Re Lehman Brothers Commercial Corporation Asia Ltd

HCCW 441/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 441 OF 2008

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D E C I S I O N

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1.I have before me a summons issued on 12 December 2013 by the joint and several liquidators of Lehman Brothers Commercial Corporation Asia Limited, which is in liquidation, for orders that:

“1. The proof of debt filed by Lehman Brothers Asia Holdings Limited (“LBAH”) and admitted in the liquidation of the Company for the amount of US$1,767,434,537.26 be reduced by the sum of US$1,632,953.68;

2. The proof of debt filed by LBAH and admitted in the estate of the Company in the sum of US$18,205,287.62 be expunged;

3. That the Liquidators deduct from future interim dividends payable to LBAH an amount equal to the value of any overpaid dividends received by LBAH to date until full credit has been given for such overpayment;...”

2.The liquidators of the applicant are the same as the liquidators of the respondent and the application is not disputed.  It is not necessary for me to describe the relevant liquidations, the background to which is well known.

3.The applications to correct proofs of debts which have been filed by LBAH and adjudicated by the applicant liquidators arises as a result of the liquidators reassessing the proofs as their understanding of the trading and settlement activities between the company and LBAH and associated companies has been better understood.  It is not necessary for me to go into the precise reasons why, as a consequence, the liquidators have concluded that the amount of the first proof of debt needs to be reduced by US$1,632,953.68 and the second proof of debt expunged in its entirety.  Suffice it to say that I can see no reason to doubt the applicant liquidators’ assessment.

4.Winding-up Rule 96 provides that: 

“If the liquidator thinks that a proof has been improperly admitted, the court may, on the application of the liquidator, after notice to the creditor who made the proof, expunge the proof or reduce its amount.”

There is, therefore, clear jurisdiction for the court to grant the orders sought.

5.The only complication arises in respect of the way in which overpayments which have been made as a consequence of the declaration and payment of interim dividends should be dealt with.  In England, Insolvency Rule 86, rule 11.8(3), provides that if a proof is expunged or reduced, the creditor is liable to repay the responsible insolvency practitioner any overpaid dividend.  In Hong Kong, we have no similar rule in our winding-up rules.  The position, therefore, needs to be considered by reference to the established common law position.  There have, unsurprisingly, been few decisions considering the position at common law. 

(1) Ex Parte Harper, re Tait (1882) Ch D 537 stands for the proposition that although a proof of debt is expunged, the creditor in question will be entitled to retain any dividend previously received:-

“... no injustice can be done, because any dividends which have been already paid are allowed to be retained by the creditor, and the expunging affects only the right to receive future dividends.” (at541, per Jessel M.R.)

(2) This case must be read together with Re Searle, Hoare and Company [1924] 2 Ch 325, in which it was held that:-

“...there is nothing in the statement of Jessel M.R. which warrants the proposition that, where there is a common fund which is being administered for the eaual benefit of all the creditors, a creditor who has been paid out of that fund more than was due to him is entitled to receive further moneys out of the fund without first giving credit for the overpayment. The mere fact that the trustee cannot recover either payments made to a person whose proof is subsequently expunged or overpayments made to a creditor whose proof is subsequently reduced does not, in my opinion, prevent the operation of the well-known principle of equity that a beneficiary who has benn overpaid is not entitled to receive any further payment out of the trust fund until the payments to the other beneficiaries are levelled up to the amount received by the overpaid beneficiary – a principle which, in my opinion, is applicable to the facts of the present case.” (at 328, per Lawerence J).

6.There are no Hong Kong authorities addressing this point.  In my view, the position at common law stated in the two authorities to which I have just referred should be followed in Hong Kong.  That being so, the provision for effectively a set off sought by way of paragraph 3 of the applicant liquidators’ summons is appropriate and necessary. 

7.I will therefore make an order in the terms of paragraphs 1, 2, 3, 4 and 6 of the summons.

Ms Rachel Lam, instructed by Mayer Brown JSM, for the applicant