IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMPANIES (WINDING‑UP) NO 289 OF 2012
D E C I S I O N
1. I have before me a summons issued by the liquidators of New Denim Limited (“Company”) for an order concerning the sale of theassets of a sub-subsidiary of the Company Chip Tak Textile (Taishan) Company Limited (“CTTS”). CTTS is 99% owned by a subsidiaryof the Company Chip Tak Weaving Factory Limited (“CTHK”).
2. CTTS operates a factory in Taishan in southern China. It is still being operated by its board of directors which have not beenreconstituted by the liquidators. The Company has three shareholders who through their shareholding have equal beneficial interestsin the economic value of CTTS.
3. The liquidators have proposed to sell the assets of CTTS. It seems to have been originally common ground that that should proceedby way of a sale of CTTS as a going concern although it seems to be also uncontentious that the most valuable asset of CTTS is likelyto be the land and plant that it owns. This process has been advanced through a public-listing process in Shenzhen but has not todate resulted in a firm offer for the acquisition of CTTS as a going concern.
4. A dispute has arisen between the three shareholders as to what is the best way of proceeding to realise the value of CTTS. Withoutgoing into the history of the matter, the position has now been reached where the liquidators take the view that the better way toproceed is to have one further attempt at a sale of CTTS as a going concern through the listing procedure available on the ShenzhenUnited Property and Share Rights Exchange, and if that fails to result in an offer, equal to or in excess of a reserve price of RMB40 million, then the business of CTTS should be shut down and its assets, in particular the land, sold through whatever mechanismis likely to realise the greatest consideration.
5. I understand that the liquidators have advised that for a combination of regulatory and tax reasons, an equity transfer would probablybe the most advocatious way of proceeding even if CTTS’s business has been closed.
6. The order that the liquidators therefore seek today is that they be at liberty if an offer is not made as a result of the publiclisting at a reserve price of RMB 40 million within 27 days to close down CTTS’s business and to sell its assets.
7. The petitioner who appeared before me today agrees to that order. I understand that the 2nd respondent, who was not before me today has indicated to the liquidators that he agrees to it. The 1st respondent however, does not. The 1st respondent suggests that the better way of proceeding is to provide for two further attempts at sale of CTTS as a going concern witha reserve price RMB 30 million and RMB 20 million respectively and if that fails, for there to be a shareholders’ closed auction.
8. As I understand it the 1st respondent believes that CTTS is currently making an operating profit and that it makes more sense to continue to operate the factoryfor a continuing period as this will be likely to result in what the 1st respondent considers to be, the most likely purchaser, namely somebody in the same line of business as CTTS coming forward with anoffer to acquire its business and assets.
9. As I also understand it the 1st respondent takes the view because CTTS’s factory is in a remote area, the land itself may not be of considerable interest to prospectivepurchasers, whereas he takes the view that at a suitably competitive price the long‑established and successful business of CTTSmight be.
10. It will be appreciated from what I have said that the current issue which has been debated before me involves exclusively a matterof commercial judgment. Matters of commercial judgment arising in the course of liquidations are matters to be determined by liquidators. The Companies Court will only replace a liquidator’s decision with its own if a liquidator’s decision is challenged and thecourt is satisfied that either the decision has been reached in bad faith, or that it does not fall within the range of commercialdecisions which a liquidator, properly addressing any relevant legal principles and giving due weight to relevant factual matters,could make.
11. I accept that the concerns that the 1st respondent has raised have some substance. It may be that in the fullness of time, his own view of the matter might be demonstratedto be correct. But it does not seem to me that the way in which the liquidator proposes to proceed, which is supported by two ofthe three shareholders, can sensibly be suggested to be so unreasonable as to be one that the court can properly interfere with.
12. I therefore will make an order in substantially the terms that the liquidators propose, although I will simplify it. The orderwill be in the following terms subject to the parties suggesting any improvements in the language.
13. If no offer is received for the purchase of the 100% shareholding held by CTHK in CTTS (“the CTTS Shares”), together with theland and the property, plant and the machinery, and the service contracts (on the benefit of the service contracts it currently has)by 5pm on 22nd September 2016, the liquidators be at liberty:
Mr Norridge of Herbert Smith Freehills for the petitioner
Mr Camille Jojo of Norton Rose Fulbright Hong Kong for the liquidators
Mr 1st respondent appeared in person and assisted by his son Mr Lau, Wilson
The 2nd respondent was not represented and did not appear