ABERDEEN WINNER INVESTMENT CO LTD v. INCORPORATED OWNERS OF ALBERT HOUSE

HCCW1046/2004

IN THE HIGH COURT OF THE

HONG KONG ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. HCCW 1301 OF 2001

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D E C I S I O N

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1.       This is an application under section 209 of the Companies Ordinance (Cap. 32) to stay the winding-up of the Incorporated Owners of Albert House.  The power of the court to grant such a stay is discretionary and it is clear from the authorities which have been cited to me by the Applicant, who is the Petitioner, that the burden is on the Applicant to make out a sufficient case for a stay that carries conviction and to persuade the court that the court ought to grant a stay in the circumstances of the case.

2.       By way of background, I should say that Albert House is a mixed-use commercial and residential building in Aberdeen.  Some years ago, a concrete canopy projecting out from the external wall along one side of Albert House collapsed.  Unfortunately, there were people standing under the canopy at the time and one of them was killed and a number of others were seriously injured.  This led to personal injury proceedings being brought against various defendants, including the Petitioner, the Incorporated Owners, and a number of other defendants (whom it might be thought were more immediately to blame than either the Petitioner or the Incorporated Owners) for the accident that had occurred. 

3.       At the end of the day, all the defendants were held to be jointly and severally liable to the plaintiffs in the personal injuries claim, although in differing proportions.

4.       As none of the other defendants paid their shares of the damages, the damages payable to the plaintiffs in the personal injury actions were paid, in the first instance, by the Petitioner.  The Petitioner then successfully sought an order for contribution towards that payment from the Incorporated Owners.  No order for contribution was sought against the other defendants (despite their greater responsibility for the accident) because they had in the meantime either gone bankrupt where they were individuals, or into liquidation where they were companies.  The Incorporated Owners unsuccessfully appealed to the Court of Appeal against the order that they should pay contribution to the Petitioner.

5.       At the end of the day, the Incorporated Owners were faced with the liability to pay the Petitioner some HK$25 million, plus interest and costs.  This sum was not paid, and it was this failure to pay that resulted in the winding-up petition being presented by the Petitioner against the Incorporated Owners.

6.       On 8 November 2004, it appearing to me that there was no reasonable prospect of payment being made within anything approaching a reasonable time, if at all, of this judgment debt, I ordered that the Incorporated Owners be wound up.  Thereafter, on 11 January 2005, Mr Kenny King Ching Tam and Mr Mat Ng were appointed as liquidators of the Incorporated Owners by the court on the application of the Official Receiver.

7.       As a result of the winding-up of the Incorporated Owners, each of the owners of individual shares in Albert House became liable to contribute in proportion with their interest in the building to the deficiency of the liabilities of the Incorporated Owners over its assets.  As there are 137 shares in the building, each of those shares carried a significant liability having regard to the size of the Petitioner’s claim.

8.       It turned out that many of the owners were not particularly well off, or were old or illiterate.  There was a public outcry over the effect of the winding-up order and, in the event, assistance was sought by the individual owners from Government to assist them in meeting their liabilities to contribute.  At the end of the day, the Housing Authority agreed to provide financial assistance to the owners by way of loans to them.

9.       In the light of this, the Petitioner has agreed to settle its claims against the Incorporated Owners directly with the individual owners of the units in Albert House, and it would appear from the evidence that has been filed for today’s hearing that the Petitioner has recovered a substantial proportion, but not all, of what it is owed.  This appears from the affirmation of its director, Wu Siu-fan, filed for the purpose of this application.

10.   In the light of that, notwithstanding that they have not yet received full payment of all amounts due to them, the Petitioner has decided that it is willing to apply for a stay of the winding-up proceedings, and it has confirmed that a proof of debt which it has filed in the liquidation of the Incorporated Owners will be withdrawn and that there will be no further petition presented for the winding-up of the Incorporated Owners on the basis of the judgment debt in the contribution proceedings.

11.   In the light of those developments, the financial position of the Incorporated Owners has improved dramatically, going from a position in which they were insolvent to a significant degree to one where it would appear that the Incorporated Owners are clearly solvent.

12.   The financial position of the Incorporated Owners is explained in the report of the liquidators filed on 15 October 2005 in relation to this application.  The liquidators state that according to the Statement of Affairs which was prepared at the beginning of the liquidation, the Incorporated Owners had assets of about HK$11.23 million with debts, excluding the Petitioner’s claim, of just under HK$70,000.

13.   The liquidators have realised cash of approximately $1.9 million.  Of this amount, some $815,000-odd stands in this special position – they represent funds paid by eight owners of 12 units, or having 12 shares attributable to them, pursuant to a resolution which had been passed by the management committee of the Incorporated Owners seeking contributions to enable the liability of the Incorporated Owners to the Petitioner to be paid.  That leaves slightly in excess of HK$1 million in cash otherwise available.

14.   At present, the position is that the Petitioner has withdrawn its proof of debt and will not petition again in future.  On that basis, it seems to me that the Incorporated Owners are clearly solvent.  There is cash in hand, as I understand it, in the company’s liquidation account of some $1.9 million.  There are also, it seems, other assets which have not yet been realised in the form of debts that are owed to the Incorporated Owners.  I propose for the moment to ignore those.  But even so there is $1.9 million available.  As to how this should be used, the first proposal is to return $815,000-odd to the owners who have made contributions without any deduction.  This is not objected to by the Petitioner.

15.   It seems quite clear that the liability of the Incorporated Owners to the Petitioner has been or will be settled and the only question therefore is whether the money that had been paid by owners for the purpose of settling that claim should be refunded.  As to this, there was some question as to whether or not the purpose of those payments was restricted to the settling of the claim by the Petitioner, or whether it could be said that the amounts were paid for a wider purpose, including the general liquidation expenses and the costs of winding-up of the Incorporated Owners.

16.   However, it seems to me that both on the basis of the minutes of the relevant meeting at which it was resolved to raise that contribution and also from the fact that the contribution was obtained some time before the actual winding-up order was made that it is very unlikely that it would have been in the contemplation of the management committee in seeking the contribution or of the owners in making them that the payments were made for anything other than the purpose of settling the liability to the Petitioner in this case.  Having considered the evidence in relation to this matter, it seems to me far more likely that the purpose of the payments was the narrower purpose of enabling the Incorporated Owners to meet their liabilities to the Petitioner. 

17.   That being the case, since that liability has now been taken care of by other means, it seems right that those funds should be returned to the owners who made the contributions.  That will leave slightly in excess of HK$1 million in cash available in the company’s liquidation account.

18.   Out of this, it will be necessary to meet known liquidation costs to date of some $113,905, as well as the Official Receiver’s fees charged according to the fees and percentages table of some $93,675.

19.   As far as debts are concerned, of the two debts shown in the Statement of Affairs, one, for $22,300 to the former solicitors of the Incorporated Owners, will no doubt have to be paid.  The remaining debt in the Statement of Affairs has not been pursued and confirmation has been received by the creditor in question that no claim will be made in respect of that debt.  I therefore propose to leave it out of account.

20.   One of the remaining debts in respect of which a proof has been submitted is that of the Petitioner itself.  That proof has now been withdrawn.  There is also a proof from one of the owners who made a contribution of the sort that I have referred to.  That proof will fall away once he has been repaid his contribution.  The final proof is one by a Madam Ng who has indicated through her solicitors, who are also the solicitors for the Petitioner, that she has no objection to the making of the order that is sought today.  Her proof, therefore, can also be set on one side for present purposes.

21.   There will also be payments to be made in respect of the liquidator’s own fees, and the fees that they have paid their professional advisers, principally solicitors, in the course of the liquidation.  These fees will have to be taxed, but at this stage, the indications are that these fees will, even if there is no reduction on taxation, not exhaust what is left after payment of the fees and debts that I have identified above. 

22.   There may be some further expenses incurred while the administration of the Incorporated Owners is finalised before being handed back to the former management committee but these, I would have thought, are unlikely to be particularly large and, in the circumstances, it seems to me that the proposal that had been put forward by the liquidators as to how existing expenses, debts and other expenses, either incurred or to be incurred, should be dealt with is a sensible one. 

23.   That is, as set out in paragraph 39 of their report, that the sum of $815,256 representing the contributions that were paid by the eight owners whom I have mentioned earlier should be returned to the persons who had contributed them without any deduction; that the liquidation costs are to be paid from the balance of the cash available in the company’s liquidation account and any balance remaining after the payment of the liquidation costs be returned to the Incorporated Owners.

24.   In the event (which at the moment seems unlikely) that the cash available in the company’s liquidation account is insufficient to cover the liquidation costs, any shortfall is to be settled by the Incorporated Owners from their assets following the stay of the winding-up proceedings.

25.   It is clear from what I have said that the liquidator supports this application.  The effect of granting the stay will be to achieve one significant advantage – it will clear the title to the various properties in Albert House so as to enable owners of those properties to deal in them or to sell them, or dispose of them if they wish, and enabling the Housing Authority’s loans to them to take first priority.

26.   That seems to me to be a very good reason for granting the application sought.  A further good reason is that as the Incorporated Owners will, on the withdrawal of the proof of debt by the Petitioner, be solvent, it would seem both sensible and desirable that management of the building should revert to its owners instead of being left in the hands of liquidators.

27.   Both of those reasons seem to me to provide strong reasons for thinking that it would be proper and highly desirable for an order to be made staying the present liquidation proceedings.  In my view, it is clear that in the interests of all that the winding-up of the Incorporated Owners should be stayed, and I will therefore so order.

28.   I will also grant the liquidators their release on completion of any outstanding matters that need to be dealt with, and I will make an order in terms of providing for the directions that are sought by the liquidators in relation to how moneys in the company’s liquidation account are to be dealt with and how their fees and expenses are to be provided for.

29.   There is one other matter that I should mention.  That is that, although not mentioned in the summons seeking a stay of the liquidation, there was a suggestion in the affirmation of Mr Wu and in the skeleton argument filed on behalf of the Applicant that the court should exercise its power under section 31(1) of the Building Management Ordinance to remove the existing management committee from office and replace the management committee by an administrator.

30.   The problem that I had with this suggestion was that it does not appear to me that any notice of it has been given to the existing management committee of the Incorporated Owners.  In those circumstances, it does not seem to me to be right for me to contemplate making any order that would have the effect of removing them from office   without at least giving them an opportunity to be heard.  If it is desired to make such an application, and some grounds have been put forward for it, as to which I make no comment at this stage since they have not been responded to, in my view, it would be appropriate for that application to be made separately at any time after the stay of the winding-up proceedings has gone into effect.

(Submission and order re costs)

HCCW 1046/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1046 OF 2004

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D E C I S I O N

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1.  This is an application of the Official Receiver as the provisional liquidator of the Incorporated Owners of Albert House (“the Incorporated Owners”), under section 182 of the Companies Ordinance, Cap. 32, seeking a validation order in respect of the following:

(1)    dispositions of the property of the Incorporated Owners in the ordinary course of the management of Albert House (“the building”) for proper value;

(2)    dispositions of the property of Albert House in the sums of HK$54,808.30 and HK$58,933.30 for settlement of the monthly expenses of the building for October and November 2004 respectively; and

(3)    future dispositions of the property of the Incorporated Owners in an amount not exceeding HK$60,000.00 a month for settlement of the management expenses of the building.

2.  On 30 September 2004, Aberdeen Winner Investment Company Limited presented a creditor’s petition to wind up the Incorporated Owners.  The petition was founded on three judgment debts, in HCA No. 3408 of 2003 dated 21 January 2004 for HK$9,239,437.87, in HCA No. 2308 of 2003 dated 20 July 2004 for HK$2,449,563.88, and HCA No. 1623 of 2004 dated 16 August 2004 for HK$12,002,299.02.  These amounts are the contributions sought by the petitioning creditor against the Incorporated Owners in respect of the liability to pay compensation awarded to the plaintiffs in a personal injuries case.

3.  On 8 November 2004, a winding-up order was made against the Incorporated Owners.

4.  According to the former members of the management committee of the Incorporated Owners, the total assets of the Incorporated Owners amounted to HK$1,844,645.30, with liabilities of HK$25,405,040.00.  The Incorporated Owners are apparently unable to discharge their debts and liabilities out of their own assets.

5.  At the time of the Official Receiver’s first report dated 25 November 2004, the Official Receiver has received HK$1,798,815.88 from the Incorporated Owners, out of which HK$1,789,586.00 was claimed to be trust money held on behalf of the owners of the building for payment of the compensation in the personal injuries case and the Incorporated Owners’ legal costs in defending various court actions in relation thereto.  As at the hearing today, proofs of debt received amounted to HK$25,205,206.02.

6.  The management of the building has been undertaken by PP Management Consultants Company Limited (“the Management Company”) under a building management contract.  The management expenses of the building comprise two parts, services and disbursements.  Disbursements involve fire services contracts, water pump maintenance contract, lift maintenance contract, public antenna system maintenance contract, digital surveillance system service agreement, public liability insurance policy and fire insurance policy.  All these contracts are subsisting and unless terminated earlier, will not expire until next year.

7.  The Management Company has continued to collect monthly management fees from all the owners of the building.  Monthly income includes rental of HK$7,500.00 in respect of the roof top let by the Incorporated Owners to Hong Kong CSL Limited for telecommunication installations.  The average monthly management expenses of building for September to November 2004 were about HK$57,000.00 odd and the average monthly management fees received for the same period amounted to HK$56,000.00 odd.  The balance brought forward in the income and expenditure account kept by the Management Company as at 30 November 2004 is HK$36,204.70.  From these figures, it would appear that the management fees contribution with the rental received for the roof top should be sufficient on average to discharge the monthly management expenses.

8.  The present case is different from the usual situation where a validation order is sought in respect of a company which is the subject of a winding-up petition or order.  This is a corporation of flat owners incorporated under the Building Management Ordinance, Cap. 344.  Notwithstanding the winding up of the Incorporated Owners, it is necessary to have management and maintenance of the building continued for the need of the owners in the use and enjoyment of their units in the building and for the safety of the building as a whole in the interest of the public and the owners.

9.  In a similar case, Re the Incorporated Owners of Foremost Building, HCCW No. 47 of 2004, 28 October 2004, I made a validation order for payment of monthly management expenses of the building in question out of the management fees contributions paid into the Companies Liquidation Accountant, holding that the incorporated owners would still have statutory functions to perform under section 18(1) of Cap. 344 notwithstanding that the incorporated owners were ordered to be wound up.

10.  Here, to perform the statutory functions under Cap. 344, it is necessary to have the present management continued under the building management contract.  It is necessary to have the various service contracts continued, in particular the lift maintenance contract, to enable discharge of the statutory obligation on the part of the owners under section 19 of the Lifts and Escalators (Safety) Ordinance, Cap. 327.

11.  It would be appropriate to make a validation order to allow the discharge of expenses necessarily incurred in the management of the building, so long as the management fees contributions received from the owners are kept entirely separate and are not to be used for any other purpose.

12.  I therefore make an order in terms of paragraphs 1 to 3 and 5 of the application amended in the manner as indicated at the beginning of this decision.

Mr H Y Chau, for the Official Receiver