THE JOINT & SEVERAL LIQUIDATORS OF PLANET PETS (HK) LTD (IN LIQUIDATION) v. DESMOND CHUNG SENG CHIONG AND ANOTHER

HCCW 248/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 248 OF 2009

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HCCW 249/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 249 OF 2009

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D E C I S I O N

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1.  This is a hearing to determine the costs of 3 applications, namely, (i) an application by the Liquidators of Planet Toys (HK) Ltd and Planet Pets (HK) Ltd (respectively “Applicants” and “Companies”) for the return of a total sum of HK$1,092,996 (“Funds”) by the Companies’ former Liquidators (“Respondents”) to the estates of the Companies and (ii) 2 applications (1 Summons in respect of each of the Companies) by the Respondents to have the bills for their remunerations and expenses in respect of the liquidation of the Companies taxed together with related relief.

2.  These applications were disposed of by consent via an order dated 18 May 2016.  The consent order essentially encompassed the relief sought in the applications of the Respondents. 

3.  The material facts have been set out in paras 9.1 to 9.23 of the Respondents’ skeleton argument.  Very briefly, the Respondents were appointed as the Provisional Liquidators of the Companies pursuant to a voluntary wind-up under s.228A of the then Companies Ordinance, Cap 32 (“Ordinance”) on 24 December 2008.  They became Liquidators of the Companies about 1 month later.  One of the creditors later petitioned for the winding-up of the Companies.  On 22 July 2009, the Companies were wound-up by the court and the Official Receiver (“OR”) became the Provisional Liquidator of the Companies.  On 3 September 2010, the Applicants were appointed as Liquidators of the Companies.  A Committee of Inspection (“COI”) was appointed on 24 May 2011.

4.  The Funds were held by the Respondents with the aim to settle their remunerations and expenses incurred prior to the compulsory winding-up.  At the end of 2009, the Respondents lodged their bills with the court for taxation.  However, in April 2010 the Master seized of the matter took the view that he had no jurisdiction to tax the bills, and suggested that the Respondents should seek the view of the COI or the creditors on their remuneration pursuant to s.244 of the Ordinance.  It is important to note that there is no issue on the applicability of s.244.  Under those provisions, the COI, or if there was no such committee, the creditors might fix the remuneration to be paid to the Respondents.

5.  Unable to have their bills taxed, on 30 April 2010 the Respondents (via their solicitors) asked the OR if there was any objection to the application of the Funds to settle their existing bills.  The OR replied on 2 July 2010 (“Reply”) that she had “no objection to your client proceedings (sic) as proposed in your letter”.

6.  Soon after their appointment as Liquidators and having received further bills (“Further Bills”) from the Respondents for remuneration and expenses incurred after the compulsory winding-up of the Companies, the Applicants raised issue with the Respondents concerning the retention of the Funds without the taxation of their bills. 

7.  In July 2011, in response to the Applicants’ request that the Further Bills be taxed, those Bill were lodged by the Respondents with the court for taxation.  The Master again declined to tax the Bills on the ground of lack of jurisdiction. 

8.  Meanwhile, the Applicants had written to the OR seeking information of the dealings between her and the Respondents.  In respect of the Reply, the OR’s letter to the Applicants dated 28 January 2013 stated that “the [OR] has merely indication no objection to the proposed treatment of their remuneration which appears to have followed the provision set out in section 244 of [the Ordinance]”. 

9.  Unable to reach a consensus on the Funds, the Applicants took out their application (see para 1 above) on 15 January 2015, which was followed by the Respondents’ applications on 10 June 2015.

10.  The arguments here are quite simple.  As noted above, there is no dispute as to the application of s.244 of the Ordinance.  It is a fact that none of the Respondents’ bills have been agreed by the creditors of the Companies (or any COI).  However, the Respondents say that they were at all material times acting under the belief that such agreement had been sought by the OR before the Reply was given.  It is accepted, in light of the correspondence between the OR and the Applicants, that no such agreement was in fact sought. 

11.  Let me say at the outset that I do not believe that the Respondents deserve any serious criticism for their actions in these matters.  I accept that they had acted with transparency and good faith. However, sympathetic as one may be of the predicaments which the Respondents had faced in trying to have their bills settled, I do not believe that there was sufficient ground for them to believe that the Reply confirmed that the creditors had approved their bills.  By reason of its importance, that fact should, and could, have been clearly established with a simple question. 

12.  I have to say that the Reply could have been written in clearer terms to avoid any misunderstanding.  On one view, the writer might have overlooked the requirements under s.244 when he wrote the Reply.

13.  However, the state of affairs at the time when the Applicants took out their application was that the Respondents had declined to return the Funds to them (the Funds had been applied by the Respondents to pay their bills), and the Respondents had no entitlement to have their bills paid without satisfying s.244 of the Ordinance or taxation. 

14.  I do not accept the Respondents’ contention that they had succeed in their applications.  In truth, those applications were necessary in order to answer that of the Applicants, and the agreement later reached to have the Respondents’ bills taxed served to resolve the impasse between the parties on the Funds.  Such taxation was necessary to legitimise the use of the Funds by the Respondents. 

15.  Whilst the Applicants may be criticised for not acting more promptly in these matters, I accept that they have acted with due regard to the interest of the estates of the Companies. 

16.  I do not believe it is just to burden the estates of the Companies with more than 1 set of costs in these matters.  On balance, the just course is to order that the costs of the Applicants in respect of the 3 applications be paid out of the estates of the Companies.  I make no order in respect of the Respondents’ costs of these applications, save that the Respondents will have to pay the costs of this hearing because they had declined to accept the proposal of the Applicants made in November 2015 to dispose of the applications by consent (essentially in the terms of the consent order dated 18 May 2016) with no order as to costs as between the parties.  Thus, this hearing could, and should, have been avoided. 

HCCW 248 / 2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 248 OF 2009

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BETWEEN

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D E C I S I O N

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A.   Introduction

1.  On 3 September 2010, Master Hui made the Orders that, inter alia¸ there shall not be a committee of inspection (“COI”) for Planet Toys (HK) Ltd (“Planet Toys”) (under HCCW 248/2009) and Planet Pets (HK) Ltd (“Planet Pets”) (under HCCW 249/2009).  The Orders were made as a result of applications brought by the Official Receiver (“the OR”) under rules 45(2) and 45(3) of the Companies (Winding-up) Rules (“the Rules”).

2.  The Petitioner (Bold Well Industrial Ltd) in both winding-up actions appeals against the Orders in refusing to appoint the COI.

B.   Brief background

3.  These applications before the learned Master were brought in light of the following circumstances:

(1)   The 2 companies were placed under voluntary liquidations by resolutions made on 24 December 2008 pursuant to s. 227A of the Companies Ordinance (Cap 32) (“CO”).   Mr Desmond Chiong and Fok of Ferrier Hodgson were appointed as the joint and several liquidators.

(2)   However, Bold Well thereafter presented winding-up petitions against the 2 companies.  Master J Wong on 23 July 2009 made an order to place the companies in compulsory winding up and the OR was appointed as the provisional liquidator.

(3)   According to the respective Statement of Affairs:

(a)   Planet Toy’s total liabilities were HK$152,211,549.73, of which some HK$91.362,778.53 (approximately 64% of the total liabilities) were said to be owed to one Mr Tam Tat Ming, Ideality Ltd and Root Land Ltd.    The majority of the remaining part of the liabilities was owed to other trade creditors including Bond Well.

(b)   Planet Pets’ total liabilities were HK$12,683,553.04, of which HK$3,309,637.38 were said to be owed to Ideality.  Similarly, the majority of the remaining part of the liabilities was owed to other trade creditors including Bond Well.

(4)   There seems to be no dispute that Ideality and Root Land belong to a group of companies where Planet Toys and Planet Pets are also part of, and Mr Tam control Ideality and Root Land.  For convenience, I would refer to Mr Tam, Ideality and Root Land collectively in this Decision as the Tam Group.

(5)   The 1^st creditors’ meeting of both companies was held on 8 October 2009. At the meeting, amongst other things, a resolution was raised and needed to be passed as to whether to appoint a COI for the companies respectively:

(a)   Before votes were taken, Bond Well and other trade creditors raised their doubts to the Chairman as to the proofs of debt of the Tam Group (for Planet Toys) and Ideality (for Planet Pets) as they alleged that the Tam Group were associated and related to the companies and there were suspected acts of unfair preference.   In effect, they alleged that the Tam Group were not independent creditors.

(b)   The Chairman, acting properly and in accordance to the law, noted the objections but allowed the votes to be cast and taken by the Tam Group (for Planet Toys) and Ideality (for Planet Pets).

(c)    After the votes were taken: (a) for Planet Toys it was resolved by majority that no COI should be appointed in light of the objection raised by the Tam Group as the majority creditors.  The proposed appointment was  however supported by Bond Well and the other trade creditors, (b) for Planet Pets, it was resolved by majority that there shall be a COI comprising of 5 members notwithstanding Ideality’s objection. Bond Well and the other trade creditors this time forming the majority creditors supported the resolution.

(d)   The contributories voted separately against the appointment of a COI for the 2 companies.

(6)   In light of the disputes set out above and the result of these resolutions, the OR brought the applications before the learned Master for consideration of the resolutions and determinations of the meetings of creditors and deciding the differences, and making such order as the court may think fit.

(7)   As mentioned above, after hearing submissions made by Bond Well (which has the support of other trade creditors) and the Tam Group and the evidence filed by them respectively, together with reading the OR’s reports, the learned Master made the orders refusing the appointment of a COI for the 2 companies.

C.   These appeals

C1.   Legal principles

4.  There is no dispute between the parties as the legal principles relevant to the present appeals and applications.  They can be summarized as follows:

(1)   An appeal from a Master is by way of a rehearing, and the court is to consider the matter afresh.

(2)   Under s. 194(1)(c) of the CO, the court is empowered to decide on the differences between the determinations of meetings of the creditors and contributories for the appointment of liquidators and “make such order thereon as the court may think fit”.  Under r. 45(2) of the Rules, in deciding the differences, the court is to make “such order as shall be necessary”:  Re Orient Power Holdings Ltd [2008] 2 HKLRD 494 at para 26 per Kwan J (as she then was).

(3)   The court has a wide and unfettered discretion in the exercise of this power.  It is not bound by the determinations of the meeting of the creditors or of the meeting of the contributories, although the court would give due regard to them:  ReAkai Holdings Ltd [2001] 2 HKLRD 411 at  419J per Yuen J (as she then was);  s. 287(1) of CO.

(4)   In the exercise of its discretion, the court may have regard to the wishes of creditors and contributories.  Where the company is insolvent, the Court will generally give preference to the wishes of creditors over that of the contributories:  Re Kam Kuen Construction Co Ltd [2002] 3 HKC 547 at 553G-554E and 555C per Kwan J; Re Hung Fung Holdings [2001] 3 HKLRD 692 at paras 12 and 14 per Chu J.

(5)   In exercising its discretion whether to give effect to the wishes of creditors as reflected in the creditors’ meetings, the court will consider whether or not the views therein expressed can be regarded as fairly representative of the class in question.  In doing so, account must also be given to the “quality” of the creditors, and certain votes can be discounted or even disregarded where circumstances so require: Re Chyau Fwu Investment Ltd [1986] HKLR 374 at 308B-E per Mayo J; Re Landtrade Engineering & Development Co Ltd (unrep., HCCW 418/1991, 27 July 1992) at para 13 per Jones J; Re Goldcone Properties Ltd [2002] 2 HKLRD 16 at 54H-55B per Ribeiro J (as he then was).

C2.   The Tam Group’s position in these applications and the appeals

5.  In my view, for the present purpose, it is important to consider the position adopted by the Tam Group in relation to the appointment of COI in the court below and for these appeals.

6.  Although they sought to draw the Court’s attention to various observations, the Tam Group both in the affirmations filed on their behalves for these applications and in their Counsel’s skeleton submissions filed for the appeals have confirmed that they would take a neutral stance as to whether a COI should be appointed for the 2 companies. 

C3.   Discussion

7.  In applying the principles set out above, it is clear to me that in the exercise of my discretion, a COI should be appointed for the 2 companies.  My reasons are as follows:

(1)   No matter what happened at the 1st creditors’ meetings, it is now the position that the Tam Group is no longer objecting to the appointment of COI for Planet Toys.  This leaves only the wish of trade creditors (including Bond Well) to have the appointment of a COI. They represent the wish of substantial creditors.   There is no more any countering wish.

(2)   The same must also apply to Planet Pets.  In particular, even in the resolution passed at the 1st creditors’ meeting, it was resolved by majority that a COI should be appointed.

(3)   In the circumstances, given the Tam Group’s present position, the wish of the creditors in general to appoint a COI over the 2 companies should prevail over the contributories’ wish (as reflected in their respective resolutions passed at the 1st creditors’ meeting) not to appoint a COI.

(4)   Moreover, I have read the evidence filed by Bond Well as to the matters they noticed leading to the initial voluntary winding-up and then the subsequent compulsory winding-up of the companies.  I am of the view that those matters further support the appointment of a COI to assist the court in its supervisory role over the liquidators and to obviate the potential need for time-consuming and costly applications to be made to the court.

(5)   With the evidence before me, I am not prepared to draw any inference (an observation that the Tam Group has drawn the Court’s attention to) that, given the disagreement between the other trade creditors and the Tam Group, heated disputes are likely to be encountered in the operation of the COI so appointed, which would render the winding-up process likely to be more costly and time consuming.  My view is further fortified by the facts that (a) the Tam Group has now adopted a neutral position to such an appointment and (b) their Counsel has confirmed to this court that the Tam Group have no intention to block any investigations that the liquidators may see fit to carry out in the winding-up process.

D.   Conclusion

8.  For the above reasons, I would allow the appeals and set aside the Master’s Orders in relation to the refusal to appoint a COI for Planet Toys and Planet Pets.  I further order that a COI comprising of 5 members shall be appointed for Planet Toys and Planet Pets respectively.  The Tam Group shall be entitled to appoint 2 members to sit in the COI of Planet Toys, and Ideality is entitled to appoint 1 member to sit in the COI of Planet Pets.

9.  I further order that costs of these appeals be paid out of the assets of the 2 companies respectively.

Mr. Melvin WONG, instructed by Messrs Li, Wong, Lam & W.I. Cheung, for the Petitioners.

Mr Victor DAWES, instructed by Messrs So, Keung, Yip & Sin, for the Tam Group.