RE ASEAN INTERESTS LTD

HCCW 1233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1233 OF 2000

____________

____________

Before: Hon Kwan J in Chambers

_________________________________

REASONS   FOR   DECISION

_________________________________

1.  This is a summons issued on 28 September 2004 by Madam Kawita Mohan Vaswani (“Madam Vaswani”), Mohan K Vaswani (“Mr Vaswani”) and Jacky Chattaram Mulani (collectively “the applicants”), who are the contributories of Asean Interests Limited (“the Company”), to stay permanently all proceedings in the winding up of the Company, under section 209 of the Companies Ordinance, Cap. 32.

2.  Notice of the application has been advertised in various newspapers circulating in Hong Kong, Asia, Europe and the USA.  Solicitors for the applicants have written to all creditors of the Company seeking their formal written consent to the application.

3.  The liquidators have provided reports to the court.  The Official Receiver also appeared and provided reports because of the public policy issues involved.

4.  The summons was adjourned on 3 occasions on 1 December 2004, 28 April 2005 and 2 August 2005, to enable the applicants to deal with various matters of concern raised by the liquidators and the Official Receiver.

5.  The liquidators’ concerns have now been addressed.  They support the application as a stay of the winding-up proceedings is in the best interests of the creditors of the Company.

6.  The Official Receiver has reached a Carecraft settlement with Mr Vaswani, a director of the Company.  By consent, leave was given to the Official Receiver to commence disqualification proceedings against Mr Vaswani out of time.  I heard the disqualification proceedings under the Carecraft procedure prior to the stay application and made an order against Mr Vaswani to disqualify him from acting as a director for 2 years.  The Official Receiver indicated that he is satisfied the concerns expressed in the first report of the liquidators relating to issues of public morality would have been satisfactorily dealt with once the disqualification proceedings have been disposed of, and would no longer object to the stay application, provided of course the court is satisfied the concerns of public morality have been properly addressed.

7.  I have made an order granting a permanent stay of the winding-up proceedings and these are the reasons for decision.

THE BACKGROUND

8.  The background to the application is set out in the supporting affirmations of Sajen Aswani (“Mr Aswani”) and Madam Vaswani and the first report of the liquidators.

9.  The applicants are the current shareholders of the Company.  Madam Vaswani is also the single largest creditor of the Company and a member of the committee of inspection.

10.  The Company was incorporated in Hong Kong on 14 January 1977 as an investment holding company consisting of various international companies with investments in diversified fields of businesses (“the Group”) in a number of developing countries.  The Group is managed by Mr Vaswani, the husband of Madam Vaswani and her nephew Mr Aswani. As mentioned, Mr Vaswani is a director of the Company.  Mr Aswani is the managing director of the Group and was a shadow director of the Company at the material time.

38.  Mr Aswani deposed that the arrangement had been put in place before the petition for winding up was presented on 27 December 2000.  He claimed it was an oversight that the arrangement was not terminated after the presentation of the petition.  To remedy the situation, Madam Vaswani has repaid the entire sum of US$1,877,865.00 to the Company, by two payments on 9 August 2005 and 9 September 2005.

39.  As mentioned, this application was adjourned on 28 April 2005 and 2 August 2005 for the Official Receiver to carry out further investigation of the above matters reported by the liquidators and explore the possibility of reaching a Carecraft settlement with the directors concerned.  After full consideration of the evidence available and the response obtained to various questionnaires issued by the Official Receiver to the directors, the Official Receiver has taken the view that on the available evidence, it would be appropriate to issue disqualification proceedings against Mr Vaswani in respect of the matter in (3) and also some accounting record offences.  A Carecraft settlement was reached with Mr Vaswani and I have imposed a suitable period of disqualification against him.

LIQUIDATORS’ REMUNERATION AND FEES OF THE OFFICIAL RECEIVER

40.  Agreement was reached by the applicants with the Official Receiver on his fees.  The agreed sum for the Official Receiver’s costs in the winding-up proceedings and in the stay application will be paid out of funds held by the liquidators’ solicitors in escrow.

41.  Similarly, the applicants have agreed that the liquidators’ fees and costs are to be paid out of the balance of the funds held by the liquidators’ solicitors in escrow and the funds held in the Company’s liquidation account.

A STAY SHOULD BE GRANTED

42.  I consider in this instance the applicants have discharged the burden on them to make out a sufficient case for a stay of the winding-up proceedings.

43.  I have set out in some detail what had happened after the winding-up order, as the liquidators initially raised concern of the delay in issuing the application after the winding-up order was made.  It seems that the delay of over 3 years since the winding-up order has been accounted for.

44.  It was accepted by the applicants, as stated in Re Telescriptor Syndicate Limited [1903] 2 Ch 174 at 180 and adopted in Hong Kong decisions, among them Re Sharp Brave Company Limited (in liquidation) [1999] 4 HKC 79, even though the entire body of creditors would favour a stay because they can obtain positive benefits out of this, on consideration of the conduct of directors if the court is of the view that it is not in the public interest to grant a stay, it will not do so, regardless of the wishes of creditors.  I note that in Re Sharp Brave Company Limited, a stay was granted on terms that it would take effect upon the resignation of the 2 directors involved in the questionable transactions.

45.  The creditors here support the application for a stay as the restructuring, if successful, would mean that they will get better and more timely return than if the liquidation were to continue.

46.  A balance is to be struck between the interests and wishes of the creditors and the public policy issues.

47.  The Official Receiver has reached a careful decision on the available evidence as to whether disqualification proceedings are justified against any of the 3 directors or the de facto director and in respect of which of the matters raised in the liquidators’ report.

48.  It seems to me that with the Carecraft settlement reached and the disqualification order made against Mr Vaswani, the issues of public morality should have been properly addressed.

49.  I therefore granted the relief sought and made an order in terms of the draft submitted.  Provision is made for the release of the liquidators in the order.

HCCW 1233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1233 OF 2000

____________

____________

_____________

D E C I S I O N

_____________

1. On 25 November 2003, I gave directions for a hearing to be held to resolve a point of construction relating to section 207(1) of the Companies Ordinance, Cap. 32. Specifically, the issue the court is concerned with is whether a corporate creditor may be appointed as a member of a committee of inspection or whether the statutory provision would only allow natural persons to be appointed.

2. I am given to understand by the Official Receiver that prior to 19 December 1995, the Official Receiver had taken the position that only individuals should be appointed, having regard to doubts expressed in this respect in Ex parte Greaves [1937] 1 Ch 499 at 506, even though that point was not the subject of the decision in the case. On 19 December 1995, the Official Receiver issued a Technical Circular for internal guidance as to how to avoid the problem of replacement when an individual appointed to a committee of inspection should leave the creditor company, and that was by seeking an order that the "duly authorised representative" of a firm or a company should be appointed instead of a named individual.

3. That was the practice followed until about December 1999 when the issue was raised by Le Pichon J (as she then was) in Re Pro KTA Ltd, HCCW No. 71 of 1995. In a chambers hearing in those proceedings on 23 December 1999, the Judge indicated that the corporate creditor itself should be appointed as a member of the committee of inspection. The comments of the Official Receiver were sought and he responded by a letter dated 20 January 2000 citing authorities and expressing agreement with the indication of the court that a corporate creditor could and should be appointed. The Official Receiver has since revised his guidelines accordingly.

4. This decision in chambers was not publicized. What happened subsequently is that other judges, including myself, and masters have reverted to the former practice of appointing duly authorised representatives of entities to sit on a committee of inspection. In so doing, reliance has been placed on a passage in Butterworths Hong Kong Company Law Handbook, 4th edition 2002, at paragraph [207.03] which reads as follows:

"It seems that only individuals can be members: see subsection (5) which assumes individuals and Re Testro Bros Consolidated Ltd [1965] VR 18."

5. At the hearing today, both the Official Receiver and the liquidators are in agreement that the above extract does not correctly state the law and they urge me not to follow the decision in Re Testro, which is not binding on me.

6. I am indebted to Ms McKenna and Mr Vaisey for their helpful submissions. I am in agreement with them that on a proper construction of section 207(1), a corporate creditor or contributory may be appointed to a committee of inspection.

7. I start with the relevant statutory provisions.

8. Section 207(1) reads as follows:

"A committee of inspection appointed in pursuance of this Ordinance shall consist of creditors and contributories of the company or persons holding general powers of attorney from creditors or contributories in such proportions as may be agreed on by the meetings of creditors and contributories, or as, in case of difference, may be determined by the court."

9. "Creditor" is defined in rule 2 of the Companies (Winding-up) Rules as:

"includes a corporation, and a firm of creditors in partnership".

10. This definition in the Companies (Winding-up) Rules applies to Cap. 32 by virtue of section 296(2), which is as follows:

"All rules and orders made under this section shall be judicially noticed, and shall have effect as if enacted by this Ordinance."

11. The definition of "contributory" is in section 171 and this reads:

"The term 'contributory' means every person liable to contribute to the assets of a company in the event of its being wound up, and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory."

12. For the definition of "person", one turns to section 3 of the Interpretation and General Clauses Ordinance, Cap. 1 and this reads:

"includes any public body and any body of persons, corporate or unincorporate ...".

13. On the ordinary and natural meaning of the terms of "creditor" and "contributory" as defined, it would appear to be the case that a body corporate which is a creditor or contributory should be entitled to be appointed to a committee of inspection.

14. I digress here to point out that in the Insolvency Rules in the United Kingdom, any ambiguity in the statutory provision in this regard has been removed as there is express provision in Rule 4.152(5) that "a body corporate may be a member of the committee, but it cannot act as such otherwise than by a representative appointed under Rule 4.159". Similar provisions have been enacted in our Bankruptcy Rules in rule 122ZE(3) and 122ZJ, but no amendments have been made to section 207 of Cap. 32.

15. Before I come to section 207(5), one other provision in Cap. 32 is relevant and this is section 115 which provides as follows:

"	(1)	A corporation may by resolution of its directors or other governing body -
		(a)	if it is a member of a company, authorize such person as it thinks fit to act as its representative at any meeting of the company or at any meeting of any class of members of the company;
		(b)	if it is a creditor (including a holder of debentures) of a company, authorize such person as it thinks fit to act as its representative at any meeting of any creditors of the company held in pursuance of this Ordinance or of any rules made thereunder, or in pursuance of the provisions contained in any debenture or trust deed or other instrument, as the case may be ...
	(2)	A person authorized under subsection (1) shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual shareholder, creditor, or holder of debentures, of the company."

16. Thus, section 115 provides for a mechanism in which a corporation may be represented in a meeting of creditors. So there is no problem at all for a corporate creditor to be appointed to a committee of inspection.

17. What led to the conclusion reached by Sholl J in Re Testro that only a natural person could be appointed is the provision equivalent to our section 205(5) and this reads as follows:

"If a member of the committee becomes bankrupt, or compounds or arranges with his creditors, or is absent from 5 consecutive meetings of the committee without the leave of those members who together with himself represent the creditors and contributories, as the case may be, his office shall thereupon become vacant."

18. Sholl J was influenced by this provision because it specifically mentions "bankruptcy, or assignments or arrangements for the benefit of creditors, and with absence from meetings", which is "quite clearly drawn with reference to natural persons only" (supra. at 23 lines 10-20). The statutory provision says nothing about liquidations or schemes of arrangement or official arrangements that apply to companies. Hence, he concluded that the provision must mean that the committee should consist of individuals only.

19. I am persuaded by Ms McKenna and Mr Vaisey that there is an explanation why there is express provision for the bankruptcy of a member of a committee of inspection, but no provision for the liquidation of a corporate member. In bankruptcy, there is a vesting of rights of the bankrupt in the trustee in bankruptcy. The individual loses capacity other than in a few exceptional instances. Hence, legislation is required to clarify what is to happen in the situation when an individual who serves on a committee of inspection is made bankrupt. A company in liquidation will be the same entity as such, albeit controlled by the liquidator instead of by the management. Liquidation does not affect the rights of a company under section 115 to appoint an authorised representative to a meeting, as a liquidator has been held to be within "other governing body" in the equivalent provision in the Companies Act 1948 in Hillman & Ors v Crystal Bowl Amusements Ltd & Ors [1973] 1 All ER 379.

20. For the above reasons, I do not propose to follow Re Testro. I hold that on a proper construction of section 207(1), a corporation that is a creditor or contributory can and should be appointed to a committee of inspection and an individual, whether named or unnamed, who is to represent the corporation, should not be appointed.

21. In the present case, an order was made on 4 November 2002 providing that there should be a committee of inspection and that the liquidators should convene a meeting of creditors to establish the membership thereof. On 10 December 2002, a meeting of creditors was held and it was resolved that representatives of the following be appointed:

Brixton Investments Pte Ltd;

Madam Kawita Mohan Vaswani;

Industrial Development Corporation of South Africa; and

State Bank of India

22. The liquidators seek in this application an order to confirm that the appointment and constitution of the committee of inspection is valid; alternatively, if the court should determine otherwise, directions to hold creditors' meeting to determine the membership of the committee of inspection to consist of named individuals and an order to ratify the acts of the liquidators as set out in the schedule to the summons.

23. For the reasons given above, I make a declaration that the committee of inspection, made up of the three corporate members and Madam Kawita Mohan Vaswani, is properly constituted.

24. I have earlier made an order on 19 November 2003 to ratify and confirm the acts of the liquidators as set out in the schedule to the summons and that order is to stand. I further order the liquidators to gazette the appointment of the membership of the committee of inspection, if they have not already done so, within 14 days hereof. Lastly, I order that the costs of the Official Receiver and of the liquidators in this application are to be paid out of the assets of the company.

Representation:

Mr Tom Vaisey, of Johnson, Stokes & Master, for the Liquidators

Ms P McKenna, for the Official Receiver

HCCW 1233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1233 OF 2000

_____________

____________

_____________

D E C I S I O N

_____________

1. On 25 November 2003, I gave directions for a hearing to be held to resolve a point of construction relating to section 207(1) of the Companies Ordinance, Cap. 32. Specifically, the issue the court is concerned with is whether a corporate creditor may be appointed as a member of a committee of inspection or whether the statutory provision would only allow natural persons to be appointed.

2. I am given to understand by the Official Receiver that prior to 19 December 1995, the Official Receiver had taken the position that only individuals should be appointed, having regard to doubts expressed in this respect in Ex parte Greaves [1937] 1 Ch 499 at 506, even though that point was not the subject of the decision in the case. On 19 December 1995, the Official Receiver issued a Technical Circular for internal guidance as to how to avoid the problem of replacement when an individual appointed to a committee of inspection should leave the creditor company, and that was by seeking an order that the "duly authorised representative" of a firm or a company should be appointed instead of a named individual.

3. That was the practice followed until about December 1999 when the issue was raised by Le Pichon J (as she then was) in Re Pro KTA Ltd, HCCW No. 71 of 1995. In a chambers hearing in those proceedings on 23 December 1999, the Judge indicated that the corporate creditor itself should be appointed as a member of the committee of inspection. The comments of the Official Receiver were sought and he responded by a letter dated 20 January 2000 citing authorities and expressing agreement with the indication of the court that a corporate creditor could and should be appointed. The Official Receiver has since revised his guidelines accordingly.

4. This decision in chambers was not publicized. What happened subsequently is that other judges, including myself, and masters have reverted to the former practice of appointing duly authorised representatives of entities to sit on a committee of inspection. In so doing, reliance has been placed on a passage in Butterworths Hong Kong Company Law Handbook, 4th edition 2002, at paragraph [207.03] which reads as follows:

"It seems that only individuals can be members: see subsection (5) which assumes individuals and Re Testro Bros Consolidated Ltd [1965] VR 18."

5. At the hearing today, both the Official Receiver and the liquidators are in agreement that the above extract does not correctly state the law and they urge me not to follow the decision in Re Testro, which is not binding on me.

6. I am indebted to Ms McKenna and Mr Vaisey for their helpful submissions. I am in agreement with them that on a proper construction of section 207(1), a corporate creditor or contributory may be appointed to a committee of inspection.

7. I start with the relevant statutory provisions.

8. Section 207(1) reads as follows:

"A committee of inspection appointed in pursuance of this Ordinance shall consist of creditors and contributories of the company or persons holding general powers of attorney from creditors or contributories in such proportions as may be agreed on by the meetings of creditors and contributories, or as, in case of difference, may be determined by the court."

9. "Creditor" is defined in rule 2 of the Companies (Winding-up) Rules as:

"includes a corporation, and a firm of creditors in partnership".

10. This definition in the Companies (Winding-up) Rules applies to Cap. 32 by virtue of section 296(2), which is as follows:

"All rules and orders made under this section shall be judicially noticed, and shall have effect as if enacted by this Ordinance."

11. The definition of "contributory" is in section 171 and this reads:

"The term 'contributory' means every person liable to contribute to the assets of a company in the event of its being wound up, and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory."

12. For the definition of "person", one turns to section 3 of the Interpretation and General Clauses Ordinance, Cap. 1 and this reads:

"includes any public body and any body of persons, corporate or unincorporate ...".

13. On the ordinary and natural meaning of the terms of "creditor" and "contributory" as defined, it would appear to be the case that a body corporate which is a creditor or contributory should be entitled to be appointed to a committee of inspection.

14. I digress here to point out that in the Insolvency Rules in the United Kingdom, any ambiguity in the statutory provision in this regard has been removed as there is express provision in Rule 4.152(5) that "a body corporate may be a member of the committee, but it cannot act as such otherwise than by a representative appointed under Rule 4.159". Similar provisions have been enacted in our Bankruptcy Rules in rule 122ZE(3) and 122ZJ, but no amendments have been made to section 207 of Cap. 32.

15. Before I come to section 207(5), one other provision in Cap. 32 is relevant and this is section 115 which provides as follows:

"(1) A corporation may by resolution of its directors or other governing body -

(a) if it is a member of a company, authorize such person as it thinks fit to act as its representative at any meeting of the company or at any meeting of any class of members of the company;

(b) if it is a creditor (including a holder of debentures) of a company, authorize such person as it thinks fit to act as its representative at any meeting of any creditors of the company held in pursuance of this Ordinance or of any rules made thereunder, or in pursuance of the provisions contained in any debenture or trust deed or other instrument, as the case may be ...

(2) A person authorized under subsection (1) shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual shareholder, creditor, or holder of debentures, of the company."

16. Thus, section 115 provides for a mechanism in which a corporation may be represented in a meeting of creditors. So there is no problem at all for a corporate creditor to be appointed to a committee of inspection.

17. What led to the conclusion reached by Sholl J in Re Testro that only a natural person could be appointed is the provision equivalent to our section 205(5) and this reads as follows:

"If a member of the committee becomes bankrupt, or compounds or arranges with his creditors, or is absent from 5 consecutive meetings of the committee without the leave of those members who together with himself represent the creditors and contributories, as the case may be, his office shall thereupon become vacant."

18. Sholl J was influenced by this provision because it specifically mentions "bankruptcy, or assignments or arrangements for the benefit of creditors, and with absence from meetings", which is "quite clearly drawn with reference to natural persons only" (supra. at 23 lines 10-20). The statutory provision says nothing about liquidations or schemes of arrangement or official arrangements that apply to companies. Hence, he concluded that the provision must mean that the committee should consist of individuals only.

19. I am persuaded by Ms McKenna and Mr Vaisey that there is an explanation why there is express provision for the bankruptcy of a member of a committee of inspection, but no provision for the liquidation of a corporate member. In bankruptcy, there is a vesting of rights of the bankrupt in the trustee in bankruptcy. The individual loses capacity other than in a few exceptional instances. Hence, legislation is required to clarify what is to happen in the situation when an individual who serves on a committee of inspection is made bankrupt. A company in liquidation will be the same entity as such, albeit controlled by the liquidator instead of by the management. Liquidation does not affect the rights of a company under section 115 to appoint an authorised representative to a meeting, as a liquidator has been held to be within "other governing body" in the equivalent provision in the Companies Act 1948 in Hillman & Ors v Crystal Bowl Amusements Ltd & Ors [1973] 1 All ER 379.

20. For the above reasons, I do not propose to follow Re Testro. I hold that on a proper construction of section 207(1), a corporation that is a creditor or contributory can and should be appointed to a committee of inspection and an individual, whether named or unnamed, who is to represent the corporation, should not be appointed.

21. In the present case, an order was made on 4 November 2002 providing that there should be a committee of inspection and that the liquidators should convene a meeting of creditors to establish the membership thereof. On 10 December 2002, a meeting of creditors was held and it was resolved that representatives of the following be appointed:

Brixton Investments Pte Ltd;

Madam Kawita Mohan Vaswani;

Industrial Development Corporation of South Africa; and

State Bank of India

22. The liquidators seek in this application an order to confirm that the appointment and constitution of the committee of inspection is valid; alternatively, if the court should determine otherwise, directions to hold creditors' meeting to determine the membership of the committee of inspection to consist of named individuals and an order to ratify the acts of the liquidators as set out in the schedule to the summons.

23. For the reasons given above, I make a declaration that the committee of inspection, made up of the three corporate members and Madam Kawita Mohan Vaswani, is properly constituted.

24. I have earlier made an order on 19 November 2003 to ratify and confirm the acts of the liquidators as set out in the schedule to the summons and that order is to stand. I further order the liquidators to gazette the appointment of the membership of the committee of inspection, if they have not already done so, within 14 days hereof. Lastly, I order that the costs of the Official Receiver and of the liquidators in this application are to be paid out of the assets of the company.

Representation:

Mr Tom Vaisey, of Johnson, Stokes & Master, for the Liquidators

Ms P McKenna, for the Official Receiver

HCCW 1233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 1233 OF 2000

-----------------------------------------------------------

-------------------------------------

REASONS FOR DECISION

-------------------------------------

1. On the morning of Monday 21 May 2001, I made a winding-up order against Asean Interests Ltd ("the Company"). Reasons for Judgment were handed down on 28 May 2001 and I need not repeat them here. Suffice it to say that after 4 adjournments of the hearing of the petition presented in December last year, and pursuant to strenuous objections by OCBC a supporting creditor, to a further adjournment sought by the Company and its sole contributory and opposing creditor Asean Holdings AG ("Holdings") notwithstanding the Company's offer to OCBC of payment of US$1.5m., the Company was ordered to be wound up.

Effect of winding-up order

2. The effect of a winding-up order is that it operates "in favour of all the creditors and of all the contributories of the company as if made on the joint petition of a creditor and of a contributory" (s.187 CO). This is the statutory expression of the nature of the "class remedy" of winding-up.

3. The order was approved on Tuesday 22 May 2001 but did not proceed to sealing in the circumstances set out below.

Summonses for rescission of winding-up order

4. On Wednesday 23 May 2001, a summons (returnable on 4 June 2001) was issued by solicitors for the Company for an order that: (1) the winding-up order be rescinded and annulled; (2) the Official Receiver be directed not to take any further step in the matter; and (3) the petition be withdrawn. This was supported by the 6th affirmation of Ho Suk Mi, on behalf of the Company.

5. On the following day 24 May 2001, a summons in similar terms (also returnable on 4 June 2001) was issued by Asean Holdings AG ("Holdings"), the opposing contributory and creditor. No affirmation in support was filed.

6. On Friday 25 May 2001, these summonses were brought to my attention. In light of the relief sought in the summonses, it was obvious that an earlier hearing date should be provided. The Company and Holdings issued fresh summonses for hearing on Monday 28 May 2001.

Hearing of summonses

7. The summonses were heard in open court on 28 May 2001. At one stage, counsel for the Company sought an adjournment of the hearing for another week but that was refused. Any party who issues a summons must be expected to be ready with his evidence and submissions. That must particularly be so when the relief sought is the rescission of a winding-up order, which affects the status of a company and which is not simply an inter-partes matter.

8. After hearing submissions on the applications for rescission, I dismissed the summonses (without prejudice to any application that may be brought under s.209 CO for a stay of the winding-up) and I directed that the Petitioner's solicitors proceed to the sealing of the winding-up order. In view of time constraints, I was not able to give reasons for my decision. I do so now.

Jurisdiction of Court to rescind winding-up order

9. It is well-established that the Court has jurisdiction to rescind an order, even a winding-up order, before the order has been perfected.

10. After the order is perfected, it would have no jurisdiction to do so, as there is no provision in the Companies Ordinance or Winding-Up Rules allowing that to be done. This was the position which obtained in England before the enactment of the Insolvency Rules 1986, rule 7.47 of which now provides that "every court having jurisdiction under the Act to wind up companies may review, rescind or vary any order made by it in the exercise of that jurisdiction". (For a case before rule 7.47 was enacted, where the court held that it had no jurisdiction to rescind a winding-up order after it has been perfected, see Re Intermain Properties Ltd (1985) 1 BCC 99,555).

11. The present case being one where the winding-up order had not been perfected, the Court did have jurisdiction to rescind the winding-up order.

Exercise of discretion

12. The question was whether the Court should, in the exercise of its discretion, rescind the order. Any party seeking a rescission of a winding-up order has to show clearly sufficient grounds to move the Court in the exercise of its discretion to do so.

13. For instance, if the ground was that there had been an agreement between the parties which, due to some error (whether of act or omission) in instructions given to legal representatives, was not put before the Court, the evidence should show clearly what the agreement was, when it was reached and how the error in instructions arose.

14. Or, for instance, if the ground was that there had emerged new evidence showing a real prospect of turning the Company around, then that new evidence should be fully and frankly put before the Court and creditors for consideration.

15. In the present case, the applications for rescission were supported by the 6th affirmation of Ho Suk Mi, a director of the Company, made on 24 May 2001 and her 7th affirmation handed up to the Court in the course of the hearing.

16. In the 6th affirmation, Ho hints at some error in instructions but it is far from clear what her case on the facts was. She said in paragraph 3 that "although counsel for OCBC submitted [at the hearing of the petition on 21 May 2001] that the investment proposal was not acceptable to OCBC, so far as I am aware, there had been some terms of settlement reached between the Company and OCBC on the hearing day" (emphasis added).

17. In paragraph 5 of the same affirmation, she referred to the hearing of a bankruptcy petition in Singapore fixed for Monday afternoon which she said was "withdrawn" conditional upon the "withdrawal" of the winding-up proceedings in Hong Kong. However, "due to delayed communication of the stage in settlement talks, a winding up order had already been made in the morning of the same day".

18. It was not at all clear what Ho was saying insofar as she was suggesting that there has been some error in instructions. The reference to "some" terms of settlement being reached, without more, was unhelpful. As to when those terms of settlement were reached, the situation was even less clear. At the hearing on 28 May, Counsel for the Company and Counsel for OCBC had conflicting instructions as to whether agreement had been reached the morning of 21 May. Counsel for the Company appearing on 28 May said on his instructions that an agreement had been reached the morning of 21 May. Counsel who appeared for OCBC on 21 May 2001 and 28 May 2001 said on his instructions that no agreement had been reached that morning. In light of that conflict, the Court must examine the evidence with care, and the evidence in Ho's 6th affirmation was simply that "some" terms of settlement between the Company and OCBC had been reached "on the hearing day", without specifying whether the settlement was reached before or after the winding-up order had been made that morning. If settlement was only reached after the winding-up order had been made, then it would not appear to be a case of error in instructions.

19. Insofar as there was a reference to "delayed communication of the stage in the settlement talks", the language of her affirmation was similarly vague. It was not clear which line of communication was being referred to. There was no evidence that any of the parties represented in Court on the morning of 21 May 2001 was conducting the case otherwise than as intended. The reference to "withdrawal" of the petition was also not understood. There was no assertion anywhere in Ho's 6th or 7th affirmations that there had been an agreement for the petition to be "withdrawn". Both conceptually and linguistically therefore, the evidence was confused and obscure, and I saw no ground for rescission of the winding-up order arising from any alleged error.

20. Ho's 7th affirmation referred to US$0.25m being paid to OCBC on 24 May 2001 and US$1.5m being remitted from a third party to OCBC on 25 May 2001. It was said that as a result, OCBC was willing to "re-open" negotiations. I would add that payment of US$1.5m was offered in Court on 21 May 2001, but had been rejected by counsel for OCBC. Further, there was no new development in the proposed restructuring. The Wing Shen proposal remained that previously considered by the Court.

21. At the hearing of the summonses on 28 May 2001, the positions taken by the Petitioner, OCBC and another supporting creditor, Bayer were neutral, although all objected to that part of the summonses asking for the Petition to be withdrawn. The upshot of that was that if the winding-up order were rescinded, the petition would continue as before, with OCBC and Bayer supporting the petition and the Company and Holdings opposing it. Nothing would have changed from the position adjudicated upon by the Court on 21 May 2001.

22. Apart from the creditors appearing, the position taken by the Official Receiver and any other creditors should also be considered. The Official Receiver, who had by virtue of his office become provisional liquidator upon the making of the winding-up order, opposed the application. One creditor, ABSA, who had previously appeared, indicated through the Official Receiver that it also objected to the application for rescission. The Court noted that the Company had not even compiled a list of its creditors, despite requests for it to do so between the presentation of the petition and the winding-up.

23. It cannot be emphasized more strongly that an application for rescission of a winding-up order, which effects a profound change in the status of the Company and which affects all creditors, would be treated with great caution by the Court (for the practice in England prior to the enactment of r.7.47(1), see Practice Note (Winding-Up Order: Rescission) [1971] 1 WLR 4). Substantial grounds supported by clear evidence must be placed before the Court. In the circumstances of this case, I saw no ground for rescinding the winding-up order and I dismissed the summonses with costs. The dismissal was without prejudice to any application that may be made under s.209 CO for a stay of the winding-up if circumstances justifying such a course are made out in the future.

HCCW 1233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 1233 OF 2000

-----------------------------------------------------------

-------------------------------------

REASONS FOR JUDGMENT

-------------------------------------

1. On 21 May 2001, I made a winding-up order against Asean Interests Ltd ("the Company"). In view of time constraints, I said I would reduce the reasons for judgment into writing to be handed down. I do so now.

The petition

2. The petition was presented in December 2000 by CDC Group plc. The Company was indebted to the petitioner in the sum of ￡700,000 with interest. A statutory demand had been served in early December 2000 but no payment in whole or in part was made.

3. Since the Master's certificate was given (in late March 2001) and the matter was adjourned to the Companies Court (the first hearing being on 2 April 2001), this petition has been before the Court on no less than 5 occasions. The Company does not dispute that it is indebted to the Petitioner but it has been attempting to arrive at a compromise with it. It would be fair to say that as a result, the Petitioner has not been pressing for the petition to be heard and has not objected to the Company's applications for adjournment.

Supporting Creditors

4. Originally there were two supporting creditors viz. ABSA Asia Ltd and Overseas Chinese Banking Corporation Ltd Tianjin Branch ("OCBC").

5. Subsequently ABSA withdrew, leaving OCBC as the (then) only supporting creditor.

6. OCBC is the security agent for a consortium of three banks viz. Bank of China Tianjin Branch, Development Bank of Singapore Shanghai Branch and OCBC ("the Lenders"). The Lenders had entered into a syndicated loan agreement with TMT Carpet Manufacturing (Tinajin) Co Ltd ("TMT") to make available facilities up to the amount of US$12m.

7. This loan was guaranteed (i) as to 37.5%, by Pharmacia Corportation (formerly known as Monsanto Company) and (ii) as to 62.5%, by the Company and Mr Mohan K Vaswani jointly and severally.

8. The Company's indebtedness to OCBC under this guarantee (under which the guarantors are liable as primary debtors) is said by OCBC to be about US$5.4m and RMB 5.2m. The Company does not dispute that it is indebted to OCBC, although there is some dispute as to the amount of its admitted indebtedness. At the very least, the Company has admitted indebtedness to OCBC in the sum of about US$3.6m. It is OCBC which has been the driving force behind the winding-up of the Company.

9. I should add that on 12 May 2001, Bayer Antwerpen NV has also appeared to support the petition, although the amount of its claim (being about US$160,000) is relatively less than OCBC's.

Opposing creditor/contributory

10. On 12 May 2001, Asean Holdings AG ("Holdings") gave notice of intention to oppose the petition. Its claims is for about US$107m. and it is virtually the sole contributory of the Company.

Company's position

11. The Company has opposed the petition. It has not disputed its indebtedness to the Petitioner and Bayer. Originally, it questioned the extent of its indebtedness to OCBC. However, it has since admitted indebtedness in the sum of about US$3.6m. (being 62.5% of US$6m).

12. Although the Company has not been able to repay its debts as and when they fell due, it says that the debt may be repaid in the near future, as a company by the name of Wing Shen Global Overseas Funds (Chongqing Wanzhou) Industrial Co. Ltd ("Wing Shen") is considering an injection of funds of up to US$8m. into TMT. It is said that Wing Shen will be getting financial assistance from the Hong Leong group. Of the US$8m. intended to be invested, the proposed distribution is that US$6m. will be repaid to the Lenders, slightly less than US$0.9m will go towards repayment of a working capital loan that has been made by the Bank of China, and US$1m will go towards TMT's working capital.

13. One of the conditions precedent is that there should be completion of financial due diligence, with draw-down to be within 30 days of completion of the conditions precedent. The estimated time frame for completion was 3 months from date of acceptance of the plan. In the 5th affirmation of Ho Suk Mi handed up to the Court at the hearing of the Petition on 21 May 2001, it is said that it is expected that the due diligence exercise will be completed in 2 weeks time.

14. Be that as it may, the Lenders have discussed the Wing Shen proposal. In a signed draft affirmation of Tan Tian Seng handed up to the Court, the general manager of OCBC says the result of the discussion was that "all the Lenders do not accept the proposal and they support the petition herein". Amongst other concerns was the financial viability of Wing Shen itself.

Principles

15. It is well-established that a creditor whose debt is not disputed to be due and payable has the right ex debito justitiae to a winding-up order. I would echo with respect the words of Godfrey JA in Re Esquire (Electronics) Ltd [1996] 3 HKC 309, 312:

"An unpaid creditor is entitled ex debito justitiae to an order; it is of no avail to the company to say that, if only it is given time, it will be able to pay. ... The winding up procedure is not ordinary litigation. The special considerations which apply to creditors' winding up petitions require that they should be heard promptly. In normal cases, where the debt is admitted, a period of four weeks from the date of the first hearing ought to suffice to enable the petitioning creditor, if still unpaid, to decide whether to press for a winding up order or whether to rely on other arrangements put forward by the company. Usually this period would also suffice to enable the Company to decide whether or not to promote some such other arrangement".

16. In the present case, the Company has been given 7 weeks from the first hearing of the petition to enable it to attempt to persuade its creditors not to press for a winding-up order. It has not succeeded, at least as far as the unconnected creditors are concerned.

17. I am aware that the value of the Company's debt to Holdings is greater than that owed to the unconnected creditors, but the affirmation of Albert Wong Chor Lun, Holdings' solicitor, contains no grounds for opposing the petition other than to say that OCBC would have "a good chance" to receive payment from TMT "very soon" if the investment plan is allowed to proceed. Evidence of the financial viability of the investor, which OCBC had through its solicitors expressed as an area of concern, and which Mr Vaswani's solicitors had said would be produced, has not been produced.

18. It is accepted that in carrying out the balancing exercise that has to be done between the supporting creditors' and the opposing creditor's positions, the court would give less weight to the views of opposing creditors who are also contributories and who might accordingly have reasons for wishing a particular course distinct from the considerations common to the general body of creditors (Boyle and Marshall, Practice and Procedure of the Companies Court § 9.102).

19. I am conscious of the fact that the Company has not provided a list of its creditors. The evidence available to the Court is that all creditors who have appeared who are not connected to the entity controlling the Company support the petition, and the only opponent is the sole shareholder of the Company. In that situation, the wishes of the unconnected creditors should carry greater weight.

Other matters raised

20. Apart from the proposed investment plan, the Company has also pointed to the fact that bankruptcy proceedings are taking place against Mr Vaswani in Singapore and that the Lenders have obtained an asset preservation order from the Tianjin Municipality Higher Court in the PRC against TMT. However, there is no evidence as to what (if any) dividends would be obtained even if a bankruptcy order is made, nor is there any evidence as to the value of any assets so preserved.

21. As a matter of completeness, I would also record that it was submitted on behalf of the Company that if the Court were not to grant yet a further adjournment, the Company would consider a scheme of arrangement with its creditors. This was obviously an eleventh-hour suggestion. It does not warrant an adjournment being granted. It has come 5 months after the presentation of the petition and towards the tail-end of the 5th hearing. If there were any merits to this proposal, one would have expected it to have been raised fully and seriously right at the start of the petition.

Conclusion

22. In the exercise of my discretion, in the light of the principles set out above, I considered that the wishes of the unconnected creditors should prevail and I made the usual winding-up order.

23. Finally I should record that during the hearing of the petition, a sum of US$1.5m was offered by the Company for payment to OCBC within the day, but that was declined.

24. To this, I would add that a winding-up petition is a class remedy and not to be treated as simply inter-partes proceedings where the parties' commercial considerations are paramount. The Companies Court is not a stakeholder in a market-place where a company can expect to bargain with a petitioning or supporting creditor on successive Monday mornings until the patience of the Court wears out.

25. Similarly, a petitioning or supporting creditor cannot expect to hold the petition to wind up as a threat against a debtor company, hoping that by this threat, it will get paid because that is in truth what it wants rather than a dividend in a liquidation.

26. It is to be hoped that legal advisers, whether of companies the subject of petitions or of creditors, would appreciate that the Court expects that positions, once asserted, will not be readily altered by hidden agenda, commercially motivated or not.