RE B F CONSTRUCTION CO LTD

HCCW 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 691 OF 2004

______________________

______________________

HCCW 340/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 340 OF 2002

____________

____________

AND

HCCW 345/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 345 OF 2002

____________

____________

AND

HCCW 346/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 346 OF 2002

____________

____________

AND

HCCW 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 691 OF 2004

____________

____________

Before: Hon. Kwan J. in Chambers

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D E C I S I O N

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1.  This is an appeal of the provisional liquidators from the decision of Registrar Chan on 7 July 2006 giving leave to the company concerned, Boldwin Construction Company Limited (“Boldwin”), to participate in the hearing for taxation of a bill of costs of the provisional liquidators dated 10 March 2006.  It is the provisional liquidators’ contention that the hearing for taxation should be held in the absence of Boldwin or its contributories.

2.  The provisional liquidators have also taken out summonses in related proceedings concerning 3 other companies – Myriad Gold Corporation (“MG”), Maintain Profits Limited (“MP”) and BF Construction Company Limited (“BF”), seeking an order that the taxation hearing of the debit notes of the provisional liquidators for each of these companies be determined by the court without the presence of the company concerned or its contributories.

3.  The main contention in the appeal and the summonses is whether the determination of the provisional liquidators’ costs should be heard ex parte.  Other matters I need deal with are the interim payment to be made to the provisional liquidators for their costs and the order of the Registrar requiring the provisional liquidators to bear the costs of the hearing on 7 July 2006 personally.

4.  I will give a brief background necessary for an understanding of this decision.

5.  Provisional liquidators were appointed for Boldwin, MG and MP on 31 October 2002.  The background leading to their appointment arose out of the matrimonial dispute between Madam Law Wai Duen and Dr Chan Shiu Chick, being the individuals beneficially interested in these companies.  Serious allegations of mismanagement were made by Madam Law against Dr Chan.  I found that a prima facie case of the allegations in the petition was made out and provisional liquidators were appointed.  The orders for the appointment of provisional liquidators for these 3 companies provided that:

“The basis of the remuneration of the Provisional Liquidators be calculated according to the standard hourly rates charged by the Official Receiver for the services of the Provisional Liquidators and other grades of staff and employed by them and be paid out of the Assets of the Company.”

6.  On 18 June 2004, on the application of the provisional liquidators of MG and MP, which held all the shares in BF, I made an order appointing provisional liquidators for BF.  The order for their appointment provided “the basis of the remuneration of the provisional liquidators be charged and paid out of the assets of [BF] subject to approval of the Court”.

7.  In March 2005, Dr Chan and Madam Law reached a settlement of their matrimonial dispute, a term of which was that Madam Law would consent to the dismissal of the winding-up petitions and the transfer of her interests in the 4 companies and related companies to Dr  Chan.

8.  The winding-up petitions of all 4 companies came before me on 8 February 2006.  I dismissed all the petitions, for the reasons given in the judgment of the same date.  I ordered the provisional liquidators to be discharged from their office in respect of each of the companies.  In paragraph 23 of my judgment, I stated that I would deal with the consequential orders to be made on the discharge of the provisional liquidators, after the provisional liquidators had considered the draft orders proposed by Dr Chan and Madam Law.

9.  On 10 March 2006, I made an order by consent in each of the proceedings.  By this order, the provisional liquidators were allowed to retain out of monies held by them the aggregate sum of $25 million, out of which would be paid the proper fees, costs and expenses of the provisional liquidators and agents engaged by them in accordance with the earlier orders.  It was provided in this order that “such fees, costs and expenses if not agreed by [the company concerned] are to be taxed and allowed by the Court”.

10.  No agreement was reached between the provisional liquidators and the companies regarding their fees, so the provisional liquidators submitted debit notes for taxation in respect of Boldwin in March 2006 and of the other 3 companies in August 2006.

11.  On 18 May 2006, the Registrar gave a direction that there be a hearing of the determination of the remuneration of the provisional liquidators of Boldwin with 2 hours reserved, and that Boldwin be served by the provisional liquidators with their report and a notice of hearing as well as the provisional liquidators’ bill.  The provisional liquidators objected to the latter part of this direction.  They sought a determination from the Registrar that the taxation hearing should be held ex parte.  This was determined by the Registrar as a preliminary issue on 7 July 2006.  As mentioned earlier, he held against the provisional liquidators.  Hence this appeal and the summonses issued by the provisional liquidators subsequently in relation to the other proceedings.

12.  Ms Mckenna for the Official Receiver is here today because the provisional liquidators’ solicitors took the view that the Official Receiver should attend the appeal, on account of the observations of Mayo JA in Re Peregrine Investments Holdings Limited [1999] 3 HKLRD 59 at 67G to 68A on the statutory functions of the Official Receiver under section 204 of the Companies Ordinance, Cap. 32 and rules 169, 171 and 172 of the Companies (Winding-up) Rules.  As pointed out by Ms Mckenna, the provisions referred to by Mayo JA do not apply to a company which is not being wound up by the court.  I agree with her that as no winding-up order was made on any of the petitions, the Official Receiver is not concerned with the determination of the provisional liquidators’ bills.

13.  Ms Mckenna has nevertheless made written submissions on the issue whether the determination of the provisional liquidators’ bill should be heard inter partes or ex parte.  She is in agreement with the stance of the provisional liquidators that the determination be heard ex parte.

14.  On 1 April 2004, I made a general direction under rule 6(a) of the Companies (Winding-up) Rules, that with effect from 3 May 2004, being the effective date upon which the Procedural Guide for Taxation and Determination of Bills in Liquidation Process (“the Procedural Guide”) will be implemented, applications for the determination of remuneration and disbursements of provisional liquidators, liquidators, special managers and receivers may be heard and determined by a master in chambers.

15.  The Procedural Guide, as its name suggests, gives guidance to practitioners on the preparation of documents to be lodged with the court for the determination of bills, and the steps to be followed after the necessary documents are lodged with the court.  The practical and pragmatic approach adopted in the Procedural Guide is designed to streamline the documents required to be submitted by provisional liquidators and liquidators for the assessment of their fees, to ensure that a sufficient amount of information is placed before the taxing master and that the court would not be overburdened with unnecessary materials.  So time sheets are not required to be produced to the court in the first place, in the interests of cost-effectiveness, and would only be called for if the master needs to query any point (paragraph 3.1).  As Mr Harris, SC pointed out, the documents and information required to be provided under the Procedural Guide would not be as detailed and comprehensive as those envisaged and discussed in Re Peregrine Investments Holdings Limited [1998] 2 HKLRD 670 at 684F to J.

16.  Paragraph 4.1 of the Procedural Guide reads:

“After the documents referred to in paragraph 3 have been lodged, the Listing Officer shall designate a hearing time for the taxation/determination of the bill lodged.  At the hearing, the master will hear representation and deal with the bill summarily if possible.  The representative attending the hearing is expected to be familiarized with the bill lodged for taxation/determination and be able to answer queries raised by the Court. If it is unlikely that the taxation/determination can be finished within the allotted time, the case will be adjourned to a date to be fixed with such estimated length of time as the master may consider appropriate.”

17.  It seems to be common ground that the procedure for the determination of provisional liquidators’ bills envisaged in the Procedural Guide is an ex parte procedure in the sense that only the provisional liquidator is present.  In most situations, and if a winding-up order is made on the petition, it is not expected that the company or any one else would take part in the determination of the provisional liquidators’ fees.  Nevertheless, the Procedural Guide is only for guidance, it is not law.  I would need to consider if cogent reasons are made out why the application should be heard ex parte, without the presence of the party that is to pay the costs to be assessed.  I agree with Mr Grossman, SC, for the companies, that one instinctively recoils at the notion that any one may be financially encumbered without the opportunity to be heard, as natural justice demands it.

18.  Mr Harris has put the case for the provisional liquidators in this way to justify an ex parte determination:

(1) The provisional liquidator is not a party to adversarial litigation.  The function of the provisional liquidator is to look after the assets of the company pending determination of the winding-up petition.  He is an officer of the court.  The remuneration of the provisional liquidator is only a matter between him and the court which appointed him.  The fact that assets are those of the company in itself should have no bearing on the procedure for assessing the provisional liquidator’s fees.  There is conceptual justification for determining the remuneration of the provisional liquidator in the absence of the company or its contributory.

(2) If an inter partes hearing is ordered in this instance, this would be a departure from the procedure followed in other cases, since the general direction came into force in May 2004.

(3) Even if a departure from the general practice were to be ordered, so that the companies may take some role in the determination of the provisional liquidators’ fees, this should be ordered only in an appropriate case.  The present case is not appropriate for these reasons.  Dr Chan and his solicitors have no knowledge of the nature of the work undertaken by the professional accountants as provisional liquidators, they would not be able to make useful comments on the reasonableness of the work done and to assist the Registrar in the determination of fees.  Further, Madam Law had made serious allegations of misconduct against Dr Chan and the court had found a prima facie case on those allegations when provisional liquidators were appointed.  The provisional liquidators had issued a writ in the name of BF against Dr Chan and another director in March 2005, although the writ was not served.  The provisional liquidators had made a report to the court in August 2005 on the misfeasance allegations against Dr Chan, they have declined to provide a copy of it to Dr Chan’s solicitors without a court order after an order was made for the discharge of provisional liquidators.  A substantial part of the debit note in respect of BF concerns investigations of misfeasance against Dr Chan.  It is highly unsatisfactory that he should be allowed to take part in the process to determine the fees of provisional liquidators who had investigated the allegations against him, as he cannot be expected to be anything other than obstructive and would contend that much of work done was unnecessary.

(4) To allow the determination to be conducted in an inter partes hearing will lead to costly, cumbersome and adversarial inter partes taxation.  This would be unfair to the provisional liquidators.  They were appointed on terms set out in the orders in the expectation that their fees would be assessed in accordance with the general practice and with the minimum of delay and inconvenience.  The provisional liquidators are concerned that the companies may wish to make the process of determination difficult for them to put pressure on them to discount their fees.

19.  Ms Mckenna supported the position of the provisional liquidators for these reasons:

(1) If the application for determination of provisional liquidators’ fees is heard inter partes, this may introduce an element of uncertainty into the process.  Professionals should not be dissuaded from acting as provisional liquidators by reason of the uncertainty of their remuneration.

(2) It is not appropriate for a contributory of a company to take part in the taxation process, where the conduct of the contributory is the subject of investigation by the provisional liquidator.

20.  I do not find the above reasons, separately or cumulatively, sufficient to justify an order that the application to determine the provisional liquidators’ fees should be held without the presence of the companies concerned or their contributories.

21.  I agree with the Registrar that the court reserves the power to direct any interested person to take part in the hearing for taxation, if the demands of justice require it.  This too is accepted by Mr Harris.  I do not readily see why the proper fees of provisional liquidators should be treated as a matter only between the provisional liquidators and the court, to the exclusion of the party who would be ordered to pay such fees and would have an apparent interest in the outcome of the determination.  In a typical situation, because the company is wound up by the court, the company cannot be expected to take part in the determination of the provisional liquidators’ fees.  I am not concerned with a typical situation.  The companies are not the subject of any winding-up order.  The provisional liquidators had been discharged from their office in respect of each of the companies.  The management and control of these companies have been re-vested in the board of directors.  Each of the companies, acting by the board of the directors, has asked for an opportunity to be heard before an order is made on the proper fees of the provisional liquidators that should be paid by the company concerned.  I see no objection in principle why they should not be heard.

22.  Furthermore, as Mr Grossman pointed out, Dr Chan and Madam Law are not the only parties interested in the companies.  At the time of the appointment of provisional liquidators for Boldwin, only 60% of the shares was owned beneficially by Dr Chan and Madam Law combined.  As for BF, there is an outstanding loan agreement between BF and a company not connected with Dr Chan or Madam Law called Bomina Limited, under which 30% of the profits of BF would go to Bomina Limited.

23.  In the orders by consent on 10 March 2006, it was expressly provided that fees are to be taxed and allowed by the court, if not agreed by the company concerned.  Mr Grossman submitted it is implicit in these orders that the taxation process should be inter partes, otherwise it would be pointless to provide for the agreement of fees by the companies.  I am inclined to agree with this.

24.  Mr Grossman also sought to rely on rule 170 of the Companies (Winding-up) Rules, which provides that:

“Where a bill of costs or charges in any winding up has been lodged with the taxing officer, he shall give notice of an appointment to tax the same, in a winding up by the court to the Official Receiver, and in every winding up to the liquidator, and to the person to or by whom the bill or charges is or are to be paid (as the case may be).”

25.  I do not think it correct that this rule applies to a situation where no order for winding up is made on the petition.  The language of the provision is clear.  The rule deals with companies in liquidation, it has no application to any of the companies that I am concerned with.

26.  As for the objection taken on the basis that Dr Chan was the subject of investigation by the provisional liquidators and it would be inappropriate to allow him to take part in the determination of fees, the allegations of wrongdoing have been withdrawn as Dr Chan and Madam Law have settled their disputes.  The confidentiality of the investigation work against Dr Chan should not be an issue here.  And if Dr Chan should object to the reasonableness of work done merely or primarily because he was the subject of investigation, no doubt the taxing master would disregard any objection he considers unhelpful or without substance.  Similarly, if the companies should ask the provisional liquidators to provide information which is oppressive or unnecessary for the exercise of the determination of fees, the taxing master would not entertain such requests.

27.  I am not persuaded that the companies would have no or no sufficient knowledge of the nature of the work undertaken by the provisional liquidators so that they are in no position to make any meaningful objection except to ask for a reduction of their fees in vague terms.  Whether the requests of the companies for documents and information in addition to those already provided in accordance with the Procedural Guide are wholly justified is another matter.  It does not seem from the correspondence I have looked at that the companies have considered properly the information already made available to them when queries to the bills are raised, for the first time it seems, in Mr Grossman’s submissions.  This would be a matter for the taxing master.

28.  The inter partes procedure would add to expenses and the time taken to complete the exercise.  This is inevitable.  I do not think it is intrinsically unfair to the provisional liquidators.  Nor do I think if an order for an inter partes hearing is made, this may deter professionals from acting as provisional liquidators in future.  A balance has to be struck between the interests of provisional liquidators and the party ordered to pay their costs.  In this situation, I think the balance comes down in favour of the paying party.

29.  For the above reasons, I dismiss the appeal against the decision of the Registrar that the application for the determination of the provisional liquidators’ fees regarding Boldwin should be in the presence of the company concerned.  I also refuse the application sought in respect of the other 3 companies that the fees of the provisional liquidators should be determined in an ex parte hearing.

30.  The next matter relates to the interim payment made to the provisional liquidators pending the determination of their fees.

31.  Regarding Boldwin, the Registrar ordered 70% of the amount in the debit note of the provisional liquidators be paid to them as interim fees.  There is now no appeal against this part of his order.

32.  For the other 3 companies, the provisional liquidators seek an order that they be paid 70% of the amount of the debit note rendered for each company.  There is no opposition regarding the interim payment of MG and MP which is for $74,087.79 each.

33.  The only objection taken is the amount of interim payment sought for BF, which is in the region of $7 million.  The provisional liquidators have declined to offer a guarantee to repay the amount overpaid if the interim payment should exceed the proper fees allowed after taxation.

34.  In the exercise of my discretion, I would not require a guarantee from the provisional liquidators, but I would reduce the percentage of interim payment from 70% to 50%, to lessen the possibility of the provisional liquidators being required to repay any amount in excess of the fees allowed on assessment.

35.  The last matter is the order of the Registrar that the provisional liquidators should pay the costs of the hearing before him personally.

36.  Mr Harris says this order is inappropriate for these reasons.

37.  Paragraph 6 of the order by consent on 10 March 2006 provided that the Company shall indemnify the provisional liquidators and keep them indemnified on demand from and against all losses, liabilities, proceedings, claims, damages, costs and expenses incurred by them in performing their powers and duties pursuant to the previous orders and the order of 10 March 2006 in a proper and reasonable manner, provided that the indemnity shall not apply to any losses, liabilities, proceedings, claims, damages, costs and expenses incurred by reason of the negligence of the provisional liquidators.

38.  This provision would seem to reflect the position at law that liquidators rarely incur personal liability for their costs.  Such an order would only be made if the court considers the liquidator personally blameworthy in some way so as to deprive him of the right of relief against the assets of the company (Palmer’s Company Law, paragraphs 15.696 and 15.696.1).  I do not think the present situation is a case of that kind.  So I will set aside paragraph 3 of the order of the Registrar on 7 July 2006.  To that limited extent, the appeal from the order of the Registrar dated 7 July 2006 is allowed.

39.  For the costs of the hearing before the Registrar and of the hearing before me, I order the provisional liquidators’ costs and the costs of the Official Receiver be paid out of the assets of the companies.

Mr Jonathan Harris, SC instructed by Messrs Stephenson, Harwood & Lo, for the former provisional liquidators of the Companies

Mr Clive Grossman, SC & Miss Chyvette Ip, instructed by Messrs Ng & Partners, for the Companies

Ms P. Mckenna, for the Official Receiver

HCCW 340/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 340 OF 2002

____________

____________

AND

HCCW 345/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 345 OF 2002

____________

____________

AND

HCCW 346/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 346 OF 2002

____________

____________

AND

HCCW 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 691 OF 2004

____________

____________

_____________

D E C I S I O N

_____________

The summonses

1.  I have before me 4 summonses for review of various decisions made by Registrar Chan on the taxation of costs of the solicitors engaged by provisional liquidators.  The summonses were made under Order 62 rule 35 of the Rules of the High Court.  The summonses may be divided into 2 groups.  The first group concerns Boldwin Construction Company Limited in HCCW No. 340 of 2002, I shall refer to this as “the Boldwin Review”.  The other group concerns Maintain Profits Limited in HCCW No. 345 of 2002, Myriad Gold Corporation in HCCW No. 346 of 2002 and B.F. Construction Company Limited in HCCW No. 691 of 2004, I shall refer to these collectively as “the BF Review”.

The Boldwin Review

2.  Four bills of Stephenson Harwood & Lo (“SHL”) were taxed by Registrar Chan on 7 December 2005, they were as follows:

(1)     bill No. 60373 for the period of 22 February 2004 to 26 March 2005;

(2)     bill No. 55814 for the period of 19 October 2003 to 21 February 2004;

(3)     bill No. 60190 for the period of 21 April 2004 to 19 March 2005;

(4)     bill No. 60189 for the period of 18 September 2004 to 19 March 2005.

3.  By a letter to the Registrar dated 21 December 2005, SHL applied to the Registrar for a review of taxation of these 4 bills under Order 62 rule 33.  The applicant is required by rule 33(3) to deliver objections in writing specifying by a list the items or parts of items the allowance or disallowance of which or the amount allowed in respect of which is objected to, stating concisely the nature and grounds of the objection.  This SHL sought to do in their letter of 21 December 2005.

4.  Regarding bill No. 60373, SHL objected to the hourly rates allowed for Mr Malcolm Kemp and Mr Jamie Stranger and time deductions for specific items.  For bill No. 55814, SHL objected to the hourly rates allowed for Mr Kemp and Mr Stranger.  For bill No. 60190, SHL objected to hourly rates allowed for Mr Kemp, Mr Stranger and Mr Jason Toms; in fact, no claim for Mr Kemp as a fee earner was made in this bill.  For bill No. 60189, SHL objected to hourly rates allowed for Mr Kemp, Mr Stranger and Mr Toms and time deduction for items concerning Mr Toms; in fact, no claim for Mr Kemp and Mr Stranger was made as fee earners in this bill.  Lastly, SHL claimed costs in applying for the review at HK$17,418.00.

5.  On 15 February 2006, the Registrar considered the letter of 21 December 2005 with the bundle prepared by SHL.  He found the documents placed before him helpful and dispensed with the attendance of the solicitors.  He gave judgment on 20 February 2006.

6.  SHL applied for review of the Registrar’s decision by a judge by summons dated 6 March 2006, this has come before me today.

The BF Review

7.  Five bills of SHL were taxed by the Registrar on 24 January 2006, they were as follows:

(1)     bill No. 56407A for the period of 19 October 2003 to 11 June 2004;

(2)     bill No. 59346 for the period of 21 November 2004 to 20 December 2004;

(3)     bill No. 58974 for the period of 24 October 2004 to 20 November 2004;

(4)     bill No. 58566A for the period of 26 September 2004 to 23 October 2004;

(5)     bill No. 58280A for the period of 12 June 2004 to 25 September 2004.

8.  By a letter dated 15 February 2006 to the Registrar, SHL applied for review of his taxation of the above 5 bills.  Regarding bill No. 56407A, SHL objected to hourly rates, but only the rate of Mr Stranger was specifically raised in objection.  Regarding bill No. 59346, bill No. 58974 and bill No. 58566A, it was stated that the comments regarding hourly rates for bill No. 56407A were repeated; it would appear that only the rate of Mr Stranger was objected to.  For bill No. 58280A, it was stated that the comments regarding hourly rates were repeated, in addition specific objection was raised to the rate of Mr Andrew Cotterell.  For each of the first 4 bills, SHL also objected to time deductions for specific items.

9.  On 17, 22 and 23 Febraruy 2006, the Registrar taxed further bills in these proceedings, among them were the following 5 bills:

(6)     bill No. 60923A for the period of 24 April 2005 to 21 May 2005;

(7)     bill No. 59754A for the period of 19 December 2004 to 22 January 2005;

(8)     bill No. 60375A for the of period 23 January 2005 to 26 March 2005;

(9)     bill No. 60568 for the period of 27 March 2005 to 23 April 2005;

(10)   bill No. 61433A for the period of 22 May 2005 to 25 June 2005.

10.  By their letter to the Registrar dated 7 March 2006, SHL applied for review of his taxation of the above 5 bills.  Regarding bill No. 60923A, bill No. 59754A, bill No. 60568, and bill No. 61433A, they objected to the hourly rates of Mr Kemp and Mr Stranger.  For bill No. 60375A, they objected to the hourly rates of Mr Kemp and Mr Stranger and time deductions for a specific item.

11.  As by the time applications for review were made in these proceedings, SHL have already sought to review the Registrar’s decision in the Boldwin petition and this is to be heard on 6 June 2006, the Registrar’s initial direction was to defer review in the other proceedings until there is a decision from a judge on the hearing on 6 June 2006.  SHL however requested the Registrar to deal with the review of the above 10 bills, as they have raised additional arguments regarding hourly rates in the other proceedings and it may be convenient for the judge hearing the Boldwin Review on 6 June 2006 to also deal with the additional arguments advanced if SHL should decide to seek review by a judge in respect of the other proceedings.  The Registrar acceded to the request and on 20 April 2006, he considered the review of the above 10 bills as regards the hourly rate objections only, and adjourned the review for time deduction objections until after the decision was given at the hearing on 6 June 2006.  Again, the attendance of SHL was dispensed with.  The Registrar gave his decision on 28 April 2006.

12.  SHL applied for review of his decision by 3 summonses issued on 25 May 2006.  They have also come before me today.

Review under Order 62 rule 35

13.  Under rule 35(4), unless the judge otherwise directs, no further evidence shall be received on hearing the application for review before him, and no ground of objection shall be raised which was not raised on the review by the taxing master.

14.  In the Boldwin Review, I will exercise my power under rule 35(4) and allow the evidence raised by SHL in the BF Review in respect of the fees of 3 other solicitors firm (referred to in paragraph 11 of the Registrar’s decision of 28 April 2006) to be received in this hearing.

15.  I have set out above the objection raised in respect of which of the fee earners in which of the bills in some detail.  By virtue of rule 35(4), I am not at liberty to consider the hourly rate of any other fee earner in any bill that is not the subject of objection in the letters of SHL dated 21 December 2005, 15 February 2006 and 7 March 2006.  I am therefore concerned only with hourly rates of 4 fee earners:  Mr Stranger, Mr Kemp, Mr Toms and Mr Cotterell.

The authorities cited

16.  Three English decisions were cited to the Registrar in the BF Review, as to this court.  They are Johnson & Others v Reed Corrugated Cases Limited [1992] 1 All ER 169; Stubbs v Board of Governors of the Royal National Orthopaedic Hospital, 21 December 1988, unreported, Hirst J; and Finley v Glaxo Laboratories Limited, 9 October 1989, unreported, Hobhouse J.

17.  In Johnson, Evans J at 173j cited with approval the decision of Kerr J in Leopold Lazarus Limited v Secretary of State for Trade and Industry (1976) SJ 268 in which Kerr J had this to say:

“The assessment of the appropriate rate per hour would be based on the Taxing Master’s knowledge and experience of the average solicitor or executive employed by the average firm in the area concerned.”

18.  Evans J went on to say at 173j to 174a as follows:

“This reference to the average solicitor and the average firm in question has been repeated and emphasized in all the later judgments and reviews to which I have been referred.  I have no reason to doubt that it represents the current practice throughout the whole country, nor that it is the proper basis in principle for the assessment of an hourly rate.”

19.  Although Johnson was not cited to the Registrar in the Boldwin Review, I have no reason to think that he is not aware of this “proper basis in principle for the assessment of an hourly rate”, as is evident from the approach of the Registrar in his earlier decision in Re Pro KTA Ltd, HCCW No. 71 of 1995, 1 September 2004.  Further, as he stated in his decision in the BF Review at paragraph 7, the “Hong Kong system is in its own way operating under this general concept”.

20.  The authorities cited in this context, whether they be English cases or local decisions, are useful as general guidance on matters of approach and principle and no more.  As Evans J pointed out at 178d to e:

31.  The difference in the two rates allowed by the Registrar for Mr Stranger would seem to be due to this.  For bills No. 55814, 56407A, 58566A and 58280A, the rates were fixed at $2,100.00 – these all related to work done before Mr Stranger was admitted as a solicitor in Hong Kong.  For bill No. 60190, according to the covering letter of the Registrar’s clerk dated 7 December 2005, it was stated that Mr Stranger’s rate was fixed at $2,000.00.  I think this is a clerical error as it is clear from the bill enclosed that the rate was in fact fixed at $2,100.00 as well.  For the other 5 bills, Mr Stranger’s rate was fixed at $2,300.00, these bills related to work done in the periods substantially after Mr Stranger’s admission as a Hong Kong solicitor.

32.  These rates were fixed by the Registrar when he first made the assessment, he did not alter them on review.

33.  I think it is right to draw a distinction in the rates fixed for the periods before and after Mr Stranger’s admission as a solicitor in Hong Kong.

34.  As for the criticism whether the rates fixed had sufficiently taken into account the overseas experience and the complicated nature of the work done by Mr Stranger, the Registrar said he had taken these factors into account but he took a “global approach” when he fixed the rates (paragraph 21 of his decision in the BF Review).

35.  I would also take a global approach.  I looked at work actually done by Mr Stranger, I am persuaded that slightly higher rates are justified in these proceedings, having regard to the complexity of the issues involved and the challenges to the provisional liquidators’ work raised by different parties.  For bills No. 55814, 56407A, 58566A, 58280A and 60190, I will fix Mr Stranger’s rate at $2,300.00.  For the other 5 bills, I would fix his hourly rate at $2,500.00.  I decline to fix his hourly rate as claimed, which is $2,904.00.

Mr Kemp’s hourly rate

36.  The Registrar fixed Mr Kemp’s hourly rate initially at $4,000.00 and increased it to $4,200.00 in the Boldwin Review.  He also applied the rate of $4,200.00 for Mr Kemp in the BF proceedings and he did not alter this on review.  Mr Kemp is a senior partner of SHL, he was qualified in the United Kingdom in 1980 and in Hong Kong in 1982.  Having regard to the work undertaken by Mr Kemp in the bills, I am not persuaded I should increase it to the rate claimed at $4,632.00.

Mr Toms’ hourly rate

37.  The Registrar fixed Mr Toms’ hourly rate at $3,200.00 in the Boldwin Review, the rate claimed is $3,504.00.  Mr Toms was qualified as a solicitor in the United Kingdom in 1995 and in Hong Kong in 1997.  The Registrar has had regard to his overseas experience (paragraph 13 of his decision in the Boldwin Review).  Having regard to the work undertaken by Mr Toms, I see no reason to differ from the Registrar.

Mr Cotterell’s hourly rate

38.  This was fixed by the Registrar at $2,800.00, the rate claimed is $4,260.00.  Mr Cotterell is a partner in SHL, he was qualified in the United Kingdom in 1992 and in Hong Kong in 1998.  The Registrar did not expressly deal with the hourly rate of Mr Cotterell in his decision in the BF Review.  It was submitted that comparison should be made to the rate he allowed for Mr Toms in the Boldwin Review.  I think there is justification in this complaint, I will increase Mr Cotterell’s hourly rate to $3,200.00.

39.  That deals with all the objections on the hourly rate in the Boldwin Review and the BF Review.  I now turn to the objections for time deductions for specific items in the Boldwin Review.

Bill No. 60373

Items 38, 39 and 44

40.  These items related to considering papers in the derivative proceedings, the shareholders dispute, the misfeasance allegations against a director, and the winding-up proceedings of Boldwin.  A total of 10 hours were spent by Mr Stranger.  The Registrar deducted 7 hours, on review he varied his assessment and the time allowed as reasonable was 5 hours.  He took into account that these topics are not unfamiliar to Mr Stranger, as I had dealt with these matters in some depth in the judgment I gave in October 2002 when I appointed provisional liquidators for Boldwin and the other companies.  It is unlikely that Mr Stranger was reading into the papers for the first time, although he might not have perused and considered the documents with as much attention as on this occasion when he was required to give a summary of the derivative action and related proceedings to the provisional liquidators.  I see no reason to differ from the Registrar’s assessment.

Item 41

41.  This related to considering the law in derivative proceedings in Hong Kong.  Three hours were spent by Mr Stranger, the Registrar reduced it to 1 hour, and did not alter it on review.  No attendance note was produced to show the books and authorities considered and the research made, but a description was given in the letter seeking review dated 21 December 2005.  It would appear that research was made into the common law, the legislative amendments on statutory derivative actions, and procedural aspects in derivative actions.  I would increase the time spent to 2 hours.

Items 54, 55, 56 and 59

42.  This related to considering papers and drafting documents, being a summons and supporting affidavit, for the provisional liquidator’s application to sell and abandon some of Boldwin’s assets.  Mr Stranger spent a total of 10 hours.  The Registrar assessed reasonable time at 4 hours, on review he altered his assessment and allowed 5 hours.  I have considered the nature of the work undertaken and the drafts produced, I see no reason to take a different view for this item.

Bill No. 60189

43.  Here, the Registrar made a deduction of 5 hours from the total time of Mr Toms of 38 hours 25 minutes.  As explained in the covering letter of his clerk dated 7 December 2005, the Registrar regarded it excessive for Mr Toms to use more than 10 hours to check documents and found the time spent for preparation of other documents regarding other claims also excessive.  He did not give a breakdown of how much he deducted for each individual item of work done by Mr Toms but took a global approach.  I see nothing wrong with that approach or the deduction of 5 hours from the total time spent.

Costs of the taxation review

44.  SHL claimed $17,418.00 as costs for time spent in applying for the review in the Boldwin Review.  The Registrar deducted the time spent for Mr Kemp and Mr Stranger and reduced the hourly rate of Mr Stranger and Mr Kemp.  I would not vary the time deductions for Mr Kemp and Mr Stranger.  For Mr Stranger’s hourly rate I would increase it to $2,500.00.  That is the only extent of variation that I make.

45.  I would hear Mr Stranger on any consequential order and direction I should make on this hearing.

HCCW 345, 346/2002 & 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS

NO. 345, 346 OF 2002 & 691 OF 2004

____________________

____________________

HCCW 340/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 340 OF 2002

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HCCW 345/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 345 OF 2002

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____________

HCCW 346/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 346 OF 2002

____________

____________

HCCW 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 691 OF 2004

____________

____________

(Heard together)

______________

J U D G M E N T

______________

1.  There are listed before me 4 petitions for the winding up of 4 companies - Boldwin Construction Company Limited (“Boldwin”), Maintain Profits Limited (“MPL”), Myriad Gold Corporation (“MGC”) and BF Construction Company Limited (“BF”).

2.  These are companies owned wholly or substantially by Madam Law Wai Duen and Dr Chan Shiu Chick.  Only Boldwin and BF have been carrying on business as building contractor.  As a result of their matrimonial dispute, Madam Law presented or caused to be presented petitions to wind up Boldwin, MPL and MGC and applied for the appointment of provisional liquidators to these companies.  Junestar Investment Corporation (“Junestar”) is the petitioner in the petition against Boldwin.  Madam Law is the petitioner in the petitions against MPL and MGC.  An order was made on 31 October 2002 to appoint provisional liquidators for these 3 companies.

3.  The shares in BF are held by MPL and MGC.  On 11 June 2004, the provisional liquidators of MPL and MGC passed a special resolution as the contributories of BF that it should be wound up.  On 12 June 2004, the provisional liquidators presented a petition by MPL and MGC to wind up BF under section 177(1)(a) of the Companies Ordinance, Cap. 32 pursuant to the special resolution as well as on the just and equitable ground.  On 18 June 2004, the provisional liquidators of Boldwin, MPL and MGC were also appointed the provisional liquidators of BF.

4.  In the petition regarding Boldwin, apart from Dr Chan, 7 creditors have also given notice of intention to appear on the petition and to oppose it.  No evidence has been filed by any of them.  The provisional liquidators have provided a letter from a creditor, Gilman Industrial Limited, dated 2 February 2006 in which it stated that it would support the winding-up petition.  According to a schedule exhibited to the 6^th affirmation of Dr Chan, the debts owed to this creditor and 2 companies associated with it are in the region of $11 million, that is about 4% of indebtedness to sub-contractors and 2% of the total indebtedness of Boldwin, on Dr Chan’s calculation.

5.  For the petitions regarding MPL and MGC, only Dr Chan has given notice of intention to appear and to oppose.

6.  In the petition concerning BF, only Dr Chan and Madam Law have filed a notice of intention to appear.  On 9 December 2004, I exercised my discretion to hear Dr Chan and Madam Law in this petition as amici curiae, as Dr Chan and Madam Law hold all the shares of MPL and MGC and these companies in turn hold all the shares in BF.

7.  On 5 September 2005, Madam Law and Dr Chan entered into a deed of settlement to settle all their disputes and claims.  This deed of settlement has not been placed before the court.  What is known about it is that one of the conditions of settlement is that Madam Law, on behalf of herself and Junestar, has to give consent to the dismissal of the petitions against the 4 companies.

8.  On 18 January 2006, Dr Chan issued a summons in respect of each of the 4 winding-up proceedings seeking dismissal of the petition.

9.  The provisional liquidators have prepared 2 very detailed reports dated 19 January 2006, which were circulated to the creditors of Boldwin and BF before this hearing.  In these reports, the creditors were given an account of the affairs of these companies, the main tasks performed by the provisional liquidators, the misfeasance allegations against Dr Chan, the progress of arbitration proceedings, and the estimated return to creditors in a liquidation scenario.  The reports were to assist the creditors whether to support or oppose the winding-up petitions.  They were encouraged to express their views and were informed of the hearing today.

10.  Other than a representative of Gilman Industrial Limited, no creditor that is present in court today has addressed the court on its position regarding any of the petitions when extended the opportunity to do so.  The representative of Gilman Industrial Limited sought clarification of an assurance given by Mr Grossman, SC in respect of Boldwin, which I shall come to.

11.  As Madam Law has indicated clearly she would not proceed with the petitions she presented or caused to be presented against Boldwin, MPL and MGC, is there any reason why the court should not accede to Dr Chan’s application to dismiss these petitions?

12.  Mr Harris for the provisional liquidators has queried the locus of Dr Chan to apply for dismissal of the petition against BF.  But leaving aside locus, it is clearly within the power of this court to dismiss this petition if it is appropriate to do so.

13.  Other than Gilman Industrial Limited, which has given notice that it supports the petition against Boldwin, no other creditor has filed any notice of intention to appear and to support the petition or made any application to be substituted as petitioner on any of the petitions.

14.  Mr Harris submitted that Boldwin would appear to be insolvent to the extent of $37 million on Dr Chan’s estimate in his latest affirmation and for an insolvent company, the court must be vigilant to protect the interests of creditors and the public and would not allow a petition to be dismissed merely because of an agreement reached between the petitioner and the debtor company.  As for BF, Mr Harris asked the court to adjourn the petition so that the creditors could be clearly told by the provisional liquidators of the possibility of dismissal of the petitions as Madam Law has lent her support to dismissal.

15.  From the evidence filed by Dr Chan, he has been engaged in negotiation with the creditors separately and has come to some provisional agreement with some of them on their claims and/or obtained the consent or support to his application for dismissal of the petitions.  As provisional liquidators have been appointed for Boldwin and BF, Dr Chan has no authority to enter into any binding agreement for these companies with the creditors.  On the figures provided in his last affirmation, the latest position is that he has reached a provisional agreement with 75.59% of the creditors of Boldwin and 81.96% of the creditors of BF.  This calculation does not include the claims of the project employers, which are the subsidiaries of the Cheung Kong Group.  If the claims of Cheung Kong are included, the percentage of creditors that would support a dismissal of the petitions would be 88.07% for Boldwin and 91.51% for BF.

16.  Dr Chan also deposed that he has signed conditional agreements with the Cheung Kong Group yesterday.  The settlement agreement is that conditional upon the dismissal of all the winding-up petitions and the discharge of the provisional liquidators, the employers will pay the agreed sums of money to Boldwin and BF in settlement of all the claims and counterclaims between them.  Dr Chan is not allowed to disclose the settlement sums because of confidentiality provisions in the conditional agreements, but Mr Grossman has assured this court that the amounts to be received by Boldwin from the Cheung Kong Group under the settlement would be amply sufficient to wipe out the existing net indebtedness of Boldwin estimated at $37 million and restore the company to solvency.  I am prepared to accept this assurance from counsel.

17.  Miss Linda Chan for Madam Law submitted that unless and until it can be proved that Boldwin and BF are insolvent, the creditors have no interest in the winding up of these companies as their debts, if substantiated, would be paid in full.  The solvency of these companies is not certain because of the contingent nature of a significant portion of the liabilities and assets.  But according to the estimate provided by the provisional liquidators in their latest reports to the creditors in January 2006, the indication seems to be that these companies are solvent.  The estimated surplus in BF of $184.82 million includes the misfeasance claim against Dr Chan at $20 million and the estimated surplus in Boldwin of $55.86 million includes the misfeasance claim against Dr Chan at $45 million.  Mr Grossman pointed out that on the provisional liquidators’ estimate, even if nothing were recovered from the misfeasance claims, there should still be a surplus of assets for both companies.

18.  Miss Chan further submitted that the interests of creditors would not be prejudiced in the sense that it would always be open for them to petition for winding up if they are unable to get payment after the existing petitions are dismissed.  So far no creditor has applied to be substituted as petitioner.  I do not see any point in adjourning the petition of BF as it seems to me that the creditors, most of whom have been in negotiation with Dr Chan, should be aware of the position today and must be alive to the possibility of a dismissal of the petition.

19.  As for the misfeasance claims against Dr Chan, Mr Grossman has dealt with them in his written submissions.  It is relevant to take into account that many of the allegations would depend on the understanding between Madam Law and Dr Chan and Madam Law is in a position to ratify the acts complained of.  No other shareholder has made any complaints.  As a result of the conditional settlement agreement between them, Madam Law would no longer dispute the understanding between them as put forward by Dr Chan.  Dr Chan has also undertaken in his latest affirmation that if the petitions are dismissed, he will ensure that Boldwin and BF will comply with Cap. 32 and prepare audited annual reports.

20.  I take note that Madam Law and Dr Chan have come a long way to reach an overall settlement.  If a deed of settlement cannot be implemented because the petitions are not dismissed, the parties may have to continue with the present and other proceedings.  Substantial costs and time would be wasted.

21.  I am persuaded that it is appropriate in these circumstances to dismiss the petitions and to discharge the provisional liquidators from their office.

22.  I understand it has been agreed between Madam Law and Dr Chan that Junestar and Madam Law will not seek any costs order against the companies or against Dr Chan in these winding-up proceedings.

23.  I order the petition against each of the 4 companies to be dismissed, and I discharge the provisional liquidators from their office in respect of each of the companies.  I would deal with the consequential orders to be made on the discharge of the provisional liquidators on paper, after the provisional liquidators have considered the draft orders proposed by Dr Chan and Madam Law.

HCCW 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 691 OF 2004

____________

____________

_______________

J U D G M E N T

_______________

1.  This is a hearing of a petition to wind up BF Construction Company Limited (“the Company”).  The petition was brought by the only two contributories of the Company, Maintain Profits Limited (“MPL”) and Myriad Gold Corporation (“MGC”) on 12 June 2004.  Provisional liquidators were appointed for the Company on 18 June 2004.  For the background matters giving rise to the petition, I refer to my decision on 18 June 2004.

2.  The petition was presented on two grounds:

(1)	under section 177(1)(a) of the Companies Ordinance, Cap. 32, pursuant to a special resolution passed on 11 June 2004 by the contributories that the Company be wound up by the court; and
(2)	under section 177(1)(f), on the just and equitable ground.

3.  The matters relied on for the just and equitable ground are as follows:

(1)	the Company has not entered into any new construction project since the marital dispute of Dr Chan Shiu Chick and Madam Law Wai Duen, thus resulting in a monthly cash deficit of HK$1.2 million to the Company;
(2)	the poor corporate governance of the Company;
(3)	to allow for investigation into possible misfeasance by Dr Chan; and
(4)	to prevent a possible takeover of the Company by Bomina Limited under an option agreement.

4.  As for the basis of passing a special resolution to wind up the Company, this is because there is little prospect of the Company resolving its financial problems and governance issues due to the deadlock of the board of the directors, namely the two factions of Dr Chan and Madam Law.  So the provisional liquidators believe it would be in the best interest of the Company and its creditors that the Company be wound up.

5.  The hearing of the petition was adjourned from 13 August 2004 to 17 November 2004 to hear substantive arguments if a winding-up order should be made or whether the petition should be adjourned, as proposed by the petitioners and the provisional liquidators.  On 17 November 2004, I adjourned the petition to today for the provisional liquidators to file further evidence on the financial position of the Company and on an informal meeting of the creditors on 11 October 2004.

6.  Only Dr Chan and Madam Law have filed notices of intention to appear in these proceedings.  Several creditors have written to the provisional liquidators stating they are opposed to an immediate winding up and supporting the application for an adjournment. 

7.  Neither Dr Chan nor Madam Law is a contributory or creditor.  They do not have the right to be heard in this petition.  I am satisfied from the cases cited by Mr Poon, SC that the court does have discretion to hear them, if satisfied that they have sufficient interest in the proceedings, as amici curiae (Re Bradford Navigation Co. (1869) LR 9 Eq. 80 at 82; Re Bradford Navigation Co. (1870) LR 10 Eq. 331 at 337 and Re Bradford Navigation Co. (1870) 5 Ch App 600 at 603).  This is an appropriate case to exercise my discretion to hear Dr Chan and Madam Law, who, between them, hold all the shares of the contributories of the Company.  Furthermore, Madam Law has presented petitions to wind up MPL and MGC, in HCCW Nos. 345 and 346 of 2002, for the purpose of protecting and extricating the investment of these companies in the Company.

8.  I should mention that for good measure, Madam Law has issued a notice of motion in each of the petitions she has brought to wind up MPL and MGC, seeking orders that the provisional liquidators of these companies be directed to withdraw their application to adjourn the petition herein and that they should seek the immediate winding up of the Company.  As I have exercised my discretion to hear Madam Law, it would not be necessary to make an order on the notices of motion.

9.  In the correspondence exchanged between the solicitors for the provisional liquidators and the solicitors for Madam Law, a number of grounds have been raised by the provisional liquidators to justify their decision to seek an adjournment.  I am informed by Mr Harris for the petitioners and the provisional liquidators that he would only be relying on one ground to adjourn the petition, so it would not be necessary to deal with the other grounds, which have been addressed in the written submission of Mr Poon.

10.  The petitioners and provisional liquidators seek an adjournment because they have ascertained the views of “third party” creditors known to them, namely, creditors other than those in the Cheung Kong group, and a majority has voted in favour of seeking an adjournment for six months at the meeting on 11 October 2004.  Dr Chan supports the application for adjournment.  Madam Law seeks an immediate winding up.

11.  Detailed evidence has been filed by the provisional liquidators how they went about ascertaining the wishes of the third party creditors.

12.  On 14 September 2004 and 7 October 2004, the provisional liquidators wrote to all known third party creditors inviting them to a meeting.  The creditors were informed that the provisional liquidators had issued arbitration notices against the employers, which are the companies in the Cheung Kong group.  The purpose of the meeting was to discuss the arbitration process and to determine with the third party creditors the most efficient approach, to inform them of the current position of the winding up of the Company, and to ascertain their wishes as to the future winding-up proceedings of the Company.

13.  Out of 67 third party creditors known to the provisional liquidators, 27 responded by returning their slips confirming they would attend the meeting.

14.  The meeting on 11 October 2004 was attended by 25 creditors.  Also in attendance were the quantity surveyors retained by the provisional liquidators to advise them on the claims against the employers.  The meeting lasted for two and a half hours.  The provisional liquidators briefed the creditors on the arbitration process with the Cheung Kong group, the dispute between Madam Law and Dr Chan regarding the beneficial ownership of the shares in MPL and MGC, the misfeasance allegations against Dr Chan, the financial position of the Company and the liquidation process.  The creditors were advised of the available options, to support the petition or to oppose it.  The provisional liquidators answered questions raised by various creditors and a vote was then taken as to whether the creditors would support or oppose a six-month adjournment of the petition.  The creditors were asked to indicate the appropriate period of adjournment on their voting slips if they should think six months were not appropriate.

15.  Of the 25 creditors, two left the meeting without returning the voting slips, two abstained, two voted against and 19 voted in favour of the adjournment.  Those who voted in favour did not change the proposed period of adjournment of six months.

16.  According to the letter of the solicitors for the provisional liquidators dated 2 November 2004, the aggregate claims of the 25 creditors that had attended the meeting were about HK$218 million and this was about 92% in value of the claims of all the third party creditors that had been invited.

17.  The aggregate claims of those who voted in favour of an adjournment were about HK$186 million.  This was 85% in value of the claims of those who had attended the meeting.

18.  The provisional liquidators have indicated that if the petition is to be adjourned, the arbitration proceedings with members of the Cheung Kong group and their investigations into the misfeasance allegations against Dr Chan would continue, so the adjournment of the petition would not hinder or prevent the continuing investigations.  The provisional liquidators are also mindful of the limitation period if claims are to be pursued against Dr Chan.

19.  The reason why a majority of third party creditors have voted in favour of an adjournment is to facilitate the recovery of sums due to the Company from the Cheung Kong group which will eventually be used to pay the sums owed by the Company to the third party creditors.  They feel that an immediate liquidation may jeopardize the prospects of settlement of the Company’s claims against the Cheung Kong group.

20.  The Company undertook work as a main contractor exclusively for the Cheung Kong group.  It sub-contracted all its physical work to nominated and domestic sub-contractors.  The Company had never gone to arbitration with members of Cheung Kong group in the past on any dispute over the projects undertaken, as Dr Chan has enjoyed a very good relationship with Cheung Kong and the disputes were resolved in an amicable way.

21.  Neither Dr Chan nor Madam Law has filed a statement of affairs of the Company, notwithstanding they should have done so within 28 days of the appointment of the provisional liquidators on 18 June 2004.  The reason for this delay would appear to be due to the difficulty in determining the claims of Cheung Kong and the third party creditors.

22.  It is stated in paragraph 26 of the petition that the provisional liquidators believe that the Company is “currently solvent”.  The basis for such belief according to the petition is as follows.  In paragraph 29, the provisional liquidators gave an estimate of the financial position as at 31 July 2003, which was a net liability of HK$117 million odd.  The Company’s current liabilities comprise a contingent liability item of HK$317 million which are the claims of the Cheung Kong group for liquidated damages.  If the claims of the Cheung Kong group are proved in full, the Company would be insolvent.  The provisional liquidators had obtained advice from quantity surveyors on the merits of the claims of the Cheung Kong group and that is set out in paragraph 31.  The experts were of the view that on a worst case scenario, the Cheung Kong claims might be reduced from HK$317 million to HK$158 million.  If that should be correct, the Company would be solvent.

23.  The financial position of the Company has since been up-dated.  There is a balance sheet as at 18 June 2004 and updated to 5 November 2004.  The estimated net liability was reduced from HK$117 million to HK$70 million.

24.  Apart from the claims of the Cheung Kong group, the major creditors are the sub-contractors.  Their claims have increased from HK$82 million to HK$246 million. 

25.  The provisional liquidators say it is difficult to determine if the Company is currently solvent as there are three possible scenarios:

(1)	if all information as stated on the balance sheet of the Company as at 18 June 2004 is correct, i.e. that all receivables from Cheung Kong are realizable and all creditors claims and Cheung Kong liquidated damages claims are valid, the Company is insolvent with net liabilities of HK$70 million;
(2)	if all the creditors claims are valid and all Cheung Kong liquidated damages claims are valid, but some creditors claims may be valid against the Company and cannot be passed onto Cheung Kong, this would render the Company insolvent;
(3)	if all creditors claims are valid and can be passed to Cheung Kong and the Cheung Kong liquidated damages claims against the Company would be reduced from HK$315 million through negotiations (the provisional liquidators have opined that if the claims of Cheung Kong could be reduced through negotiation, this would increase the chance of passing on the third party creditors claims to Cheung Kong), the financial position of the Company would be improved and the Company may become solvent.

26.  I should also mention that the quantity surveyors have given a further report since the filing of the petition in which they have painted a much bleaker picture on the recovery in the arbitration proceedings as compared to their earlier advice.  They have identified other problems in the arbitration which I will not go into.

27.  The majority of the creditors and the provisional liquidators believe that notwithstanding the arbitration process with Cheung Kong, the best way to proceed is to negotiate with Cheung Kong, as the Company has done in the past, as this would give the best prospect for the Company to become solvent.

28.  The face value of the claims of the third party creditors, on the latest available information, has increased to HK$246 million, more than double the amount in July 2003.  The provisional liquidators have yet to investigate the reason for this.  The provisional liquidators reported to the meeting of creditors in October 2004 that the Company’s cash balance was in the region of HK$130 million.

29.  I am mindful that the quantity surveyors retained by the provisional liquidators had advised, on a worst case scenario, that the Company would still be solvent, but that was before the claims of the third party creditors have more than doubled and before their further report after the petition was presented.  I am also mindful that the Company may have a substantial claim against Dr Chan on account of the alleged misfeasance.  But if the claims against Dr Chan were ultimately successful, it could be quite some time for significant recoveries to be made by the Company, assuming that Dr Chan is in a position to satisfy the claims against him.

30.  As for the criticism that it should make no difference whether the negotiations with the Cheung Kong group are done by the provisional liquidators or the liquidators, there are nevertheless the commercial views taken by the majority of the creditors that because of the way things have been done by the Company in the past, the chances of a successful settlement would be more likely if the Company were not immediately wound up.  It is entirely understandable that the creditors should wish to explore the possibility of negotiations with Cheung Kong which if successful would lead to an early settlement of their own claims. 

31.  There is no direct authority dealing with the situation where a petition is presented by a contributory and some of the creditors of the company are opposed to an immediate winding up.  Where the views of creditors were taken into consideration, it was in the situation where the petition was presented by a creditor, as in the cases cited by Mr Harris and Mr Poon.

32.  Section 287(1) provides that court may, as to all matters relating to the winding up of the company, have regard to the wishes of creditors or contributories of the company, as proved by sufficient evidence.  I see no reason in principle I should not have regard to the wishes of a majority of the creditors in the present situation, as their interest would be affected if the Company should be insolvent were I to order an immediate winding up.

33.  I do not propose to wind up the Company today.  I would adjourn the petition for a reasonable period.  Six months sought by the petitioners would appear to me to be too long.  The provisional liquidators should be able to gauge, from the progress of the negotiations, what would be the prospects of a successful settlement.

34.  I therefore adjourn the petition to a date not earlier than three months from now, with two hours reserved.  I give leave to the petitioners to fix a hearing date forthwith.  If is necessary to adjourn further, the petitioners should apply accordingly.  I further direct that evidence should be filed by the provisional liquidators not less than seven days before the adjourned hearing.

35.  I would reserve the costs of the hearing today.

Mr Jonathan Harris, instructed by Messrs Stephenson, Harwood & Lo, for the Petitioners and the Provisional Liquidators

Mr Winston Poon, SC & Miss Linda Chan, instructed by Messrs Baker & McKenzie, for Madam Law Wai Duen, Nina

Ms C Ip, instructed by Messrs Ng & Partners, for Dr Chan Shiu Chick

Ms P McKenna, for the Official Receiver

HCCW 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 691 OF 2004

____________

____________

_____________

D E C I S I O N

_____________

1.  This is an application for the appointment of provisional liquidators for B F Construction Company Limited (“the Company”).  On 12 June 2004, a petition to wind up the Company was presented by the two shareholders of the Company, Maintain Profits Limited (“MPL”) and Myriad Gold Corporation (“MGC”), acting through their provisional liquidators, Mr James Wardell and Mr Charles Chan Wai Duen of CCIF Corporate Advisory Services Limited (“CCIF”). 

2.  This summons for provisional liquidators was issued on 15 June 2004, seeking an order that Mr Wardell and Mr Jackson Ip of CCIF be appointed provisional liquidators of the Company.

3.  MPL and MGC are the subject of winding-up petitions in HCCW Nos. 345 and 346 of 2002.  These companies have no business or assets of their own, save for the entire shareholding in the Company.  The shareholders of MPL and MGC, Dr Chan Shiu Chick and Madam Law Wai Duen Nina, have been involved in a marital dispute for some considerable time and various proceedings have been commenced.  Dr Chan and Madam Law are two of the four directors of the Company.  The directors of the Company have been in deadlock ever since the breakdown of the marriage of Dr Chan and Madam Law, leaving the Company in a most unsatisfactory state of corporate governance.  On 31 October 2002, I made an order appointing provisional liquidators for MPL, MGC and another company, Boldwin Construction Company Limited (“Boldwin”), to preserve the status quo and to ensure that assets should remain undiluted and properly administered, pending the resolution of the dispute which is envisaged would take quite some time. 

4.  By further orders I made on 20 August 2003, the provisional liquidators were given power to present a petition to wind up the Company on behalf of MPL and MGC and to apply for their appointments as provisional liquidators of the Company, see paragraph 45 of my decision.  I was then concerned with merely whether the provisional liquidators should have such powers, the merits of an application for appointment of provisional liquidators to the Company would be considered if and when such an application is made.  I should mention that such powers were sought by the provisional liquidators as it was recognised at that time that they had several options open to them (see paragraph 9 of my decision).

5.  One option was to present a petition to wind up the Company and apply for their appointment as provisional liquidators for the Company, this was the preferred option of the provisional liquidators as the most effective way to preserve the assets of the Company, as it would be considerably simpler to preserve the assets of the Company if provisional liquidators should be appointed for it, instead of having to resort to the shareholders’ rights of MPL and MGC which have proved cumbersome and susceptible to challenge.  Another option was for the provisional liquidators to continue with their financial monitoring of the Company by the exercise of shareholders’ rights, on the basis that the court would grant them certain orders to provide for their remuneration to be paid out of the assets of the Company, which orders were also made on 20 August 2003.

6.  Subsequent to the orders on 20 August 2003, the provisional liquidators have continued with their financial monitoring and supervision of the Company, until they have reached a stage when they felt it would be in the interests of all concerned to resort to their preferred option of winding up the Company.  The reasons for this are given in the petition and the evidence filed by the provisional liquidators.  The financial position of the Company has deteriorated, a monthly cash deficit of $1.2 million has been incurred, although it would appear that the Company is still solvent on the provisional liquidator’s assessment, which is accepted by Dr Chan and Madam Law.  The Company has been rudderless for 18 months, it has not taken on new projects but is still obliged to carry out rectification work for three projects completed.  That has necessitated the maintenance of staff and administrative facilities at considerable expense.  The provisional liquidators have made recommendations to Dr Chan and Madam Law of solutions to improve the financial position of the Company in February 2004, but no co-operation could be secured at board level.  As it is unlikely that co-operation of the board would ever be secured, the provisional liquidators are of the view that managing the Company by way of shareholders’ resolutions is not practicable, and the only effective way to preserve and protect the assets of the Company is to petition for winding up and have provisional liquidators appointed for the Company to exercise direct management control of its affairs.  In the event that a petition is presented, there is a risk that employees may resign, sub-contractors may refuse to do further work, and it is necessary to appoint provisional liquidators to step in immediately to directly regulate the Company, to apply for validation orders, and to ensure that the rectification work would be done properly. 

7.  There is also a practical dimension to this and this relates to the remuneration of the provisional liquidators of MPL and MGC in respect of their work done to supervise the affairs of the Company.  It was provided in the orders made on 20 August 2003 that the shareholders’ resolution to cause the Company to indemnify the provisional liquidators of MPL and MGC and to provide for their remuneration to be paid out of the assets of the Company would cease to apply in the event that a petition to wind up the Company is presented (paragraph 48(2) of my decision).  This is because I took the view that there should not be any contravention of the principle of no intromission with the funds of one liquidation to provide for the remuneration for the liquidators acting in another liquidation (paragraph 46 of my decision).  So if no appointment for provisional liquidators is made for the Company, it may be likely that the provisional liquidators of MPL and MGC would not continue with their supervision of the affairs of the Company and they may wish to apply for discharge of their appointment if their remuneration cannot be met out of the funds of the Company.

8.  For provisional liquidators to be appointed, two requirements must be satisfied.  Firstly, there must be a good prima facie case for a winding-up order.  Secondly, it must be established that it is appropriate in all the circumstances for provisional liquidators to be appointed.

9.  The petition is presented on two grounds, under section 177(1)(a) on the basis of the special resolution passed by MPL and MGC to wind up the Company, and under section 177(1)(f) on the just and equitable ground on the basis there is deadlock in the board of directors.  I am satisfied a good prima facie case for winding up the Company is made out and no one has contended otherwise in this application.

10.  I turn to the second requirement whether it is appropriate to appoint provisional liquidators.  The provisional liquidators of MPL and MGC seek provisional liquidators for the Company for substantially the same reasons as provisional liquidators were appointed for MPL, MGC and Boldwin in October 2002.  As mentioned earlier, they do not think managing the Company by way of shareholders’ resolution is a practicable solution.  Madam Law supports the appointment of provisional liquidators for the Company.  It does not appear to me that there is any or any material change insofar as the need to preserve the status quo and to prevent dissipation of assets is concerned. 

11.  Dr Chan has opposed the application and Mr Grossman, SC has advanced these reasons on his behalf.

12.  Firstly, he submitted that the petition of the Company may be dealt with within a reasonably short time, as Dr Chan and Madam Law do not oppose the petition and there is a hearing date for the petition in just over a month.  I appreciate that may happen but it does not seem to me that no protection should be put in place to safeguard the Company assets, to deal with risks that may arise if essential employees should resign or sub-contractors should refuse to work.  Dr Chan has also suggested it may be possible to wind up the Company voluntarily, to bring about a more palatable situation to everyone.  The provisional liquidators of MPL and MGC say they will explore this, but they foresee difficulties in view of non-cooperation by Madam Law.  Miss Linda Chan for Madam Law submitted that a voluntary winding up is not appropriate, in view of allegations of misfeasance against Dr Chan.  A creditors’ voluntary winding up may or may not materialise.  I agree with Mr Harris for the petitioners this should have little impact on the need for provisional liquidators in the meantime.  

13.  Next, it was submitted that provisional liquidators for the Company are not necessary, the provisional liquidators for MPL and MGC will continue to preserve the status quo of the Company and supervise its affairs, which is what they have been doing.  I have mentioned the practical dimension why if provisional liquidators are not appointed for the Company, there may be a situation in which the provisional liquidators of MPL and MGC would cease to monitor and supervise the affairs of the Company.

14.  Thirdly, Mr Grossman submitted that if provisional liquidators are to be appointed, they should not be from CCIF but totally independent professionals should be appointed, to avoid any possible conflict of interest.  The possible dispute of MPL and MGC with Bomina Limited, which has an option to purchase over 51% of the issued shares of the Company under an option agreement in the event that Dr Chan should cease to be a director, was mentioned by Mr Grossman as an example. 

15.  I agree with Mr Harris and Miss Chan that this concern of potential conflict is more theoretical than real and I should take a pragmatic approach in this.  If actual conflicts should arise, the provisional liquidators of the Company can seek directions from the court.  The provisional liquidators of MPL and MGC have been involved in supervising the affairs of the Company for some time and are familiar with its affairs.  In the short period between the presentation of the petition against the Company and the making of the winding-up order (assuming that the petition against the Company should be unopposed), it seems to me that it would be best for everyone concerned that the provisional liquidators of MPL and MGC should continue to perform their functions in the capacity of the provisional liquidators of the Company.

16.  For the above reasons, I make an order appointing the candidates proposed as provisional liquidators of the Company and will hear the parties on the terms of the order. 

17.  The petitioners should give the usual undertaking as to damages but I will not require fortification of the undertaking, as the Company has not entered into any new construction projects for some time and there is no intention to tender for any projects.  I think there should be little risk of any significant detriment that the Company may suffer if the appointment of the provisional liquidators should turn out to be wrongly made (see Re I-China Holdings Limited, HCCW No. 1321 of 2002, 11 December 2002, paragraphs 29 and 33 of the Reasons for Decision of Deputy Judge Barma).