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					                                                        HCCW 1321/2002

                    IN THE HIGH COURT OF THE
       HONG KONG SPECIAL ADMINISTRATIVE REGION
                    COURT OF FIRST INSTANCE
     COMPANIES WINDING-UP PROCEEDINGS NO. 1321 OF 2002
                       ____________
                                     IN THE MATTER of I-CHINA
                                     HOLDINGS LIMITED

                                                     and

                                     IN THE MATTER of the Companies
                                     Ordinance, Chapter 32 of the Laws of
                                     Hong Kong
                              ____________

Coram: Deputy High Court Judge Barma, SC in Chambers
Date of Hearing: 5 December 2002
Date of Decision: 5 December 2002
Date of Handing Down Reasons for Decision: 11 December 2002



                       REASONS FOR DECISION




1.          On 5 December 2002, I made an order appointing provisional
liquidators for I-China Holdings Ltd (“the Company”) on the application of
the Petitioners, three associated companies of the Company, each of which
is a creditor of the Company in respect of loans or inter-company account
balances between itself and the Company. The application was made ex
parte, although notice was given to the Company, its two principal
                                      -2-

directors, and the Official Receiver. At the conclusion of the hearing, I
indicated that I would give reasons for my decision later. This I now do.


2.           The Company was incorporated in Bermuda in 1990. It is
registered in Hong Kong as an oversea company under Part XI of the
Companies Ordinance (Cap. 32). Its principal place of business is in Hong
Kong. It is an investment holding company, and its shares are listed on the
Hong Kong Stock Exchange, although they have been suspended from
trading since 15 January 2002. It has a number of subsidiaries, the
principal activities of most of which are investment or property holding,
although there are also subsidiaries which carry on a vehicle trading
business, a car rental business, and a money lending business respectively.


3.           The Company was formerly known as Seapower International
Holdings Ltd. It is controlled and managed by members of the Choi family,
in particular Shirley Choi and Norman Choi (“the Chois”), who are its
Chairman and Deputy Chairman respectively. The Chois formerly
controlled a number of other Seapower companies, including the
Petitioners in these proceedings. The 1st Petitioner, Seapower International
Resources Ltd, is also listed on the Hong Kong Stock Exchange. It is now
in provisional liquidation, having been placed into provisional liquidation
at the end of 2001 by Hartmann J. The background to and reasons for the
appointment of provisional liquidators in respect of the 1 st Petitioner are set
out in the Judgment of Hartmann J in HCCW 1325-1329 of 2001, dated 31
December 2001. One of the provisional liquidators of the 1st Petitioner is
Mr Cosimo Borrelli, of RSM Nelson Wheeler Corporate Advisory Services
Ltd, who has made the principal affidavits in support of this application.
Mr Borrelli is also a director of the 2nd and 3rd Petitioners, both of which
are subsidiaries of the 1st Petitioner, having been appointed as a director of
                                       -3-

those companies in order to enable the provisional liquidators to take
control of the 1st Petitioner’s subsidiaries.


4.           On 3 July 2002, the 1st , 2nd and 3rd Petitioners served statutory
demands on the Company at its registered offices in Bermuda, and at its
principal place of business in Hong Kong, respectively claiming repayment
of sums of HK$242,258.50, HK$5,008,916.51 (and further interest since 1
April 2002), and HK$161,000.00. Although the Company sought and was
provided with supporting documents and records in respect of these claims,
they remain unpaid. It does not appear that the Company disputes that it is
indebted to each of the Petitioners, although it is suggested in letters from
the Company dated 22 July 2002 and 18 August 2002 there is some doubt
as to the exact amount of such indebtedness. However, it has never
indicated what it considers the correct amount of such indebtedness to be.
The fact that the Petitioners are creditors of the Company appears also to be
acknowledged in a letter dated 4 December 2002 from the Company to
Messrs Allen & Overy, the Petitioners’ solicitors. In the letters of July and
August 2002, mention was also made of a Mareva injunction which was
said to prevent payment. This was not, however, mentioned in the letter of
4 December 2002.


5.           The 1st Petitioner itself is insolvent. However, its provisional
liquidators have put forward a restructuring proposal for it, which, if
successful, is thought likely to produce some return for its shareholders.
The precise amount of this return is uncertain, but Mr Borrelli suggests, on
the basis of his knowledge of similar restructurings, that it might be in the
range of HK$1.7 million to HK$7.7 million. The restructuring will result
in the transfer of control of the 1st Petitioner to new investors, who wish to
take advantage of its listed status. It involves (among other things) a
                                      -4-

shareholder scheme of arrangement in respect of the 1st Petitioner. The
shareholder scheme is to be voted on at an Extraordinary General Meeting
(“EGM”) of the 1st Petitioner to be held next Monday, 9 December 2002.
If the EGM does not pass a special resolution approving the shareholder
scheme, the restructuring will not go through. In that event, it is
anticipated that the 1st Petitioner will be put into liquidation and, having
regard to the 1st Petitioner’s insolvency, there is not likely to be any
recovery for its shareholders. The independent financial adviser appointed
to advise the independent shareholders of the Company as to the merits of
the scheme has advised them that it considers the restructuring to be in the
interests of the Company, and that the terms of the scheme are fair and
reasonable, and has recommended that they should vote in favour of the
scheme.


6.           One of the Company’s assets is a 27.54% shareholding in the
1st Petitioner, which it holds through two wholly owned subsidiaries. It
appears that part of this shareholding may have been charged by the
Company some of its lenders. Nonetheless, the 1st Petitioner regards the
support of the Company for the shareholder scheme as important. If the
Company is free to vote as it wishes in respect of the whole of its
shareholding, a vote against the scheme would clearly be fatal to the
prospects of the restructuring going through. Even if less than the whole of
this shareholding is at the Company’s disposal for voting purposes, such
amount as it can vote freely may well make the difference between success
and failure of the shareholder scheme, depending on the number of
shareholders who actually attend and vote, in person or by proxy, at the
EGM, as explained by Mr Borrelli in his 2nd Affidavit dated 2 December
2002.
                                      -5-

7.           Given the importance of the votes attached to the Company’s
shareholding to the proposed restructuring, the provisional liquidators of
the 1st Petitioner say that they were concerned to find that the Chois were
raising criticisms of the way in which the restructuring was being handled,
by claiming to have valid share options in respect of the 1st Petitioner and
writing (through their lawyers) to the Hong Kong Stock Exchange and to
the Securities and Futures Commission, alleging that a circular dated 14
November 2002 sent to the 1st Petitioner’s shareholders (explaining the
shareholder scheme and soliciting shareholders’ support for it) was
misleading in failing to draw shareholders’ attention to such options.
These allegations were persisted in after the Securities and Futures
Commission had dismissed their complaints. This caused the provisional
liquidators to fear that the Chois might cause the Company’s shareholding
in the 1st Petitioner to be voted against the shareholder scheme,
notwithstanding that to do so would result in the Company losing any value
that such shareholding might otherwise have.


8.           In an attempt to ascertain the Company’s position in respect of
the forthcoming EGM, Mr Borrelli wrote to the Company on 29 November
2002 expressing his concerns, and seeking an indication as to how it
intended to vote. When no such indication was forthcoming, he formed the
view that there was a real risk that the Company, if left in the control of the
Chois, might use its shareholding to block the shareholder scheme, and thus
to thwart the restructuring, even though there appeared to be no rational
basis for doing so. It was therefore decided that the Petition should be
presented, and this application made, in order to ensure that the Company’s
shares would be voted in favour of the shareholder scheme at the EGM.
Mr Bartlett, who appeared for the Petitioners, relied on this as one of the
bases for the application. This was also relied upon as the basis for
                                       -6-

contending that the matter was urgent, so as to justify an ex parte
application.


9.             The Petition was presented on 3 December 2002, and was
verified by the 1st and 3rd affidavits of Mr Borrelli dated 2 and 4 December
2002. Also on 3 December 2002, an ex parte Summons was issued seeking
the appointment of Mr Borrelli and Mr Joseph Fan Wai Kuen (the other
provisional liquidator of the 1st Petitioner) as provisional liquidators of the
Company. This summons was supported by Mr Borrelli’s 2nd affidavit,
dated 2 December 2002. All of the documents dated 2 and 3 December
2002 were served on the Company, the Chois and the Official Receiver the
same day. It appears that the Chois were also served late on 2 December
2002 with the affidavits and drafts of the Petition and ex parte Summons.
On 4 December 2002, the Company wrote to Messrs Allen & Overy,
making observations about the proposed application. This letter was
copied to the Court. In the event, it was also exhibited to Mr Borelli’s 4 th
affidavit dated 4 December 2002.


10.            At the hearing, the Chois attended as representatives of the
Company. However, they made it clear at the outset that they did so
simply as observers, and did not intend to make submissions on the
application, which therefore proceeded as an ex parte application. At the
end of the hearing, Ms Shirley Choi indicated that she wished to say
something, but I declined to hear her on behalf of the Company as she did
not appear to have any form of written authorisation from the Company to
do so. I also explained that she did not have locus to make a statement as a
director of the Company, since she was not herself a party to the
proceedings in that capacity.
                                       -7-

11.          Mr Bartlett, for the Petitioners, submitted that this was an
appropriate case for the appointment of provisional liquidators, whether the
matter was approached on what he described as the “traditional” basis or on
a “modern” basis. As to the former, it was submitted that this was a case in
which the appointment of a provisional liquidator was necessary in order to
preserve the assets of the Company. It was also suggested that an
appointment was justified in view of an apparent lack of control by the
Company’s management over its assets. As to the latter, it was submitted
that provisional liquidators should be appointed to explore the possibility of
a restructuring of the Company, with a view to maximising the value that
could be obtained for its listed status for the benefit of its creditors.


12.          The basis on which the Court exercises its discretion as to
whether or not to appoint provisional liquidators in respect of a Company
against which a winding up petition is outstanding is well established. It is
necessary for the applicant to show first that there is a good prima facie
case for the making of a winding up order at the hearing of the petition, and
secondly that it is appropriate for a provisional liquidator to be appointed,
having regard to the commercial realities, the degree of urgency and need
established by the applicant and the balance of convenience in all the
circumstances of the case (see Re Five Lakes Investment Co. Ltd [1985]
HKLR 273, at 285A-C).


13.          In this case, I am satisfied that a good prima facie case for the
making of a winding up order has been shown.


14.          As I have noted, there does not appear to be any dispute but
that the Company is indebted to the Petitioners. While suggesting that
there may be a question as to the amount of the debts owing to the
                                       -8-

Petitioners, the Company has never ventured to state the amount which it
considers is owing, notwithstanding that it should have its own records
from which this could presumably be ascertained. The suggestion that it is
prevented from making payment by reason of a Mareva injunction against
it does not appear to be borne out, having regard to the description of the
injunction contained in the Company’s own Annual Report for the year
ended 31 March 2002, which indicates that the injunction is limited, so far
as the Company itself is concerned, to an amount of some HK$6 million,
which appears to have been paid into Court. The existence of debts to one
or more of the Petitioners is also confirmed by note 24 to that Annual
Report, which discloses debts of in excess of HK$5.2 million to the 1 st
Petitioner or its subsidiaries. I am therefore satisfied that the Petitioners
have the necessary standing to present the Petition in this case.


15.          So far as the insolvency of the Company is concerned, quite
apart from the fact that it is to be deemed to be insolvent, having failed to
pay the Petitioners despite the service of the statutory demands on 3 July
2002, it is clear from the Company’s Annual Report that it is insolvent.
The Group (of which the Company was the holding company) had current
assets of some HK$10,320,000.00 as at 31 March 2002, but had current
liabilities of HK$667,208,000.00, including bank and other borrowings of
HK$538,808,000.00, all of which were due for repayment. The Company
itself had, according to its balance sheet, net liabilities of
HK$513,083,000.00 (all of which were current), so that it is not only
unable to pay its debts as they fall due, but also has an excess of liabilities
over assets. Such insolvency is also implicitly recognised in the letter of 4
December 2002, where it was said that the Company would make its
decisions having regard to the interests of its creditors, as well as of its
shareholders.
                                         -9-

16.          In these circumstances, there is clearly a good prima facie case
for the obtaining of a winding up order against the Company.


17.          So far as the second stage of the test is concerned, Mr Bartlett
submitted that the Company’s assets were in jeopardy, so that it was
appropriate to appoint provisional liquidators to protect such assets in the
interests of the Company’s creditors.


18.          It is said first that the Company’s 27.54% shareholding in the
1st Petitioner is in jeopardy, in that this shareholding will be valueless
unless the restructuring of the 1st Petitioner is implemented. That
restructuring is dependent on the passing of special resolutions by the 1 st
Petitioner’s shareholders at the EGM on 9 December 2002, and there are, it
is said, real grounds for concern as to how the Company will vote its shares
at the EGM, based on the Chois past behaviour (which is detailed in the
judgment of Hartmann J which I have referred to), on their recent
complaints to the Securities and Futures Commission and the Hong Kong
Stock Exchange, and on the failure to respond to requests for an indication
as to the way in which the Company intends to vote this shareholding.


19.          In the Company’s letter of 4 December 2002 to Messrs Allen
& Overy, it is said that:
             “... we are still considering [the restructuring] proposals and will
             reach a conclusion before the meeting next Monday. We are not
             under any obligation to notify the provisional liquidators of [the
             1st Petitioner] how we intend to vote at the meeting; that is our
             decision as shareholders. We will then act on that decision and
             vote accordingly at Monday’s meeting. Should it assist you, we
             are presently minded to vote in favour of the resolution proposed
             although, as we say, we are still considering the proposal and that
             view may change. In this regard, the Company has a number of
             independent directors who still need to be consulted as to the
             final decision.”
                                        - 10 -

      and

             “... we will vote at next Monday’s meeting as we consider to be
             in our best interests as shareholders. We will of course take into
             account the fact that, as a corporate shareholder, we must
             consider the interests of our own shareholders and, more
             importantly, our creditors.”


20.          Mr Bartlett submitted, and I agree, that this provides no real
comfort at all to the applicants. Although an indication is given that the
shares will be voted in favour of the resolution, it is made clear that this
may change, and that no final decision has been reached. It is difficult to
see how it could be otherwise than in the interests of the Company, its
shareholders and creditors to vote in favour of the resolutions proposed at
the EGM, particularly having regard to the advice of the independent
financial advisors to the independent shareholders, and to the fact that the
consequence of the failure of the restructuring proposals in respect of the 1 st
Petitioner are almost certain to result in the shares in the 1st Petitioner being
rendered valueless.


21.          In these circumstances, I am satisfied that there is a real risk
that unless provisional liquidators are appointed to ensure that the shares
are voted in favour of the shareholders scheme, the Company’s
shareholding in the 1st Petitioner may be rendered valueless. As I can see
no sensible basis on which such shares should be voted against the
proposed scheme, I do not see any real detriment to the Company of
making such an appointment. I bear in mind that the powers sought for the
provisional liquidators extend beyond simply voting the Company’s shares
in the 1st Petitioner at the forthcoming EGM, but for the reasons explained
below, I do not consider this to be an obstacle to the appointment. Given
                                      - 11 -

that the EGM is to be held next Monday, the situation is clearly one of
some urgency, and justifies the making of an ex parte application.


22.         Mr Bartlett also submitted that jeopardy to the assets of the
Company or lack of management control is demonstrated by the fact that
the report of the Company’s auditors, Messrs Deloitte Touche Tohmatsu,
on its accounts was heavily qualified. The auditor’s report stated that the
auditors were unable to form an opinion as to whether the financial
statements gave a true and fair view of the state of affairs of the Company
and the Group as at 31 March 2002, or of the loss and cash flows of the
Group for the year then ended, and as to whether the financial statements
had been properly prepared in accordance with the disclosure requirements
of the Companies Ordinance. The reasons for this included:

      (1)   lack of evidence to assess whether the value of the interest in
            the 1st Petitioner was fairly stated as at 31 March 2001, and
            insufficient evidence in relation to the Group’s share of losses
            by the 1st Petitioner and losses arising from a partial disposal
            of the interest in the 1st Petitioner;

      (2)   insufficient evidence as to ownership of properties with a
            carrying value totalling HK$147,800,000.00;

      (3)   insufficient evidence of the validity of disposals of certain
            properties by financial creditors by whom such properties had
            been seized;

      (4)   insufficient evidence as to selling expenses in relation to
            disposals of certain other properties disposed of by financial
            creditors who had seized them;

      (5)   insufficient evidence as to whether or not certain other
            properties seized by financial creditors had actually been
                                     - 12 -

            disposed of, so as to be able to be satisfied whether the
            carrying value of such properties (totalling some
            HK$8,000,000.00) were fairly stated, and whether the balance
            of borrowings of HK$48,690,000.00 were fairly stated;

      (6)   inability to obtain confirmations from banks and other lenders
            so as to be satisfied that outstanding borrowings of
            HK$521,936,000.00, related interest expenses of
            HK$67,314,000.00 and accrued interest of
            HK$109,295,000.00 were fairly stated;

      (7)   fundamental uncertainties in relation to litigation and the
            validity of preparing the accounts on the going concern basis.


23.         Although the Company’s directors responded to these
qualifications by stating that it had repeatedly requested the necessary
information from the banks and financial institutions, and that financial
information in relation to the 1st Petitioner was unavailable because of the
ongoing restructuring of the 1st Petitioner, this does not address the absence
of evidence as to ownership of investment properties valued at
HK$147,800,000.00, which represents virtually the whole of the
investment properties held by the Group.


24.         This does, it seems to me, indicate a lack of proper record
keeping and management control, and provides further support for the
application for the appointment of provisional liquidators.


25.         The third main ground relied upon by Mr Bartlett was that the
Petitioners desired the appointment of provisional liquidators in order
protect the Company and the interests of creditors while exploring the
                                      - 13 -

possibility of a restructuring of the Company, so as to realise some value
from its listed status. Mr Bartlett described this as a facet of the “modern”
approach to the appointment of provisional liquidators. He referred me to
the cases of Re Keview Technology (BVI) Ltd [2002] 2 HKLRD 290, and
Re Luen Cheong Tai International Holdings Ltd (unreported, 5 September
2002, Kwan J) in support of this submission.


26.          In the Keview case, Yuen J (as she then was) held that there
was no objection to extending the powers of provisional liquidators to carry
out a corporate rescue role. In the Luen Cheong Tai case, Kwan J took that
decision one step further by recognising the facilitation of a corporate
rescue as a rationale for appointing provisional liquidators in the first place.
So long as it is intended to seek a winding up of the Company in the event
that any attempted restructuring fails, I agree that there is no reason why
this should not be a proper ground for appointment of provisional
liquidators. In a sense, it might be regarded as a form of preservation, if
not of assets in the strict sense, then at least of value in the Company, for
the benefit of its creditors, as it might enable the creditors to achieve a
better return through a scheme of arrangement, in the course of which a
higher value might be obtained for the benefit of the Company’s listed
status than would be possible after a winding up order were made (see the
Luen Cheong Tai case, at para. 28 of the judgment).


27.          In this case, it appears that the Company itself has explored the
possibility of a restructuring in some form. There is reference to a
restructuring of debts being explored, in the Chairman’s Statement and the
Auditors’ Report in the Company’s Annual Report dated 31 March 2002.
However, it appears that these restructuring negotiations with the
Company’s bankers started in October 2001, but have as yet led to no
                                     - 14 -

concrete proposals being put forward. I was told by Mr Bartlett, on
instructions to be confirmed by a further affidavit from Mr Borrelli, that
enquiries were made of China Merchant Bank (a substantial creditor of the
Company) as to what the current position was in relation to restructuring
proposals, and as to its attitude to the present application as a means of
promoting a restructuring, but that the response was to the effect that
nothing proactive should be expected.


28.          In these circumstances, where the Company’s efforts to
achieve a restructuring appear to have ground to a standstill, and little
initiative appears to be displayed by a major creditor, it seems to me to be
perfectly proper for the Petitioner to seek to inject some fresh impetus into
such efforts by the appointment of a provisional liquidator who will be
empowered to explore restructuring proposals. If the provisional liquidator
is able to put forward a viable restructuring proposal, this seems likely to
produce additional benefit for the creditors of the Company. I therefore
consider that this ground too, would justify the appointment of a
provisional liquidator in respect of the Company.


29.          I have also considered what, if any, detriment the Company
would be likely to suffer from the appointment of a provisional liquidator.
It appears that the Company is no longer maintaining any significant level
of operations, and that this was a reason for the suspension of trading in its
shares on 15 January 2002. It also appears apparent from the audited
accounts of the Group that it has little in the way of turnover. In these
circumstances, I can see little risk of detriment to the Company in having a
provisional liquidator appointed.
                                      - 15 -

30.          I therefore considered that this was an appropriate case to
appoint provisional liquidators in respect of the Company.


31.          So far as identity of the provisional liquidators to be appointed
was concerned, the Petitioners proposed the appointment of Mr Borrelli
and Mr Fan. The Company, in its letter dated 4 December 2002, suggested
that as they were also provisional liquidators of the 1st Petitioner, there was
the potential for a conflict of interest. It seems to me that the appointment
of Mr Borrelli and Mr Fan would have the advantage that they are already
familiar with the affairs of the 1st Petitioner, which is closely connected to
the Company. Moreover, it appears that they are familiar with various
matters concerning the affairs and assets of the Company (as an example,
the Company owns certain property in China in the same development as
the 1st Petitioner). It therefore seems likely that the appointment of Mr
Borrelli and Mr Fan is likely to be more cost effective than the appointment
of other persons.


32.          Further, although I note that the Company has suggested that
there might be a conflict of interest, it seems to me at this stage that such a
conflict should be regarded as more theoretical than real. While it is
possible that there may arise a conflict in relation to the amount of the
debts of the Company to the Petitioners, this is by no means certain to
happen - at this stage, the Company has not put forward any different
figures in relation to such indebtedness to those asserted by the Petitioners.
If, on investigation of the Company’s books, it appears that there is some
scope for argument as to this, appropriate directions can be sought as to
how these should be dealt with (I note that the applicants have indicated
that should such a situation arise, they would propose to refer the matter to
                                     - 16 -

an independent insolvency practitioner who would be asked to adjudicate
any claims that may arise as between the Petitioners and the Company).


33.          I also considered whether or not fortification of the Petitioners
undertaking in damages should be ordered. Mr Bartlett frankly accepted
that the Petitioners were not in a position to provide any meaningful
fortification. However, having regard to the fact that the operations of the
Company appear to be of minimal extent, it seemed to me that there any
damage the Company might suffer from the making of the order would be
very slight, in comparison with the damage that would be inflicted on the
Petitioners and its other creditors were the order not to be made. I therefore
did not require that the undertaking be fortified.


34.          For all of these reasons, I made an order appointing Mr
Borrelli and Mr Fan as provisional liquidators of the Company, in terms of
the draft order submitted by the Petitioners, as amended at the hearing. I
also ordered that the costs of the application, including those of the Official
Receiver, be taxed and paid out of the assets of the Company in the first
instance.




                                             (Aarif Barma, SC)
                                          Deputy High Court Judge



Mr Jeremy Bartlett, instructed by Messrs Allen & Overy, for the Petitioners

Ms P McKena, for the Official Receiver