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HCCW000941A/1998

HCCW 941/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 941 OF 1998

____________

	IN THE MATTER of Hop Cheong Building Products Limited (In Liquidation)
	AND
	IN THE MATTER of the Companies Ordinance (Cap. 32)

____________

Coram: Hon Kwan J in Chambers

Date of Hearing: 5 March 2003

Date of Decision: 5 March 2003

_____________

D E C I S I O N

_____________

1. This is an application taken out by the liquidators of Hop Cheong Building Products Limited (in liquidation) ("the Company") under section 199(1)(c) of the Companies Ordinance, Cap. 32, seeking an order that they do have leave to appoint Messrs Clifford Chance to advise and assist them on all matters arising out of the sale by the liquidators of the Company's 90% interest in Sanshui Hupchong Decoration Ceiling Co. Ltd ("the JV Company") to Sanshui Fung Hing Textile Manufacturing Co. Ltd ("Fung Hing"), such matters to include but not limited to defending any action brought against the Company by any party in connection with the sale including HCA No. 171 of 2003 ("the High Court Action").

2. For the background and details relating to the sale, I refer to the Reasons for Decision I gave earlier on 4 October 2002, paragraphs 4-7.

3. On 26 September 2002, I made an order that the costs of and occasioned by the liquidators in proceedings brought in the Foshan Intermediate People's Court ("the Mainland Action") by one of the contributories, Mr So King Kay, are to be costs of the liquidation and to be taxed and paid out of the Company's assets.

4. The present application is necessitated because of the High Court Action brought by Fung Hing against the Company on 14 January 2003, regarding the sale of the Company's interest in the JV Company. In that action, Fung Hing seeks rescission of the share transfer agreement entered into by the Company on the grounds of mutual mistake, total failure of consideration and non-fulfilment of conditions precedent.

5. On 5 February 2003, the liquidators filed an Acknowledgment of Service. The time for filing a defence in this action has been extended by consent to 12 March 2003.

6. On 30 January 2003, the liquidators wrote to the three contributories of the Company, Mr So, Mr Chow Cheong Wai and Mr Li Chin Pang Clement, who are also members of the Committee of Inspection, to ascertain whether the Committee of Inspection would agree to the defence of the action by the liquidators in the name and on behalf of the Company. In addition, as the liquidators anticipated that the amount of funds remaining in the estate of the Company is unlikely to be sufficient to cover the costs of defending the action, the Committee of Inspection was asked to provide additional funds to the liquidators for the purpose of funding the defence of the action. The Committee of Inspection was also asked to give consent to the appointment of Messrs Clifford Chance as solicitors for the liquidators for defending the action.

7. I should mention that Messrs Clifford Chance have been retained by the liquidators for the purpose of advising them and defending the Mainland Action.

8. Various responses were received from the members of the Committee of Inspection. Mr Chow agreed to defence of the High Court Action by the liquidators in the name and on behalf of the Company and to the appointment of Messrs Clifford Chance as the liquidators' solicitors. However, he would not provide any funding to cover the costs of defending the action.

9. As for Mr So who has also appeared at the hearing today, he has agreed to the liquidators defending the action in the name and on behalf of the Company, but asserts that the liquidators should defend the proceedings without the assistance of solicitors. Further, he is unwilling to provide any funding to cover the costs of instructing solicitors.

10. Mr So has written to the liquidators on 13 February 2003 and to the court on 3 March 2003 in which he set out his stance in this application. In short, he has alleged that the lack of funds in the estate of the Company for defending proceedings brought against the Company is due to the misconduct or dereliction of duty of the liquidators. He alleges that the liquidators had acted improperly in causing the Company to enter into the share transfer agreement with Fung Hing, and that was why he had brought proceedings against, inter alia, the liquidators in the Mainland.

11. Mr So is further opposed to the payment of the liquidators' legal costs out of the assets of the Company, alleging that excessive fees have been charged by the solicitors retained by the liquidators.

12. As for Mr Li, he had refused to respond initially claiming that he needed to seek legal advice. Later he wrote to the liquidators on 12 February 2003 and to the court on 3 March 2003. He queried why the liquidators should retain Messrs Clifford Chance to advise in the High Court Action, as the liquidators had retained another firm of solicitors in the past to advise them on the transfer of the Company's interest in the JV Company to Fung Hing. Further, he claimed that it was not appropriate that the costs of the liquidators in appointing solicitors should be paid out of the Company's assets for the same reasons as alleged by Mr So.

13. I have decided to approach the present application in this manner. Firstly, the action should be defended by the liquidators in the name and on behalf of the Company. That also seems to be the wishes of the members of the Committee of Inspection.

14. Secondly, it is desirable and appropriate that the liquidators should have the assistance of solicitors in defending the action on behalf of the Company. As for the choice of the solicitors, I agree with the liquidators that it may not be entirely appropriate for the solicitors who had advised them previously to act for them in defending the action, as the previous solicitors may be faced with a potential conflict of interest, in view of the allegations that have arisen regarding the validity of the sale. I note the concern of the members of the Committee of Inspection that the legal fees charged by the solicitors are or might be excessive. I wish to point out that bills submitted by the solicitors are subject to the scrutiny of the court and they would only be paid such fees as are allowed by the court.

15. Thirdly, it seems to me inappropriate to go into allegations of misconduct of the liquidators for the purpose of this application. These allegations are the subject of pending proceedings in the Mainland Action, they have yet to be established whether in the court in Foshan or in the Hong Kong court.

16. For the above reasons, I have come to the view that it would be appropriate to make an order as sought by the liquidators. I therefore order as follows:

(1) The liquidators have leave to appoint Messrs Clifford Chance to advise and assist the liquidators on all matters arising out of the sale by the liquidators of the Company's 90% interest in the JV Company to Fung Hing. Such matters to include but not limited to

(i) defending any action or legal proceedings commenced against the Company by any party in connection with the sale, including the High Court Action;

(ii) bringing any action or legal proceedings against any party on behalf of the Company in connection with the sale; and

(iii) negotiating and entering into any compromise or settlement with any party in connection with the sale.

(2) The costs of and occasioned by this application are to be costs of the liquidation.

	(S Kwan)
	Judge of the Court of First Instance
	High Court

Representation:

Mr Campbell Korff, instructed by Messrs Clifford Chance, for the Applicant

Mr Chow Cheong Wai, 1st Respondent in person, absent

Mr Li Chin Pang, Clement, 2nd Respondent in person, absent

Mr So King Kay, 3rd Respondent in person, present

The Official Receiver, attendance excused

HCCW000941/1998

HCCW 941/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 941 OF 1998

____________

	IN THE MATTER of Hop Cheong Building Products Limited (In Liquidation)
	AND
	IN THE MATTER of the Companies Ordinance (Cap. 32)

____________

Coram: Hon Kwan J in Chambers

Date of Hearing: 26 September 2002

Date of Decision: 26 September 2002

Date of Handing Down of Reasons for Decision:4 October 2002

_________________________

REASONS FOR DECISION

_________________________

 

1. This is an application taken out by the liquidators of Hop Cheong Building Products Limited ("the Company") for directions under s. 200(3) of the Companies Ordinance, Cap. 32. The liquidators seek an order that the costs of and occasioned by them in defending the proceedings brought against them and others by a shareholder of the Company in the Intermediate People's Court in Foshan City, Guangdong Province, China be costs of the liquidation and to be taxed and paid out of the Company's assets.

2. The summons, which was issued on 17 September 2002, was served on the 3 shareholders of the Company who also constitute the Committee of Inspection ("COI"). They are Mr So King Kay ("Mr So"), Mr Li Chin Pang Clement ("Mr Li") and Mr Chow Cheong Wai ("Mr Chow"). Mr Chow has, through his solicitors, written to the court to say that he does not oppose the application and does not propose to attend the hearing. Mr So and Mr Li oppose the application and Mr Li has attended the hearing and made submissions. Mr So has not attended the hearing but he has sent a letter to the court with enclosure setting out his reasons of opposition.

3. The application arose in this manner.

4. The Company was wound up by an order of the court on 10 May 1999. On 6 July 1999, Mr Dermot Agnew and Mr Joesph Kin Ching Lo, both of Deloitte Touche Tohmatsu ("Deloittes"), were appointed joint and several liquidators of the Company and Mr So, Mr Li and Mr Chow were appointed members of COI.

5. The Company owned a 90% interest ("the Interest") in a sino-foreign equity joint venture company incorporated in Sanshui, Guangdong Province, known as Sanshui Hupchong Decoration Ceiling Co. Ltd ("the JV Company"). The remaining 10% shareholding was owned by Sanshui Feng Xing Weaving Co. Ltd ("Sanshui Feng Xing"), a company incorporated in Sanshui.

6. In the course of administering the liquidation of the Company, the liquidators came to the view that it was in the best interests of the creditors to dispose of the Interest. The highest offer, in the sum of HK$4.5 million, was received from Fortune Mate (Hong Kong) Ltd ("Fortune Mate"). This offer to purchase the Interest was approved by a meeting of the COI held on 28 January 2000. The resolution passed at that meeting was signed by Mr So, Mr Li and Mr Chow.

7. Subsequent to the meeting of the COI, the solicitors for the liquidators wrote to Sanshui Feng Xing to notify it of the proposed transfer of the Interest to a third party, without identifying the third party, for the consideration of HK$4.5 million and invited Sanshui Feng Xing to exercise its pre-emption right to purchase the Interest under Article 5.2 of the joint venture agreement establishing the JV Company. Sanshui Feng Xing accepted the offer to purchase the Interest at the same price as that offered by Fortune Mate. The Company and Sanshui Feng Xing entered into a share transfer agreement in February 2000 for the sale of the Interest by the Company to Sanshui Feng Xing. One of the liquidators executed the agreement for and on behalf of the Company.

8. On 20 March 2000, a shareholders' meeting of the JV Company was convened ("the Shareholders' Meeting") at which the transfer of the Interest to Sanshui Feng Xing for HK$4.5 million was ratified and resolutions were also passed to remove Mr So as the legal representative and chairman of the board of the JV Company and Mr Li as a director of the JV Company. A representative of the liquidators attended the Shareholders' Meeting on behalf of the Company.

9. On 14 August 2002, the liquidators received a courier package containing a number of documents relating to proceedings brought by Mr So in the Intermediate People's Court in Foshan city ("the Foshan Action"). According to the statement of claim dated 8 March 2002 sent to the liquidators, there are four defendants in the Foshan Action. They are Sanshui Feng Xing, Deloittes, and two brothers of Mr Chow who were appointed in the Shareholders' Meeting to replace Mr So and Mr Li on the board of the JV Company.

10. Although Mr So has named Deloittes as a defendant, the statement of claim only contains allegations against the liquidators and not against Deloittes as a firm.

11. The Foshan Action relates to the sale of the Interest by the Company to Sanshui Feng Xing. Mr So's allegation is that the resolutions passed at the Shareholders' Meeting are invalid as they contravene the laws of the People's Republic of China and the Articles of Association of the JV Company. In short, it is alleged that the individuals who attended the Shareholders' Meeting on behalf of Sanshui Feng Xing and the Company had no right to do so in that the Shareholders' Meeting should have been convened by the board of directors of the JV Company, that the liquidators did not have power to attend and vote at the Shareholders' Meeting, and that it was the "actual investors" in the JV Company being Mr So, Mr Li and Mr Chow who should have the right to attend the Shareholders' Meeting.

12. It is not feasible for the liquidators to seek the approval of the COI in these circumstances that their costs of defending the Foshan Action be paid from the assets of the Company. Hence, an application was made to the court.

13. In the oral submissions of Mr Li and the written submissions of Mr So, they reiterated the grounds for challenging the validity of the resolutions passed at the Shareholders' Meeting, as set out in the statement of claim in the Foshan Action. Whether the resolutions at that meeting were validly passed is a matter to be adjudicated in the Foshan Action. I am not concerned with the merits or otherwise of that action.

14. What I need to decide is whether the liquidators should be allowed to recoup their costs for defending the Foshan Action out of the assets of the Company. The well established general rule is that a liquidator should be entitled to be recouped for his costs from the assets of the company unless it is shown that his conduct has been improper or he has brought an application which was totally misconceived and doomed to failure or it would be unjust to make such an order (De-Etco International Ltd (in liquidation) v Desirable Enterprise Co. Ltd and Ors [1993] 1 HKC 251 at 257 E-F). It is clear from the statement of claim in the Foshan Action that there are no allegations of misconduct, negligence or beach of duties made against the liquidators personally. The actions taken by the liquidators in relation to the sale of the Interest were taken for and on behalf of the Company in the course of the administration of the liquidation.

15. I am not persuaded there is anything in the materials before me to take this case out of the general rule that the liquidators should be permitted to recoup their costs out of the assets of the Company. I have therefore made an order that the costs of and occasioned by the liquidators in the Foshan Action be costs of the liquidation and to be taxed and paid out of the Company's assets, upon the undertaking of the liquidators to account to the estate of the Company for any amounts that may be recovered in the Foshan Action.

	(S Kwan)
	Judge of the Court of First Instance
	High Court

Representation:

Mr Campbell Korff, of Messrs Clifford Chance, for the liquidators.

Mr So King Kay, a contributory, absent.

Mr Chow Cheong Wai, a contributory, absent.

Mr Li Chin Pang Clement, a contributory, present.