RE BURWILL HOLDINGS LTD (Provisional Liquidators Appointed) (“Company”)

HCMP 250/2021 and HCCW 262/2019
(HEARD TOGETHER)
[2021] HKCFI 1318

HCMP 250/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 250 OF 2021

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 262 OF 2019

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(HEARD TOGETHER)

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D E C I S I O N

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1.  I have before me the petition for sanction of a Scheme of Arrangement between the Company and its unsecured creditors pursuant to section 673 of the Companies Ordinance (Cap 622).

2.  On 2 March 2021 I made an order convening a meeting of unsecured creditors of the Company (“Scheme Creditors”) at which the Scheme Creditors could consider and vote on the proposed Scheme.  The scheme meeting was convened on 15 April 2021.  The necessary resolution was passed unanimously.  However, I will not sanction the Scheme today.  For the following reason I will adjourn the petition sine die with liberty to restore.

3.  On 26 March 2021 the Stock Exchange of Hong Kong Limited wrote informing the Provisional Liquidators of the Company that on 25 March 2021, the Listing Committee had determined that the Company’s listing should be cancelled.  The Company has a right to seek a review of that decision from the Listing Review Committee which I understand the Provisional Liquidators propose to exercise.  In my view, in these circumstances unless there is good reason to do otherwise the appropriate course for the court to adopt is to adjourn the sanction application pending the determination of the Listing Review Committee.

4.  There are two reasons for this.  The first is that if the listing is to be cancelled, the Scheme will collapse and the application to the court will have been a waste of judicial resources.  Secondly, I do not think it appropriate for the court to make a decision which it might be suggested should influence the Listing Review Committee’s deliberations and ultimate decision.  I would note that this is not the first time this situation has arisen. I made a similar order at the hearing of the petition to sanction a Scheme of Arrangement concerning Up Energy Development Group Limited on 23 February 2021. Practitioners should take note that I will expect this to be the court’s normal practice in the future.

5.  In addition to the petition, I also have an ex parte summons seeking the following orders:

“1. The Order appointing the Provisional Liquidators made by the Honourable Mr. Justice Harris in Chambers (not open to public) dated 21 November 2019 (as amended his Lordship on 16 April 2020) (‘Amended Order’) shall be further amended in the form attached to this Summons; and

2.  The Debt Settlement Agreement dated 18 February 2021 entered into between the Company, the Provisional Liquidators (without personal liability) and Bangkok Bank Public Company Limited (the Petitioner herein) be sanctioned pursuant to section 4(26) of the Amended Order.”

6.  The first application is necessary because the order appointing the Provisional Liquidators, as is conventional, provided that the costs of the Provisional Liquidators will be paid out of the assets of the Company. As is common the proposed restructuring arrangement included provisions that the investor is to pay the Provisional Liquidators’ costs and therefore, it is necessary for an application to be made under section 193(5) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32).

7.  The second application relates to an agreement entered into between the Company and its principal creditor—Bangkok Bank Public Company Limited (“Bangkok Bank”).  The agreement deals with two components of the liabilities and rights arising from the facility granted by Bangkok Bank to the Company.  The first provides for the release of security in the form of share charges over one subsidiary in particular, which the Provisional Liquidators are of the view needs to be included in a successful restructuring of the Company. The second component addresses the position in respect of the remaining unsecured debt owed to the Bangkok Bank.  The view has been taken that it is more appropriate for this unsecured debt to be dealt with outside the Scheme although the amounts that Bangkok Bank are to receive mirrors, the amounts to be paid to Scheme Creditors.  I will sanction the debt settlement agreement.

8.  I will, make an order in the terms of the ex parte summons dated 29 April 2021 referred to in [5] above.

HCCW 262/2019

[2019] HKCFI 2959

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 262 OF 2019

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D E C I S I O N

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1.  This morning I heard an application for the appointment on provisional liquidators over the Company. The application was not contested by the Company. The only issue that arose was as to the identity of the provisional liquidators. The Petitioner sought the appointment of Mr K and Mr T of R firm. The Company proposed insolvency practitioners from S firm or C Limited. The reason for this disagreement appeared, as it so often does, to come down to a suspicion on the part of the Petitioner and the Company that whoever the other chose might be inclined to favour the party that nominated them. However, the specific ground for suggesting that Mr K and Mr T should not be appointed concerns the disclosure statement made by them for the purposes of their proposed appointments.

2.  Section 262C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, requires that before a person may be appointed as a provisional liquidator the person must make a disclosure statement that complies with section 262D.  Section 262D specifies the information that must be disclosed.  Sub-section (1)(b) requires the person to disclose whether any of the relationships set out in sub-section (2) exist and if such a relationship does exist specifies the information to be disclosed, namely, the details of the relationship and the person’s reasons for believing that the existence of such a relationship would not result in the person having a conflict of interest or duty.  Amongst the categories of relationships required to be disclosed is“a financial advisor of the company, its holding company or its subsidiary” [1].

3.  In the last couple of years R firm has carried out work for two subsidiaries of the Company.  On both occasions the work was limited. In one case the work seems to have involved preparation of a tax return and reviewing an assessment for which HK$23,000 was charged. On another occasion for a different subsidiary R firm did similar work for fees totaling HK$41,000.  R firm took the view that this work did not constitute work as a financial advisor and did not refer to it in the disclosure statement prepared for the purposes of the provisional liquidation application.  In my view in this R firm were incorrect.       Although R firm seem to have taken the view that the work was largely administrative it seems to me that “financial adviser”, which is not a term of art, is a broad term and extends to any person who conventionally would be characterised as a financial adviser (which accountants generally will be) or providing services, which contain some element of advice relating to financial matters.  R firm seem to have taken the view that because what they did was small in scope and sophistication it did not come within  sub-section (2).  In my view this was wrong.  R firm are financial advisers and presumably this is why they were engaged.  Although, the work undertaken may have been routine this does not alter the character of R firm’s function, which was to act as financial advisers to the subsidiaries albeit in a minor way.

4.  The way in which R firm should have dealt with the matter was to acknowledge in the disclosure statement that they had acted as financial advisers, but to avail themselves of sub-section (1)(b)(ii)(B) and explain why they believed that the relationship did not give rise to a conflict of interest.  Whether or not the relationship gives rise to a material conflict is a matter to be determined by the Official Receiver or the Court.

5.  It does not seem to me that the work R firm had carried out does give rise to a material conflict of interest. The Company’s opposition to the appointment of R firm was on the basis of a conflict.  As in my view it is not material and the Company’s opposition seems to be based more on an instinctive rejection of the Petitioner’s preferred candidate other than any credible grounds for thinking R firm are unsuitable, I will make an order appointing Mr K and Mr T on the terms agreed at the hearing with the Official Receiver.  Mr K and Mr T should submit new disclosure statements.