RE LAKE AND HOT SPRINGS COUNTRY CLUB (H.K.) LTD

HCCW000030/1986

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING-UP)

NO. CWU 30 OF 1986

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IN THE MATTER of the Companies Ordinance, Chapter 32.

and

IN THE MATTER of Lake & Hot Springs Country Club (H.K.) Limited

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Coram: Hon. Jones J. in Chambers

Date of hearing: 24 March 1986

Date of delivery of judgment: 2 April 1986

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JUDGMENT

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1. Judgment was obtained by the China Engineers Limited (hereafter called the applicant) against Lake & Hot Springs Country Club(H.K.) Limited (the company) on the 14th July 1983 for inter alia the recovery of certain goods or in default their value and damages.Damages were later assessed at $222,809.20. Attempts to recover the amounts due by way of execution or to achieve a compromise bypayment of a lesser sum resulted in a payment of $100,000 which left a balance outstanding of $287,271.60 interest and costs. However,in December 1985 the applicant discovered that the company was the registered owner of five single decker tour buses. As a resultthe applicant obtained an injunction on the 14th December 1985 which was continued on the 20th December 1985 restraining the companyfrom disposing or dealing with its assets and proceeded to levy execution. Four of the buses were subject to a hire purchase agreementwith the Dah Sing Finance Limited and were subsequently sold by them to North Point Motors Co. Ltd. The other bus registration No.DB 9676 was seized by the bailiff under the applicant’s writ of fieri facias and was sold on the 14th January 1986. The net proceedsof the sale amounted to $178,480.00. A creditor’s petition to wind-up the company was presented by two employees on the 24th January1986 in respect,of a claim for arrears of wages and other benefits amounting to $59,046.66. The petition also alleged that the companywas indebted to six other employees in the sum of $152,800.00.

2. By virtue of section 270(2) of the Companies Ordinance, Cap. 32 the bailiff declined to pay over the proceeds of sale to the applicants. Section 270(2) reads as follows –

Subject to subsection (2A), where under an execution the goods of a company are sold or money is paid in order to avoid sale, thebailiff shall deduct the costs of the execution from the proceeds of the sale or the money paid and retain the balance for 14 days,and if within that time notice is served on him of a petition for the winding-up of the company having been presented …………………..,the bailiff shall pay the balance to the liquidator, who shall be entitled to retain it as against the execution creditor. “

3. A winding-up order was made against the company on the 24th February 1986.

4. By the present summons, the applicant seeks an order under section 270(2A) of the Ordinance that the proceeds of sale or such part of them as the court deems just be released. Section 270(2A) provides –

The rights conferred by this section on the liquidator may be set aside by the court in favour of the creditor to such extent andsubject to such terms as the court thinks fit. “

Mr Griffiths who appeared for the applicants cited In re Grosvenor Metal Co. Ltd. (1950) Ch. 63 where Vaisey J. considered the provisions of section 325(1)(c) of the Companies Act 1948 which is the equivalent of section 269(1)(c) of the Companies Ordinance. Section 269(1)(c) provides –

269.(1) Where a creditor has issued execution against the goods or lands of a company or has attached any debt dueto the company, and the company is subsequently wound up, he shall not be entitled to retain the benefit of the execution or attachmentagainst the liquidator in the winding up of the company unless he has completed the execution or attachment before the commencementof the winding-up:

Provided that –

………………..

(c) the rights conferred by this subsection on the liquidator may be set aside by the court in favour of the creditor to such extent andsubject to such terms as the court may think fit. “

In his judgment at p. 64 Vaisey J. referred to Armorduct Manufacturing Company Ltd v. General Incandescent Company Ltd. (1911) 2 K.B. 143 where it was held that nothing short of a trick or some actual dishonesty justified interference by the Court. However, under theAct of 1948 he held that the Court’s discretion had been widened to do what is fair and right having regard to the circumstancesof each case.

5. Mr Knos on behalf of the official Receiver cited Re Redman (Builders) Ltd. (1964) 1 All E.R. 851 where it was held that the basic scheme of the Companies Act was for unsecured creditors to rank pari passu and that where an executioncreditor had not completed execution at the beginning of the winding-up he was in the same position as any other unsecured creditor.In that case the Court decided that where the company had been stalling its creditors, it would be unjust and unreasonable to giveone stalled creditor, who had not completed execution, preference over other stalled creditors, whether they had or had not commencedexecution. Mr Knos also referred me to In re Caribbean Products (Yam Importers) Ltd. Tickler v. Swains Packaging Ltd. (1966) 1 Ch. 331 where it was held that weighty reasons would be necessary to justify the court in exercising its discretion under proviso (c) ofsection 325(1) so as to interfere with the general rule that all unsecured creditors ranked pari passu in a winding up.

6. In effect the applicants are saying that they should be entitled to preference not only against all unsecured creditors but alsoagainst the preferential creditors on the grounds that their judgment was much earlier in time, and because they were unfortunatein not being able to carry out a wholly successful execution Mr Griffiths submitted that the action taken by the applicant has benefitedthe liquidator so that they should in turn be entitled to benefit. However, these facts do not justify the court exercising its discretionin favour of the applicant at the expense of either class of creditors. There may well be other trade creditors who find themselvesin the same position as the applicant. Indeed the petition refers to a company Whars Properties Limited who obtained a judgment againstthe company on the 2nd December 1985 for $29,577.76. Execution was levied pursuant to that judgment on the 23rd December 1985 onthe goods of the company which realised $3,500.00.

7. In order to justify an alteration to the statutory order for the payment of debts very strong grounds must be put forward. This willapply a fortiori as in this case where there are preferential creditors. There are no such grounds to support the applicant’s contentionthat they should have any preference over any other creditor. In fact it would be manifestly unfair and unreasonable to accede tothis application which is self serving and devoid of merit. The summons is therefore dismissed with costs.

(B.L. Jones )
Judge of the High Court

Representation:

Mr Peter Griffiths (Chow, Griffiths & Chan) for Applicant.

Mr Eric Knos for Official Receiver.