RE DIANOOR INTERNATIONAL LTD

HCCW 576/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 576 OF 2008

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D E C I S I O N

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1.  The company, Dianoor International Limited (“DIL”), is in compulsory liquidation in Hong Kong. It carried on business in the manufacture and trading of high value jewellery and gems. The respondents named in these proceedings are the liquidators of DIL.

2.  In March 2010, a company called The Imperial Gems & Jewellery FZCO (“TIGJ”) submitted to the liquidators a proof of debt for the sum of US$1,411,963.85.

3.  In June 2012 the liquidators rejected TIGJ’s proof in its entirety.

4.  By a summons taken out on 19 July 2012, TIGJ appeals against the rejection of its proof of debt, seeking an order that the proof be admitted in full or at such sum as the court may deem fit.  Pursuant to the directions given by the court on 25 July 2012, the evidence filed for that application comprises the following:

(1) TIGJ filed an affirmation of Mrs Hukum Sultana dated 8 September 2012 in support of its application.

(2) One of the liquidators, Mr Edward Middleton, made an affidavit dated 13 November 2012 in opposition to the application.

(3) TIGJ filed an affirmation made by Mrs Sultana on 2 January 2013 in reply.

5.  On 7 February 2013, the liquidators took out a summons seeking an order that the reading of Mrs Sultana’s first and second affirmations, including the exhibits, be conditional on the deponent appearing at the hearing of TIGJ’s summons and being the subject of cross‑examination. This application has come before me for hearing today.

6.  In order to understand the basis of the liquidators’ application, it is necessary to set out some background to the dispute.

7.  DIL was part of an international group of companies controlled by Mr Iqbal Mubarik.  The ultimate shareholder of DIL is a Bermuda company, 21st Century Holdings Limited, which is wholly owned by the IMK Family Trust, a trust settled by Mr Mubarik and his wife, Mrs Mubarak, in 1997.

8.  In July 1998, Mrs Mubarak presented a petition for divorce in England.  After a hearing on ancillary relief, in December 1999, Mr Justice Bodey ordered Mr Mubarik to pay a lump sum of GBP4,875,000 to Mr Mubarik, and periodical payments for her own benefit and the benefit of the children.  Mr Mubarik failed to pay the sums as required.  As a result, the English court made an order to vary for the benefit of Mrs Mubarak a post-nuptial agreement constituted by the IMK Trust.  On the back of that order, Mrs Mubarak applied to the court in Jersey, where the IMK Trust was established, for variation of the trust.  The Jersey court acceded to the application and ordered that the trust be varied so as to empower the trustee to pay the sums due to Mrs Mubarak out of the trust assets.  Two partners of KPMG were appointed receivers and managers of the IMK Trust.

9.  DIL, as an asset of the IMK Trust, was also put into receivership.  The three individuals who are now its liquidators were appointed its receivers and managers on 25 April 2008.  DIL was subsequently wound up on 23 December 2009 on a petition presented by its employees, who were owed unpaid wages.  The present liquidators were appointed as liquidators on 9 July 2010.

10.  The liquidators have deposed that they had received little or no help or co-operation from the directors and staff of DIL.  The two directors at all material times were Mr Hussein Wani and Mr Aiyer Vembu Subramaiam.

11.  As pointed out already, a proof of debt was submitted by TIGJ in March 2010 in the liquidation of DIL.  TIGJ’s registered shareholders are Mrs Hukum Sultana, who is Mr Mubarik’s sister, and one Mr Habib Ullah Khanayari, who is Mr Mubarik’s father.

12.  The proof, which is for the aggregate sum of over US$1.4 million, comprises the following four claims:

(1) Goods on assignment - Consignment Note 101/07 - US$994,630;

(2) Invoice DIL/01/2008 (three lots of gems) - US$49,833.85;

(3) Invoice DIL/02/2008 (ruby beads necklace) - US$200,000;

(4) TT sent advance against purchase of paintings - US$167,500.

13.  Of these, TIGJ has confirmed that it is not pursuing claim (4).  Claim (2) was admitted by the liquidators in full, but the amount was set off against the sum of US$202,450 admittedly due from TIGJ to DIL.  Only claims (1) and (3) remain contentious.

14.  As to claim (1), TIGJ attached its consignment memo dated 6 August 2007 to its proof of debt.  The liquidators rejected the proof on the basis that there was insufficient proof of ownership and that there was evidence the consigned goods belonged to a third party. Mrs Sultana in her first affirmation explains that the consigned goods were previously owned by Kuwait Jewellery House (“KJH”) and consigned to DIL. In 2007, KJH was closing down its business and did not have cash to settle the debts owed to TIGJ totalling about 2.45 million DHS; that is, United Arab Emirates Dirham.  By agreement, these debts were partially set off by TIGJ purchasing from KJH the consigned goods in situ at the price of 187,707 Kuwaiti Dinar, which was equivalent to DHS2,435,121.

15.  In support of that explanation, in her first affirmation Mrs Sultana points out that TIGJ’s consignment memo dated 6 August 2007 was acknowledged by DIL with its stamp and signed by an officer of DIL.  She also exhibits copies of the following documents:

(1) TIGJ’s accounting ledger for the KJH account for the period between 1 November 2006 and 31 October 2007.

(2) KJH’s sales invoice dated 4 August 2007, together with copied images of the consigned goods.

(3) TIGJ’s internal purchase register and consignment ledger.

(4) DIL’s vendor consignment receipt dated 7 August 2007 whereby it is said DIL acknowledged its status as TIGJ’s consignee in respect of the consigned goods in question.  Mrs Sultana observes that this receipt was apparently signed by the same person who countersigned TIGJ’s consignment memo dated 6 August 2007.

16.  As to claim (3), TIGJ’s proof of debt has attached to it an invoice dated 10 February 2008 in the sum of US$200,000, and a corresponding purchase receipt voucher dated 12 February 2008 issued by DIL to TIGJ.  In their notice of adjudication, the liquidators rejected the claim on the ground that there was no evidence that the item was received by DIL.

17.  In her first affirmation Mrs Sultana says that the documentation submitted in support of claim (3) is the same as that for claim (2).  She finds it inexplicable that the liquidators have admitted claim (2) but rejected claim (3).  She further says that she has made recent enquiries with Dianoor Jewellery LLC (“DJLLC”) in Dubai.  She exhibits a letter making the enquiry and a letter from DJLLC dated 5 August 2012 which confirmed that they had received from DIL a ruby beads necklace similar to the one to which claim (3) relates on consignment basis in February 2008, and that they had subsequently returned it to DIL, confirmed in another letter to be on 26 March 2008.  Mrs Sultana observes that other than a clasp, the photographs in the enquiry and the response respectively show the same ruby beads necklace.  She exhibits a letter from DJLLC which states that the clasp belonged to DIL, which it had apparently combined with the necklace.

18.  In Mr Middleton’s eighth affidavit filed in response in November 2012, the liquidators set out various matters which have caused them to be suspicious and to remain unsatisfied with TIGJ’s proof of debt.  He queries why there was no written agreement in relation to the purchase by TIGJ from KJH of the consigned goods in situ.  He points out that some of the documents exhibited to Mrs Sultana’s first affirmation were not previously disclosed to the liquidators and that some of the documents, for example, letters from DJLLC, emanated from entities related to Mr Mubarik. He refers also to the history of the litigation between Mr Mubarik and his wife.

19.  In her second affirmation filed in January 2013, in relation to claim (1), Mrs Sultana explains that she did not attach all the documents to the proof of debt because she thought the consignment memo was sufficient, and TIGJ was not advised by its Dubai lawyers of the need to produce the further documents that were eventually exhibited to Mrs Sultana’s first affirmation herein.

20.  With respect to the absence of a written agreement for the purchase of the consigned goods in situ, she says it is not at all unusual in the jewellery trade for amounts owing between two parties to be settled or extinguished through another party.

21.  In relation to claim (3), she says that TIGJ did not perceive any need to submit any further evidence than the documents attached to the proof of debt.  She also questions the basis on which the liquidators have suggested that there is a close relationship between TIGJ and DJLLC, although it is to be noted that she does not deny that there exists a connection through the family relationships between the owners of TIGJ and the owners or ultimate controller of DJLLC.

22.  The relevant legal principles applicable in this sort of application are not in dispute.  In the leading authority of Wendy Wenta Seng Yuen v Philip Pak Yiu Yuen [1984] HKLR 431, Mr Justice Fuad, rejecting counsel’s submission that there was a general principle that cross‑examination on affidavit should not be ordered in any interlocutory proceedings unless special circumstances required it, stated as follows:

“As regard affidavits in general, there will be cases where the interests of justice dictate that a deponent should be subject to cross-examination. For example, where the motives of directors in exercising their powers is in issue, as in Smith v Fawcett [1942] 1 Ch 304. In other cases, in my judgment, the true rule must be that the court has an unfettered discretion to permit cross-examination on an affidavit but the applicant is not entitled to this right as of course. He has to establish that in all the circumstances of the case there is a good and sufficient reason for the application. He will not find this difficult where the evidence on the affidavit will result in what I might call a final order. He will find it more difficult in interlocutory matters, perhaps, for, as the judge below had in mind, great delay and expense might be entailed. It seems to me that what is essential for the applicant to show is that the proposed cross‑examination might be productive of a useful result at the stage that the application is made. If no reason can be suggested for supposing that the cross‑examination will then be helpful, the application will be refused in the discretion of the court, indeed, in certain circumstances it might be regarded as oppressive and, as such, an abuse of the process of the court.”

23.  This decision has been applied in subsequent cases, and in particular by the Court of Appeal in Waters v Malahon Credit Company Limited [2004] 2 HKC 94.

24.  The principles were also discussed by Sir Donald Nicholls, Vice-Chancellor, in Re Bank of Credit and Commerce International SA (No 6) [1994] 1 BCLC 450, a case which concerns the power to order cross-examination in an appeal to the court against a liquidator’s decision to reject a proof of debt.  There, the Vice‑Chancellor said at page 453:

“… I am unable to accept that there is a rule of universal application that failing some contrary sworn evidence, cross-examination of a deponent will not be ordered. The court will always be concerned to see that an order for cross-examination is not made needlessly or when it would be oppressive. The purpose sought to be achieved when cross-examination is ordered is that this is necessarily for fairly disposing of the particular issue. Whether it is so necessary will necessarily depend on the circumstances of the particular case. In cases where the other party is in a position to give evidence contrary to the deponent’s case and it chooses not to do so, the court will no doubt be slow to order cross-examination. The party who seeks cross-examination can be expected to put forward his own account of the facts in dispute of which he himself has knowledge. If he chooses not to do so and declines himself to give evidence and expose himself thereby to an application for cross-examination, the court may well be disinclined to order cross-examination of the deponent who has given evidence. But even in such a case no absolute rule can be laid down. The court retains a discretion, and it would be unwise to say that in such a case, cross‑examination will never be ordered. There must always be the exceptional case.

 The present case is of a different character.  The liquidators themselves have no knowledge of the arrangements between Mr Almerabi and Sheikh Khalid.  They are therefore not in a position to adduce evidence contradicting the evidence of Mr Almerabi. But that does not mean that Mr Almerabi’s evidence must therefore stand untested by cross‑examination, although here, as elsewhere, the court will take care to see that the request for cross-examination is not oppressive or vexatious.”

25.  Bearing these principles in mind, I am of the view that an order for cross-examination ought to be made in this case having regard to the circumstances of the case, including in particular the following:

(1) The proof of debt relates to connected transactions.  The claimant, TIGJ, is a company owned by the father and younger sister of Mr Mubarik, who is the ultimate owner and controller of the alleged debtor, DIL.  The directors at all material times of DIL were Mr Wani and Mr Aiyer.  Mr Wani, it appears, has been described as a cousin of Mr Mubarik.

(2) There are documents relied on by the claimant, TIGJ, that apparently emanated from other related companies such as the letters from DJLLC which, on the evidence, is part of the DIL group.

(3) The liquidators have received no assistance or co‑operation from the previous management and staff of DIL. Thus, they have obtained no independent confirmation of the matters asserted by TIGJ.

(4) As the liquidators have noted, although claim (1) relates to a purchase of certain consigned goods in situ, there was neither any written agreement evidencing the sale and purchase, nor correspondence in the form of letter, fax or email confirming the existence of such sale and purchase.

(5) The liquidators submit that there are matters raising concern in the evidence put forward by TIGJ in the form of Mrs Sultana’s affirmations.  Mr Sheppard, who appears on behalf of the liquidators, points, by way of example, to what he describes as an anomaly in the explanation put forward by Mrs Sultana in relation to claim (3).  It appears from TIGJ’s invoice to DIL that the ruby necklace was sold to DIL on 10 February 2008, and from the purchase receipt voucher, that it was received by DIL on 12 February 2008.  It appears from the letters of DJLLC to TIGJ dated 5 and 30 August 2012, however, that the necklace was immediately consigned by DIL to DJLLC on 12 February 2008 but returned to DIL on 26 March 2008.  Mr Sheppard says it is hard to accept without question that DIL found a clasp from its own stock and attached it to the necklace and sent it back to Dubai, all within one day.  Mrs Sultana says that the enquiry with DJLLC was prompted by a staff member of TIGJ recalling having seen a similar item displayed in DJLLC’s shop window.  Mr Sheppard says it is remarkable that a staff member happened to have seen the necklace in DJLLC’s shop window in Dubai during the 40‑odd days between 12 February and 26 March 2008 and happened to recall this four and a half years later in 2012 to enable TIGJ to be prompted to make the enquiry with DJLLC.

(6) The liquidators point out that although the documents put forward by TIGJ now appear to have been dated in the contemporaneous period of time, they were not disclosed or provided to the liquidators in the correspondence between the liquidators and TIGJ in which the liquidators, in their then capacity as receivers and managers of DIL, made requests to TIGJ for the provision of documents to support the claims which are now made in the proof of debt.  In relation to these concerns, Mr Hew who appears for TIGJ says that the claim by TIGJ is largely documentary, and that there is nothing to suggest that Mrs Sultana knows anything beyond what is already apparent from the documents.  He says therefore that there is no purpose in ordering Mrs Sultana to be cross-examined.  I have to say I do not accept that Mrs Sultana’s knowledge is necessarily as limited as that.  She is one of the two directors of TIGJ and one of its two shareholders. There is no suggestion that she is or has been a passive or sleeping director not carrying out any duties.  On the contrary, her affirmations were made based on her own personal knowledge unless otherwise stated in those affirmations. Moreover, in her third affirmation at paragraph 12, Mrs Sultana says:

“As directors of TIGJ, my father and I are actively involved and participate in TIGJ’s business and operations and are well known in the jewellery world.”

(7) There has been a persistent attempt by Mr Mubarik, with the assistance of at least Mr Wani, to prevent Mrs Mubarak from obtaining independent affluence despite the orders for ancillary relief given by the English court.  In that regard, the liquidators have drawn my attention to the judgments of the English court.  In particular, in a decision of the Court of Appeal of England and Wales dated 17 July 2007 in  Mubarak v Mubarak [2007] EWCA Civ 879, Lord Justice Wall said at paragraph 2:

“The case of Mubarak v Mubarak has, I regret to say, become notorious, and, in my judgment, represents a serious blot on the otherwise carefully written pages of family jurisprudence.  Its level of notoriety is measured by the terms in which Lord Justice Thorpe refused permission to appeal.  The application falls to be considered in the context of over seven years of litigation rightly described by Mr Justice Holman as “titanic”.  The husband is and has been for years in contempt.  He cynically incurs and discharges massive litigation bills with, as I infer, the intention of depriving the wife of her entitlement to independent affluence.  This court should not encourage or collude in his apparent strategy.”

And also in paragraph 31:

“At this point it is, I think, necessary, and therefore needs to be stated again, that this is not a case of cannot pay, it is a case of will not pay, and one of the worst of its kind.”

I am not of course for a moment suggesting that TIGJ or Mrs Sultana are guilty of having conspired with Mr Mubarik in his attempt to evade the court’s orders, but these events have naturally and, in my view, justifiably, heightened the concern on the part of the liquidators to ensure that the claim put forward by TIGJ, a related company, is properly tested and scrutinised.

(8) I also bear in mind that the evidence which the liquidators seek to have tested by cross-examination is being filed in support of an appeal against a rejection of proof of debt which will lead to a final adjudication of the rights and obligations between DIL and TIGJ.

26.  Finally, I note that Mrs Sultana has not put forward any personal circumstances suggesting that an order for cross‑examination would cause any hardship.  All that is said is that it would lead to unnecessary expense and inconvenience.  This is of course not a reason in itself for ordering cross-examination, but in light of the factors that I have already mentioned, and in the absence of any substantial countervailing reason mitigating against the liquidators’ application, I am of the view that this is an appropriate case in which to make the order sought.

Mr Hew Yang Wahn, instructed by ONC Lawyers, for the applicant

Mr Andrew Sheppard, instructed by Tanner De Witt, for the respondents

HCCW 576/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO 576 OF 2008

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AND

HCCW 577/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO 577 OF 2008

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AND

HCCW 27/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO 27 OF 2009

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AND

HCMP 789/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 789 OF 2008

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DECISION ON COSTS

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1. In these proceedings, winding up orders were made against Dianoor International Limited (“DIL”) and Dianoor Jewelcraft Limited (“DJL”) and Checkers Limited (“Checkers”) consequent upon the dismissal of applications for validation orders sought by DIL and DJL to enable them to make payment of the debts owing to the petitioners in each case. A winding up order was also made against Checkers on its own application, made through its Receivers (who were also the Receivers of DIL and DJL). The background to the proceedings, and the reasons for the dismissal of the validation orders, appointment of the Receivers as provisional liquidators and making of the winding up orders are set out in my judgment in this matter of 23 December 2009.

2. This decision deals with the costs of the various applications that were dealt with in that judgment, namely:-

(1)  the applications for validation orders in HCCW 576 and 577 of 2008;

(2)  the applications for the appointment of the receivers as provisional liquidators in HCCW 576 and 577 of 2008 and HCCW 27 of 2009.

(3)  the winding up petitions in each of HCCW 576 and 577 of 2008 and HCCW 27 of 2009.

(4)  the application for the continuation of the appointment of the Receivers on an inter partes basis in HCMP 789 of 2008.

3. The Receivers, who were substantially successful in all of the applications (although no order was made in HCMP 789 of 2008 on the basis that this was unnecessary given that the companies had been wound up), have proposed that the following orders should be made:-

(1)  In relation to the applications for validation orders in HCCW 576 and 577 of 2008:-

(a)  the Receivers’ costs of the applications be paid by Mr Aiyer and Mr Wani (directors of the companies), to be taxed on the common fund basis if not agreed;

(b)  there be no order as to costs so far as the Petitioners costs are concerned.

(2)  In relation to the application for the appointment of provisional liquidators in all three cases:-

(a)  the Receivers’ costs of the applications up to 17 February 2009 be taxed and paid to the Receivers as an expense of the liquidation of the company concerned;

(b)  the Receivers’ costs of the applications after 17 February 2009 be paid by Mr Aiyer and Mr Wani, to be taxed on the party and party basis if not agreed.

(3)  In relation to the petitions, that the Petitioners’ costs in each case be taxed and paid to the Petitioners as an expense of the liquidation of the company concerned.

(4)  In relation to the application for the continuation of the Receivers’ appointment, that the Plaintiff’s (i.e. the Jersey Receivers’) costs be paid by Mr Aiyer and Mr Wani to the Plaintiffs, to be taxed on the party and party basis if not agreed.

4. The Petitioners in HCCW 576 and 577 of 2008 objected to the suggestion that there should be no order as to their costs in respect of the validation order applications, and submitted that as these applications formed part of DIL’s and DJL’s efforts to defend the winding up proceedings against them, they should be entitled to an order for costs in their favour.

5. At the hearing, the companies appeared through their directors (Mr Aiyer and Mr Wani).  While they did not object to orders for costs being made against the companies, and paid out of the respective companies’ assets as costs of their liquidations, they submitted that there was no basis for making orders requiring Mr Aiyer and Mr Wani to bear any part of such costs personally, and that all such costs should be taxed on the usual party and party basis.  As to the costs of HCMP 789 of 2008, they submitted that as no order was made on the application, it had not been finally dealt with, so that it was premature to make any order as to costs of those proceedings.  At any rate, they had not been determined on their merits and no order should therefore be made against Mr Aiyer or Mr Wani.

6. The issues that divide the parties are therefore:-

(1)  Whether an order should be made in favour of the Receivers against Mr Aiyer and Mr Wani personally in respect of the applications for validation orders and for the appointment of provisional liquidators (after 17 February 2009, when the companies indicated their opposition).

(2)  Whether the Petitioners are entitled to their costs of the validation order applications.

(3)  Whether any, and if so what, order should be made in respect of HCMP 789 of 2008.

7. So far as the making of an order against Mr Aiyer and Mr Wani personally in respect of the validation order and provisional liquidator applications are concerned, the Receivers contend that such orders can and should be made because Mr Aiyer and Mr Wani should be regarded as parties to the winding up proceedings, the validation orders were sought, and the provisional liquidator applications opposed, on Mr Aiyer’s and Mr Wani’s instructions, and that the applications for the validation orders, and the resistance to the applications for appointment of provisional liquidators were unjustified.

8. The Receivers suggest that they may be so regarded because they attended the proceedings, even though not named on the record, and thus came within the definition of a party in section 2 of the High Court Ordinance.  Reliance was also placed on the fact that they had taken an active part in the proceedings by giving instructions in relation to both the validation order and provisional liquidator applications.

9. I do not think that this is correct.  In the present case, when the Receivers were appointed on an interim basis, the directors were restrained from taking part in the management of the companies. However, such restraint was expressly stated by an order of Kwan J dated 14 January 2009 to be subject to an exception permitting them to take steps, on behalf of the companies, to oppose the winding up petitions, and to oppose the appointment of provisional liquidators.  I think that this must necessarily extend to the seeking of validation orders on behalf of the companies as part of the opposition to the winding up petitions. This exception accords with the general principle by which directors of companies are left with a residual power to act on behalf of a company to resist winding up proceedings, even where provisional liquidators have been appointed.

10. In such a situation, although the directors will necessarily have been involved in the proceedings by giving instructions for steps to be taken on behalf of the companies, this does not of itself make them parties to the proceedings, and thereby at risk of having costs orders made against them.  The proper analysis is that in taking such steps, the directors do so on behalf of the company concerned, and it is the company (and not the directors) that is throughout the party to the proceedings.

11. This is confirmed by the fact that in the notices of intention to appear on the petitions, the solicitors for the companies made it clear that they were acting as solicitors for the companies acting by their directors.  The directors have not at any time purported to take part in the proceedings in their personal capacity.  Similarly, affirmations made by them were stated to have been affirmed on behalf of the company concerned.

12. The Receivers also made reference to the definition of “a party entitled to be heard on taxation” contained in RHC Order 62 rule 1.  However, this does not take the matter any further, since it makes it clear that a party is entitled to be heard on taxation if he is directly liable under a costs order made against him - this clearly deals with the position in relation to taxations, after a costs order has been made, and is of no relevance to the question of whether or not someone can be regarded as a party to proceedings for the purpose of making a costs order against him in the first place.

13. I therefore do not think it would be right to make any costs order against Mr Aiyer and Mr Wani personally in respect of the validation order and provisional liquidator applications.  The Receivers’ costs in respect of both these sets of applications should be paid by the companies concerned.

14. The Receivers also sought the payment of such costs of the validation order application on an enhanced basis.  As to this, it does not seem to me that this is called for.  Although the Receivers suggested that the making of the applications for validation orders was unjustified or unreasonable, I do not think that this has been made out.  The key question that called for determination at the hearing was whether or not DIL and DJL were solvent: this was a matter as to which, on the evidence initially put forward by the Receivers, there were respectable arguments put forward by the companies to suggest that they were not insolvent, on the basis that the single most substantial debt owing by DIL (which rendered it insolvent in the Receivers’ estimation, on the basis of figures put forward in January 2009) was owed to a related company (Twenty First Century Holdings Limited (“Twenty First Century”)), and was arguably not a debt that should be taken into account in an assessment of its solvency at all as Twenty First Century had agreed that the debt should not be repayable until DIL was in a position to repay it.  A revised assessment as at March 2009 suggested that even ignoring the debt to Twenty First Century, DIL was insolvent – this position was arrived at by writing down DIL’s accounts receivables by some HK$87 million, but without an explanation being put forward for doing so.  It was not until shortly before the hearing that such an explanation (which I accepted) was put forward.  In these circumstances, I do not think that it would be right to visit the companies with a costs order requiring taxation on a higher scale.

15. The Receivers also suggested that the companies’ costs should be made the subject of a Bathampton order, so that they would only be paid if there were assets available after the claims of all other creditors have been satisfied.  Such an order is made where resistance to a petition has been unjustified or unreasonable, and for the same reasons as I have given in the preceding paragraph, I do not think that it would be appropriate in the present case.

16. Turning to the costs of the Petitioners in respect of the validation order applications, the Receivers submitted that the Petitioners should not be awarded any costs because they had unsuccessfully supported the applications.  In my view, having regard to the fact that the Petitioners would have had to appear at the hearing in any event (as they were also the hearing of the petitions), that they essentially took a neutral stance on the main issue in dispute (this being the question of the companies’ solvency), and that they would have been justified in incurring some costs in considering the position in relation to those applications, it would not be appropriate to deprive them of their costs in relation to it.  I shall therefore order that the Petitioners, too, are to have their costs of the applications for the validation orders on the same basis as the Receivers.

17. This leaves the question of the costs of HCMP 789 of 2008.  Although no order was made in relation to these proceedings, they have clearly come to an end, as there is no purpose served by them now that the companies have been wound up.  Although Mr Aiyer and Mr Wani were parties to these proceedings, being named as defendants to them, I think that in substance the dispute in relation to the appointment of the Receivers lay between the Jersey Receivers and the companies, and that the appropriate order would be to order the companies to pay the costs of these proceedings to the Jersey Receivers, as it seems to me almost inevitable that the application would have succeeded had it been necessary to pursue it.  I do not, however, see any basis for treating them as a cost or expense of the liquidations of the companies.

18. I shall therefore make the following costs orders:-

(1)  In relation to the applications for validation orders in HCCW 576 and 577 of 2008, the Petitioners’ and the Receivers’ costs of the applications are to be taxed and paid to the Petitioners and the Receivers respectively as an expense of the liquidation of the company concerned;

(2)  In relation to the application for the appointment of provisional liquidators in all three cases, the Receivers’ costs of the applications are to be taxed and paid to the Receivers as an expense of the liquidation of the company concerned;

(3)  In relation to the petitions, that the Petitioners’ costs in each case be taxed and paid to the Petitioners as an expense of the liquidation of the company concerned.

(4)  In relation to the application for the continuation of the Receivers’ appointment, that the Plaintiff’s (i.e. the Jersey Receivers’) costs be paid by the 3^rd and 4^th Defendants to the Plaintiffs, to be taxed on the party and party basis if not agreed.

HCCW 576/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 576 OF 2008

____________

____________

AND

HCCW 577/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 577 OF 2008

____________

____________

AND

HCCW 27/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 27 OF 2009

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AND

HCMP 789/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 789 OF 2008

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BETWEEN

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J U D G M E N T

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Introduction

1.  These proceedings concern the affairs of three companies called Dianoor International Limited (“DIL”), Dianoor Jewelcraft Limited (“DJL”) and Checkers Limited (“Checkers”). Each of them is at present in receivership, Mr Edward Middleton and Mr Patrick Cowley of KMPG Hong Kong, and Mr Kevin Roy Mawer (“the Receivers”) having been appointed as interim receivers on an ex parte basis on 25 April 2008 by Kwan J in HCMP 789 of 2008.

2.  The companies are also the subject of winding up petitions. Creditor’s petitions were presented against DIL and DJL respectively on 3 December 2008 by former employees of those companies, on the basis of unpaid Labour Tribunal awards against them. Each of these petitions is also supported by a number of other employees, who have also obtained awards against the companies in the Labour Tribunal. Checkers is the subject of a petition for winding up on the just and equitable ground, pursuant to a petition dated 13 January 2009 that was presented by itself acting through the Receivers.

The Background

3.  The background to this matter arises out of divorce proceedings in the United Kingdom, between a Mr Mubarak and his former wife, Mrs Mubarik. It appears that Mr Mubarak was involved in the jewellery business. Having initially commenced such business in Kuwait in the early 1980s, he set up a similar business in Hong Kong as well. In about 1994, a Bermudan company called Twenty First Century Holdings Limited (“Twenty First Century”) was incorporated, and eventually became the holding company for the various Dianoor companies. It owned 100% of Checkers (whose role was to provide financial support for the companies in the group), and through another wholly owned subsidiary incorporated in Jersey called Dianoor Jewels International Limited (“DJIL”) owned 100% of DIL (which owned a workshop and office in Hong Kong and the bulk of the jewellery stocks), DJL (which was the manufacturing company), and a United Kingdom company called Dianoor Jewels Limited (“DJLL”) (which had a retail store in Bond Street in London). Initially, Twenty First Century was owned as to 98% by Mr Mubarak, while Mrs Mubarik owned the remaining 2% of its shares.

4.  In 1997, Mr Mubarak set up the IMK Family Trust (“the Trust”) in Jersey, into which he and Mrs Mubarik transferred their shares in Twenty First Century. The Trust thus became the owner of the whole of the Dianoor group of companies.

5.  In 1998, Mr Mubarak moved out of the family home, and took steps to have Mrs Mubarik excluded as a beneficiary of the Trust. Mrs Mubarik then petitioned for divorce, setting off an extensive series of litigation between them. In December 1999, Mrs Mubarak was awarded a sum of slightly under GBP 5 million and further sums for maintenance by way of financial settlement as against Mr Mubarak by the English High Court. When Mr Mubarak failed to pay, proceedings were taken by Mrs Mubarik in Jersey, in which Mr Mawer and a colleague of his were appointed receivers of the Trust (“the Jersey Receivers”).

6.  According to Mr Middleton, who has made substantially all of the affidavits on behalf of the Receivers in these proceedings, the Jersey Receivers believed that the main part of the business of the Dianoor companies was held and operated through the Hong Kong companies, and therefore took steps to secure control of these companies, with a view to operating them so as to preserve the value of the business, it being thought at that stage that the businesses were in fact substantial and valuable. This led to the commencement of HCMP 789 of 2008, in which the Jersey Receivers sought the recognition of their appointment by the Hong Kong court (and their consequent powers to act on behalf of the Trust in relation to its rights as a shareholder in the three Hong Kong companies), and injunctions restraining the directors of the companies (a Mr Wani and a Mr Aiyer) from dealing with the companies’ assets and taking part in their management. The appointment of the Receivers was made at the outset of those proceedings.

7.  The Receivers’ evidence is to the effect that following their appointment, they sought to secure the assets of the Hong Kong companies, and to operate their businesses so as to preserve their value. However, they say that they have had little cooperation from the companies’ directors in doing this. They say also that their investigations have revealed that the Hong Kong companies are now in fact insolvent, as most of the assets (consisting of stocks of jewellery) are missing, apparently having been sent to various entities on consignment, and having neither been returned nor paid for, and as debts apparently owing to the companies are unlikely for the most part to be recoverable.

8.  As a result, the companies have been unable to continue operations, and their staff have gone unpaid. This led to the institution of Labour Tribunal proceedings by the staff of DIL and DJL, and as the awards made in favour of the staff have gone unsatisfied, to the present winding up proceedings against them.

9.  The appointment of the Receivers has been opposed by the directors of the companies, acting principally through Mr Aiyer. He has filed a number of affirmations in the HCMP proceedings and the winding up proceedings, in which he takes issue with the case put forward by the Receivers. He denies that he has been uncooperative, and suggests that the companies’ business has been severely affected as a result of the appointment of the Receivers. He also suggests that the companies are not in as poor financial health as the Receivers suggest.

10.  The companies, again through Mr Aiyer, have also opposed the winding up proceedings. In the case of DIL and DJL, Mr Aiyer suggested that they would in fact be able to settle their indebtedness to the employees upon the successful mortgagee sale of the workshop premises owned by DIL, which had been mortgaged to Banque National de Paris (“BNP”), which was expected to produce a surplus in DIL’s favour after settling the outstanding balance due to BNP (it appears that BNP had earlier satisfied a part of the debt due to it by having recourse to a deposit of some HK$8 million placed with it by Checkers, over which it held security).

11.  Following the presentation of the petitions against DIL and DJL, on 13 January 2009 the Receivers took out summonses in each proceeding seeking the appointment of themselves as provisional liquidators of the companies. At the same time, they took out a winding up petition on behalf of Checkers in respect of itself, seeking its own winding up on the just and equitable ground – the basis for this being that if DIL and DJL were wound up, there was no reason for Checkers to continue in operation – and applying for their appointment as provisional liquidators in respect of Checkers also. In each case, they contended that the company in question was insolvent, as its debts were said to exceed its assets by a substantial margin. It will be necessary to look more closely at this contention later in this judgment.

12.  Although the applications for appointment of provisional liquidators were made at short notice on 14 January 2009, they were adjourned by Kwan J to a date to be fixed. Kwan J also directed that the inter partes application for the continuation of the Receivers’ appointment in HCMP 789 of 2008 should be fixed for hearing at the same time.

13.  The petitions in respect of DIL and DJL were first heard on 4 February 2009. As they were opposed, they were adjourned to 9 February 2009, when they were further adjourned to 6 April 2009. On 6 April 2009, they were further adjourned to 18 May 2009, by which time it was expected that the mortgage sale of DIL’s workshop premises would have been completed (it was in fact completed on 5 May 2009, producing a surplus of some HK$7.4 million for DIL). The petition in respect of Checkers was eventually also adjourned to be heard at the same time as the other petitions on 18 May 2009.

14.  Meanwhile, the applications for the appointment of provisional liquidators was fixed to be heard at this hearing.

15.  On 14 May 2009, DIL and DJL (acting through Mr Aiyer) applied for validation orders to enable them to settle the claims of the respective petitioners and their fellow employees. DIL sought validation orders in order to enable it to make payments to the employees and also to DJL (to which it was indebted in the sum of about HK$795,000). DJL sought a validation order to enable it to make payments to its employees. On 18 May 2009, Chu J directed that the applications for validation orders and the substantive hearing of the petitions should all be adjourned to this hearing. She also directed that the applications for validation orders should be heard first at this hearing.

The Applications before the Court

16.  There were therefore before me the following applications and matters:-

(1)  DIL’s application for a validation order in HCCW 576 of 2008;

(2)  DJL’s application for a validation order in HCCW 577 of 2008;

(3)  The Receivers’ application in HCCW 576 of 2008 for the appointment of provisional liquidators in respect of DIL;

(4)  The Receivers’ application in HCCW 577 of 2008 for the appointment of provisional liquidators in respect of DJL;

(5)  The Receivers’ application in HCCW 27 of 2009 for the appointment of provisional liquidators in respect of Checkers;

(6)  The hearing of HCCW 576 of 2008 in respect of DIL;

(7)  The hearing of HCCW 577 of 2008 in respect of DIL;

(8)  The hearing of HCCW 27 of 2009 in respect of Checkers; and

(9)  The inter partes hearing of the Jersey Receiver’s application in HCMP 789 of 2008 for the continuation of the appointment of the Receivers.

Applications for Validation Orders

17.  As I have already noted, Chu J directed that the applications for validation orders should be considered first. This was, I think, on the basis that if the proposed payments were permitted to be made, the petitions might fall away, as the claims of the petitioners and their fellow employees against the DIL and DJL could be satisfied.

18.  Mr Chan, who appeared for the companies on the instructions of their directors, submitted that the validation orders should be granted in order to enable the employees to be paid. He pointed out that the total claims of the employees were HK$2,092,545.16 in the case of DIL and HK$605,014.24 in the case of DJL. As the net balance of the proceeds of the sale of DIL’s workshop premises was some HK$7,417,181.14, this was sufficient to pay the whole of DIL’s employees’ claims, and also to enable DIL to pay to DJL the amount due from it to DJL of HK$794,745.39, out of which DJL could in turn pay the whole of its employees’ claims.

19.  Mr Chan contended that as no other creditors or alleged creditors of either DIL or DJL had filed a notice of intention to appear on the petition pursuant to Rule 30 of the Companies (Winding-Up) Rules (Cap. 32H) indicating that they wished to support the petitions, the position was similar to that in Re Alexanders Securities Ltd (No. 1) (1983) 8 ACLR 432, in which Mc Pherson J of the Supreme Court of Queensland held that it was not necessary for a company to establish its solvency when seeking the dismissal of a winding up petition against it with the consent of the petitioning creditor who had been paid the amounts owing to him.

20.  If the validation orders were granted, Mr Chan suggested that the petitions should be listed for a further hearing after a suitable time had elapsed for the necessary payments to be made to the employees, at which time they could be dismissed, assuming that no other creditor sought to be substituted as petitioner.

21.  However, in Re Shop Clothing Ltd [1999] 2 HKLRD 280, to which Mr Chan properly drew my attention, Le Pichon J (as she then was) held that the court was not bound to dismiss a winding up petition where the company was insolvent, notwithstanding that the petitioner (who in that case had not been paid) was agreeable to that course being taken so that the company could be wound up voluntarily. In the light of that decision, Mr Chan accepted that where the company was not solvent, the court retained a discretion whether or not to dismiss the petition.

22.  In addition, the Official Receiver (whose appearance at the hearing was excused, but who made certain observations on the various applications in letters addressed to the court) drew my attention to the unreported decision of Kwan J (as she then was) in Re Chungshan Commercial Association Hong Kong (CFI, HCCW 32 of 2009, 8 May 2009), in which Kwan J granted a validation order to enable a company to pay off a petitioner’s debt so as to obtain the dismissal of a winding up petition against it. In that case, it was clear that the company was solvent, having very substantial cash deposits available to it, and there were, it seems, no other creditors.

23.  In this case, the Receivers oppose the granting of the validation orders. They contend that the companies are in fact insolvent. Mr Sheppard, who appeared for them, informed me that, although they had not done so earlier, they would if necessary make an application for one of the companies under their control to be substituted as a petitioner.

24.  In my view, where it is necessary for a company to seek a validation order to enable it to settle the debt it owes to a petitioning creditor, it is appropriate for the court to seek to be satisfied that the company is solvent. If the company were not solvent, the granting of a validation order which would have the effect of enabling a petitioner to be paid the debt owing to it would mean that, in the event that another creditor successfully applied to be substituted as petitioner, and it were not possible to pay off that creditor as well, the company would go into liquidation with the original petitioners having been paid in full, rather than receiving the amount to which they would have been entitled on a pari passu distribution of the company’s assets. Although the petitioners in this case are employees, who would on a winding up be regarded as preferential creditors for part of their claim, it is not the case that the whole of the debts due to them would rank as preferential debts in the event of a liquidation.

25.  It is therefore, in my view, necessary to consider whether or not DIL and DJL are in fact solvent. As to this, Mr Sheppard submitted that they were not, relying on the Receivers assessment of the financial position of the companies.

26.  The Receivers have provided assessments of the companies’ financial position on a number of occasions. The first was contained in Mr Middleton’s first affidavit in the DIL proceedings, which he made in support of the application to appoint provisional liquidators. According to exhibit ESM-4 to that affidavit, although DIL’s books as at the date of the Receivers’ appointment suggested that it was solvent, with net assets of over HK$41 million, DIL was in fact insolvent, with net liabilities of some HK$149 million. This exhibit did not state the date as at which the assessment had been made, but the affidavit to which it was exhibited was dated 12 January 2009. The deficit was arrived at after including a debt owed to Twenty First Century of just over HK$206 million.

27.  The companies, acting through their directors, have criticised this assessment, contending that the HK$206 million debt to Twenty First Century is not in fact due and owing, as Twenty First Century had undertaken not to seek repayment of it so long as DIL was not in a position to pay it without becoming insolvent.

28.  Subsequently, in Mr Middleton’s second affidavit in the DIL proceedings dated 6 February 2009, he exhibited a revised assessment of DIL’s financial position as ESM-7, according to which the deficit was in excess of HK$234 million. Ignoring the debt said to be owed to Twenty First Century, the deficit was some HK$27 million. A comparison of ESM-4 and ESM-7 shows that the increase in the deficit is attributable almost entirely to a downward revision in the value of the accounts receivable of DIL, from some HK$87 million odd, to HK$2 million odd.

29.  Shortly before the hearing, on 9 July 2009, Mr Middleton provided a further revised assessment of DIL’s financial position in the form of exhibit ESM-47 to his 5^th Affidavit, according to which the deficit had further increased to some HK$252 million (or HK$46 million, if the debt to Twenty First Century was left out of the picture). This calculation was also the subject of criticism by Mr Chan, on the basis that there appeared to have been an element of double counting in relation to a liability of some HK$8.3 million owing to Checkers (in respect of a deposit belonging to Checkers which had been provided to BNP as security for DIL’s debts to BNP, and which had been used by BNP to offset such debts), which seemed to have been included under accounts payables and also as a separate item. The Receivers accepted that there had been an error in this regard, and provided a further revision in which the separate item was removed. This was eventually exhibited as ESM-48 to Mr Middleton’s 6^th Affidavit, which was filed after the hearing, pursuant to leave to do so given at the hearing, to correct the error in ESM-47. According to ESM-48, the deficit in relation to DIL as at 7 July 2009 was some HK$244 million, or some HK$37 million if the Twenty First Century Debt was ignored.

30.  Mr Chan submitted that the assessment of DIL’s financial position by the Receivers was not reliable. He pointed out that on the basis of the Receivers’ first assessment, leaving aside the debt to Twenty First Century, DIL was solvent, and suggested that no explanation had been given for the further writing down of the accounts receivable of DIL from HK$87 million (in exhibit ESM-4) to HK$2 million (in exhibit ESM-7). He also suggested that the double counting of the HK$8.3 million due to Checkers in respect of its deposit which had been used by BNP to satisfy part of DIL’s debts to BNP threw further doubt on the reliability of the Receivers’ figures.

31.  I do not think that the error in relation to the liability to Checkers is a significant matter. It seems to me that this was clearly an error, and one which was readily acknowledged by the Receivers.

32.  As to the reduction in the estimated value of the accounts receivable, Mr Sheppard submitted that an explanation of how the revised figure was arrived at was in fact to be found as part of ESM-47, which included a debtors list providing a breakdown of all the debtors of DIL according to its books, and an estimate of the realisable value of each debt, with brief explanations as to why it was thought that most of the debts were likely to have no realisable value. Thus, in relation to a number of debtors, it appears that the Receivers have been unable to locate or otherwise contact the debtors since their appointment – in such cases, it would seem reasonable to regard the amounts claimed as irrecoverable. In several other cases, although letters sent to the debtors have not been returned undelivered, no response at all has been received from the debtor concerned – again, it would not seem unreasonable to regard the amounts recorded as owing as being likely to be irrecoverable. In a few cases, the claim has been disputed or denied by the debtor concerned. Finally, in respect of certain Dianoor related companies which were indebted to DIL and are now in liquidation, it has been noted that the amount of any recovery is uncertain. An explanation has therefore been provided as to the basis on which the debts are regarded as unlikely to be recoverable.

33.  Mr Chan suggested that notwithstanding this, there was no explanation as to why the position was regarded as having been better, and the estimated value of the receivables greater, when a figure of HK$87 million was first put forward in ESM-4 in respect of the receivables of DIL.

34.  I note that no schedule containing a breakdown of the receivables was included as part of ESM-4. When ESM-7 was produced, a breakdown was provided, but this did not contain any explanation of the basis on which most of the receivables were thought to be worthless. ESM-47, however, does contain such explanations, and appears to have been produced in response to the criticism which has been made. While it might be said that the explanation could have been more detailed, and that more information could have been provided as to the reasons for the write down as between ESM-4 on the one hand and ESM-7 and ESM-47 on the other, I am of the view that the Receivers have provided an explanation for their regarding the receivables as being, for the most part, worthless. I also bear in mind that the Receivers have been in office since April 2008, and that it appears that they have made efforts to get in the assets of DIL, but that so far as the receivables are concerned, they have met with little success, and the prospects for further recoveries appear to be limited. Further, it would appear that there is little realistic prospect of the companies being able to continue to trade.

35.  In the circumstances, it seems to me that it would be right to have regard to the Receivers’ present assessment of the value of the receivables of DIL, and to conclude that on the evidence available, DIL does in fact appear to be insolvent in that its liabilities appear to exceed the realisable value of its assets.

36.  It also seems to me to be relevant to note that, even though no application for substitution as petitioner has yet been made, the absence of such an application is not particularly surprising when the position remains that the petitioners have not yet consented to the dismissal of the petition (even though it might in principle have been possible to apply for substitution upon an adjournment having been agreed to, this is not a course that I would expect to have been taken where the adjournment was, as here, not one which suggested that the petitioners were not interested in pursuing the petition). In the event that this were to happen, it is clear that the Receivers would seek to take steps to have another creditor substituted as a petitioner. In the case of DIL, this would seem to be possible in respect of Checkers, which is apparently owed some HK$20 million odd by DIL – HK$12 million according to DIL’s records, plus the further HK$8.3 million resulting from BNP having had recourse to Checkers’ deposit with it to settle DIL’s debt to BNP. There has been (and can be) no suggestion that DIL has the means to meet such a liability. Even if the receivables were regarded as having some value, there is nothing to suggest that they are capable of being realised so as to enable the debt to Checkers to be paid in the foreseeable future.

37.  That being so, it would not seem appropriate to grant a validation order to enable the employees to be paid in full, when this would have the effect of enabling them to receive more than they would be entitled to on a pari passu distribution of DIL’s assets.

38.  I should add that Ms Cheung, appearing for the petitioners, submitted that notwithstanding that DIL may not be solvent, the employees should be paid in full as their claims arose under an award of the Labour Tribunal. In support of this contention, she relied upon the decision of Chu J in Fuji Photo Film Co. Ltd v Jazz Photo (Hong Kong) Ltd (unreported, CFI, Chu J, HCCW 1165 of 2003, 24 February 2004), in which Chu J suggested (at paragraph 29 of the judgment) that a validation order should be granted in respect of sums awarded to employees by the Labour Tribunal, notwithstanding that not the whole of such sums would be regarded as a preferential debt on liquidation. It appears that in that case, Chu J considered that the company was in a difficult situation, since it was contended that it should be downsizing its operations, and was at the same time being criticised for agreeing to make payments to staff who had been made redundant as part of such a process. It may be that the decision is explicable on the basis that it was in the company’s interests to reduce the size of its staff, and was therefore justified in seeking to pay staff who lost their positions as a result. However, to the extent that it was suggested that such payments should be validated on the basis that they were an award of the court, I would respectfully disagree that this provides a basis for making a validation order – were that the case, there would seem to be no reason why any judgment should not be the subject of a validation order, notwithstanding that the payment of the judgment debt would not benefit the creditors of the company as a whole.

39.  I therefore do not think that it would be appropriate to grant a validation order to enable DIL to pay off the petitioning creditors.

40.  Further, so far as the proposed payment to DJL is concerned, no basis has been put forward for suggesting that this debt should be paid in preference to debts owing to other creditors of DIL. The fact that this might enable DJL to pay off its petitioning creditor and his fellow employees does not, in my view, provide the necessary justification.

41.  I am therefore of the view that, having regard to the fact that DIL appears to be insolvent, it would not be appropriate to grant the validation order sought in respect of it.

42.  It therefore follows that DJL will not be put in funds to pay its employees, and the validation order application in respect of it will become otiose. I therefore dismiss the applications for validation orders in respect of DIL and DJL.

Applications for Appointment of Provisional Liquidators

43.  The consequence is that, as Mr Chan accepted, winding up orders should be made in respect of DIL and DJL. However, Mr Sheppard submitted that upon dismissal of the validation orders, I should consider the applications for appointment of provisional liquidators before disposing of the petitions substantively. The reason for this was that if the Receivers were appointed as provisional liquidators prior to the making of winding up orders, they would then continue in office upon the making of such orders pursuant to section 194(1)(aa) of the Companies Ordinance (Cap. 32). By contrast, if no such appointment was made, the Official Receiver would take office as provisional liquidator pending the holding of meetings of creditors pursuant to section 194(1)(a).

44.  Mr Sheppard submitted that there was no reason not to deal with the application for the appointment of his clients as provisional liquidators. The application was made on 13 January 2009, and had been fixed for hearing at this hearing well before the applications for validation orders and the substantive hearing of the petition were fixed to be heard at the same hearing. In those circumstances, it was not through any fault or delay on the part of the Receivers that their application was not heard earlier, and it could not be said that the application was made with a view to “hijacking” the winding up petitions.

45.  He also submitted that having regard to the qualifications of the Receivers, they were clearly suitable persons to be appointed as provisional liquidators, and that in the light of the fact that they had already acted as Receivers of the companies for some time, and had gained considerable experience and knowledge from that role, it would be wasteful and duplicative of costs if the Official Receiver, or some other person, were to be appointed instead.

46.  In my view, the evidence put forward by the Receivers in support of the applications for the appointment of provisional liquidators clearly justifies such an appointment being made. There is and was a clear prima facie case for the winding up of the companies, and the evidence as to the state of affairs within the companies that was discovered by the Receivers on their appointment does suggest that there is a need for investigation. Had the application been heard before the hearing of the petitions, rather than at the same time, I have no doubt that it would have been appropriate to accede to them.

47.  I do not think that the fact that the applications have, owing to the procedural history of this case, only come on for hearing at the same time as the petitions should deter me from dealing with them, and making the appointments of the Receivers as provisional liquidators of each of DIL, DJL and Checkers, particularly as I am satisfied that their appointment is likely to be conducive to the more effective and efficient conduct of their eventual liquidation. I have no doubt that the knowledge obtained by the Receivers will be of considerable assistance to them if they were to become provisional liquidators or liquidators of the companies, and I do not think that the fact that they have acted as Receivers is something that should lead the court to conclude that they are unsuitable for appointment.

48.  One matter that has been raised by the Official Receiver is that Mr Mawer is not on the list of Panel A Insolvency Practitioners, and is not a member of the Institute of Certified Public Accountants. However, it is clear that he is an experienced insolvency practitioner in the UK, and I consider that he is a fit person to be appointed as a provisional liquidator in the present case.

49.  I shall therefore appoint the Receivers to be the provisional liquidators of DIL, DJL and Checkers, on terms of the draft order provided by the Receivers, subject to the amendments indicated by the Official Receiver under cover of his letter dated 14 July 2009.

Winding up Petitions

50.  So far as the substantive winding up petitions are concerned, Mr Chan accepted that these could not be resisted if the validation order applications failed. I therefore make the usual winding up order in respect of each of DIL, DJL and Checkers.

Continuation of Receivers’ Appointment

51.  As a result of the appointment of the Receivers as provisional liquidators, and the making of the winding up orders I have just mentioned, the application for the continuation of the Receivers’ appointment does not need to be pursued, and I shall therefore make no order in respect of it.

Costs

52.  So far as the costs of these applications are concerned, I would propose to deal with these on paper on the basis of written submissions. To this end, the parties are requested to serve on each other, and lodge with the court, written submissions as to the costs of the various applications within 21 days of the handing down of this judgment, and to serve on each other and lodge with the court written submissions in reply (should they wish to do so) within 14 days thereafter.

Attendance of the Official Receiver excused