RE TEXXAN INDUSTRIES LTD

HCCW000151A/1990

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING-UP)

NO. CWU 151 OF 1990

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IN THE MATTER OF TEXXAN INDUSTRIES LIMITED (In Voluntary Liquidation) and IN THE MATTER Of The companies ordinance, Cap. 32

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AND	NO. CWU 152 OF 1990

 

IN THE MATTER OF chino industries Limited (In voluntary Liquidation) and IN THE MATTER of the Companies ordinance, Cap. 32

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Coram: Hon. Jones J. in Court

Dates of hearing: 17 and 18 September 1990

Date of delivery of judgment: 25 September 1990

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JUDGMENT

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1. Petitions for the compulsory winding up. of Texxan Industries Limited (Texxan) and Chino Industries Limited (Chino) were presented on behalf of John Koon (the petitioner) on the 22nd May 1990

2. Both companies are insolvent and are in voluntary liquidation.

3. The facts are similar in both cases so that the petitions have been heard together.

4. The companies were incorporated on the 27th March 1981 with Texxan having a paid-up capital of $5,001,000 and Chino a paid-up capital of $201,000. As a result of a restructuring of the companies in June 1988, the two companies became wholly owned by a Bermuda company, Texxan Consolidated Limited which is beneficially owned in equal shares by the petitioner and a group of companies called the Yue Xiu Group (the Yue Xiu group).   The Yue Xiu group is a group of companies established by the Guangzhou Municipality of the People's Republic of China which is engaged in a wide spectrum of financing and trading activities in Hong Kong, China and overseas.

5. The Yue Xiu group claims that Texxan is indebted to four companies within the group for a sum of about $157,000,000 whilst a claim is also made that Chino is indebted to seven companies in the group for about $95,000,000.  The petitioner also claims that Texxan is indebted to him for a sum of over $836,000 and that Chino is indebted to him for a sum of about $136,000.

6. The petitioner has also referred in the petitions to various personal guarantees that he intends to challenge for sums due by Texxan to the Hongkong & Shanghai Banking Corporation Limited for a sum of over HK$28 million, Security Pacific Asian Bank Limited for a sum of over HK$1.3 million and US$1.4 million, Yue Xiu Finance Company Limited for a sum of over HK$68 million and the Nanyang Commercial Bank Limited for HK$1.4 million and US$1.8 million. In respect of Chino, the guarantees relate to a sum of over HK$6.5 million due to the Hongkong & Shanghai Banking Corporation Limited, HK$7.3 million to Security Pacific Asian Bank Limited and HK$92.8 million due to the Yue Xiu Finance Company Limited. It is also alleged that debts are owed by Texxan and Chino to a supporting creditor Texxan Sealand Transportation Company Limited, a company which is controlled by the petitioner.

7. As at the 7th March 1990, the board of both companies ocnsisted of nine directors, five having been nominated by the Yue Xiu group and four, including the petitoner, who had been nominated by the petitioner. On the 7th March 1990, the five Yue Xiu directors made statutory declarations that the companies by virtue of their liabilities could not continue in business and that it was necessary for the companies to be wound up under section 228A of the Companies Ordinance. On the 8th March 1990, the Yue Xiu directors passed a resolution that Mr M.C. Nacson and Mr E.M. McMillan, partners in the firm of Arthur Andersen & Co. should be appointed joint provisional liquidators of the companies.

8. At the first creditors' meeting of Texxan on the 3rd April 1990, Yue Xiu Enterprises Limited proposed and Yue Xiu Finance Co. Ltd. seconded Messrs. Nacson and McMillan as joint liquidators while Security Pacific Asian Bank Ltd proposed and Nanyang Commercial Bank Ltd. seconded Mr N.P. Etches and Mr J.L. Lancaster, partners in KPMG Peat Marwick to be liquidators. The Yue Xiu companies' aggregate value of debts amounted to HK$128,046,790 as against the opposition of 25 other creditors whose aggregate ,value of debts amounted to HK$28,445,095 with the result that Messrs Nacson and McMillan were appointed to be the joint liquidators. Messrs Nacson and McMillan. were also appointed joint liquidators at the first creditors' meeting of Chino on the 11th April 1990 when the Yue Xiu companies' aggregate value of debts voted by them amounted to HK$117,745,274 as against the opposing creditors whose aggregate value of debts voted amounted to $5,689,115.

9. The basis for the petitioner's application that the companies be wound up compulsorily by the court relates to the conduct of Messrs Nacson and McMillan as partners of Arthur Andersen & Co. that they are neither unbiased nor independent and are not seen to be unbaised and independent due to the heavy involvement of their firm as advisers of the Yue Xiu group and the part that their firm played in advancing the interests of the group to the detriment of the other creditors. It is therefore alleged that the liquidators are not capable of dealing fairly and objectively with matters that require their investigation and action.

10. Specific allegations are then made by the petitioner that Arthur Andersen & Co. were retained as professional advisers of the Yue Xiu group of companies in relation to the affairs of Texxan and Chino and included assisting the Yue Xiu group prior to the making of the statutory declarations under s. 228A which resulted in the Yue Xiu directors obtaining de facto control of the affairs of the two companies, that prior to the making of the statutory declarations they assisted the Yue Xiu group to procure payments by the companies trade debtors of sums owing to the companies to be made to creditor banks, in particular the Sanwa Bank and the Bank of Tokyo which enured to the benefit of the Yue Xiu group and to the detriment of the general body of creditors. These payments also give rise to a belief that they may have amounted to fraudulent preferences under s.266 of the Companies Ordinance. It is also alleged that Arthur Andersen & Co. assisted the Yue Xiu group in respect of a debt restructuring proposal in relation to banking facilities obtained or guaranteed by members of the group and made available to the two companies. Complaint is also made that investigations were made on behalf of the Yue Xiu group with regard to certain trade debts of the companies and in particular those owed by the Rigging Group in Taiwan after the joint liquidators had been appointed.

11. On the 21st March 1990,, the petitioner's solicitors wrote to the joint liquidators enquiring whether there would be a conflict of interest in acting as liquidators for Texxan and Chino having regard to the fact that they had previously acted for the Yue Xiu group of companies. The liquidators' solicitors replied that they were surprised at this enquiry. On the 2nd April 1990, the peititioner's solicitors wrote to the liquidators' solicitors setting out the reasons as to why Messrs Nacson and McMillan should step down. This letter reads as follows :-

		"Dear Sirs, Texxan Industries Limited (In Liquidation) ("Texxan") Chino Industries Limited (In Liquidation) ("Chino")         We refer to our letter to you dated 31st March 1990.               We hope that by revealing to you some of the evidence we have in hand your clients, the Joint Provisional Liquidators of Texxan and Chino (Mr Michael Nacson and Mr Eoghan M. McMillan), will stop denying or not admitting that their firm, Arthur Andersen & Co., has acted for Yue Xiu in relation to the Texxan and Chino matter.               Having this point settled, we consider that it is not appropriate for your clients to act as the Provisional Liquidators of Texxan and Chino and to seek, if they so intend, appointment as Liquidators of these 2 companies at the coming First Meeting of Creditors of each of these 2 companies. This is because by wearing 2 hats your clients will be in a conflict of duties situation and will not be seen to be independent. Particulars of our case are as follows :-
	1.	Setting aside of fraudulent preference

	The liquidator of an insolvent company is under  a duty to set aside fraudulent preference under Section 266 of the Companies Ordinance.
	On or around 31st January 1990, Yue Xiu sent a team of people to the office premises of Texxan and Chino to check the accounts and co-manage the operation of Texxan and Chino. Of this team of people; 3 persons, namely Carol Yu, Patrick Wong and Gary Lui, are now found to be staff of Arthur Andersen & Co. At that time they represented that they were staff of Yue Xiu. This team of people stationed at Texxan and Chino until their liquidations.
	On taking part in the operation of Texxan and Chino, Yue Xiu and the Yue Xiu team insisted and directed that incomes of these 2 companies had to be paid into the companies' bank accounts maintained with Sanwa Bank and Bank of Toyko. Texxan and Chino owed these 2 banks substantial sums of moneys over which Yue Xiu has given guarantees. This raises a case for investigation with regard to fraudulent preference and Mr Nacson and Mr McMillan will, inevitably, be in a conflict of duties situation.
	We note in passing that Arthur Andersen & Co. was instrumental in assisting Yue Xiu having the incomes of Texxan and Chino putting into the said 2 bank accounts as .-

           

(a)	The said Carol Yu had taken part in searching for and collecting all cheques, letters of credit and bills of lading of Texxan and Chino and handed them over to the Yue Xiu team.
(b)	Arthur Andersen & Co. had certified certain board minutes of Texxan Consolidated Limited' ('concerning incomes of the Texxan Group to be put into, inter alia, Texxan's bank account with Sanwa Bank) for Yue Xiu to distribute to the debtors of Texxan and Chino.

How can Mr Nacson and Mr McMillan be seen to be independent if they are to investigate their own staff's and own firm's  acts?

2              Duty to act in the best interests of the creditors

	The liquidator of an insolvent company is under a duty to act in the best interests of the creditors.
	Texxan is a party to several joint venture projects in China to which Yue Xiu is either a partner or has provided guarantee. We understand that Yue Xiu is now seeking to take over Texxan's interests in these joint venture projects. In particular, Yue Xiu and another joint venture partner are negotiating with the Joint Provisional Liquidators to take over Texxan's shares in Green Place Limited which has entered into an equity joint venture agreement with Fei Tian Trading Company of Gansu Province, China for the development and operation of Fei Tian Hotel in Gansu. On negotiating for the terms and conditions of such take over, Mr Nacson and Mr McMillan will face a conflict of duties situation. How can they serve 2 masters whose interests are conflicting?
3.	Duty to examine the validity of loans
	The liquidator of an insolvent company is under a duty to examine the validity of loans advanced to the company.
	A number of loans advanced by Yue Xiu to Texxan and Chino may not be enforceable because of, inter alia, non-compliance of the provisions of the Money Lenders Oridnance. Again Mr Nacson and Mr McMillan will face a conflict of duties situation. Should they act in the interests of Texxan and Chino or should they act in the interests of Yue Xiu?
4.	Independent investigation of the company's affairs
	Texxan and Chino are in fact 2 quasi-partnerships between Yue Xiu and our client as each party indirectly holds 50% of the equity interest of these 2 companies. Upon the down fall of these 2 companies, there are, and will be, a lot of disputes between the 2 partners, Yue Xiu and our client. As such, our client is entitled ordinarily to have these 2 companies' affairs investigated by a liquidator who is not merely independent but who can be seen to be independent. As Arthur Andersen & Co. has acted for Yue Xiu in relation to the Texxan and Chino matter, how can Mr Nacson and Mr McMillan be seen to be independent?
	Further, information acquired by Mr Nacson and Mr McMillan may 'accidentally' be passed to Yue Xiu.  Take an example, we note that a letter from the Joint Provisional Liquidators to the Government Printing Department dated 14th March 1990 was 'cc' to 'Yue Xiu Enterprises Ltd. (Attn Mr Liang Ning Guang)'. Why should the Joint Provisional Liquidators copy this letter to Yue Xiu Enterprises Ltd? Did they appreciate the difference between 'cc: Yue Xiu Enterprises Ltd (Attn. Mr Liang Ning Guang)' and 'cc: Mr Liang Ning Guang'? Has and will other information be 'mistakenly' passed by the Joint Provisional Liquidators to Yue Xiu? All these queries make our client's mind not at ease and cause him to doubt Mr Nacson's and Mr McMillan's independence.

In the premises, we strongly urge your clients to step down at their own accord at the First Meetings of Creditors of Texxan and Chino. If they seek to be appointed as Liquidators and are so appointed, we have firm instructions from our client to take legal proceedings to apply for their removal.

Yours faithfully, Sd. (Daniel Lam, Simon Cheung & Co.)"

                                                                                                                                  

13. It has been emphasized on behalf of the petitioner that the joint liquidators' former solicitors Lovell White Durrant, who had also acted for some of the Yue Xiu companies, had expressed the opinion that although there was no apparent conflict between the interests of the Yue Xiu group and the liquidators, it would be preferable if the liquidators were advised by another firm which resulted in a change of solicitors. A reply to this letter was sent by the liquidators' solicitors on the 11th April which reads as follows .-

                "Dear Sirs,

Texxan Industrial Ltd. (In Voluntary Liquidation) Chino Industrial Ltd. (In Voluntary Liquidator) ("the Companies")

We refer to your letter dated 2nd April, 1990. In responding to the paragraphs of your letter, we shall adopt the same numbering as that used by you :

                1.             Setting aside of fraudulent preference

We would draw to. your attention a Notice of Appointment dated 9th February, 1990, a copy of which is enclosed. As you may note, the Notice of Appointment by Texxan Consolidated Ltd. (the sole beneficial owner of the entire issued share capital of Texxan and Chino) relates to the appointment of, inter alia, the following

	(a)	Mr Li Hai Chao as Deputy Financial Controller. His major duty was to assist the Financial Controller of Texxan Consolidated Ltd. in handling all the financial and accounting matters.
	(b)	Mr Paul Z. Wu as Accounting Manager. His major duty was to assist the Deputy Financial Controller of the Texxan Group in handling all financial and accounting matters.
	Both Messrs. Li and Wu were, prior to their engagement, employed by the Yue Xiu Group.

However, as evidenced by the Notice of Appointment, both gentlemen were ultimately to report to the Financial Controller of the Texxan Group. The Financial Controller at the date of the appointment, Mr Michael Chan, had no connection with the Yue Xiu Group of Companies whatsoever.  By virtue of a resolution passed at an Extraordinary Meeting of Members of Texxan Consolidated convened on 7th February, 1990, the said Paul Wu was (following his aforesaid   appointment) to be held responsible for all the import and export documents of the Texxan Group, including letters of credit, bills of lading, etc.   At the request of several directors, Carol Yu, Patrick Wong and Gary Lui, professional accounting staff below the grade of managers, were seconded from our client's firm to assist Messrs Li and Wu in discharging their said appointments with the Texxan Group.   At all material times, Miss Yu and Messrs. Wong and Lui reported directly to Messrs. Li and Wu whose principal was Texxan Consolidated Ltd.   We enclose for your attention minutes of the said Extraordinary Meeting of members of Texxan Consolidated Ltd. dated 7th February, 1990. We also. enclose a copy of the minutes of an Extraordinary General Meeting of the members of Texxan Consolidated Ltd C held on or about February 15, 1990 the effect of which was to amend the resolution referred to in paragraph 2 of the minutes dated 7th February, 1990.   As you may note, the meeting was attended by the two shareholders of Texxan Consolidated Ltd., namely Simister Investment Ltd. and Goldstars Enterprises Inc. who were represented by a nominee of Yue Xiu and Your client respectively.   The following resolutions as amended were passed at those meetings:

           

1.	With the exception of the transactions listed in (2) below, all revenue arising from transactions of the Group as a whole have to be deposited into the following accounts:-

(a)	Chino Industries Ltd. Bank of China US$ Savings Account - A/C No.01287590040315
(b)	Texxan Industries Ltd. Sanwa Bank Ltd. Account No.06891311498910
The revenue mentioned above are to be applied to repay the various debts of the Group. The Board of Directors will be held responsible for all the details of the implementation procedures. The aim of this resolution is to protect the interests of all creditors.

2.

In view of the overdue debts due to Dai-Ichi Kanyo Bank and Bank of Tokyo are well over US$1.2 million and the 2 banks have pressed vigorously for the settlement of the debts, failing which actions will be taken to recover the debts. Accordingly, all shareholders unanimously agreed to amend the resolutions passed at the EGM held on 7th February, 1990. Instead of depositing in Sanwa Bank and Bank of China, the following sales proceeds will be deposited with Bank of Tokyo and Dai-Ichi Kanyo Bank for the settlement of debts. Revenue arising from the following transactions will be applied to repay the Group's liabilities due to Sanwa Bank Ltd.

Customer	Invoice No	Amount	For Repayment
Ssangyong (Hong Kong) Ltd.	TX/90201	US$254,250.00	Bank of Tokyo
	IX/90202	US$254,250.00	Bank of Tokyo
	TX/90203	US$343,508.00	Bank of Tokyo
ZhuhaiSesDevelopment Imp. &  Exp. (Group) Co.	TX/801208	US$199,898.00	Dai-Ichi Kanyo
	TX/891209	US$249,849.84	Dai-Ichi Kanyo
	TX/891210	US$200,440.00	Dai-Ichi Kanyo

3. Mr Koon Kin Chung will contact Ssangyong (Hong Kong.) Ltd. to arrange the sale proceeds to be remitted to Bank of Toky

Simister Investments Ltd.

Represented by:

_____________________

Li Hai Chao

Goldstar Enterprises Inc.

Represented by:

_____________________

Koon King Chung'

 

	It is pertinent to note that the Notice of Appointment and both Minutes of the Extraordinary General Meetings were signed by your client who attended both meetings and voted in favour of the resolutions.
	In the premises, it surely could not have been missed by your client that the resolutions which your client voted in favour of on behalf of one of the major shareholders of the Company, were passed for the specific purpose of protecting 'the interests of all the creditors'. Furthermore, the sales proceeds referred to in Paragraph 2 of the minutes were deposited into, inter alia, the Bank of Tokyo because they had pressed vigorously for the settlement of the debts due from the Companies and had threatened the institution of proceedings in the event of continued default.
	Hence the question of fraudulent preference does not arise and we are surprised that this issue was raised by your client particularly when the aim of one of the resolutions was avowedly passed 'in the interests of all the creditors' (emphasis supplied).
2.	Duty to act in the best interests of the creditors
	Contrary to your assertions, the Joint Provisonal Liquidators have not entered into any negotiations whatsoever regarding Texxan's shares in Green Place Ltd. or any other joint venture project in China for that matter.   However, our clients are aware that the banking creditors of Green Place Ltd. have threatened actions which will jeopardise the hotel project and the shareholders' substantial investment made therein. The solicitors for the creditors have invited proposals to resolve the situation. Our clients will therefore be examining any and all alternatives in conjunction with the other shareholders in Green Place Ltd. and its creditors in an endeavour to achieve a satisfactory resolution of the matter to ensure a maximum realisation of Texxan's investment for the benefit of all its creditors.
	Furthermore, whatever proposals are recommended by our clients will perforce have to be sanctioned by the Committee of Inspection.   In the circumstances, our clients consider the allegations of a conflict of interest entirely unwarranted and take exception to the same.
3.	Duty to examine the validity of loans Our clients are fully aware and do not need to be reminded of their duties and obligations to examine the validity of all creditors claims in the course of the proving and admission of debts in the winding-up.   Our clients do not propose to entertain at this juncture the broad allegations made by you regarding purported loans advanced by Yue Xiu to the Companies. If in the course of our clients' investigations loans of this nature are established, our clients will consider the validity of the same in the light of all the circumstances including, inter alia, the provisions of the Money Lender's Ordinance and in particular Part 2 of schedule 1 relating to 'exempted loans'.
4.	Independent investigation of the Company's affairs   With regard to your allegation that Arthur Andersen & Co. has acted for Yue Xiu in relation to the Texxan and Chino matter, we would refer You to the comments made in paragraph 1 herein.   Suffice to say our clients have far more pressing matters in dealing with the safeguarding and recovery of assets of the Companies than to conjecture at this stage as to the possibility of disputes arising between Yue Xiu and your client.   The letter to which you refer from our client to the Government Printing Department dated 14th March, 1990 concerned the publication in the Government Gazette of Notice. of Winding-up and Appointment of Provisional Liquidators.   This letter was not 'accidentally' passed, as you allude, to Yue Xiu. A copy of the letter and enclosure was circulated both to Mr Liang Ning Guang (care of Yue Xiu Enterprises Ltd.) and your client in their capacities as directors of the Companies. We enclose a copy of the letter from which you may note at the bottom left hand corner 'cc: Mr John Koon'.   In the circumstances, our clients consider your suggestion that information pertaining to the winding-up and affairs of the Companies has and will be 'mistakenly passed to Yue Xiu' vexatious and therefore do not consider any further comment warranted.   Our clients consider the allegations made in your letter regarding a conflict of interest as a result of their appointment unjustified and without foundation for the reasons stated herein. Our clients have established over the years a reputation in acting as Liquidators, for performing their duties with the utmost probity and independence in the interests of the general body of creditors as a whole. In the premises any challenge to their appointment as liquidators duly appointed by a majority in value of the creditors of the Companies will be vigorously contested.

                   

Yours faithfully

Alsop Wilkinson"

16. A specific complaint by the petitioner is that Mr Meocre Li who is a partner with Arthur Andersen & Co. represented to him in February 1990 that he was an internal auditor of the newly established Internal Auditing Department of the Yue Xiu group. It is also alleged that Mr Meocre Li and Miss Carol Yu who worked for Arthur Andersen & Co. went to Taiwan as representatives of the Yue Xiu group to investigate certain disputed trade debts owed by the Rigging group to the Texxan group.

17. It is further alleged in  the petition that it is necessary for the liquidators to investigate as to whether there has been any fraudulent preference in favour of the Yue Xiu group and whether payments made for the benefit of the group are voidable under s.266 of the Companies Ordinance, and whether certain loans made by Yue Xiu Finance Co. Ltd. and other members of the group to the companies are unenforceable by virtue of s.18 of the Money Lenders Ordinance.

18. Mr Nacson and Mr Meocre Li have filed evidence in response to the allegations made in the petitions and the answers that  they have given are uncontradicted. Further, both Mr Nacson and Mr Li made themselves available for cross-examination upon their affidavits, but counsel for the petitioner and supporting creditors declined to avail themselves of this opportunity. It emerges from Mr Nacson's affidavit of the 7th June 1990 that none of the Yue Xiu directors took any active part in the management of the affairs of the two companies until February 1990 and were not appointed to the board of directors of the companies until the15th January 1990. Accordingly, until February 1990, the petitioner as the managing director and his nominee directors were in de facto control of the two companies. In paragraph 4 of his affidavit, Mr Nacson sets out the role of the Yue Xiu group as follows :-

"The Yue Xiu Group's principal role was to provide and procure for the benefit of the Company and Chino credit and trade finance facilities in connection with their trading activities and businesses. In most instances finance facilities were extended by banks to various members of the Yue Xiu Group as primary obligors subject however to a mandate which enabled either the Company and/or Chino to utilize the facilities as beneficiaries. In those instances where finance facilities were extended directly to the Company and/or Chino directly by their bank creditors, the same were guaranteed by the Yue Xiu Group either solely or jointly with the exception of two facilities extended by Security Pacific Asian Bank and the Nanyang Commercial Bank respectively."

19. It is significant to observe from Mr Nacson's affidavit that at the first meeting of the creditors of the companies, he invited those bank creditors who opposed his appointment and that of Mr McMillan as liquidators together with a representative of the employees to serve on the committee of inspection and also to nominate either Mr Etches or Mr Lancaster. Both committees of inspection include representatives from the Security Pacific Asian Bank Limited, Hongkong & Shanghai Banking Corporation Ltd., Yue Xiu Finance Ltd., Miss Lui Siu Mei, the representative of the employees whilst there is representative of KPMG Peat Marwick on the Chino committee, and a representative of the Nanyang Commercial Bank Ltd. on the committee of Texxan.

20. Mr Nacson has referred in his affidavit to the total exposure of the Yue Xiu group with regard to liabilities incurred by the companies as at the 8th March 1990 which amounted to over HK$192 million and that the petitioner's liabilities under his personal guarantees without taking into account the additional security held by Security Pacific Asian Bank and Nanyang Commercial Bank amounted to over HK$18 million Accordingly, as the bulk of the financial support was provided by the Yue Xiu group to the companies and the liabilities incurred by them, it would therefore be difficult to envisage a situation where any payment by a trade debtor to reduce either of the companies liabilities would not enure to the benefit of the group. In fact all the facilities provided amounted to an aggregate of over 90% a of the liabilities of the companies having been underwritten by the Yue Xiu group either as primary obligor or as guarantor.

21. With regard to the allegation of conflict, Mr Nacson in his affidavit states that it is quite common for liquidators to be appointed who are partners in the firm that carried outan internal audit at the request of directors who are doubtful as to the solvency of their company and are considering whether to resolve to cease trading and put their company into voluntary liquidation. In those circumstances, he states that he is careful to ensure that the liquidation is carried out fairly to all the creditors and that a clear distinction is drawn between the firm, acting as advisers to the companies directors and liquidators who happen to be partners in the firm. With regard to the two companies, he said that Mr Meocre Li has provided the liquidators with information, gained in the course of the internal audit of the companies and as a result of his visit to Taiwan which was upon the liquidators' instructions, but the liquidators have not provided Mr Meocre Li with any information.

22. Finally, he deals with the work that has been carried out following the appointment on the 7th March which has included the investigation of. the affairs of the companies by taking appropriate action to recover assets for the benefit of the creditors, investigation of numerous files and documents and the consideration of claims and admissions of proofs of debt.

23. Mr Kotewall, counsel on behalf of the liquidators, commented that it was not clear in view of the allegations that have been made by the petitioner as to why the more convenient and less expensive mode of proceeding for the removal of the liquidators had not been taken under s.252(2) of the Companies Ordinance whereby "a court may, on cause shown, remove a liquidator and appoint another liquidator". The words "due cause shown" were considered by Bowen L.J. in Re Adam Eyton & Co. (1887) 36 Ch.D.299 at 306 where he had this to say :-

"In many cases, no doubt, and very likely, for anything I know in most cases, unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shown. In order to define 'due cause shown' you must look wider afield, and see what is the purpose for which the liquidator is appointed. To my mind the Lord Justice has correctly intimated that the due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation."

In Re Sir John Moore Gold Mining Company (1879), 12 Ch.D.325, Thesiger, L.J. also had to consider these words when hesaid at 332:-

"...whatever be the meaning of the words 'on due cause shown' in sect.141, they cannot mean that it is to be a pure matter of judicial discretion whether a liquidator is to be removed or not. I make this observation because in several cases in this Court it has been held that where the Judge of first instance has a discretion' this Court will not interfere with its exercise unless it is manifest that it has been wrongly exercised. Here it seems to me that a liquidator has a right to say in this Court, as well as in the Court of first instance, that he is not to be removed unless due cause is shown; and if an order has been made by the Court below to remove him, such order can only be sustained on the ground that this Court is satisfied that due cause for his removal has been shown."

Further judicial comment was made by Millett J. in Re Keypak Homecare [1987] BCLC 409, where at 415 he had this to say :-

"The section authorises the court to remove the liquidator 'on cause shown'. That is not the same as saying 'if the court  shallthink fit'. There is a burden on the applicant to show cause why the liquidator should be removed."

And later at p.416 said :-

"... the words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause which is. required. Circumstances vary widely, and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation."

24. Mr Kotewall went on to submit that even if it may be undesirable for a person connected with a company to be appointed as liquidator, when it comes to removal for cause, the interest of the liquidation must be considered and cited a passage from the judgment of Marks J. in Re TEA (1983) Ltd. (1984)2 ACLC 183 where he had this to say at 188 :-

"It must be conceded that in normal circumstances the Court will not appoint a liquidator who is not thoroughly independent and apparently so. I accept that appearances are important even though they may be deceptive of the true situation.  .... The facts and matters that are detailed by Mr Crawford in para. (5) of the affidavit to which I have referred and his evidence, suggest a degree of absence of complete independence which the Courts ideally would prefer. However, the connections referred are, on the present material, very tenuous and not shown to be of consequence. Such as they are, they must be considered against the background of practical and overall interest of the winding up. Absolute purity in this area is an ideal that may not be reachable. In all cases the realities must be faced. ... The important characteristics of a liquidator are integrity, competence, efficiency, prompt attention to the work of liquidation, readiness to come to Court. when a problem arises and knowledge of the work of the liquidation. There is nothing put before me to suggest that the nominees have other than these characteristics.

 

It has been the experience of the Court in the past that they do. Considered together with the work already done and the. knowledge gained thereby of the company's operations, and the state of its affairs, all these matters in my view outweigh the factors put forward against their appointment.

 

25. A clear majority in aggregate amount of value of the debts supports the continuation of the voluntary liquidations and the aggregate of debts of the Yue Xiu group, Hongkong &. Shanghai Bank and National Commercial Bank amount to approximately HK$200 million, but even if the debts due to the Yue Xiu group are disregarded, the sum is still in excess of HK$44 million whereas the total aggregate of the debts of the petitioner and his supporting creditors amounts to approximately HK$14 million.

26. Both Mr Nacson and Mr McMillan are very experienced professional men in insolvency work and no grounds have been put forward to impugn their integrity or efficiency in carrying out the present liquidations. Further, no allegation has been made that they are unfit to do so. The liquidators are well acquainted with the liquidations which have now been in process for almost seven months. Quite clearly, if other liquidators are to be appointed, this will result in delay, additional costs and a wastage of time.

27. As was submitted to me on the application by the petitioner for the appointment of a provisional liquidator, the petitioner's complaint is that the liquidators have been too involved with the affairs of the Yue Xiu group with the result that there is a conflict of interest and bias has been shown. However as I understand the case that has been put forward, there are no instances of actual bias. The petitioner has not produced any evidence to show that the liquidators are not likely to investigate all matters thoroughly and complete the liquidations efficiently. Further, no grounds have been advanced that it will be to the advantage of the liquidations to appoint new liquidators.

28. The contentions of bias and conflict of interest are more apparent than real. Certainly no prejudice has been caused to the petitioner or his supporting creditors as a result of the allegations.

29. In my judgment, taking into account the wishes of the majority, the undoubted integrity and impartiality of the liquidators who have to date carried out the liquidations with efficiency,I am quite satisfied that it will not be in the interests of the liquidations to make compulsory winding up orders. The petitions are therefore dismissed.

30. There will be an order nisi for costs to the joint liquidators.

	(B.L. Jones)
	Judge of the High Court

 

Representation:

Mr Ronny Wong, Q.C, Mr Warren Chan & Miss Carlye Chu (Daniel Lam, Simon Cheung & Co.) for one Supporting Creditor in CWU 151/90 and two Supporting Creditors in CWU 152/90

Mr Winston Poon (Tsang Chan & Wong) for Supporting Creditors: Security Pacific Asian Bank in CWU 151/90 & Hongkong & Shanghai Insurance Ltd. in CWU 152/90

Mr Kenneth Chan (Gwen Lo & Co.) for 11 Supporting Creditors in CWU 151/90 & 19 Supporting Creditors in CWU 152/90

Mr Robert Kotewall, Q.C., Mr P.H. Wong & Mr M. Merry (Alsop Wilkinson) for Joint Liquidators

Mrs K. Ho for Official Receiver

HCCW000151/1990

1990, CWU 151 & CWU 152

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HEADNOTE

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                Summonses for the appointment of a provisional liquidator in compulsory winding-up proceedings where voluntary liquidators had been appointed. Matters to be taken into consideration.

 

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING-UP)

No. CWU 151 OF 1990

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IN THE MATTER OF Texxan Industries Limited (In Voluntary Liquidation) and IN THE MATTER OF the Companies Ordinance, Cap. 32

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AND

NO. CWU 152 OF 1990

IN THE MATTER OF Chino Industries Limited (In Voluntary Liquidation) and IN THE MATTER of the Companies Ordinance, Cap. 32

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Coram: Hon. Jones J. in Chambers

Dates of hearing: 3 and 4 July 1990

Date of delivery of judgment: 5 July 1990

 

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JUDGMENT

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1. I have before me applications by the petitioner in two winding-up petitions that were presented on the 22nd May 1990 for the appointment of the Official Receiver or some other fit person as the provisional liquidator of two companies Texxan Industries Limited ("Texxan") and Chino Industries Limited ("Chino"). The facts are similar in both cases so the applications have been dealt with together. The applications are somewhat unusual as liquidators have been appointed in the voluntary liquidation of the two companies.

2. There is also a summons in each case by the petitioner that seeks to vacate the dates fixed for trial of the petitions in December and for the petitions to be heard during the long vacation. In fact I made a decision at the call over of the petitions on the 25th June when I refused an application by the petitioner. However, these summonses have been held over pending my decision on the applications for the appointment of a provisional liquidator.

3. The facts emerge from the petitions supported by affidavits of Mr John Koon (the petitioner) whilst evidence in reply has been filed by Mr C.M. Nacson, one of the joint liquidators of the two companies who is a partner in the firm of accountants Arthur Andersen and Co., and Mr Meocre Li, an audit partner in the same firm.

4. The companies were incorporated on the 27th March 1981 and in both cases the capital has been fully paid up. In the case of Texxan it is $5,001,000 and Chino $201,000. In June 1988 there was a restructuring of the companies when they became wholly owned by a Bermuda company Texxan Consolidated Limited which is beneficially owned in equal shares by the petitioner and a group of companies called the Yue Xiu group established in the People's Republic of China.

5. In Texxan, the Yue Xiu group claims that the company is indebted to four companies within the group for about $157,000,000 whilst a similar claim is made in Chino that the company is indebted to seven companies in the group for about $95,000,000. The petitioner in Texxan claims a sum of over $836,000 and in Chino of almost $136,000. The petitioner also refers to certain personal guarantees that he intends to challenge for sums due by Texxan to the Hong Kong & Shanghai Bank in a sum of over $28 million, Security Pacific Asian Bank Ltd. (Security Pacific) for a sum over HK$1.3 million and US$1.4 million, Yue Xiu group over $68.5 million and Nanyang Commercial Bank Ltd. (Nanyang) HK$1.4 million and US$1.8 million. In respect of Chino, Hongkong & Shanghai Bank is owed over $6.5 million, Security Pacific $7.3 million and Yue Xiu group $92.8 million. It is also alleged that Texxan owes $654,000 and Chino $86,000 to a supporting creditor Texxan Sealand Transportation Company Limited, a company controlled by the petitioner. Both companies are alleged to be insolvent and unable to pay their debts. Statutory declarations were made on the 7th March 1990 by the Yue Xiu directors who comprise five out of the nine directors on the boards of the companies, that the companies by reason of their liabilities could not continue in business and it was necessary for the companies to be wound up under section 228A of the Companies Ordinance. On the 8th March 1990, the Yue Xiu directors passed a resolution that Mr M.C. Nacson and Mr E.M. McMillan, partners in the firm of Arthur Andersen and Co., should be appointed joint provisional liquidators of the companies.

6. At the first meeting of creditors held on the 3rd April 1990, Mr Nacson and Mr McMillan were appointed to be joint liquidators by a majority in value of the alleged aggregate value of debts of the Yue Xiu companies and its supporters as against two partners in KPMG Peat Marwick who were nominated by the opposing creditors.

7. Complaint is made by the petitioner that the liquidators are neither unbiased nor independent by virtue of the involvement of their firms as advisers to the Yue Xiu group in advancing the interests of the group to the detriment of the other creditors. In particular, allegations are set out in paragraphs 20(a), (b), (c) and (d) of the petitions which read :-

"20.        On a day unknown to your Petitioner, Arthur Andersen were retained as the professional advisers of the Yue Xiu Group in relation to the affairs of the Company (Texxan) and Chino. Since then, Arthur Andersen have provided inter alia the following services and have become professionally involved in the affairs of the Yue Xiu Group as follows :-

 

	(a)	Assisting the Yue Xiu Group, prior to the making of the said Section 228A statutory declarations by the Yue Xiu directors, to gain de facto control of the affairs of the (Companies).
	(b)	Assisting the Yue Xiu Group, prior to the making of the said Section 228A statutory declarations by the Yue Xiu directors, to procure payments by the (Companies') trade debtors of sums owing to the (Companies and to creditor-banks, in particular, The Sanwa Bank Ltd. ('Sanwa Bank') and The Bank of Tokyo Ltd. ('Bank of Tokyo'), in a way which enured to the benefit of the Yue Xiu Group and to the detriment of the general body of creditors. ....... such payments give rise to justifiable belief that the same may amount to fraudulent preferences under Section 266 of the Companies Ordinance.
	(c)	Assisting the Yue Xiu Group in respect of a debt restructuring proposal in relation to banking facilities obtained or guaranteed by members of the Yue Xiu Group and made available to the (Companies)
	(d)	Investigating on behalf of the Yue Xiu Group certain trade debts of the (Companies), particularly, those owed by one Rigging Group in Taiwan after Messrs. Nacson and McMillan were appointed joint provisional liquidators of the (Companies).

 

8. Particulars of the allegations are then set out which repeat those set out previously in a letter from the petitioners' solicitors to the liquidators' solicitors on the 2nd April 1990 to which a reply was sent on the 11th April 1990.

9. Paragraph 22 of the petitions set out the contentions by the petitioner of conflict between the Yue Xiu group and the companies including allegations of fraudulent preference and the validity of certain loans by the Yue Xiu group to the companies that have been challenged as being unenforceable under the money Lender's Ordinance. These allegations are then particularised. Instances of actual bias by the liquidators have been set out together with allegations that the liquidators have refused to admit the possibility of a conflict of interest and have not been frank and open about the involvement of their firms with the Yue Xiu group. These allegations are then particularised.

10. Both petitions seek winding-up orders on the grounds that the voluntary winding-up cannot be continued with due regard to the interests of the creditors and that it is just and equitable to do so. An affidavit of Mr Nacson, one of the liquidators was filed on the 7th June in which he sets out details of the events leading to the statutory declarations made under section 228A of the Companies Ordinance for the companies to be placed in voluntary liquidation. He makes reference to the fact that the Yue Xiu directors were not appointed to the Board of Directors of the companies until the 15th January 1990 and took no active part in the management of the companies until February 1990 up to which time the petitioner, as Managing Director and his nominee directors were in control of the companies. He states that the liabilities of Texxan amounted to almost $270 million and that the realisable value of the assets amounted to almost $18 million resulting in an overall deficiency of approximately $251 million.

11. In respect of Chino, at the first creditors' meeting on 11th April, 1990, the estimated liabilities as at the 8th March 1990 amounted to over $162 million and the estimated realisable value of assets of almost $19 million, left an overall deficiency of approximately $143 million.

12. Mr Nacson in his affidavit has answered the allegations in the petition with regard to fraudulent preference and has also made allegations against the petitioner to the effect that he may have been engaged in transactions which constitute prima facie fraudulent preferences, contrary to section 266 of the Companies Ordinance. In respect of the debts, Mr Nacson states that except for two credit facilities extended by Security Pacific and Nanyang, all the facilities extended to the companies exceeding 90% of the liabilities of Texxan and Chino were underwritten by the Yue Xiu group either as primary obligor or as guarantors. Mr Nacson makes reference to investigations with regard to the sale of goods by four companies controlled either by the petitioner or his nominees to various Taiwanese purchasers and to which the companies are entitled to proceeds of sale in a sum in excess of $35 million. The liquidators' investigations also revealed that large amounts outstanding to Chino and Texxan's wholly owned subsidaries were owed by various Taiwanese companies in an amount of over $112 million.

13. It has been emphasised for the petitioner that no allegations of misconduct or wrongdoing are made against the liquidators nor is there integrity impugned, although in March of this year, allegations were made in correspondence by the petitioner's solicitors of material misrepresentations and non-disclosure.

14. Essentially, the complaint of the petitioner is that the firm of which the liquidators are partners has been too closely involved or connected with the Yue Xiu group, so that to the petitioner and his supporting creditors, the liquidators do not appear to be independent nor unbiased which is bound to lead to a conflict of interest. As Mr Ching counsel for the petitioner submitted, and he was supported by Mr Poon counsel for a supporting creditor, it is an allegation based upon legal principles.

15. With regard to the allegation of conflict of interest, Mr Nacson deals with this in paragraph 24 and in paragraph 25 he sets out details of the work that has already been carried out by the liquidators during the liquidation.

16. The petitioner has drawn an analogy between the position of the solicitors Lovell White Durrant who had acted for the Yue Xiu group and then later for the liquidators, but ceased to act for the liquidators upon a complaint being made by Deacons who formerly acted for the petitioner. However, Mr Nacson in his affidavit states that Lovell White Durrant in effect erred on the side of caution in doing so having intimated that they did not consider that there was likely to be a conflict of interest.

17. The petitions came before me, as I have said, on the 25th June for callover. At the hearing, an application was made on behalf of the petitioner and supporting creditors for the petitions to be heard during vacation. This application was opposed by counsel on behalf of the liquidators and some opposing creditors while some other creditors adopted a neutral stance. These applications were made from the bar table with no evidence in support with the result that I refused the applications and cited my decision in Re Lawe William Enterprises Limited M.P. 1638/1989, adopting the test in England that for a trial to take place in vacation, the action must be required to be heard immediately or promptly. I then gave directions for the filing of further evidence and dates for the trial were later fixed in December.

18. It is clear that the parties in these proceedings are at loggerheads. On the one hand there is the petitioner supported by several trade creditors and past employees and on the other, the Yue Xiu group, supported by the Hong Kong & Shanghai Bank and the Nanyang Commercial Bank as the main creditors. Mr Ching has in effect asked me to discount the debts due to the Yue Xiu group in view of their close association with the companies and to regard them as internal creditors referring me to Re Lowerstoft Traffic Services Ltd. [1986] BCLC 81, so that greater weight should be given to the petitioner and his supporting creditors. Nevertheless, I consider that weight should be given to the views of Yue Xiu for, as I have said, they did not become directors until January and did not take an active part in the management of the companies until February. In any event, if I am wrong, the wishes of the other opposing creditors to whom I have referred must be given proper consideration, their debts totalling in the region of $50 million, being the total due from both companies. These debts alone exceed the debts owed to the petitioner and his supporting creditors.

19. The issue of jurisdiction was raised by Mr Kotewall, counsel for the liquidators. The application for the appointment is made under s.193 of the Companies Ordinance which where relevant reads :-

	"193.    (1) Subject to the provisions of this section, the court may appoint a liquidator provisionally at any time after the presentation of a winding-up petition.
	(2) The appointment of a provisional liquidator may be made at any time before the making of a winding-up order, and either the Official Receiver or any other fit person may be appointed.
	(3) ....."

Indeed I appointed the Official Receiver to be the provisional liquidator in the case of Re King's Dyeing & Weaving Factory Ltd., CWU 217/1986, after the directors had appointed a voluntary provisional liquidator, but the facts there were vastly different from those in the instant case for the directors in that case had acted deviously in order to flout the jurisdiction of the court. An order was also made in Re P. Turner (Wilsden) Ltd. [1987] BCLC 149, but again the facts were quite different from those in these proceedings. However, I am quite satisfied that the court does have jurisdiction having regard to the provisions of the section despite the appointment of voluntary liquidators.

             

20. Mr Kotewall argued that I should take into account the matter of delay for the present summonses were not issued until the 28th June, a month after the presentation of the petitions and almost three months after the petitioners' solicitors' letter of the 2nd April that requested the liquidators to remove themselves from their appointments. However, I do not consider that delay is a factor to be taken into account for applications can be made at any time after the presentation of a petition and before the making of a winding-up order. Mr Kotewall submitted that there is no evidence of danger or jeopardy to the assets or any likelihood of any dissipation, nor indeed has any evidence been put forward. Further no evidence of mismanagement or misconduct is alleged against the liquidators. Accordingly Mr Kotewall submitted that I should exercise my discretion on the balance of convenience in favour of the liquidators having regard to the work already carried out and the wastage of time and costs that will be caused if I accede to the applications.

            

21. Mr Ching referred me to a number of cases dealing with the principles to be followed for the appointment of a provisional liquidator to the effect that he must not only be independent but seen to be independent. That where a conflict arises, the court, in a proper case, may remove a liquidator. These authorities included Re Stewden Nominees No. 4 Pty. Ltd. [1975]1 ACLR 185, Re Intercontinental Properties Pty. Ltd. [1977]2 ACLR 488 and Re Shanks Byrne Industries Pty. Ltd. (1979) ACLR 676. In In Re Keypak Ltd. (1988) PCC 115 was also cited but involved an application for the removal of the liquidator of a company in which his conduct was called into question. The facts were far removed in any event from the present case.

22. My attention was also drawn to Re Five Lakes Investment Co. Ltd. and Multiford Co. Ltd. [1985] HKLR 273, where Clough J., as he then was, considered section 193(1) of the Companies Ordinance and had this to say at 283 and 284 :-

"        Section 193(1) of the Companies Ordinance, which corresponds with s.238(1) of the Companies Act 1948, provides that subject to the provisions of that section the court may appoint a liquidator provisionally at any time after the presentation of a winding-up petition. The language of the sub-section is general and although in practice where applications for the appointment of provisional liquidators have been opposed it has been more common for appointments to be made in situations where it can be shown that there is jeopardy to the assets of the company or obvious insolvency or the company has admitted that there is no defence to the petition, I respectfully adopt the decision of Plowman, J. in Re Union Accident Insurance Co. Ltd. [1972]1 All ER 1105 at p.1109 to the effect that the relevant provision confers a general power on the court to appoint a provisional liquidator depending on the particular circumstances of each case. I also accept the statement of the law set out in the 43rd edition of Gore-Browne on Companies at paragraphs 30-31 to the effect that a provisional liquidator may be appointed for a company after the presentation of a petition if the property of the company is in danger, or it is alleged that those in control are misappropriating or wasting its assets or any other good cause exists.

As regards the exercise of the power to appoint a provisional liquidator I also follow the approach of Plowman, J. in treating two matters as relevant for consideration. The first is whether Gala Land, as the petitioner, has made out a good prima facie case for a winding-up order at the hearing of the petition. This matter is to be considered on the basis that any views expressed by the court on the merits of the petition are provisional only because at this stage the court is not trying the petition. Secondly, if the court concludes that a good prima facie case for a winding-up order has been made out the question arises whether it is right that a provisional liquidator be appointed in all the circumstances. As Bright, J. pointed out in Re Club Mediterranean Pty. Ltd. [1975]11 SASR 481 this question has to be decided on the basis of commercial realities, the degree of urgency and need established by the petitioner and the balance of convenience according to the circumstances. The circumstances will of course vary in every case but they include the eventuality of the paralysis of the company by a dispute between shareholders or directors."

I respectfully adopt this analysis of the law.

            

23. The Official Receiver has been represented by Mrs Ho throughout these proceedings, and has taken a neutral stance.

            

24. It is clear upon the undisputed evidence that the companies are insolvent with the result that a prima facie case has been established for winding-up orders to be made. However, the assets are not in danger or jeopardy nor has there been any mismanagement or misconduct by the liquidators. The only evidence adduced for the removal of the liquidators relates to bias in the Osman sense, Civil Appeal 21 of 1989, where the Court of Appeal adopted the test in R. v. Liverpool City Justices Ex-parte Topping [1983]1 WLR 119 at 123 where Ackner L.J., as he then was, said :-

"In our view therefore the correct test to apply is whether there is the appearance of bias rather than whether there is actual bias".

However, whether or not that is the case in these proceedings cannot be determined upon the affidavits, for it is a matter to be decided at the trial.

        

25. Whilst the petitioner and his supporting creditors perceive bias, it has not been perceived by the opposing creditors, discounting the views of the Yue Xiu group. At the moment, the liquidator's defence to the petition has not been put before the court, but their time for filing further evidence has not yet expired. I am, therefore, at the end of the day, concerned with the exercise of my discretion upon the balance of convenience.

        

26. The petitioner argues that there is bias and a conflict of interest so that the liquidators should be discharged. These allegations are denied. If I accede to the application, a great deal of time and money will be wasted to enable the Official Receiver or other liquidator appointed to become familiar with the conduct of the liquidations whilst such appointment will be contrary to the resolutions and wishes of the majority of the creditors in value passed in accordance with rule 119 of the Companies winding-up Rules. There is also the likelihood of duplication. In effect by making the appointments, I shall be prejudging the issue for there are factual disputes between the parties that cannot be decided at this stage. Leave has in fact been granted to the parties to cross-examine the deponents upon their affidavits or affirmations.

        

27. However, the parties agree that the companies are insolvent so that a liquidator will have to be appointed to investigate the affairs of the companies. The issue to be decided is whether the voluntary liquidations should continue or whether compulsory winding-up orders should be made with the appointment of the Official Receiver or other liquidator. My attention was drawn to Re Falcon R J Developments Ltd. [1987] BCLC 437 with regard to the matters that the court will take into consideration in deciding whether to make a winding-up order or to allow the voluntary winding-up to continue. The holding in that case reads :-

"In deciding whether or not to make a winding-up order where there was a voluntary winding up in progress, the court was not obliged to give equal weight to all debts of an equal amount but must also consider the quality of the debts and to have regard to other interests that may influence the views of the creditors and in addition it should take into account the general principles of fairness and morality which underlie the details of insolvency law. On the facts, the debts owed to J and his associated companies should not be taken into account and made determinative of the issue as to whether a winding-up order should be made. The reason why J wished the voluntary winding up to continue was that he was willing to postpone the debts owed to him and his associated companies to the claims of the other creditors so as to minimise the damage to his commercial reputation and this consideration of personal advantage to J should not be allowed to prevail over the views of the majority of the other creditors. In addition, the majority of those creditors would be left with a legitimate sense of grievance if, against their wishes, the winding up was left in the hands of a liquidator chosen and confirmed in office by the use of votes by the person who had control of the company and whom they were entitled to treat as being prima facie responsible for the company's insolvency. Accordingly this was an appropriate case in which a winding-up order should be made."

Each case must necessarily depend on its own facts and special circumstances see Re v. Union Accident Insurance Co. Ltd. [1972]1 All ER 1105. Apart from desiring the removal of the present liquidators on the grounds of bias, which is not actual bias, there is not a tittle of evidence that the assets of the companies will be affected or placed in danger, nor is it alleged, nor will any prejudice be suffered if the status quo is preserved.

        

28. Having considered the evidence, the very helpful submissions that have been made to me by counsel and the authorities, I am quite satisfied that the balance of convenience lies with the liquidators. Accordingly, in the exercise of my discretion, the summonses for the appointment of a provisional liquidator will be dismissed.

	(B.L. Jones)
	Judge of the High Court

Representation:

Mr Charles Ching Q.C. and Miss Priscilla Wong (Daniel Lam, Simmon Cheung & Co.) for Petitioner

Mr Winston Poon (Tsang Chan & Wong) for Supporting Creditors : Security Pacific Asian Bank in CWU 151 of 1990 and Hongkong & Shanghai Insurance Ltd. In CWU 152 of 1990.

Mr K.C. Li (Gwen Lo & Co.) for 11 Supporting Creditors in CWU 151 of 1990 and 19 Supporting Creditors in CWU 152 of 1990.

Mr Robert Kotewall Q.C. and Mr M. Merry (Alsop Wilkinson) for Joint Liquidators.

Mr Thomas S.W. Ip (Lovell White Durrant) for 3 Opposing Creditors in CWU 151 of 1990 and 7 Opposing Creditors in CWU 152 of 1990.

Mrs K. Ho for Official Receiver.