Shagang Shipping Co Ltd v. Grand China Shipping (Hong Kong) Co Ltd (in Liquidation)

HCCW 485/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 485 OF 2012

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D E C I S I O N

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1.On 8 April 2013 I made an order winding up Grand China Shipping (Hong Kong) Company Limited (“the Company”). The petitioner relied on an unpaid arbitration award of US$58,375,709.52. The information currently available indicates that the Company is massively insolvent, with a deficiency in excess of HK$5 billion and assets, according to the statement of affairs, of somewhere in the region of US$1 million.

2.On 8 April 2003, pursuant to section 194(1A) of the Companies Ordinance, the Official Receiver appointed Wong Sun-keung and Tsui Mei-yuk, Janice, joint and several provisional liquidators (“PLs”).  The PLs have experienced difficulties in obtaining all the documents and information they require, which was explained in their report to the court for 10 July 2013.  However, they have been able to establish the following.

3.The Company has one shareholder.  It is a BVI company called Bulk Triumph Shipping Limited.  Bulk Triumph acquired the shares from a Chinese company called 大新華物流控股(集團)有限公司, which forms part of the HNA Group.  The HNA Group is a PRC based enterprise which provides services in air travel, real estate, retails, finance solutions, tourism, amongst other business sectors.  It is a very large enterprise and various of its subsidiaries are creditors of the Company.  It seems clear that the Company and its previous activities are associated with the HNA Group. 

4.Amongst the problems the provisional liquidators experienced, was a difficulty in obtaining a satisfactory statement of affairs.  In their view the statement of affairs that was provided was lacking in information and there was a discrepancy between the debt shown in the statement of affairs of HK$5,657,000,000 and the proof of debts which total in excess of HK$8 billion. 

5.The provisional liquidators convened a meeting of creditors on 20 June 2013.  The creditors, in the normal way, were called upon to vote for a liquidator and a committee of inspection.  There were three nominations for liquidators: (1) Derek Lai and Darach Haughey of Deloittes; (2) John Batchelor and Fok Hei-yu of FTI; and (3) the provisional liquidators.  Fifty-four percent, in value of creditors, voted for Mr Lai and Mr Haughey.  The creditors voted in favour of there being a committee of inspection.  Nine companies were voted to the committee of inspection.

6.On 10 July 2013 the provisional liquidators issued a summons pursuant to section 206 of the Companies Ordinance for orders that Mr Lai and Mr Haughey be appointed liquidators and that a nine‑member committee of inspection be appointed.

7.On 2 August 2013, Shagang Shipping Company Limited issued a summons purportedly seeking an order under rule 45(2) of the Companies (Winding Up) Rules that Mr Batchelor and Mr Fok be appointed joint and several liquidators and that a committee of inspection of five be appointed. 

8.The Company has taken the point before me that Shagang was not entitled to make this application.  However, as it was clearly entitled to be heard on the provisional liquidators’ summons and seek the same orders, it seems to me that nothing turns on this.

9.The issue I have to decide today is whether I should make the order sought on the provisional liquidators’ summons or the orders preferred by Shagang.  The opposing camps divide along the following lines.  The Company, a group of creditors which are subsidiaries or associated with the HNA Group, and another group of six creditors which are ship charters (“CLC Creditors”), ultimately owned by the China Development Bank, which has provided a banking facility to the HNA Group of RMB 100 billion.  This group of creditors wishes the court to make an order in the terms of the provisional liquidators’ summons, although the CLC Creditors do not have a firm view on the composition of the committee of inspection, as long as they have a representative on it.

10.The other camp consists of Shagang and all the other creditors who have expressed a preference for Mr Batchelor and Mr Fok.  So far as the composition of the committee of inspection is concerned, the only evidence I have about this is to be gleaned from the results of the creditors’ meeting. It appears that Shagang are willing to serve on the committee of inspection along with Bulk Triumph Shipping Limited, Bulk  Majesty Shipping Limited, Hong Kong Chain Glory Shipping Limited, Hyundai Merchant Marine Co. Ltd, Bulk Harvest Shipping S.A., Everfortune Investment Holdings Company Limited, Ifchor Capes S.A. and MS Piro GmbH & Co. KG. 

11.At the hearing before me, the following parties appeared through counsel, in addition to the liquidator who appeared in person:  Shagang was represented by Mr Jose Maurellet; Miss Yvonne Fong appeared for the opposing contributory; Mr Paul Leung appeared for 13 creditors associated with the HNA Group; and Miss Bonnie Cheng appeared for the six CLC Creditors.

12.The position of the creditors who support orders consistent with the results of the meeting of creditors (and I note also the meeting of the sole contributory) is this.  Deloittes have suitable experience and resources to conduct the liquidation.  There is no evidence of them having any conflicts and there is no reason not to appoint them.  Similarly, there is no reason for the committee of inspection not to have a majority consisting of Bulk Triumph, members of the HNA Group and the CLC Creditors.

13.Shagang and the other creditors who prefer Mr Batchelor and Mr Fok are concerned at the appointment of a liquidator nominated by the Company and other creditors nominated by the opposing contributory and other creditors associated with it.  A significant part of the Company’s debts are between the Company and members of the HNA Group and require investigation.  They say it is unsatisfactory in these circumstances to have their nominee appointed.  They argue that somebody truly independent should be appointed who can work with a committee of inspection which consists of a majority of independent creditors.

14.During his submissions, Mr Maurellet put a gloss on the argument that appears in Shagang’s evidence.  He suggested that the nature of Deloitte’s practice in China, which includes audit and other transaction work for large and state owned enterprises, created the risk and certainly the perception that circumstances might arise in which they would not investigate all the affairs of the Company with sufficient vigour.

15.Section 194(1)(b) to (d) of the Companies Ordinance provides as follows:

“(b) the provisional liquidator shall summon separate meetings of the creditors and contributories of the company for the purpose of determining whether or not an application is to be made to the court for appointing a liquidator; (Amended 3 of 1997 s. 41; 46 of 2000 s. 24)

(c) the court may make any appointment and order required to give effect to any such determination, and, if there is a difference between the determinations of the meetings of the creditors and contributories in respect of the matter aforesaid, the court shall decide the difference and make such order thereon as the court may think fit;

(d)     the court may make any appointment and order as it thinks fit if the creditors and contributories of the company do not pass a resolution or do not meet; (Replaced 46 of 2000 s. 24)”

16.The court is not bound to appoint the liquidator chosen by the majority of creditors and contributories, although it will do so unless some reason is advanced by an interested party for doing otherwise.  The general principles which govern the approach of the court to the appointment of liquidators under section 194(1) are as follows:

(1)     The court has a wide and unfettered discretion in the exercise of this power.  It is not bound by the determinations of the meeting of the creditors or of the meeting of contributories, although the court will give due weight to their views[1].

(2)     In deciding whom to appoint as liquidators, the court will consider what is in the best interests of all persons interested in the winding up[2].

(3)     A liquidator is an officer of the court and should act impartially and in an even handed manner between all those interested in the winding up.  They must be independent and be seen to be independent.  It would be inappropriate to appoint someone as liquidator where there is some real prospect, even if small, of a conflict of interest in duty and the conduct of the liquidation.  However, the conflict must be real not theoretical and must be shown to be so by the person asserting it[3].

(4)     The fact that a creditor is funding the liquidation is not a reason for criticism…rather than the case of an insolvent company, a creditor is to be encouraged to make funds available to liquidators[4].

17.Mr Maurellet emphasised the need for the liquidator to be impartial and have the confidence of creditors.  He reminded me of Yuen J’s, as she then was, statement in Re Akai[5] that:

“It is well established that liquidators should not only be independent and impartial, but also be seen to be so.”

I accept that as Thomas J says in Re Club Superstore[6] that:

“It is of the greatest importance that there should be no possibility of criticism attaching to one of the court’s own officers on the ground of conflict of interest. The liquidator needs to be seen to be independent in any matter which his duties as liquidator may require him to investigate.”

18.The court should also have regard, argued Mr Maurellet, to whether the views of the majority represent the views of the interests they purport to represent (see Re Chyau Fwu[7]and Re Goldcone[8]). Concerns about a liquidator’s independence and the motives of particular creditors nominating them which merit the court interfering in the decision of the majority must, however, be based on real rather than theoretical grounds. I now turn to consider whether this is such a case.

19.There is no dispute that Deloittes have the necessary expertise, experience and resources to undertake the liquidation of the Company.  It seems to me unsurprising that Bulk Triumph and the HNA Group would have given consideration to who would be a suitable liquidator before the meeting of creditors and to have been advised (as the Bulk Triumph says it was) that Deloittes would be appropriate.  This is an unsurprising recommendation.

20.There is no evidence that Deloittes have any conflict of interest.  On the basis of the evidence that has been filed, it appears that they were objected to because they were nominated by Bulk Triumph and the HNA Group creditors.  Shagang has no particular concerns about Mr Lai and Mr Haughey.  Mr Maurellet’s explanation of what kind of concerns might underlie Shagang’s discomfort may be the sort of things that would worry a creditor, but it seems to me that they fall into the theoretical category, rather than the real.

21.I note at this juncture that although the provisional liquidators have identified some concerns over part of the proofs submitted by members of the HNA Group creditors, there is currently no reason to doubt that Bulk Triumph, members of the HNA Group creditors and the CLC Creditors hold well in excess of 50 per cent of the Company’s debt.  Weight should be given to their views unless there is a real reason not to do so.

22.Although I can understand Shagang and the other creditors allied with them having a preference for a liquidator of their choice, I do not think that that alone is a reason to override the views of the majority in the present case and in substance that is what their case amounts to.

23.I will therefore make (subject to one matter which I will return to at the end of this judgment) an order appointing Mr Lai and Mr Haughey as the joint and several liquidators of the Company.

24.So far as the committee of inspection is concerned, I think the considerations weigh slightly, but materially, in a different direction.  It is perfectly proper for the CLC Creditors and the HNA Group creditors to have representation on the committee of inspection; indeed, I think it is desirable.  However, I take the view that it would be appropriate to ensure that a proper investigation of the affairs of the Company is not only undertaken, but seen to be undertaken, and that the majority of the committee of inspection consist of creditors other than Bulk Triumph, members of the HNA Group and the CLC Creditors. 

25.I will therefore make an order that there be a further meeting of the creditors to vote upon the members of the committee of inspection on the following basis; that the committee will consist of a majority of creditors other than Bulk Triumph, companies forming part of the HNA Group and the CLC Creditors.  The committee of inspection should consist of not less than five members and not more than seven members.

26.So far as costs are concerned, I will make a costs order nisi that the costs of the provisional liquidators are paid out of the assets of the Company.  So far as the costs of the other parties appearing before me today are concerned, in my view, given the result, it is appropriate to simply make no order as to costs.  If any party wishes to challenge this costs order nisi, they should notify the court within 12 clear days of today’s date, that being 6 November 2013.

27.The final matter I would mention is this; the provisional liquidators should write to Mr Lai and Mr Haughey within seven days seeking their confirmation that Deloitte Touche Tohmatsu do not act and have not acted in the previous five years for any company owned wholly or in part by a member of the HNA Group or owned wholly or in part by the China Development Bank.  If they do, I give leave for any of the parties who have appeared before me today to make further representations to the

court and the order that I make will include general liberty to apply.

Mr Jose Maurellet, instructed by Holman Fenwick Willan, for the petitioner

Miss Yvonne Fong, instructed by Clement Ng & Co, for Bulk Triumph Shipping Limited/an opposing contributory/a Creditor

Mr Paul Leung, instructed by Hastings & Co, for the HNA Group and the Creditors:

(1)  HNA Group Company Limited (海航集團有限公司)

(2)  Grand China Shipping (Yantai) Company Limited (大新華輪船(煙台)有限公司)

(3)  Grand Shipping Development Company Limited (上海大新華航運發展有限公司)

(4)  Hong Kong Chain Glory Shipping Limited (香港進榮航運有限公司)

(5)  Grand Ocean Investment and Development Limited

(6)  Mega Bulk Holdings Limited

(7)  金海重工股份有限公司

(8)  Grand Niger Shipping Limited

(9)  Bulk Majesty Shipping Limited

(10)   上海大新華國際船舶管理有限公司

(11)   Grand Rhine Shipping Limited

(12)   East Bright Shipping Limited (東明船務有限公司)

(13)   Everfortune Investment Holdings Company Limited (恆運投資控股有限公司)

(14)   天津市天海海員服務有限公司

Ms Bonnie Cheng, instructed by William K K Ho & Co, for the CLC Creditors:

(1)  Well Far Limited

(2)  CLC Ship Chartering-II Co., Limited

(3)  CLC Ship Chartering-III Co., Limited

(4)  CLC Ship Chartering-IV Co., Limited

(5)  CLC Ship Chartering-V Co., Limited

(6)  CLC Ship Chartering-VI Co., Limited

Mr Wong Sun Keung of Vision A.S. Ltd, the Joint and Several Liquidators of the company

The Official Receiver did not appear

Attendance of Mayer Brown JSM for the creditor, Spar Spar Shipping A.S., was excused