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Re Union (V-tex)shirts Factory Ltd

Judgment Cited authorities 25 Cited in Precedent Map Related
Vincent
Judgment Date12 May 1977
Year1977
Judgement NumberHCCW19/1975
Subject MatterCompanies Winding-up Proceedings
CourtHigh Court (Hong Kong)
HCCW000019A/1975 RE UNION (V-TEX)SHIRTS FACTORY LTD

HCCW000019A/1975

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING-UP) NO. 19 OF 1975

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IN THE MATTER of the Companies Ordinance Cap. 32
and
IN THE MATTER of Union (V-Tex) Shirts Factory Limited

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Coram: McMullin, J.

Date of Judgment: 12th May, 1977.

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JUDGMENT

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1. Upon this application the Offical Receiver seeks directions of the court as to the disposal of certain funds at present held by him in his capacity as liquidator in the winding-up proceedings which are the subject matter of the petition in the present case. A petition to wind-up Union (V-Tex) Shirt Factory Ltd. (the defendant company) was filed on the 15th of March 1975 and the winding-up order was made by the court on the 18th of April in the same year. The petitioner is The Hong Kong & Shanghai Bank which also holds a debenture under which all the company's undertaking, property and assets present and future including its uncalled capital for the time being are charged to the Bank to secure general banking facilities made available to the defendant company. That debenture was dated the 11th of August 1967 but subsequent to that date certain properties of the company were made the subject of specific further charges to secure these facilities. Some difference of opinion appears upon the affidavits, and emerged also in the course of argument at the hearing, as to the exact extent of the company's indebtedness to the Hong Kong Bank under these various charges but I understand that it is common ground that the total indebtedness of the company to the bank thereunder amounts to a figure of not less than $10,000,000 at the present time.

2. Since the making of the winding-up order a sum of $6,818,000 has been realised through various dispositions of assets of the company. Of these funds a sum of $656,000 is the immediate subject matter of the present dispute. This sum represents the proceeds of several distraints executed against company's assets by three separate landlords of premises occupied by the company. These landlords are the other parties interested in the present application. Five separate sets of premises are involved. The three landlords are China Underwriters, Kim Tak Company Ltd. and Union (V-Tex) Realty, a company related to the defendant. Of these three only one Kim Tak Co. Ltd. has put in affidavits in the present application and I do not know therefore the identity of the premises, the rate of rent or the amount of arrears said to be outstanding in favour of the other two landlords, the China Underwriters and Union (V-Tex) Realty, who are represented before me by Mr. Rogers and Mr. Kotewall respectively. The points of principle to be decided however are fortunately not dependent upon this information and I am content to accept the situation as essentially one of contest between the several distrainors on the one hand and the bank on the other as to the proper disposition of the funds presently held in the hands of the Official Receiver as liquidator deriving from the sale of the chattels seized from these several premises and amounting to the sum mentioned $656,000.

3. There were in all five distraints. The dates and other details relevant thereto, though not the identity of the premises, are set forth in paragraph 4 of the affidavit of Mr. Fox filed on behalf of the Official Receiver on the 4th of October 1976 which reads as follows:

"4. Several warrants of distraint were executed against various premises tenanted by the company as below:

Distraint No. Date Seized Date Sold Net Proceeds
K298/75 6/3/1975 13/3/1975 369,054.20
K460/75 and 11/4/1975 18/4/1975 148,503.20
K518/75 17/4/1975
V164/75 10/3/1975 17/3/1975 48,705.60
V197/75 11/3/1975 18/3/1975 89,760.60
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656,023.60
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The 'distraint proceeds' in the sum of $656,023.60 have been remitted by the Court to the Official Receiver and Liquidator and are now being held by him."

It is common ground that these several distraints fall into three separate groups. So far as the first in the list is concerned (K298/75) it is conceded by Mr. Tong, who appears on behalf of the bank, that that was a valid distraint since the goods were both seized and sold prior to the commeneement of the winding-up proceedings by the presentation of a petition on the 15th of March 1975. He makes no claim therefore on behalf of his clients to the proceeds of that sale which, it will be seen, constitute what is by a considerable degree the largest part of the proceeds of all the distraints. Then come, in logical sequence, the distraints numbered V164/75 and V197/75 which are, I understand, those relating to the premises owned by the clients of Mr. Rogers and Mr. Kotewall. They share the common feature that whereas the goods were seized from these two premises before the presentation of the petition (i.e. the commencement of the winding-up proceedings) the goods were not actually sold until after the commencement of those proceedings. Finally there are the two distraints (K460/75 and K518/75) relating to the premises owned by Mr. Fung's clients, the kim Tak Co., and in their regard the goods were both seized and sold after the commencement of the winding-up proceedings. The Official Receiver as liquidator in the winding-up proceedings is in the neutral position of a stake-holder in respect of the funds which he holds arising from the proceeds of the distraints. The bank's basic position in relation to these funds is that since winding-up proceedings have been instituted the landlords who seek to hold and use the proceeds of their distraints but who are not in any sense to be regarded as secured still less as preferred creditors should come in with all other creditors and prove in the winding-up proceedings. Of this Mr. Rogers observes, not without point, that, so far as the relative and fundamental equities of the parties are concerned, the bank can scarcely pretend to be serving the interests of equitable principle unselfishly since it is patent that apart from a small quantum of preferred debts which will have priority it seems unlikely that any secured creditors will take precedence over the bank which, if the principle which it maintains is sustained, will take the rest of the $6,000,000 odd realised in the winding-up. He in his turn would maintain that, all other considerations apart, the enforcement of the mutual rights and obligations of landlord and tenant are in themselves a matter of such importance to the order and stability of society that the right to recover rent and the corresponding duty to see that it is paid possess a kind of moral priority which should serve as a point of departure and a fixed point of reference for the court in undertaking its survey of the several provisions of the law which are principally in point.

4. In this application, effectively a construction summons, the Official Receiver asks the court to consider the effect of sections 181, 182 and 183 of the Companies Ordinance and to say, firstly, whether the distraints or any of them are valid in the light of those sections; and, secondly, assuming the court finds the distraints to be valid or any of them to be valid to direct him, the Official Receiver, as to whether the preferred creditors are to be paid out of the property available to the debenture holders under the floating charge or out of the proceeds of the distraints, the relevant provisions for construction in this regard being section 265(3b), (5), and (5a) of the Companies Ordinance. As to the first category of disputed distraints, the goods seized by Mr. Rogers' clients prior to the commencement of the winding-up proceedings but not sold until after those proceedings had been commenced, Mr. Tong relies upon the provisions of section 182. As to Mr. Fung's clients he relies upon section 183.

5. Very different consideration arise in respect of these two classes of distrainors and I will deal first with the case of Mr. Fung's clients, since he proposes, for adoption, a single principle or proposition of a most absolute nature which, if it be correct, enures also to the benefit of the clients of Mr. Rogers. Mr. Tong relies upon section 183 as the simple answer to the claims of Mr. Fung's clients. That section is in the following terms:

"Where any company is being wound up by the court, any attachment, sequestration, distress, or execution put in force against the estate or effects of the company after the commencement of the winding up shall be void to all intents."

Mr. Fung concedes that section is effective to deprive a landlord of his right to proceed with a distress in respect of goods seized after the commencement of the winding-up but he says it does not apply to the case of his clients because at the date upon which the goods were seized pursuant to the distraints those goods were no longer part of the "estate or effects of the company". This is so because, subject to a disputed question of fact as to the real extent of the company's property, the evidence upon the affidavits shows that at the date of crystallisation of the floating charge the total assets of the company were insufficient in value to cover the claim of the debenture holders. The principle is succinctly stated in the latest edition of Halsbury at para. 1361 of Vol. 7 in the following terms:

"The landlord is allowed to distrain where the goods are mortgaged for more than their value, inasmuch as the property has ceased to be the estate or effects of the company and the liquidator has no interest...."

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