2012 by the liquidators of the company seeking two orders, the first, a permanent stay of all proceedings in the winding-up of the company pursuant to section 209 of the Companies Ordinance; secondly, a release of the liquidators under section 205 of the Companies Ordinance. The second application is simply a necessary consequence of the first.

2.Under section 209 of the Companies Ordinance the court may, on an application by a liquidator and on proof that it is satisfied that all proceedings in relation to the winding-up ought to be stayed, order a permanent stay of the winding-up proceedings.  Various cases have discussed the principles by reference to which such applications are to be assessed.  They establish that the guiding principles can be summarised as follows:

(1) The burden is on the applicant to show that a stay ought to be granted.  The applicant shall make out a sufficient cause for a stay that carries conviction.  It is not sufficient for the applicant to merely establish that a stay is reasonable in the circumstances.

(2) The power of the court to grant the stay is discretionary.

(3)   The interests of members, creditors and liquidators should be considered.

(4) The court should also consider whether the stay is consistent with or detrimental to the maintenance of commercial morality and the interests of the public at large.  See generally Re Outboard Marine Corp Asia Ltd [2003] 1 HKLRD 585 at 588 C to G and Re ASEAN Interests Limited (in liquidation) [2005] 4 HKLRD 665.

3.Generally, the court will have regard to whether or not the stay is to take place pursuant to an arrangement which provides for the payment of the outstanding debts and expenses of the company and the liquidation and whether or not the affairs of the company require further investigation by liquidators.  Generally, a stay is unlikely to be ordered unless an arrangement has been entered into, commonly with the company’s shareholders, to ensure that all the company’s debts are paid and therefore the company is made, for all effective purposes, solvent.

4.The company was incorporated in Hong Kong in December 1985.  On 13 November 2006 it was put into creditors’ voluntary winding‑up.  At that time Mr Fung Wing-yuen was appointed as the liquidator. On 16 May 2008, the Commissioner of Inland Revenue (“Commissioner”), who was a substantial creditor of the company, petitioned the court seeking an order converting the company voluntary winding‑up into a compulsory winding-up.  This application was successful, and a compulsory winding-up order was made on 19 March 2009.

5.The present liquidators, Mr Kong Chi-how Johnson and Mr Lo Siu‑ki, were appointed the liquidators of the company by an order dated 3 September 2009.

6.The company had a limited number of creditors.  The net sum owed to the Commissioner is HK$3,669,256.  In addition, it owed a fine imposed by the Fanling Magistrates’ Court of HK$35,000.  In addition, there was a debt due to its shareholders.

7.The shareholders have proposed a settlement with the two creditors of the company which will result in all its debts being settled or, in the case of the shareholders, the debts being written off and the costs of the liquidation paid. 

8.A settlement agreement was concluded on 28 November 2011 which provides for the payment of all outstanding debts and expenses subject to the application for a stay of the winding-up being approved by the court.

9.As is normal in such cases, the Official Receiver has considered the application and has prepared a report which is dated 18 June 2012.  The Official Receiver has no objection to the application, although she has raised two particular matters for consideration: first, that there is no evidence that the shareholders were prepared to and intend to manage and run the company if a stay is granted; secondly, that she has noted from the submissions of the liquidator in Form D1 that the directors have not produced all the books and records of the company and have previously been prosecuted pursuant to section 121 and 274 of the Companies Ordinance for such failure; thirdly, whether the disposal of the company’s property to Fortune Decade Limited, a connected company, would impact in any way on the conduct of the shareholders.

10.These three matters have been dealt with in evidence subsequently filed in support of the application.  The shareholders are prepared to give an undertaking to the court, which will be incorporated in the formal order staying the winding-up, confirming that they will manage and run the company if an order is granted.

11.So far as the second point is concerned, the liquidators have explained that whilst the failure to retain and produce documents is unsatisfactory, the circumstances which had led to this problem are not of themselves particularly serious.

12.Finally, the disposal of the company’s property to a connected company does not raise any concerns about the propriety of the shareholders’ conduct in relation to the conduct of the affairs of the company.

13.I am satisfied that in all the circumstances this is a proper case in which to grant a stay of the winding-up, and I will make an order accordingly which will incorporate the undertakings I have referred to earlier in this judgment.  The order will also provide for the release of the liquidators after the Commissioner and the Government have been paid in full in respect of their claims.  This will give them the opportunity to utilise the sums in the company’s liquidation account for partial settlement of those claims before they are released and become functus.

14.I will also make an order that the costs of the Official Receiver in the sum of $12,000 be paid out of the settlement sum which is currently held in a stakeholder’s account.

15.There will be no other costs order.

Ms Elaine Liu, instructed by ONC Lawyers, for the liquidators

Attendance of Official Receiver was excused