HCCW146/2013 RE JOY RICH DEVELOPMENT LTD - LawHero
HCCW146/2013
高等法院（公司清盤）Harris J30/8/2022[2022] HKCFI 2584
HCCW146/2013
A A
HCCW 146/2013
B [2022] HKCFI 2584 B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D COURT OF FIRST INSTANCE D
COMPANIES WINDING-UP PROCEEDINGS NO 146 OF 2013
E
________________ E
F IN THE MATTER OF the F
Companies (Winding Up and
G
Miscellaneous Provisions) G
Ordinance (Cap 32)
H H
and
I I
IN THE MATTER OF Joy Rich
Development Limited
J J
________________
K Before: Hon Harris J in Chambers K
L
Date of Hearing: 29 July 2022
L
Date of Decision: 31 August 2022
M
_________________ M
N DECISION N
_________________
O O
Introduction
P P
1. I have before me two applications:
Q Q
(1) A summons dated 12 August 2021 issued by the Liquidators
R R
of the Company pursuant to section 200(3) of the Companies
S
(Winding Up and Miscellaneous Provisions) Ordinance,
S
Cap. 32 (“Ordinance”) seeking an order they take over the
T defence of a mortgage action (“Liquidators’ summons”) T
brought by Revelry Gains Limited (“RG”);
U U
V V
- 2 -
A A
(2) A summons dated 5 January 2022 brought by the
B B
1st Applicant, Chen Muhua (“Winky Chan”) and the
C 2nd Applicant, her sister Chan Yuen Wa (“CYW”) appealing a C
rejection by the Liquidators of their proofs of debt (“Proof
D summons”). Winky Chan and CYW are respectively the 1st D
and 2nd Respondents to the Liquidators’ summons. I shall
E E
refer to them collectively as the “Chen sisters”.
F F
2. The Company was wound up on 7 August 2013 on the
G G
petition of CYW. Lui Chau Yuet and James Wardell (“Previous
H Liquidators”) were appointed as liquidators. They were removed by me H
on 25 February 2019 on the application of two creditors: Chinese Strategic
I I
Holdings Ltd (“Chinese Strategic”) and Fameway Finance Ltd
J (“Fameway”). My Reasons dated 3 June 2019 sets out in detail the J
background to the liquidation and its progress up to February 2019. It is
K K
not necessary to repeat what is said in my earlier Reasons. I would,
L however, emphasis the following matters. L
M M
3. The Company has one asset, a valuable house at 28 Middle
N Gap Road (“House”), which increased substantially in value between the N
date of the winding up and 2019. In my Reasons of 3 June 2019 I state that
O O
the evidence before me at that time suggested it was worth HK$750 million
P the House having been purchased in 2008 for HK$110 million. The P
Previous Liquidators had not sold it. I was critical of the Previous
Q Q
Liquidators’ failure to do so and their conduct generally of the liquidation,
R R
which appeared to have been conducted in a way conducive to increasing
S
costs rather than concluding the liquidation. On 29 May 2017 S
DHCJ Kent Yee made an order allowing the Chen sisters to defend the
T T
mortgage action brought by RG in HCMP 430/2013. The order was in the
U following terms: U
V V
- 3 -
A A
“(a) The Applicants be solely responsible for their costs and
B
any adverse costs orders for defending the Action in the B
name of the Company.
C (b) A deed duly executed by the Applicants be provided to C
the Liquidators within seven days indemnifying the
Company against:
D D
(i) any future costs, charges and expenses in
E connection with or arising out of the Action, to E
be taxed in the liquidation if not agreed;
F (ii) any post-liquidation interest on the debt secured F
by the Deed of Charge dated 26 January 2011 for
such period as the court may deem just and
G appropriate.” G
H H
4. The Previous Liquidators had chosen not to defend the
I mortgage action due, they said, to lack of funds and the failure of the Chen I
sisters to provide them with documents that they needed to deal with it.
J J
Although it is not entirely clear from the Deputy Judge’s decision it appears
K that the Previous Liquidators whilst opposing the application were not K
vigorous in their opposition to the Chen sisters taking over the mortgage
L L
action. I have during previous case management hearings expressed some
M M
reservations about the principles that the Deputy Judge considered were
N
relevant to the application, and the potential complications that might be N
caused to the conduct of the liquidation as a consequence of allowing some
O O
creditors to have conduct of proceedings brought by other creditors of the
P Company. That having been said the order that was made, although P
uncommon, and one I think that needs to be granted with caution given that
Q Q
it puts a creditor in charge of one component of a liquidation and creates a
R risk that this interferes with the general conduct and management of the R
liquidation, is one that is on occasions made. This is explained in
S S
McPherson’s Law of Company Liquidation (5th ed.) at [7-083].
T T
“If a liquidator either believes that an action is too risky to
pursue or he or she does not have sufficient funds, then despite
U the fact that the general principle is that when a company is in U
liquidation the person in whom the authority to bring
V V
- 4 -
A A
proceedings on the part of the company is vested is the liquidator,
B
a creditor or member who thinks that the action has merit and B
should be prosecuted, may apply to the court and seek either
permission to proceed on behalf of the company or an order
C directing the liquidator to proceed. The courts have power to C
accede to the former type of application under their general
powers, the use of such power having a long lineage and being
D D
supported by high authority. If the former application is made
then the applicant must be ready to accept all of the risks
E connected with the action. If this is the case then it is of no E
moment that the action would not be beneficial for the creditors
and members of the company. The only real barrier to
F proceeding is, as with all actions, namely that the action must F
not be vexatious or oppressive.”
G G
5. The House has still not been sold, although the Chen sisters
H H
have agreed that the Liquidators should do so. The mortgage action is still
I not ready for trial. The Chen sisters intend, apparently, to add as parties I
Ben Lau and Daniel So in order that the dispute between the creditors can
J J
be decided in one go. The Company’s creditors consist of two camps: (A)
K the Chen sisters and (B) Fameway Finance Limited (“Fameway”), RG and K
Chinese Strategic Holdings. The second camp is associated with Ben Lau.
L L
Winky Chan and Mr Lau had a romantic relationship at the time the House
M was purchased and it was their intention to live there. The relationship M
N
ended about the end 2011. The disputes between the two camps are central N
to the progress of the liquidation. It is a creditor, whose name had not been
O O
provided to the Chen sisters prior to the hearing (Mr Wong told me at the
P
hearing that it is Chinese Strategic), from the camp associated with Mr Lau P
who is financing the Liquidators.
Q Q
R
6. As I have said the Company owns one asset: the House. The R
disputes concern the funding of its acquisition. Their resolution will
S S
determine the amount available for unsecured creditors and its sole
T shareholder, CYW, and explains the Chen sisters’ interest in contesting T
RG’s claim. Although more relevant to the Proof summons it is helpful in
U U
understanding the commercial dynamics of the disputes I refer to in this
V V
- 5 -
A A
decision, to understand the financial implications of acceptance or rejection
B B
of the different camps’ claims. The following tables are taken from the
C Chen sisters’ skeleton. The figures may prove not to be accurate, and turn C
on the sale price of the House, but they vividly illustrate the reasons for the
D D
disputes:
E E
The debts of Ben Lau’s Camp are upheld, and the debts of the Chen sisters
F
are rejected F
Creditors’ Claims Recovery on pro rata basis
G Revelry Gains G
(on its case, as
H at 10.12.2021, HK$528,332,898.21 H
HK$528,332,898.21
including post- (as secured creditor)
I liquidation I
interest1)
Ben Lau’s
J Fameway (on J
Camp’s share:
its case, as at
HK$697,694,612.6
K 10.12.2021, HK$149,350,669.42 K
HK$149,350,669.42
including post- (as secured creditor)
L liquidation L
interest)
M Chinese HK$20,011,045 HK$20,011,045 M
Strategic
N Winky Chan N/A N/A N
Chen Sisters’
YW Chan N/A Dividend of
share:
O $52,305,387.37 as O
HK$52,305,387.37
sole contributory
P
Total HK$750,000,000 P
Q Q
The debts of Ben Lau’s Camp and debts of the Chen sisters are both upheld
Creditors’ Claims Recovery on pro rata basis
R R
Revelry Gains
Ben Lau’s
S
(on its case, as HK$528,332,898.21 S
HK$528,332,898.21 Camp’s share:
at 10.12.2021, (as secured creditor)
HK$689,480,653.8
T including post- T
U U
1
Chen sisters’ position is that post-liquidation interest should not accrue: see Decision of
DHCJ Kent Yee dated 23 May 2017, [28]–[41].
V V
- 6 -
A A
liquidation
B interest) B
Fameway (on
C its case, as at C
10.12.2021, HK$149,350,669.42
D HK$149,350,669.42 D
including post- (as secured creditor)
liquidation
E interest) E
Chinese HK$20,011,045 HK$11,797,086.15
F Strategic F
Winky Chan HK$101,647,589.04 HK$59,924,175.12 Chen Sisters’
G share: G
YW Chan HK$1,009,571 HK$595,171.12
HK$60,519,346.24
Total HK$800,351,772.7
H (exceeds HK$750,000,000 H
HK$750,000,000)
I I
J
The debts of Ben Lau’s Camp are rejected, and the debts of the Chen sisters J
are upheld
K Creditors’ Claims Recovery (full) K
Revelry Gains N/A N/A
L Ben Lau’s L
Fameway N/A N/A
Camp’s share:
Chinese HK$20,011,045 HK$20,011,045
M Strategic2 HK$20,011,045 M
Winky Chan HK$101,647,589.04 HK$101,647,589.04
N N
YW Chan HK$1,009,571 HK$1,009,571, plus Chen Sisters’
dividend of share:
O $627,331,895 as HK$729,988,955 O
sole contributory
P Total HK$750,000,000 P
Q Q
7. Self-evidently, if the House is worth substantially less than
R HK$750 million it makes a considerable difference to the Chen sisters and R
the other creditors. Fameway has agreed with the Liquidators that the
S S
House be marketed at HK$450 million. Understandably given the earlier
T valuation of HK$750 million, the Chen sisters are concerned at the T
U U
2
Chinese Strategic’s claim is presently not challenged in any action, but the Chen Sisters have
reserved their right to challenge the validity of the same at an appropriate juncture.
V V
- 7 -
A A
prospect of the House being sold at that price at which the Liquidators
B B
propose to market it.
C C
The Liquidators’ Summons
D D
8. The Liquidators’ summons seeks directions under
E E
section 200(3). The Liquidators argue that the Deputy Judge’s order was
F
made on the basis that the Liquidators could not, or were not able to, carry F
out their function in respect of the mortgage action. This situation has now
G G
changed and, therefore, the Liquidators should be given conduct of the
H mortgage action, because it is they who are responsible for the conduct of H
the liquidation and having reached the view that they should defend the
I I
mortgage action, the court should accept their view and accede to their
J application. J
K K
9. It is trite that liquidation is a class remedy and is to be
L conducted in the best interests of the general body of creditors 3 . The L
powers of a liquidator include, subject to the sanction of the court or the
M M
committee of inspection, commencing or defending proceedings brought
N in the name of the company 4 . The court will only interfere with a N
liquidators’ decision in limited circumstances.
O O
P 10. In [21] of Re A Company (Liquidators: Cowley and Lui)5 I P
explain the role of liquidators in modern common law insolvency regimes:
Q Q
“The extent to which it is the intention of modern common law
R insolvency regimes that liquidators are so far as possible left to R
conduct liquidations without close supervision by the court is
demonstrated by the court’s approach to attempts to interfere
S with a liquidator’s decision. The court will not do so unless it S
can be demonstrated that the liquidator has not acted in good
T faith, made an error of law or principle or the decision is perverse T
3
Re Longmeade Limited [2016] EWHC 356 (Ch), Snowden J [52].
U U
4
Section 199(2) of the Ordinance.
5
[2020] 3 HKLRD 96; [2020] HKEC 1021; [2020] HKCFI 922.
V V
- 8 -
A A
in the sense of falling outside the range of decisions a liquidator
B
having proper regard to the relevant principles might make 6. A B
liquidator’s decision is broad and intentionally so. It follows
from this that a decision which comes within this broad
C discretion, particularly if the decision is commercial in character, C
not only does not require the approval of the court, but also
generally will not be amenable to a direction approving it.”
D D
E 11. The court is slow to interfere with a liquidator’s decision. In E
[11]–[12] of Re Hong Kong Universal Jewellery Limited7 I explain:
F F
“11. The other principle that is relevant is that the court is
G slow to interfere with a liquidator’s decision. This is referred to G
in [21] of the above quote from Re A Company. Additional local
authority is to be found in the judgment of Cheung JA in
H H
Allied Ever Holdings Limited v Li Shu Chung8:
I ‘5.2(4) In reviewing the liquidators’ exercise of their I
discretion under section 200(5) of the Companies
(Winding Up and Miscellaneous Provisions) Ordinance
J (Cap. 32), the court will interfere only in two categories J
of case. “[First] to bring itself within this sub-section, an
K
applicant has to show exceptional behaviour e.g. that the K
liquidator ‘has not exercised his powers in good faith or
has acted in a way in which no reasonable liquidator
L could have acted’ … The second category arises when L
in the course of his administration the liquidator is called
upon to give a ruling or to make a decision which directly
M M
affects a party’s rights. … They include such matters as
decisions upon the voting rights of creditors or
N contributories and upon the admission and rejection of N
proofs. It is significant that when considering and ruling
upon such matters the liquidator must act even-handedly
O as an impartial neutral” (Eagle Queen Co Ltd v First O
Bangkok City Finance Ltd [1989] 2 HKLR 71 (CA), per
P Hunter JA [74]). In considering whether to review a P
decision of a liquidator a court must bear in mind the fact
that it is well established that the commercial decisions
Q of liquidators are accorded great weight (McPherson & Q
Keay, [9-115, 9-116]; Judd v Brown [1999] 1 FLR 1191
(CA), 1198).’
R R
12. I note that section 200(5), which allows a person with
S adequate interest to apply to court to reverse a decision made by S
a liquidator, is in Division 2 of Part 5 of the Ordinance, which
applies to a winding up by the court. However, these principles
T T
6
See for example Re Spedley Securities Ltd (in liq) (1992) 10 ACLC 1742.
U U
7
[2022] HKCFI 1062.
8
[2021] HKCA 577; [2021] HKEC 1667.
V V
- 9 -
A A
are of general application to any consideration of a liquidator’s
B
decision or conduct. It follows that a contributory cannot B
interfere with a bona fide decision, which falls within the range
of decisions that a liquidator might make. The fact that the
C contributory thinks there is a better decision that might be made C
is not a ground for challenging a liquidator’s decision.”
D D
12. The Liquidators submit that consistent with these principles
E E
the Court should accede to their application and make a direction in these
F proceedings that they take over conduct of these proceedings. F
G G
13. The Liquidators make a number of specific points about the
H mortgage action itself and the position of the Chen sisters. My H
understanding is that the Liquidators are sceptical of the Company’s
I I
defence to the claim, but it does not seem to me that the merits are in
J themselves relevant to the application and it is not necessary to explore J
RG’s claim and the Company’s defence. What is more relevant is the
K K
consequences of the Liquidators’ rejection of the Chen sisters’ proof of
L debt. If I uphold the Liquidators’ decision it follows that they are no longer L
creditors. However, for reasons I explain later in this decision I will admit
M M
their proofs and the issue falls away. In any event it does not seem to me
N that rejection would necessarily be fatal as the 1st Respondent N
(Winky Chan) is the sole shareholder of the Company and, therefore, has
O O
sufficient interest in the liquidation to continue to represent the Company9.
P The position would have been different I apprehend if she had not. P
Q Q
14. The Chen sisters’ principal ground of opposition to the
R Liquidators’ application is that it is an abuse of process as it involves R
setting aside an order made by a judge of co-ordinate jurisdiction on the
S S
merits. The following principles are relevant:
T T
U U
9
Re Soka Gakkai International of Hong Kong Ltd [2022] HKCA 480, [2022] HKEC 1256, [94]–
[98] (Yuen JA).
V V
- 10 -
A A
(1) As a general rule, except by way of appeal, no court, judge or
B B
master has power to re-hear, review, alter or vary any
C judgment or order after it has been entered either in an C
application in the original action or matter or in a fresh action
D brought to review the judgment or order. The object of the D
rule is to bring litigation to finality. See Sanyo Electric
E E
Trading Co Ltd v Leung Kwok Hing10.
F F
(2) If a party seeks to re-litigate a matter which has been
determined in a previous interlocutory decision by taking out
G G
a second application, the second application is liable to be
H dismissed by the court, on the ground that it constitutes an H
abuse of process. However, the court may conclude that there
I I
is no abuse of process and it will not be unjust or unreasonable
J to allow the second application to be heard: J
(i) if the ruling on the first application was not based on
K K
the merits of the issue but on a technical objection;
L (ii) if upon the first application the applicant had failed to L
prove essential facts by mistake or inadvertence;
M M
(iii) if there is new evidence that seriously justifies
N reconsideration of the issue; and N
O (iv) if there is a material change of circumstances of a non- O
evidentiary nature.
P P
See Chu Hung Ching v Chan Kam Ming11.
Q (3) The Previous Liquidators and the Liquidators are privies in Q
title and interest, both acting in the capacity of liquidators of
R R
the Company. Privity can involve a relationship of “blood,
S title or interest”: see China North Industries v Ronald R.C. S
Chum12.
T T
10
[1993] 1 HKLR 253, 256 (Keith J).
U U
11
[2001] 1 HKC 396 at 401E–402D (Mayo VP).
12
[2010] 5 HKLRD 1 at [78] (Stock JA).
V V
- 11 -
A A
B B
15. It is clear from the Deputy Judge’s decision that the
C
application was opposed and that he made a decision on the merits. It C
seems to me that it is now too late to ask the court to overturn that decision
D D
unless it can be shown that there is a material change of circumstances that
E justifies it. In my view there is not. The fact that there has been a change E
of liquidators is not of itself a justification. It is difficult to discern a
F F
specific reason advanced for overturning the Deputy Judge’s decision
G other than the change in identity of the liquidators and also a desire on the G
part of the new Liquidators to assess the merits of the Company’s defence
H H
and decide whether or not to withdraw it. I do not see this as sufficient
I reason, particularly as the implication of the Liquidators’ evidence and the I
arguments advanced on their behalf by Mr Wong is that the Liquidators’
J J
concerns about the merits of the Company’s Defence are similar to those
K advanced before the Deputy Judge. K
L L
16. In the circumstances I do not think that there is a legitimate
M basis to overturn the Deputy Judge’s decision and I will dismiss the M
Liquidators’ application. That takes me to the Chen sisters’ application to
N N
overturn the Liquidators rejection of their proofs of debt.
O O
Proof of Debt
P P
17. It is the Chen sisters’ case that the House was financed by
Q Q
Winky Chan. In [39]–[41] of her witness statement filed in the mortgage
R action and dated 18 November 2021, she explains how she says she R
financed the purchase of the House.
S S
“39. In or about October 2008, at the introduction of a
T property consultant of FPP Savills (Hong Kong) Limited T
called David So (who is the nephew of So Chi Ming,
Stephen (‘Stephen So’), a close business partner of B
U U
Lau as further explained below), B Lau became aware of
V V
- 12 -
A A
the intended sale of the Property. He wanted to purchase
B
the Property for us to live together. He however B
suggested that the Property be purchased through a
corporate vehicle instead of under our own names.
C C
40. As such, by a formal sale and purchase agreement dated
22 December 2008 and an assignment dated 6 March
D 2009, Joy Rich purchased the Property at a consideration D
of HK$110,000,000. I financed the purchase of the
E Property by paying the initial deposit of HK$10,000,000 E
through Upper Run, and by injecting money into Joy
Rich for the purpose of paying off the mortgage loan of
F HK$100,000,000 from Eternal Rich China Limited F
(‘Eternal Rich’) taken out on 6 March 2009. Eternal
G Rich is a company set up by a lawyer called So Hop G
Shing. The mortgage loan was repayable by 3
instalments: (1) HK$10,000,000 by 6 September 2009;
H (2) HK$10,000,000 by 6 March 2010; and (3) H
HK$80,000,000 by 6 September 2010 (the deadline for
the last instalment was subsequently extended to January
I I
2011 by agreement, which was paid on 21 January 2011).
J 41. As a matter of fact, according to the ledger account J
‘CURRENT ACCOUNT—Winky Chan’ with Account
Code 3007 (‘my Current Account’) produced by the
K Former Liquidators in the Winding Up Proceedings, I K
injected; (1) HK$14,000,000 on or before 31 March
L
2009; (2) HK$55,800,000 from 30 April 2009 to 31 L
March 2010; and (3) HK$21,000,000 from 29 April 2010
to 7 July 2010, and (4) HK$25,817,589.04 from 11 April
M 2011 to 26 August 2011 into Joy Rich for the purpose of M
repaying the mortgage loan owed to Eternal Rich.”
N N
18. It is for these sums that Winky Chan has submitted a proof for
O O
HK$131,956,197.06, which was rejected by the Liquidators on
P 17 December 2021. On the same day the Liquidators also rejected the P
proof of her sister, CYW, which is for the more modest sum of
Q Q
HK$1,009,571.28. The Previous Liquidators had accepted that the
R Chen sisters were owed substantial sums and admitted the proofs for voting R
purposes at the first meeting of creditors. They had not, however,
S S
ascertained the precise sums that they were willing to accept were due to
T them. Mr Wardell, one of the Previous Liquidators, says this in [8] and T
[13] of his 6th affidavit:
U U
V V
- 13 -
A A
th
“8. At the time of the first creditors meeting dated 29
B
October 2013 (the ‘First Creditors’ Meeting’), the B
proof of debt of Madam CMH for voting purposes was
admitted in full. The claim of Madam CMH has been the
C subject of considerable investigation by the Liquidators C
since, and whereas I would state that Madam CMH is
unlikely to have her full claim for HK$131,956,197.06
D D
admitted, I can state with certainty that she would
certainly have a valid proof of debt for a considerable
E sum. E
…
F F
13. The Liquidators have been investigating the proof of
debt of Madam CYW, and again, although the
G G
Liquidators have not adjudicated on the proofs of debt, I
can say that although the claim for HK$1,009,571.28 is
H unlikely to be maintained, Madam CYW will certainly H
be entitled to claim in the Company’s liquidation for an
amount, the exact sum being uncertain.”
I I
J Relevant legal principles J
K 19. Under rule 95 of the Companies (Winding-up) Rules K
(Cap 32H), a dissatisfied creditor can apply to vary or reverse the decision
L L
of a liquidator in respect of a proof. The relevant principles were
M summarised by Coleman J in Re Fortune King Trading Ltd13 at [20]: M
N “(1) An appeal under r.95 against a liquidator’s adjudication N
is a hearing de novo, at which the Court may confirm,
reverse or vary the liquidator’s decision.
O O
(2) The purpose of the hearing is for the Court to determine
to what extent the applicant should be allowed to rank as
P P
a proving creditor. Therefore, the Court is bound to
decide the rights of the applicant in the light of all of the
Q evidence which is before the Court, and not merely to Q
express a view as to whether the liquidator was right or
wrong in rejecting the proof on the evidence then
R available to the liquidator at the time he rejected it. R
S
(3) A liquidator who defends his decision to reject a proof is S
no longer acting in a quasi-judicial capacity, but is cast
in the role of an adversary.
T T
U U
13
[2020] HKCFI 353.
V V
- 14 -
A A
(4) The onus of proof is on the applicant to show on a
B
balance of probabilities that a real debt is due to him. B
(5) The requirement for a liquidator or trustee in bankruptcy
C in admitting or rejecting a proof is to require some C
satisfactory evidence that the debt on which the proof is
founded is a real debt, and this is a relatively low
D threshold. Nevertheless, the liquidator or trustee is D
entitled to go behind mere form so as to get at the truth.
E E
(6) On an appeal against the rejection of a proof, the
applicant’s burden is to prove a real debt, to be
F established by credible evidence. F
(7) Hence, there may be cases, for example where probative
G evidence is scarce, where the incidence and standard of G
proof has some significance. The burden remains with
H the applicant to establish proof of the claim on the H
balance of probabilities on whatever evidence is
produced.
I I
(8) The applicant is not entitled to say that his claim should
be admitted because this is all the evidence that he has
J J
and because the best evidence has been lost or destroyed.
Even in such a situation, the burden remains with the
K applicant to prove his claim on the balance of K
probabilities on the evidence as is produced.
L (9) But the Court is not bound to accept at face value any L
accounts of a company previously prepared, and is
M entitled to go behind them to form its own conclusion as M
to the truth. Even if the accounts in question have been
audited, where there is evidence to show that the
N accounts are or may be inaccurate, or to cast doubt on the N
way in which the auditor carried out his duties, this will
be a factor to take into account.”
O O
P 20. As the hearing is de novo, either party is entitled to adduce P
fresh evidence in support of his case: McPherson & Keay, the Law of
Q Q
Company Liquidation (5th ed.) at [12-066]. If a liquidator contends that the
R evidence on oath of a proving creditor on an important factual dispute R
should be disbelieved, they ought to apply to cross-examine the creditors.
S S
If a liquidator decides not to do so, the liquidator is not entitled to invite
T T
U U
V V
- 15 -
A A
the Court to disbelieve the creditor’s evidence unless the evidence is of “an
B B
incredible or romancing character”: see Fielding V Hunt 14.
C C
Winky Chan’s Proof
D D
21. The original amount claimed by Winky Chan was
E E
HK$131,956,197.06, (which was included in the balance sheet for the year
F
ending 31 March 2012 under “current liabilities” as “Mortgage loans and F
other creditors”), but which in the light of queries raised by the Previous
G G
Liquidators she accepts, for reasons she explains in her 10th affirmation
H filed in these proceedings, should be reduced to HK$101,647,589.04. The H
large number of individual payments that make up this sum were made by
I I
six companies. Winky Chan explains in [17] and [18] of her
J 10th affirmation why these payments were made: J
K “17. As can be seen from the documentary records, the K
monies I injected into Joy Rich (as loans) were paid via
the following companies:-
L L
(1) Upper Run Investments Limited (‘Upper Run’);
M (2) Rose Bay Group Limited (‘Rose Bay’); M
(3) Gorgeous Overseas Limited (‘GOL’);
N N
(4) Famous Lion Group Limited (‘Famous Lion’);
O O
(5) Wisdom First Limited (‘Wisdom First’); and
P (6) Star Business Investment Limited (‘Star P
Business’).
Q 18. As stated in paragraph 14 of my Witness Statement filed Q
in the Mortgagee Action (see exhibit ‘CMH-32’), Upper
R Run and GOL were gifted by B Lau to me and were R
legally and beneficially owned by me; and hence they
made payments on my behalf. Rose Bay, Wisdom First,
S Star Business and Famous Lion were companies owned S
and/or controlled by B Lau (as mentioned in paragraphs
T
15(5), 15(8), 18(11) and 105(2) of the said Witness T
Statement), but given my intimate relationship with B
Lau at the material time, these companies also made
U U
14
[2017] EWHC 247 (Ch), at [2.10]–[2.15].
V V
- 16 -
A A
payments to Joy Rich on my behalf. The important point
B
is that none of Upper Run, GOL, Rose Bay, Wisdom B
First, Star Business, Famous Lion or even B Lau has ever
filed any proof of debt against Joy Rich. Further, given
C the private arrangements between B Lau and me, I verily C
believe that none of Rose Bay, Wisdom First, Star
Business, Famous Lion or even B Lau (not to say Upper
D D
Run and GOL) would file any proof of debt at all in any
event against Joy Rich.”
E E
22. The Liquidators take the view that the Company’s audited
F F
financial statement is qualified to such an extent that it cannot be relied on
G as substantiating the amounts owed to Winky Chan. However, as I G
understand their evidence they accept that the Company received
H H
HK$101,647,589.04 and that the underlying evidence demonstrates that of
I I
that sum HK$65,710,859.04 came from the six companies. The
J
Liquidators say that they have no evidence connecting Winky Chan with J
those companies or the balance of HK$35,936,730; although neither the
K K
companies nor anybody else have submitted proofs of debt or
L communicated with the Liquidators in respect of these sums. The L
Company’s own journal vouchers and the cheque deposit advice show the
M M
names of five of these companies (in the case of the journal vouchers) or
N abbreviations consistent with four of these companies being the payor and N
also bank statements of GOL and Famous Lion evidencing two payments
O O
to the Company totalling HK$5.5 million.
P P
23. The Liquidators note that a number of the companies are not
Q Q
registered in Hong Kong, but given the prevalence in Hong Kong of using
R offshore companies it seems to me that this is unremarkable. R
S S
24. The Liquidators have not applied to cross-examine
T Winky Chan on her evidence. T
U U
V V
- 17 -
A A
25. Winky Chan has been able to produce a significant quantity
B B
of documents from a number of the companies (Famous Lion, Rose Bay,
C Star Business and Wisdom First), which one would not expect her to have C
unless she had some involvement with them. It seems to me that the
D D
circumstances and the evidence adduced by Winky Chan establishes on the
E balance of probabilities that she is owed HK$101,647,589.04 by the E
Company. I will make an order in the terms of [1] of the Proof Summons.
F F
G CYW’s Proof G
H 26. The Company’s shareholder’s current account ledger for H
CYW (“ledger”) opens on 5 December 2008 with a balance owed by CYW
I I
in respect of 1 share, namely, HK$1. The final item in the ledger is dated
J 31 March 2012 and is a repayment to the shareholder and shows a balance J
owed to CYW at 31 March 2012 of HK$1,009,571.28. This is the amount
K K
for which CYW has submitted the proof of debt that has been rejected by
L the Liquidators. L
M M
27. The Liquidators have produced an account, which adjusts the
N entries in the ledger. There are two categories of adjustments. The first N
are reversals (totalling HK$4,716,180) in respect of amounts treated in the
O O
ledger as paid by CYW on the Company’s behalf for which they say they
P have not found sufficient documentary proof substantiating the payments. P
The second category (totalling HK$3,671,608) are debits in the ledger in
Q Q
respect of sums paid to CYW or for her benefit for which the Liquidators
R consider there to be insufficient documentary proof that the monies were R
paid to CYW or for her benefit. This adjustment operates in CYW’s favour.
S S
The adjustments result in a balance in the Company’s favour of HK$35,001.
T T
28. CYW relies on the ledger, which was audited. She says,
U U
correctly, that the auditor’s qualification dated 20 February 2013 in respect
V V
- 18 -
A A
of the financial statement for the year ending 31 March 2013 only referred
B B
to uncertainty about the amount shown in the balance sheet, which was
C claimed by her sister Winky Chan. The item she claims appears under C
“current liabilities” for “Amount due to a shareholder” and was not the
D D
subject of the auditor’s qualification.
E E
29. The Liquidators’ reasons for questioning many of the items
F F
shown in the ledger are explained in [31.2]–[31.7] of the 3rd affirmation of
G Chan Leung Lee. Winky Chan in her 12th affirmation confirms the G
accuracy of the ledger, but states in [12] that two items HK$94,300 and
H H
HK$800,000 should not have been credited to her sister’s current account,
I which is why they have not been claimed. It seems to me that the position I
in respect of CYW’s proof is the same as that in respect of Winky Chan. It
J J
is necessary for CYW to prove on the balance of probabilities that the
K Company owes her the amount claimed. Although, the most K
straightforward way of doing so is to produce a complete paper trail this is
L L
not, as the Liquidators appear to have assumed, essential. If it is probable,
M as would appear to be the case, that the payments were made for the M
Company’s benefit and the Company’s sole director is confirming that they
N N
should be treated as sums owed to CYW and nobody else is claiming the
O sums are owed to them, it seems to me that this is sufficient to establish O
that the amounts claimed are probably due to CYW.
P P
Q 30. The only other ground of objection to CYW’s claim is Q
reference by DHCJ Le Pichon in a judgment in HCMP 1857/2012 dated
R R
11 September 2014 to which the Chen sisters were not parties to draft
S management accounts for the Company produced by Daniel So, who is S
associated with Ben Lau’s camp and had no role in the Company,
T T
purporting to show a shareholder owing the Company HK$83 million. The
U Previous Liquidators concluded the Chen sisters did not owe the Company U
V V
- 19 -
A A
this sum and I can see no credible evidence for concluding that they do. I
B B
will, therefore, make an order in the terms of [2] of the Proof summons.
C C
Costs
D D
31. I will make a costs order nisi that the Liquidators pay the costs
E E
of both summonses forthwith with a certificate for two counsel, such costs
F
to be taxed if not agreed. F
G G
(Jonathan Harris)
H H
Judge of the Court of First Instance
I
High Court I
J Mr William Wong SC and Mr Tony Ko, instructed by V Hau & Chow, for the J
joint and several liquidators
K K
Mr Bernard Man SC and Mr James Man, instructed by Jones Day, for the
Chen Sisters
L L
M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V
A A
HCCW 146/2013
B [2022] HKCFI 2584 B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D COURT OF FIRST INSTANCE D
COMPANIES WINDING-UP PROCEEDINGS NO 146 OF 2013
E
________________ E
F IN THE MATTER OF the F
Companies (Winding Up and
G
Miscellaneous Provisions) G
Ordinance (Cap 32)
H H
and
I I
IN THE MATTER OF Joy Rich
Development Limited
J J
________________
K Before: Hon Harris J in Chambers K
L
Date of Hearing: 29 July 2022
L
Date of Decision: 31 August 2022
M
_________________ M
N DECISION N
_________________
O O
Introduction
P P
1. I have before me two applications:
Q Q
(1) A summons dated 12 August 2021 issued by the Liquidators
R R
of the Company pursuant to section 200(3) of the Companies
S
(Winding Up and Miscellaneous Provisions) Ordinance,
S
Cap. 32 (“Ordinance”) seeking an order they take over the
T defence of a mortgage action (“Liquidators’ summons”) T
brought by Revelry Gains Limited (“RG”);
U U
V V
- 2 -
A A
(2) A summons dated 5 January 2022 brought by the
B B
1st Applicant, Chen Muhua (“Winky Chan”) and the
C 2nd Applicant, her sister Chan Yuen Wa (“CYW”) appealing a C
rejection by the Liquidators of their proofs of debt (“Proof
D summons”). Winky Chan and CYW are respectively the 1st D
and 2nd Respondents to the Liquidators’ summons. I shall
E E
refer to them collectively as the “Chen sisters”.
F F
2. The Company was wound up on 7 August 2013 on the
G G
petition of CYW. Lui Chau Yuet and James Wardell (“Previous
H Liquidators”) were appointed as liquidators. They were removed by me H
on 25 February 2019 on the application of two creditors: Chinese Strategic
I I
Holdings Ltd (“Chinese Strategic”) and Fameway Finance Ltd
J (“Fameway”). My Reasons dated 3 June 2019 sets out in detail the J
background to the liquidation and its progress up to February 2019. It is
K K
not necessary to repeat what is said in my earlier Reasons. I would,
L however, emphasis the following matters. L
M M
3. The Company has one asset, a valuable house at 28 Middle
N Gap Road (“House”), which increased substantially in value between the N
date of the winding up and 2019. In my Reasons of 3 June 2019 I state that
O O
the evidence before me at that time suggested it was worth HK$750 million
P the House having been purchased in 2008 for HK$110 million. The P
Previous Liquidators had not sold it. I was critical of the Previous
Q Q
Liquidators’ failure to do so and their conduct generally of the liquidation,
R R
which appeared to have been conducted in a way conducive to increasing
S
costs rather than concluding the liquidation. On 29 May 2017 S
DHCJ Kent Yee made an order allowing the Chen sisters to defend the
T T
mortgage action brought by RG in HCMP 430/2013. The order was in the
U following terms: U
V V
- 3 -
A A
“(a) The Applicants be solely responsible for their costs and
B
any adverse costs orders for defending the Action in the B
name of the Company.
C (b) A deed duly executed by the Applicants be provided to C
the Liquidators within seven days indemnifying the
Company against:
D D
(i) any future costs, charges and expenses in
E connection with or arising out of the Action, to E
be taxed in the liquidation if not agreed;
F (ii) any post-liquidation interest on the debt secured F
by the Deed of Charge dated 26 January 2011 for
such period as the court may deem just and
G appropriate.” G
H H
4. The Previous Liquidators had chosen not to defend the
I mortgage action due, they said, to lack of funds and the failure of the Chen I
sisters to provide them with documents that they needed to deal with it.
J J
Although it is not entirely clear from the Deputy Judge’s decision it appears
K that the Previous Liquidators whilst opposing the application were not K
vigorous in their opposition to the Chen sisters taking over the mortgage
L L
action. I have during previous case management hearings expressed some
M M
reservations about the principles that the Deputy Judge considered were
N
relevant to the application, and the potential complications that might be N
caused to the conduct of the liquidation as a consequence of allowing some
O O
creditors to have conduct of proceedings brought by other creditors of the
P Company. That having been said the order that was made, although P
uncommon, and one I think that needs to be granted with caution given that
Q Q
it puts a creditor in charge of one component of a liquidation and creates a
R risk that this interferes with the general conduct and management of the R
liquidation, is one that is on occasions made. This is explained in
S S
McPherson’s Law of Company Liquidation (5th ed.) at [7-083].
T T
“If a liquidator either believes that an action is too risky to
pursue or he or she does not have sufficient funds, then despite
U the fact that the general principle is that when a company is in U
liquidation the person in whom the authority to bring
V V
- 4 -
A A
proceedings on the part of the company is vested is the liquidator,
B
a creditor or member who thinks that the action has merit and B
should be prosecuted, may apply to the court and seek either
permission to proceed on behalf of the company or an order
C directing the liquidator to proceed. The courts have power to C
accede to the former type of application under their general
powers, the use of such power having a long lineage and being
D D
supported by high authority. If the former application is made
then the applicant must be ready to accept all of the risks
E connected with the action. If this is the case then it is of no E
moment that the action would not be beneficial for the creditors
and members of the company. The only real barrier to
F proceeding is, as with all actions, namely that the action must F
not be vexatious or oppressive.”
G G
5. The House has still not been sold, although the Chen sisters
H H
have agreed that the Liquidators should do so. The mortgage action is still
I not ready for trial. The Chen sisters intend, apparently, to add as parties I
Ben Lau and Daniel So in order that the dispute between the creditors can
J J
be decided in one go. The Company’s creditors consist of two camps: (A)
K the Chen sisters and (B) Fameway Finance Limited (“Fameway”), RG and K
Chinese Strategic Holdings. The second camp is associated with Ben Lau.
L L
Winky Chan and Mr Lau had a romantic relationship at the time the House
M was purchased and it was their intention to live there. The relationship M
N
ended about the end 2011. The disputes between the two camps are central N
to the progress of the liquidation. It is a creditor, whose name had not been
O O
provided to the Chen sisters prior to the hearing (Mr Wong told me at the
P
hearing that it is Chinese Strategic), from the camp associated with Mr Lau P
who is financing the Liquidators.
Q Q
R
6. As I have said the Company owns one asset: the House. The R
disputes concern the funding of its acquisition. Their resolution will
S S
determine the amount available for unsecured creditors and its sole
T shareholder, CYW, and explains the Chen sisters’ interest in contesting T
RG’s claim. Although more relevant to the Proof summons it is helpful in
U U
understanding the commercial dynamics of the disputes I refer to in this
V V
- 5 -
A A
decision, to understand the financial implications of acceptance or rejection
B B
of the different camps’ claims. The following tables are taken from the
C Chen sisters’ skeleton. The figures may prove not to be accurate, and turn C
on the sale price of the House, but they vividly illustrate the reasons for the
D D
disputes:
E E
The debts of Ben Lau’s Camp are upheld, and the debts of the Chen sisters
F
are rejected F
Creditors’ Claims Recovery on pro rata basis
G Revelry Gains G
(on its case, as
H at 10.12.2021, HK$528,332,898.21 H
HK$528,332,898.21
including post- (as secured creditor)
I liquidation I
interest1)
Ben Lau’s
J Fameway (on J
Camp’s share:
its case, as at
HK$697,694,612.6
K 10.12.2021, HK$149,350,669.42 K
HK$149,350,669.42
including post- (as secured creditor)
L liquidation L
interest)
M Chinese HK$20,011,045 HK$20,011,045 M
Strategic
N Winky Chan N/A N/A N
Chen Sisters’
YW Chan N/A Dividend of
share:
O $52,305,387.37 as O
HK$52,305,387.37
sole contributory
P
Total HK$750,000,000 P
Q Q
The debts of Ben Lau’s Camp and debts of the Chen sisters are both upheld
Creditors’ Claims Recovery on pro rata basis
R R
Revelry Gains
Ben Lau’s
S
(on its case, as HK$528,332,898.21 S
HK$528,332,898.21 Camp’s share:
at 10.12.2021, (as secured creditor)
HK$689,480,653.8
T including post- T
U U
1
Chen sisters’ position is that post-liquidation interest should not accrue: see Decision of
DHCJ Kent Yee dated 23 May 2017, [28]–[41].
V V
- 6 -
A A
liquidation
B interest) B
Fameway (on
C its case, as at C
10.12.2021, HK$149,350,669.42
D HK$149,350,669.42 D
including post- (as secured creditor)
liquidation
E interest) E
Chinese HK$20,011,045 HK$11,797,086.15
F Strategic F
Winky Chan HK$101,647,589.04 HK$59,924,175.12 Chen Sisters’
G share: G
YW Chan HK$1,009,571 HK$595,171.12
HK$60,519,346.24
Total HK$800,351,772.7
H (exceeds HK$750,000,000 H
HK$750,000,000)
I I
J
The debts of Ben Lau’s Camp are rejected, and the debts of the Chen sisters J
are upheld
K Creditors’ Claims Recovery (full) K
Revelry Gains N/A N/A
L Ben Lau’s L
Fameway N/A N/A
Camp’s share:
Chinese HK$20,011,045 HK$20,011,045
M Strategic2 HK$20,011,045 M
Winky Chan HK$101,647,589.04 HK$101,647,589.04
N N
YW Chan HK$1,009,571 HK$1,009,571, plus Chen Sisters’
dividend of share:
O $627,331,895 as HK$729,988,955 O
sole contributory
P Total HK$750,000,000 P
Q Q
7. Self-evidently, if the House is worth substantially less than
R HK$750 million it makes a considerable difference to the Chen sisters and R
the other creditors. Fameway has agreed with the Liquidators that the
S S
House be marketed at HK$450 million. Understandably given the earlier
T valuation of HK$750 million, the Chen sisters are concerned at the T
U U
2
Chinese Strategic’s claim is presently not challenged in any action, but the Chen Sisters have
reserved their right to challenge the validity of the same at an appropriate juncture.
V V
- 7 -
A A
prospect of the House being sold at that price at which the Liquidators
B B
propose to market it.
C C
The Liquidators’ Summons
D D
8. The Liquidators’ summons seeks directions under
E E
section 200(3). The Liquidators argue that the Deputy Judge’s order was
F
made on the basis that the Liquidators could not, or were not able to, carry F
out their function in respect of the mortgage action. This situation has now
G G
changed and, therefore, the Liquidators should be given conduct of the
H mortgage action, because it is they who are responsible for the conduct of H
the liquidation and having reached the view that they should defend the
I I
mortgage action, the court should accept their view and accede to their
J application. J
K K
9. It is trite that liquidation is a class remedy and is to be
L conducted in the best interests of the general body of creditors 3 . The L
powers of a liquidator include, subject to the sanction of the court or the
M M
committee of inspection, commencing or defending proceedings brought
N in the name of the company 4 . The court will only interfere with a N
liquidators’ decision in limited circumstances.
O O
P 10. In [21] of Re A Company (Liquidators: Cowley and Lui)5 I P
explain the role of liquidators in modern common law insolvency regimes:
Q Q
“The extent to which it is the intention of modern common law
R insolvency regimes that liquidators are so far as possible left to R
conduct liquidations without close supervision by the court is
demonstrated by the court’s approach to attempts to interfere
S with a liquidator’s decision. The court will not do so unless it S
can be demonstrated that the liquidator has not acted in good
T faith, made an error of law or principle or the decision is perverse T
3
Re Longmeade Limited [2016] EWHC 356 (Ch), Snowden J [52].
U U
4
Section 199(2) of the Ordinance.
5
[2020] 3 HKLRD 96; [2020] HKEC 1021; [2020] HKCFI 922.
V V
- 8 -
A A
in the sense of falling outside the range of decisions a liquidator
B
having proper regard to the relevant principles might make 6. A B
liquidator’s decision is broad and intentionally so. It follows
from this that a decision which comes within this broad
C discretion, particularly if the decision is commercial in character, C
not only does not require the approval of the court, but also
generally will not be amenable to a direction approving it.”
D D
E 11. The court is slow to interfere with a liquidator’s decision. In E
[11]–[12] of Re Hong Kong Universal Jewellery Limited7 I explain:
F F
“11. The other principle that is relevant is that the court is
G slow to interfere with a liquidator’s decision. This is referred to G
in [21] of the above quote from Re A Company. Additional local
authority is to be found in the judgment of Cheung JA in
H H
Allied Ever Holdings Limited v Li Shu Chung8:
I ‘5.2(4) In reviewing the liquidators’ exercise of their I
discretion under section 200(5) of the Companies
(Winding Up and Miscellaneous Provisions) Ordinance
J (Cap. 32), the court will interfere only in two categories J
of case. “[First] to bring itself within this sub-section, an
K
applicant has to show exceptional behaviour e.g. that the K
liquidator ‘has not exercised his powers in good faith or
has acted in a way in which no reasonable liquidator
L could have acted’ … The second category arises when L
in the course of his administration the liquidator is called
upon to give a ruling or to make a decision which directly
M M
affects a party’s rights. … They include such matters as
decisions upon the voting rights of creditors or
N contributories and upon the admission and rejection of N
proofs. It is significant that when considering and ruling
upon such matters the liquidator must act even-handedly
O as an impartial neutral” (Eagle Queen Co Ltd v First O
Bangkok City Finance Ltd [1989] 2 HKLR 71 (CA), per
P Hunter JA [74]). In considering whether to review a P
decision of a liquidator a court must bear in mind the fact
that it is well established that the commercial decisions
Q of liquidators are accorded great weight (McPherson & Q
Keay, [9-115, 9-116]; Judd v Brown [1999] 1 FLR 1191
(CA), 1198).’
R R
12. I note that section 200(5), which allows a person with
S adequate interest to apply to court to reverse a decision made by S
a liquidator, is in Division 2 of Part 5 of the Ordinance, which
applies to a winding up by the court. However, these principles
T T
6
See for example Re Spedley Securities Ltd (in liq) (1992) 10 ACLC 1742.
U U
7
[2022] HKCFI 1062.
8
[2021] HKCA 577; [2021] HKEC 1667.
V V
- 9 -
A A
are of general application to any consideration of a liquidator’s
B
decision or conduct. It follows that a contributory cannot B
interfere with a bona fide decision, which falls within the range
of decisions that a liquidator might make. The fact that the
C contributory thinks there is a better decision that might be made C
is not a ground for challenging a liquidator’s decision.”
D D
12. The Liquidators submit that consistent with these principles
E E
the Court should accede to their application and make a direction in these
F proceedings that they take over conduct of these proceedings. F
G G
13. The Liquidators make a number of specific points about the
H mortgage action itself and the position of the Chen sisters. My H
understanding is that the Liquidators are sceptical of the Company’s
I I
defence to the claim, but it does not seem to me that the merits are in
J themselves relevant to the application and it is not necessary to explore J
RG’s claim and the Company’s defence. What is more relevant is the
K K
consequences of the Liquidators’ rejection of the Chen sisters’ proof of
L debt. If I uphold the Liquidators’ decision it follows that they are no longer L
creditors. However, for reasons I explain later in this decision I will admit
M M
their proofs and the issue falls away. In any event it does not seem to me
N that rejection would necessarily be fatal as the 1st Respondent N
(Winky Chan) is the sole shareholder of the Company and, therefore, has
O O
sufficient interest in the liquidation to continue to represent the Company9.
P The position would have been different I apprehend if she had not. P
Q Q
14. The Chen sisters’ principal ground of opposition to the
R Liquidators’ application is that it is an abuse of process as it involves R
setting aside an order made by a judge of co-ordinate jurisdiction on the
S S
merits. The following principles are relevant:
T T
U U
9
Re Soka Gakkai International of Hong Kong Ltd [2022] HKCA 480, [2022] HKEC 1256, [94]–
[98] (Yuen JA).
V V
- 10 -
A A
(1) As a general rule, except by way of appeal, no court, judge or
B B
master has power to re-hear, review, alter or vary any
C judgment or order after it has been entered either in an C
application in the original action or matter or in a fresh action
D brought to review the judgment or order. The object of the D
rule is to bring litigation to finality. See Sanyo Electric
E E
Trading Co Ltd v Leung Kwok Hing10.
F F
(2) If a party seeks to re-litigate a matter which has been
determined in a previous interlocutory decision by taking out
G G
a second application, the second application is liable to be
H dismissed by the court, on the ground that it constitutes an H
abuse of process. However, the court may conclude that there
I I
is no abuse of process and it will not be unjust or unreasonable
J to allow the second application to be heard: J
(i) if the ruling on the first application was not based on
K K
the merits of the issue but on a technical objection;
L (ii) if upon the first application the applicant had failed to L
prove essential facts by mistake or inadvertence;
M M
(iii) if there is new evidence that seriously justifies
N reconsideration of the issue; and N
O (iv) if there is a material change of circumstances of a non- O
evidentiary nature.
P P
See Chu Hung Ching v Chan Kam Ming11.
Q (3) The Previous Liquidators and the Liquidators are privies in Q
title and interest, both acting in the capacity of liquidators of
R R
the Company. Privity can involve a relationship of “blood,
S title or interest”: see China North Industries v Ronald R.C. S
Chum12.
T T
10
[1993] 1 HKLR 253, 256 (Keith J).
U U
11
[2001] 1 HKC 396 at 401E–402D (Mayo VP).
12
[2010] 5 HKLRD 1 at [78] (Stock JA).
V V
- 11 -
A A
B B
15. It is clear from the Deputy Judge’s decision that the
C
application was opposed and that he made a decision on the merits. It C
seems to me that it is now too late to ask the court to overturn that decision
D D
unless it can be shown that there is a material change of circumstances that
E justifies it. In my view there is not. The fact that there has been a change E
of liquidators is not of itself a justification. It is difficult to discern a
F F
specific reason advanced for overturning the Deputy Judge’s decision
G other than the change in identity of the liquidators and also a desire on the G
part of the new Liquidators to assess the merits of the Company’s defence
H H
and decide whether or not to withdraw it. I do not see this as sufficient
I reason, particularly as the implication of the Liquidators’ evidence and the I
arguments advanced on their behalf by Mr Wong is that the Liquidators’
J J
concerns about the merits of the Company’s Defence are similar to those
K advanced before the Deputy Judge. K
L L
16. In the circumstances I do not think that there is a legitimate
M basis to overturn the Deputy Judge’s decision and I will dismiss the M
Liquidators’ application. That takes me to the Chen sisters’ application to
N N
overturn the Liquidators rejection of their proofs of debt.
O O
Proof of Debt
P P
17. It is the Chen sisters’ case that the House was financed by
Q Q
Winky Chan. In [39]–[41] of her witness statement filed in the mortgage
R action and dated 18 November 2021, she explains how she says she R
financed the purchase of the House.
S S
“39. In or about October 2008, at the introduction of a
T property consultant of FPP Savills (Hong Kong) Limited T
called David So (who is the nephew of So Chi Ming,
Stephen (‘Stephen So’), a close business partner of B
U U
Lau as further explained below), B Lau became aware of
V V
- 12 -
A A
the intended sale of the Property. He wanted to purchase
B
the Property for us to live together. He however B
suggested that the Property be purchased through a
corporate vehicle instead of under our own names.
C C
40. As such, by a formal sale and purchase agreement dated
22 December 2008 and an assignment dated 6 March
D 2009, Joy Rich purchased the Property at a consideration D
of HK$110,000,000. I financed the purchase of the
E Property by paying the initial deposit of HK$10,000,000 E
through Upper Run, and by injecting money into Joy
Rich for the purpose of paying off the mortgage loan of
F HK$100,000,000 from Eternal Rich China Limited F
(‘Eternal Rich’) taken out on 6 March 2009. Eternal
G Rich is a company set up by a lawyer called So Hop G
Shing. The mortgage loan was repayable by 3
instalments: (1) HK$10,000,000 by 6 September 2009;
H (2) HK$10,000,000 by 6 March 2010; and (3) H
HK$80,000,000 by 6 September 2010 (the deadline for
the last instalment was subsequently extended to January
I I
2011 by agreement, which was paid on 21 January 2011).
J 41. As a matter of fact, according to the ledger account J
‘CURRENT ACCOUNT—Winky Chan’ with Account
Code 3007 (‘my Current Account’) produced by the
K Former Liquidators in the Winding Up Proceedings, I K
injected; (1) HK$14,000,000 on or before 31 March
L
2009; (2) HK$55,800,000 from 30 April 2009 to 31 L
March 2010; and (3) HK$21,000,000 from 29 April 2010
to 7 July 2010, and (4) HK$25,817,589.04 from 11 April
M 2011 to 26 August 2011 into Joy Rich for the purpose of M
repaying the mortgage loan owed to Eternal Rich.”
N N
18. It is for these sums that Winky Chan has submitted a proof for
O O
HK$131,956,197.06, which was rejected by the Liquidators on
P 17 December 2021. On the same day the Liquidators also rejected the P
proof of her sister, CYW, which is for the more modest sum of
Q Q
HK$1,009,571.28. The Previous Liquidators had accepted that the
R Chen sisters were owed substantial sums and admitted the proofs for voting R
purposes at the first meeting of creditors. They had not, however,
S S
ascertained the precise sums that they were willing to accept were due to
T them. Mr Wardell, one of the Previous Liquidators, says this in [8] and T
[13] of his 6th affidavit:
U U
V V
- 13 -
A A
th
“8. At the time of the first creditors meeting dated 29
B
October 2013 (the ‘First Creditors’ Meeting’), the B
proof of debt of Madam CMH for voting purposes was
admitted in full. The claim of Madam CMH has been the
C subject of considerable investigation by the Liquidators C
since, and whereas I would state that Madam CMH is
unlikely to have her full claim for HK$131,956,197.06
D D
admitted, I can state with certainty that she would
certainly have a valid proof of debt for a considerable
E sum. E
…
F F
13. The Liquidators have been investigating the proof of
debt of Madam CYW, and again, although the
G G
Liquidators have not adjudicated on the proofs of debt, I
can say that although the claim for HK$1,009,571.28 is
H unlikely to be maintained, Madam CYW will certainly H
be entitled to claim in the Company’s liquidation for an
amount, the exact sum being uncertain.”
I I
J Relevant legal principles J
K 19. Under rule 95 of the Companies (Winding-up) Rules K
(Cap 32H), a dissatisfied creditor can apply to vary or reverse the decision
L L
of a liquidator in respect of a proof. The relevant principles were
M summarised by Coleman J in Re Fortune King Trading Ltd13 at [20]: M
N “(1) An appeal under r.95 against a liquidator’s adjudication N
is a hearing de novo, at which the Court may confirm,
reverse or vary the liquidator’s decision.
O O
(2) The purpose of the hearing is for the Court to determine
to what extent the applicant should be allowed to rank as
P P
a proving creditor. Therefore, the Court is bound to
decide the rights of the applicant in the light of all of the
Q evidence which is before the Court, and not merely to Q
express a view as to whether the liquidator was right or
wrong in rejecting the proof on the evidence then
R available to the liquidator at the time he rejected it. R
S
(3) A liquidator who defends his decision to reject a proof is S
no longer acting in a quasi-judicial capacity, but is cast
in the role of an adversary.
T T
U U
13
[2020] HKCFI 353.
V V
- 14 -
A A
(4) The onus of proof is on the applicant to show on a
B
balance of probabilities that a real debt is due to him. B
(5) The requirement for a liquidator or trustee in bankruptcy
C in admitting or rejecting a proof is to require some C
satisfactory evidence that the debt on which the proof is
founded is a real debt, and this is a relatively low
D threshold. Nevertheless, the liquidator or trustee is D
entitled to go behind mere form so as to get at the truth.
E E
(6) On an appeal against the rejection of a proof, the
applicant’s burden is to prove a real debt, to be
F established by credible evidence. F
(7) Hence, there may be cases, for example where probative
G evidence is scarce, where the incidence and standard of G
proof has some significance. The burden remains with
H the applicant to establish proof of the claim on the H
balance of probabilities on whatever evidence is
produced.
I I
(8) The applicant is not entitled to say that his claim should
be admitted because this is all the evidence that he has
J J
and because the best evidence has been lost or destroyed.
Even in such a situation, the burden remains with the
K applicant to prove his claim on the balance of K
probabilities on the evidence as is produced.
L (9) But the Court is not bound to accept at face value any L
accounts of a company previously prepared, and is
M entitled to go behind them to form its own conclusion as M
to the truth. Even if the accounts in question have been
audited, where there is evidence to show that the
N accounts are or may be inaccurate, or to cast doubt on the N
way in which the auditor carried out his duties, this will
be a factor to take into account.”
O O
P 20. As the hearing is de novo, either party is entitled to adduce P
fresh evidence in support of his case: McPherson & Keay, the Law of
Q Q
Company Liquidation (5th ed.) at [12-066]. If a liquidator contends that the
R evidence on oath of a proving creditor on an important factual dispute R
should be disbelieved, they ought to apply to cross-examine the creditors.
S S
If a liquidator decides not to do so, the liquidator is not entitled to invite
T T
U U
V V
- 15 -
A A
the Court to disbelieve the creditor’s evidence unless the evidence is of “an
B B
incredible or romancing character”: see Fielding V Hunt 14.
C C
Winky Chan’s Proof
D D
21. The original amount claimed by Winky Chan was
E E
HK$131,956,197.06, (which was included in the balance sheet for the year
F
ending 31 March 2012 under “current liabilities” as “Mortgage loans and F
other creditors”), but which in the light of queries raised by the Previous
G G
Liquidators she accepts, for reasons she explains in her 10th affirmation
H filed in these proceedings, should be reduced to HK$101,647,589.04. The H
large number of individual payments that make up this sum were made by
I I
six companies. Winky Chan explains in [17] and [18] of her
J 10th affirmation why these payments were made: J
K “17. As can be seen from the documentary records, the K
monies I injected into Joy Rich (as loans) were paid via
the following companies:-
L L
(1) Upper Run Investments Limited (‘Upper Run’);
M (2) Rose Bay Group Limited (‘Rose Bay’); M
(3) Gorgeous Overseas Limited (‘GOL’);
N N
(4) Famous Lion Group Limited (‘Famous Lion’);
O O
(5) Wisdom First Limited (‘Wisdom First’); and
P (6) Star Business Investment Limited (‘Star P
Business’).
Q 18. As stated in paragraph 14 of my Witness Statement filed Q
in the Mortgagee Action (see exhibit ‘CMH-32’), Upper
R Run and GOL were gifted by B Lau to me and were R
legally and beneficially owned by me; and hence they
made payments on my behalf. Rose Bay, Wisdom First,
S Star Business and Famous Lion were companies owned S
and/or controlled by B Lau (as mentioned in paragraphs
T
15(5), 15(8), 18(11) and 105(2) of the said Witness T
Statement), but given my intimate relationship with B
Lau at the material time, these companies also made
U U
14
[2017] EWHC 247 (Ch), at [2.10]–[2.15].
V V
- 16 -
A A
payments to Joy Rich on my behalf. The important point
B
is that none of Upper Run, GOL, Rose Bay, Wisdom B
First, Star Business, Famous Lion or even B Lau has ever
filed any proof of debt against Joy Rich. Further, given
C the private arrangements between B Lau and me, I verily C
believe that none of Rose Bay, Wisdom First, Star
Business, Famous Lion or even B Lau (not to say Upper
D D
Run and GOL) would file any proof of debt at all in any
event against Joy Rich.”
E E
22. The Liquidators take the view that the Company’s audited
F F
financial statement is qualified to such an extent that it cannot be relied on
G as substantiating the amounts owed to Winky Chan. However, as I G
understand their evidence they accept that the Company received
H H
HK$101,647,589.04 and that the underlying evidence demonstrates that of
I I
that sum HK$65,710,859.04 came from the six companies. The
J
Liquidators say that they have no evidence connecting Winky Chan with J
those companies or the balance of HK$35,936,730; although neither the
K K
companies nor anybody else have submitted proofs of debt or
L communicated with the Liquidators in respect of these sums. The L
Company’s own journal vouchers and the cheque deposit advice show the
M M
names of five of these companies (in the case of the journal vouchers) or
N abbreviations consistent with four of these companies being the payor and N
also bank statements of GOL and Famous Lion evidencing two payments
O O
to the Company totalling HK$5.5 million.
P P
23. The Liquidators note that a number of the companies are not
Q Q
registered in Hong Kong, but given the prevalence in Hong Kong of using
R offshore companies it seems to me that this is unremarkable. R
S S
24. The Liquidators have not applied to cross-examine
T Winky Chan on her evidence. T
U U
V V
- 17 -
A A
25. Winky Chan has been able to produce a significant quantity
B B
of documents from a number of the companies (Famous Lion, Rose Bay,
C Star Business and Wisdom First), which one would not expect her to have C
unless she had some involvement with them. It seems to me that the
D D
circumstances and the evidence adduced by Winky Chan establishes on the
E balance of probabilities that she is owed HK$101,647,589.04 by the E
Company. I will make an order in the terms of [1] of the Proof Summons.
F F
G CYW’s Proof G
H 26. The Company’s shareholder’s current account ledger for H
CYW (“ledger”) opens on 5 December 2008 with a balance owed by CYW
I I
in respect of 1 share, namely, HK$1. The final item in the ledger is dated
J 31 March 2012 and is a repayment to the shareholder and shows a balance J
owed to CYW at 31 March 2012 of HK$1,009,571.28. This is the amount
K K
for which CYW has submitted the proof of debt that has been rejected by
L the Liquidators. L
M M
27. The Liquidators have produced an account, which adjusts the
N entries in the ledger. There are two categories of adjustments. The first N
are reversals (totalling HK$4,716,180) in respect of amounts treated in the
O O
ledger as paid by CYW on the Company’s behalf for which they say they
P have not found sufficient documentary proof substantiating the payments. P
The second category (totalling HK$3,671,608) are debits in the ledger in
Q Q
respect of sums paid to CYW or for her benefit for which the Liquidators
R consider there to be insufficient documentary proof that the monies were R
paid to CYW or for her benefit. This adjustment operates in CYW’s favour.
S S
The adjustments result in a balance in the Company’s favour of HK$35,001.
T T
28. CYW relies on the ledger, which was audited. She says,
U U
correctly, that the auditor’s qualification dated 20 February 2013 in respect
V V
- 18 -
A A
of the financial statement for the year ending 31 March 2013 only referred
B B
to uncertainty about the amount shown in the balance sheet, which was
C claimed by her sister Winky Chan. The item she claims appears under C
“current liabilities” for “Amount due to a shareholder” and was not the
D D
subject of the auditor’s qualification.
E E
29. The Liquidators’ reasons for questioning many of the items
F F
shown in the ledger are explained in [31.2]–[31.7] of the 3rd affirmation of
G Chan Leung Lee. Winky Chan in her 12th affirmation confirms the G
accuracy of the ledger, but states in [12] that two items HK$94,300 and
H H
HK$800,000 should not have been credited to her sister’s current account,
I which is why they have not been claimed. It seems to me that the position I
in respect of CYW’s proof is the same as that in respect of Winky Chan. It
J J
is necessary for CYW to prove on the balance of probabilities that the
K Company owes her the amount claimed. Although, the most K
straightforward way of doing so is to produce a complete paper trail this is
L L
not, as the Liquidators appear to have assumed, essential. If it is probable,
M as would appear to be the case, that the payments were made for the M
Company’s benefit and the Company’s sole director is confirming that they
N N
should be treated as sums owed to CYW and nobody else is claiming the
O sums are owed to them, it seems to me that this is sufficient to establish O
that the amounts claimed are probably due to CYW.
P P
Q 30. The only other ground of objection to CYW’s claim is Q
reference by DHCJ Le Pichon in a judgment in HCMP 1857/2012 dated
R R
11 September 2014 to which the Chen sisters were not parties to draft
S management accounts for the Company produced by Daniel So, who is S
associated with Ben Lau’s camp and had no role in the Company,
T T
purporting to show a shareholder owing the Company HK$83 million. The
U Previous Liquidators concluded the Chen sisters did not owe the Company U
V V
- 19 -
A A
this sum and I can see no credible evidence for concluding that they do. I
B B
will, therefore, make an order in the terms of [2] of the Proof summons.
C C
Costs
D D
31. I will make a costs order nisi that the Liquidators pay the costs
E E
of both summonses forthwith with a certificate for two counsel, such costs
F
to be taxed if not agreed. F
G G
(Jonathan Harris)
H H
Judge of the Court of First Instance
I
High Court I
J Mr William Wong SC and Mr Tony Ko, instructed by V Hau & Chow, for the J
joint and several liquidators
K K
Mr Bernard Man SC and Mr James Man, instructed by Jones Day, for the
Chen Sisters
L L
M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V