TTHE JOINT & SEVERAL LIQUIDATORS OF UNITED PACIFIC TRADING LTD (IN LIQUIDATION) v. LIAO ZHE

HCCW 424/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 424 OF 2006

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D E C I S I O N

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1.  This is an application by the respondent that the execution of an order I made on 21 May 2009 be stayed pending determination of his appeal.The order made on 21 May 2009 was pursuant to section 221 of the Companies Ordinance, Cap. 32 and it requires the respondent to attend court and be orally examined by the liquidators and to produce documents as specified within 42 days thereof.

2.  On 17 June 2009, the respondent filed the Notice of Appeal.This summons to stay execution of the order pending appeal was issued on 18 June.

3.  I need to consider first whether the order being the subject of the appeal is interlocutory or final.

4.  If the order is interlocutory, leave to appeal is required, pursuant to section 14AA(1) of the High Court Ordinance, Cap. 4.Under Order 59 rule 2B, leave must first be sought within 14 days from the judgment of the Court of First Instance whose order is being appealed.If leave is refused, the party has a further 14 days in which to seek leave from the Court of Appeal as provided by Order 59 rule 2A.No leave to appeal has been sought by the respondent.

5.  Under Order 59 rule 21(3), a direction may be sought from the judge who made the order whether the order is one that is referred to in Order 59 rule 21(1)(a), namely, that it is an order determining in a summary way the substantive rights of a party to an action.The respondent has not sought any direction from the court before he filed the Notice of Appeal on 17 June 2009.

6.  If leave to appeal is required, and leave has not been sought, the appeal instituted by the Notice of Appeal is not competent.It would not be appropriate in this situation to grant a stay pending appeal.

7.  Mr Maurellet for the liquidators referred the court to Re Kong Wah Holdings Limited & Another [2005] 1 HKLRD 847.The orders on appeal in that case were an order for oral examination under section 221 and an order refusing to stay or dismiss the application for oral examination until the delivery of verdict in criminal proceedings.Rogers VP stated in paragraph 19 as follows:

“For completeness, it should be mentioned that in correspondence prior to the hearing of this appeal, the question was raised as to whether this matter involved an interlocutory or final decision.It is quite clear that these were interlocutory orders in the winding-up proceedings.This is made clear for the avoidance of doubt.”

8.  To my understanding, appeals from orders for examination or production of documents under section 221 have been heard by a 2-member court of the Court of Appeal, on the basis that the orders are interlocutory rather than final orders.

9.  For these reasons, I must dismiss the respondent’s application to stay execution of the order pending appeal.It is not necessary to go into the merits or otherwise of the grounds of appeal.

10.  As the time limit for appealing has expired before an application for leave to appeal is made, if the respondent is minded to pursue an appeal against the order for examination and production of documents, it seems what he should do is to make a composite application to the Court of Appeal for leave to appeal and for extension of time for appealing, and for a stay pending appeal if leave is granted.

11.  Costs of the application should follow the event.I make an order for gross sum assessment.I have considered the statement of costs provided by the liquidators’ solicitors and the objections raised by Mr Chong on the respondent’s behalf.

12.  In my view, I do not find work done under items C and D to be unreasonable or unnecessary.However, I will reduce the amounts claimed under those items.The figure I arrive at on gross sum assessment is HK$43,050 and this amount is to be paid by the respondent to the liquidators as their costs for this application.

HCCW 424/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 424 OF 2006

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D E C I S I O N

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The Application

1.  This is an application by the liquidators of United Pacific Trading Limited國聯貿易有限公司 (“the Company”) under section 221 of the Companies Ordinance, Cap. 32.  The summons was issued against the respondent, Liao Zhe, on 4 September 2008.  The liquidators seek an order that the respondent be examined orally before a Master and he is to produce the documents set out in Schedule 1 to the summons within 21 days hereof.

2.  The respondent is one of the two shareholders and directors of the Company.  The liquidators also issued a similar summons against the other shareholder and director, Ho Man Yee (“Ho”).  This was unopposed and an order was made on 22 October 2008.

3.  The respondent has opposed the application and filed an affirmation in opposition.  In summary, he contended that he has already set out fully the matters within his knowledge the liquidators would wish to investigate in his affirmation filedin July 2006 in HCMP No. 925 of 2006 in which the Company was a party and in his affirmation filed herein; that he has never been in possession of most if not all of the documents sought; that some of the entities in respect of which documents are sought are not subsidiaries of the Company and not therefore subject to the control of the Company or its directors; and that he has no knowledge of some of the matters which the liquidators seek to investigate.  It was submitted by Mr Ernest Koo on his behalf that the court’s discretion should be exercised in his favour in dismissing the application to avoid causing unreasonable and unnecessary oppression against him.

The background

4.  I will first set out the relevant background matters.

5.  The Company was incorporated in Hong Kong on 2 January 1996.  It was principally engaged in the trading of stainless steel cookware sets and components.

6.  On 11 August 2006, a former employee petitioned for its winding up based on outstanding salary payments.  The petition was unopposed and a winding-up order was made on 11 October 2006.  On the same day, Tsui Ka Kui and Ms Wong Yin Yee of Messrs Eli KK Tsui & Co., solicitors, were appointed provisional liquidators.

7.  On 3 December 2007, an order was made appointing Stephen Liu Yiu Keung and Ms Chan Wai Hing as liquidators.

8.  The liquidators have obtained a statement of affairs from Ho on 24 February 2007.  On 20 March 2008, the respondent submitted a statement of affairs to the liquidators.  The two statements of affairs cannot be reconciled.  According to Ho’s statement of affairs, the Company would appear to be solvent, with assets of $115.9 million, liabilities of $60.6 million and estimated surplus of $55.3 million.  The respondent disagreed with this.  According to his statement of affairs, the assets were $48.8 million, liabilities were $53.6 million and there was an estimated deficiency of $4.8 million.

9.  According to the audited accounts of the Company for the year ended 31 December 2004, the Company had the following subsidiaries:

(1)  United Pacific Enterprises Limited國聯企業有限公司 (“UPEL”) UPEL was incorporated in Hong Kong with 60% of its shareholding owned by the Company and 40% by Ng Wei Ming (“Ng”), a PRC resident. Ho and the respondent were directors of UPEL.  The liquidators of the Company had petitioned for the winding up of UPEL and a winding-up order was made on 30 July 2008.

According to the audited accounts of UPEL for the year ended 31 December 2004, it had a wholly owned subsidiary in the PRC known as Xinxing United Pacific Stainless Steel Products Manufacture Limited 新興縣國聯不銹鋼製品有限公司 (“XXUP”).  Ho was the chairman and the respondent was the vice chairman of XXUP.

(2)  Yuexinghua Stainless Steel Products Company Limited 新興縣粵興華不銹鋼製品有限公司 (“YXH”)

YXH was incorporated in the PRC as a sino-foreign joint venture.  In the audited accounts of the Company for the financial year 2004 issued in August 2005, it was stated that 58% of the shares in YXH was owned by Company.  The respondent has filed evidence to show that the 58% shareholdingof the Company in YXH had been reduced to 25% in 2000.  The respondent is the representative of the Chinese party to this joint venture and the legal representative, managing director and general manager of YXH.

(3)  Zhao Qing United Pacific Metalware Factory Limited 肇慶國聯金屬制品廠有限公司 (“ZQUP”)

ZQUP was incorporated in the PRC as a sino-foreign joint venture.  60% of its share was owned by the Company.  The respondent is the representative of the Chinese party to this joint venture and the legal representative of ZQUP.

(4)  Pacific American Products, Inc. (“PAPI”)

PAPI was incorporated in the USA and is wholly owned by the Company.  The respondent was a director from 1999 to 23 March 2006.  Ho was a director from 1999 to 16 July 2007.  This company is currently managed by Ho’s brother, Shaun Ho.

(5)  United Pacific (USA) Inc. (“UPI”)

UPI was incorporated in the USA and is wholly owned by the Company.  Ho was a director in 1996, the respondent was a directorin 1997.  There are no documents relating to the directorship from 1998 onwards.  It is also managed by Shaun Ho at the moment. I will refer to PAPI and UPI collectively as “the US subsidiaries”.

10.  In the last audited accounts for the year ended 2004, the Company would appear to have had a substantial business, with turnover exceeding $155 million for that year and profits of approximately $4.8 million.  The auditors gave a disclaimer qualified opinion because they were unable to assess the recoverability of amounts due from the US subsidiaries and there was inadequate information provided relating to the US subsidiaries as well as YXH and ZQUP so as to assess whether any provision was required in respect of the investments in these subsidiaries totalling $20 million.  Mr Maurellet, who appeared for the liquidators, also pointed out the audited accounts showed that in 2004, the Company sold products of $25 million to the US subsidiaries whereas it had bought in excess of $120 million, almost equivalent to 80% of the Company’s turnover, from YXH and ZQUP.

11.  Given the positions held by the respondent in each of the subsidiaries, it would appear that he should be in a position to assist the liquidators in their investigation of the Company’s investments in these subsidiaries and the affairs of these subsidiaries.  As an officer of the Company, the respondent was not a stranger who owed no fiduciary duties to the Company or one who is not under a statutory duty to assist the liquidators.

12.  The liquidators have in their affirmations in support set out the areas which require investigation.  In Schedule 1 annexed to the present summons, they have listed in some detail under headings A to G the documents for which production is sought.  I would consider the areas of investigation under the seven headings in Schedule 1 after I have stated the legal principles.

The legal principles

13.  The general principles regarding the exercise of the discretion of the court in ordering oral examination and the production of documents in section 221 are summarised in paragraph 30 of the judgment of the Court of Final Appeal in Joint & Several Liquidators of Kong Wah Holdings Limited v Grande Holdings Limited (2006) 9 HKCFAR 766 at 782E to 783A.  I do not propose to set them out.   The court has to carry out a balancing exercise and endeavour to strike a balance between the liquidator’s reasonable requirements and the need to avoid making an order that is unreasonable, unnecessary or oppressive to the respondent.

14.  The power conferred in section 221(3) could be used to order production of documents relating to other entities, such as current or former subsidiary or associated companies, provided it could be shown that they also relate to the subjectcompany itself (Re Mid East Trading Ltd [1998] 1 BCLC 240; Joint & Several Liquidators of Kong Wah Holdings Limited v Grande Holdings Limited, supra. at 790E to G, para 62; Re Nardu Company Limited (in liquidation) [2008] 3 HKC 381 at 386E to G, paras 15 and 16).  In addition, the affairs of a subsidiary could be regarded as the affairs of a holding company for present purpose if the latter had de facto control over the former, which would normally be satisfied via the control of the composition of the board of directors or by the control of the voting power exercisable by the shareholders (Re Nardu Co Ltd, supra. at 387A to 388A, paras 19 to 22).

15.  I turn to the exercise of my discretion in respect of each of the areas of investigation.

The USsubsidiaries

16.  The US subsidiaries had owed the Company in excess of $22 million.  The liquidators seek an order for production of all documents evidencing the Company’s ownership or shareholding in the US subsidiaries, including share certificates, share purchase agreements, evidence of payment of stamp duty, relevant board minutes, directors’ authorisations to purchase or subscribe to their shares.

17.  The liquidators have asked Shaun Ho for documents showing the ownership and directorship of the Company in the US subsidiaries but he replied that documents such as share certificates and relevant board minutes are not available.

18.  The liquidators wished to investigate into the indebtedness of the US subsidiaries to the Company as the Company had continued to supply goods to them despite the fact they were unable to settle their long outstanding debts.

19.  In the respondent’s affirmation filed in these proceedings, he claimed that he had only occasionally visited the offices of the US subsidiaries and had never participated in any matter or affair concerning them.  He alleged that at all times they were managed and controlled by Ho and his brother.  He also stated there has never been in his possession any documents in relation to the US subsidiaries.  Furthermore, Ho has never disclosed to him or to the Company any of the accounts of the US subsidiaries and in HCA No. 485 of 2006, an order was made by a Master on 14 August 2007 for Ho to provide a true and proper account of the business conducted through the US subsidiaries and Ho has not complied with that order to date.

20.  I understand from Mr Maurellet he would not he pursuing the documents sought in item A1 of Schedule 1 to the summons.  In any event, I would have declined to exercise my discretion to order the respondent to produce those documents, as I have no reason to think that he is in possession or control of such documents, given his evidence on oath.

21.  If the US subsidiaries were the only areas to be investigated in the oral examination, I would not have ordered an examination in the exercise of my discretion, having regard to the state of the respondent’s knowledge as deposed to in his affirmation.

ZQUP

22.  After the commencement of liquidation of the Company, the shareholding of the Company in ZQUP was transferred for nil consideration to a Hong Kong company, United Pacific Group Limited 國聯集團有限公司(“UPGL”), by a Share Transfer Agreement dated 18 May 2007, executed by one Chu Hiu Wing (“Chu”) on behalf of the Company.  The respondent signed the agreement on behalf of UPGL.  He is the sole director of UPGL holding 40% of its issued shares.

23.  The liquidators are of the view that the share transfer was suspicious and appeared to be prima facie against the interest of the Company.  There is a need to investigate further to protect the assets of the Company.  They would need supporting documents relating to ZQUP to ascertain the proper consideration for the share transfer.  Despite repeated requests, neither the management of ZQUP nor the respondent has provided the documents relating to this transaction.  The liquidators asked the respondent to confirm if the share transfer was done with the knowledge or approval of the provisional liquidators, and there was no response from the respondent.

24.  The liquidators seek an order that the respondent should produce all documents evidencing the transfer of the Company’s ownership in ZQUP to UPGL including the documents numbered (a) to (i) in item B2 in Schedule 1. 

25.  In his affirmation in these proceedings, the respondent deposed that the Company had never invested in YXH, UPEL, ZQUP and XXUP, and the Company had merely held shares in these entities as a nominee or trustee for the benefit of Yuexingsheng Stainless Steel Products Limited of Xinxing County 新興縣粵興盛不銹鋼製品有限公司 (“Xing Sheng”).  Xing Sheng was formed by the respondent with two residents in the PRC in 1994 and he held a 40% interest in this entity.  YXH and ZQUP were established as sino-foreign joint ventures by Xing Sheng, using Hong Kong companies as foreign partners to the joint venture when in actual fact the joint ventures were wholly owned by Xing Sheng.  In the case of YXH, initially Foon Kee Glassware Engineering Company was used as the foreign partner and later was replaced by the Company.  In the case of ZQUP, the Company was used as the foreign partner.  XXUP was established as a wholly owned foreign enterprise by UPEL, when in fact it was wholly owned by a local enterprise, Xing Sheng.  And UPEL was set up for the purpose of holding 100% interest in XXUP.

26.  The respondent further alleged that in 2005, after he learned that there was no requirement for a company incorporated in Hong Kong to have a Hong Kong resident as a director and shareholder, he and the other two shareholders in Xing Sheng set up a new company in Hong Kong, United Pacific Cookware Limited 國聯廚具有限公司 (“UPCL”), for the purpose of taking over from the Company all its shares and interest in YXH, UPEL and ZQUP, and documents were prepared for this purpose.  He alleged that Ho went back on his words in agreeing to these transfers at no consideration and wrongfully obtained an injunction against him and UPCL in March 2006.

27.  As for the Share Transfer Agreement dated 18 May 2007, the respondent claimed that as he had failed to get any response from the provisional liquidators of the Company to enable ZQUP to continue operating its business, the Share Transfer Agreement was entered into as a “temporary means” solely for the purpose of enabling ZQUP to continue running its business in the PRC and this should not have affected the interest of the Company as the Company was just holding the shares in ZQUP as a nominee for Xing Sheng.

28.  It was submitted by Mr Koo that YXH, UPEL and ZQUP are not subsidiaries of the Company in that the shares were held by the Company in these entities merely as trustee.  Further, in the case of YXH, the Company’s shareholding was later reduced from 58% to 25% in 2000.  He contended that YXH, UPEL and ZQUP are not subject to the control of the Company and the liquidators should make these entities parties to this application if the liquidators are minded to seek production of documents from them.

29.  I am not preparedto accept that YXH, UPEL and ZQUP are not subsidiaries of the Company, given the clear statements in all the audited accounts of the Company from 2001 to 2004, which the respondent had signed.  Further, no documents had been produced to support the alleged arrangement that Xing Sheng had allowed the Company to hold very substantial interests in YXH and ZQUP on trust.

30.  In any event, I am satisfied that documents relating to YXH, UPEL and ZQUP in the specific areas of investigation identified by the liquidators relate also to the Company.  There is power to order production by the respondent of documents relating to these entities, irrespective of whether they were or are also subsidiaries of the Company, provided that the court is satisfied the respondent is in possession of these documents or is in a position to produce them as a responsible and proper officer of these entities.  The respondent was a director of UPEL until it was wound up, he was the legal representative of YXH and ZQUP and the vice chairman of XXUP.  A body corporate can be required to produce documents under section 221, and as a responsible officer of that body corporate is before the court, I see no need for the liquidators to make other entities as parties to this application.

31.  The respondent is clearly in a position to provide information and produce documents on the financial position of ZQUP.  He has not suggested otherwise.  He has first-hand knowledge of the circumstances in which the Share Transfer Agreement was entered into, and this is clearly a matter which requires further investigation, notwithstanding the explanation given in his affirmation.  The liquidators have interviewed Ho on 30 October 2008, and Ho has informed them that the shares of the Company in YXH and ZQUP were not held in trust for Xing Sheng.  The liquidators consider it important that the respondent should be examined to ascertain the true state of affairs.

32.  I will exercise my discretion to order the respondent to be orally examined.  I will also order him to produce the documents in item B2 of Schedule 1 to the summons.

XXUP

33.  According to the information provided to the liquidators by Ng, XXUP had suffered losses for many years.  In August 2006, XXUP borrowed RMB 7.525 million from a PRC company, United Pacific Flatware Manufacturing Company Limited 新興縣國聯餐具製品廠有限公司 (“Flatware”), to repay certain bank loans.

34.  According to Ng, Flatware then brought arbitration proceedings against XXUP in 2006 to recover the debt, and a court in the PRC made an order on 27 July 2007 that all assets of XXUP be handed over to Flatware as repayment.  It would appear from the court order that these assets of XXUP comprised land, buildings, machineries, motor vehicles, with a total value RMB 8.546 million.

35.  The shareholders of Flatware are Gao Yue Xing (“Gao”) and Ng. Gao is one of the shareholders of Xing Sheng and one of the directors of YXH. Flatware uses the same logo as YXH and other subsidiaries of the Company.

36.  There is apparently a connection between XXUP, UPEL, YXH and Flatware.

37.  The liquidators wish to examine the evidence supporting the alleged loan from Flatware as well as what action the Company has taken to protect its interest in its indirect subsidiary XXUP and seek relevant documents from the respondent in that regard.

38.  These are legitimate areas of enquiry.  The respondent did not appear to have dealt with them specifically in his affirmation.

39.  He should be examined orally on these areas.  I will also order him to produce the documents sought in items C3 and 4 in Schedule 1.

YXH

40.  On 8 March 2006, YXH brought HCA No. 505 of 2006 against the Company claiming $51,246,726.27 allegedly owed by the Company.  Leave was given by a Master to YXH to continue the High Court Action after the winding-up order was made.

41.  On 11 January 2008, YXH submitted a proof of debt to the Official Receiver.

42.  On 3 April 2008, the liquidators requested YXH to provide additional documents and information, in particular audited financial statements and management accounts of YXH from 2000 to 2007 and the latest management accounts of YXH for 2008, for the purpose of adjudicating its proof of debt.

43.  YXH failed to provide any requested document, instead it issued a summons against the Company under Order 14 rule 8, Order 18 rule 19, Order 29 rule 10.

44.  The solicitors for the liquidators wrote to YXH asking it to withdraw the High Court Action to save time and costs, and instead of proceeding with the High Court Action, YXH should provide the liquidators with documents requested for the adjudication of its proof of debt.  No response was received from YXH.

45.  The application of YXH for summary judgment was heard in November 2008 and judgment was reserved.

46.  The respondent was a key person of both YXH and the Company at the time of commencement of the High Court Action and the filing of the proof of debt.  The liquidators believe he can provide valuable information and documents for the liquidators to deal with the High Court Action and adjudicate on the proof of debt and seek an order for production of relevant documents in relation to the claim in the High Court Action and the proof of debt.

47.  In the respondent’s affirmation in these proceedings, he alleged that Ho was the sole person who controlled the accounts of the Company and UPEL and Ho’s manipulation of the money and accounts of the Company was discovered in 2002 when it was found that the Company owed $50 million to YXH being the outstanding balance of goods sold by YXH to the Company.  The respondent then made enquiries with Ho why the Company had permitted the outstanding balance to accumulate to such a substantial sum and Ho gave many excuses.  After Ho obtained an ex parte injunction against the respondent in March 2006, Ho changed the lock to the Company’s office and denied him access.  The respondent further alleged that Ho had removed from the office most of the documents of the Company and UPEL before a winding-up order was made in October 2006, including the accounting documents.  He claimed to have no knowledge of the accounts or affairs of the Company.

48.  The liquidators consider it questionable that YXH would have allowed an account receivable from the Company, which was its sales agent, to accumulate to the size of $50 million.  Further, when the outstanding balance of $50 million was discovered in 2002, no action was taken by YXH until it brought the High Court Action in March 2006.

49.  The respondent was the managing director and general manager of YXH.  He had, according to his affirmation, made enquiries with Ho regarding the amounts allegedly owed by the Company to YXH.  He is clearly in a position to assist the liquidators with their investigation.  There is no suggestion he is in no position to produce documents in relation to YXH as a proper and responsible officer of that entity.

50.  The respondent should also be examined to assist with the enquiries in this area and I will order him to produce the documents sought in item D5 in Schedule 1.

Payments to a number of creditors by the respondent personally

51.  According to the respondent’s statement of affairs, hewas stated as a creditor of the Company after making adjustments to his current account.  The adjustments related to payments allegedly made to a number of creditors totalling $1,798,253.91.

52.  The liquidators seek an order that the respondent should produce all documents evidencing payments alleged to have been made by the respondent on the Company’s behalf to a number of specified creditors including all documents showing payments made to each of these creditors and the board minutes of the Company approving payments to each of these creditors.

53.  In the respondent’s affirmation, he stated that he engaged Will-Tech Tax Consultants Limited (“Will-Tech”) to study the accounting documents of the Company obtained from the liquidators and to prepare a statement of affairs for him.  It was Will-Tech who had made the adjustments in the statement of affairs and he claimed he has no knowledge how the adjustments were made.  He produced some documents in his affirmation in support of these adjustments.

54.  The documents produced by the respondent did not indicate any payment was made on behalf of the Company.  There was also no authorisation document, contract or invoice between the Company and UPCL for the alleged fulfilment of orders on the Company’s behalf.  Clearly, further explanation from the respondent is required.  He cannot hide behind Will-Tech who acted on his instructions.

55.  I think it is right that the respondent should be examined regarding this and be ordered to produce the documents in item E6 in Schedule 1.

Journal entry made in the director’s current account

56.  On 10 April 2008, the liquidators raised enquiries with the respondent regarding a journal credit entry of $869,700 in each of the director’s current accounts on 5 August 2005.  The respondent suggested it was a settlement of debt due to a creditor in the PRC by ZQUP on behalf of the Company and that the journal entry was an accounting mistake and should be corrected.  No documentary evidence in support of this has been produced.  Ho gave a different explanation to the liquidators.  He claimed that the journal credit entry was a dividend payment from ZQUP to the Company.

57.  The liquidators consider it appropriate that the respondent should be examined on this to ascertain the true state of affairs.  And they also seek an order that he should produce all documents evidencing the settlement of debt due to a PRC creditor by ZQUP on the Company’s behalf as claimed by the respondent.

58.  There is no suggestion that the respondent is not in a position to produce the relevant documents of ZQUP sought by the liquidators as a proper and responsible officer of ZQUP.

59.  I think it is appropriate that an order for production should be made in respect of item F7 in Schedule 1.

Trading with The Orange Tree Trust (“OTT”)

60.  Based on the records available, the Company had substantial business trading with OTT, a trust established in the UK.  Commissions were paid to one Michael J O’Neill when goods were sold to OTT by the Company.  In the statement of affairs of the respondent, he had made adjustments to the accounts of the Company, one of them was to offset $6.4 million owed by OTT againstthe commission allegedly due to O’Neill in the sum of $7.4 million.  The tax advisers of OTT disclosed to the liquidators there was an agreement by which OTT and the Company agreed to pay a sourcing commission of 37.5%.

61.  Other than a letter sent in 2002 by O’Neill to Ho in which reference was made to a commission of 37.5%, the liquidators have not found any written agreement or document from the Company records regarding the commission to O’Neill.

62.  The respondent has not provided to the liquidators reasons for his adjustments made in the statement of affairs.

63.  The liquidators seek an order from the respondent to produce all agreements or other similar documentation signed between O’Neill and the Company for his commission in connection with the sales and any receipts for commission produced by or on behalf of OTT or O’Neill.

64.  I will order production of the documents in item G8 in Schedule 1.

Orders

65.  In summary, I am satisfied that the liquidators have made out a reasonable requirement to examine the respondent orally and the balancing exercise should be exercised in favour of the liquidators for the reliefs sought in the summons.  

66.  I make an order in terms of paragraphs 1 and 2 of the summons for the respondent to be orally examined.

67.  I order the respondent to produce within 42 days hereof the documents set out in Schedule 1 save and except item A1 and to file and serve on the liquidators within that time an affirmation stating, in so far as any of the documents were at one time but is no longer in his possession, power or custody, the present whereabouts of those documents.

68.  I order the costs of this application of the liquidators to be paid by the respondent, to be taxed if not agreed.

HCCW424/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 424 OF 2006

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D E C I S I O N

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1. This is an application to set aside paragraph 3 of the Order of Master Hui dated 24^th day of January 2007, by which he ordered that no order should be made against the former liquidators of the Company that would have the effect of making them personally liable for any costs incurred in relation to proceedings by the applicant against the Company.  The former provisional liquidators did not appear before me at the hearing, but I have considered the submissions which they have made in correspondence.  As far as the substance of the application is concerned, it seems to me that, with respect to Master Hui, when he added paragraph 3 of the order, it may be that he had misapprehended the effect of his decision not to order costs against the provisional liquidators personally for the particular hearing which he had heard.  Whatever the reason for such a misunderstanding might have been, it is certainly clear from the transcript of the hearing before Master Hui that nobody had suggested that an order along the lines of that contained in paragraph 3 of his order as approved should be made, so that the applicant had no opportunity to make any submissions about it. 

2. On that ground alone, I am satisfied that the applicant is entitled to have that part of the order set aside.  However, I would also say that it seems to me that such an order, providing a blanket immunity from personal liability for costs, is not the sort of order that should usually be made, because that would be to tie the hands the court in relation to future conduct of the proceedings, when it may happen that a liquidator or provisional liquidator unfortunately takes steps that are so unreasonable as to merit an order for costs being made against them personally.  As it is impossible to foresee what might happen in the future, it seems to me that, as a matter of principle, an order in the form contained in paragraph 3 of Master Hui’s order was not an appropriate order to make on the application of the sort before Master Hui. 

3. The applicant is, however, well out of time for appealing against Master Hui’s order.  It seems that there was certainly an error on the applicant's side in failing to appreciate the actual effect of the part of the order now complained of, but I do not see that any prejudice will be caused to the former provisional liquidators by rectifying the error that has been made. 

4. In the circumstances, I would grant the applicant leave to appeal against Master Hui's order out of time and, for the reasons that I have already given, I would be prepared to grant the order sought and set aside paragraph 3 of his order. 

5. As I have said, nobody has appeared to argue against the appeal today.  The provisional liquidators left office a few days ago as a result of a determination hearing which was held to determine who should be the liquidators of the company, at which it was decided that the provisional liquidators should not continue as liquidators and that different liquidators should be appointed.  I do not know what the reasons for that Whatever the reasons for that may have been, the fact is that the provisional liquidators are now out of office and new liquidators are in office.  The new liquidators indicated that, as they do not yet have any information in relation to today's hearing, they are not in a position to make submissions, and therefore would not attend.  But even if they had attended, I very much doubt that they have had any basis to resist this appeal. 

6. As far as the provisional liquidators are concerned, they appear to take the view that because they are no longer in office, they no longer have locus to act for the purpose of these proceedings.  This appears from a submission which they made by letter to the court, which, I regret to note, was not copied to the applicant. 

7. It seems to me, however, that they clearly have locus to appear because their personal interests are engaged by the fact that the applicant is seeking to put itself in a position where it will be in a position to apply for costs against them personally.  However, as I have said, I have taken account of the submissions that they have made in their letters to the court. 

9. The only remaining issue is as to the costs of the appeal.  Although it had become apparent by the time of the hearing that the applicant would be successful, it seems to me that until the transcript had been made available to all the parties, this would not have been obvious.  The onus was on the applicant to appeal against the order, and it seems to me that the former provisional liquidators did not act unreasonably in wanting at least to know what the underlying grounds for the appeal were and what the evidence in support of it was.  This was not made known to them until earlier this week, only shortly before the hearing, when the evidence in support of it, which included the transcript of the hearing before Master Hui, was served.

10. In those circumstances, I think it would be harsh to make any order against the provisional liquidators personally in respect of this appeal, and that a fair order in all the circumstances would be that there should be no order as to costs.