Safe Castle Ltd v China Silver Asset Management (Hong Kong) Ltd

HCCW 69/2019

[2020] HKCFI 1028

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 69 OF 2019

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D E C I S I O N

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Introduction

1. On 11 March 2020, I handed down my decision in these proceedings which concerns a petition to wind-up China Silver Asset Management Limited (“Company”) and a petition to bankrupt Mr Frank Dominick. I made an order that the Company be wound up. The order has not yet been pronounced. I also ordered that the bankruptcy petition be adjourned in order that the issue of service, which I had concluded could not be determined on affidavit evidence, could be considered further.

2. The sole shareholder of the Company, China Silver Asset Management Ltd (“opposing contributory”) has applied for a stay of the winding-up order pending determination of the Company’s appeal of my decision[1].

3. I divide this decision into the following sections:

(1) The circumstances in which the Companies Court will stay a winding-up order pending an appeal;

(2) The appeal’s prospect of success

Stay of a winding-up order pending appeal

4. Although the court has the jurisdiction to stay a winding-up order pending an appeal on the application of a contributory[2], it is my understanding that it is not the practice to do so. I have not granted a stay pending appeal in the 10 years that I have been the Companies Judge. This in my view is consistent with the authorities. The position in England is explained by Plowman J in Re A&BC Chewing Gum Ltd[3] in which he says this:

“… and as a matter of practice a stay is never granted. The only exception that I think is known to the department is where I myself once went wrong in In re Westbourne Galleries Ltd.[4], and not having been alerted to the position, and not knowing it before, I granted a stay, with precisely what consequences nobody has ever told me. But there are very good reasons for the practice of never ordering a stay, and they are these: as soon as a winding up order has been made the Official Receiver has to ascertain first of all the assets at the date of the order; secondly, the assets at the date of the presentation of the petition, having regard to the possible repercussions of section 227 of the Act of 1948; and thirdly, the liabilities of the company at the date of the order, so that he can find out who the preferential creditors are, and also the unsecured creditors.

Supposing there is an appeal and the winding up order is ultimately affirmed by the Court of Appeal, and there has been a stay, his ability to discover all these things is very seriously hampered: it makes it very difficult for him, possibly a year later, to ascertain what the position was at different times a year previously. But assuming a stay is not granted, if the business is being carried on at a profit, as I understand this business now is, no additional harm is done by refusing a stay. As I understand it, if the Official Receiver is given an indemnity, say by the Coakley brothers, who are running this business, he will allow it to be carried on, and the Coakley brothers, in this case, could be appointed special managers and carry on the business as they have been doing. If the business is being carried on at a profit, creditors of the business, after the date of the winding up order, would be paid in priority to the unsecured creditors at the date of the order as part of the expenses of the winding up. Then, if the appeal is allowed, the business is handed back as a going concern, it has not suffered any loss. Of course, if the business can only be carried on at a loss—it should not be carried on at all.”

5. There are two Hong Kong Court of Appeal authorities that are in my view entirely consistent with this approach. In Bank Negara Indonesia v Interasian Traders Finance Ltd[5] Cons JA says this, with which the others members of the Court of Appeal agreed:

“… In general litigation the likelihood of success and the danger that success may in the interim have been rendered nugatory are matters of considerable concern. But the jurisdiction we are concerned with at the moment is different. It is to some extent a supervisory jurisdiction and must take into account the interest of others apart from the two immediately involved. The machinery of winding-ups gives ample reason for the English practice, which is never to grant a stay pending appeal: In re A & B.C. Chewing Gum Ltd.[6]. A company is not without some protection. I understand that advertisement of the order may be restricted. And a company may bring an appeal within a very short space of time. There is a practice direction in England that such appeals, although they are from a final order, shall be entered in the list of interlocutory appeals: Re Reliance Properties Ltd.[7]. I think we should adopt the same practice here once separate lists are in fact established. In the meantime urgent matters can be dealt with urgently and I can for the moment think of no reason why we could not have been asked to deal with the substantive appeal as well this morning. That would have disposed one way or other of the Company’s problem.

Where an appeal against a winding-up order is subsequently allowed, but the liquidation has proceeded so far that the Company cannot be put back into its original position, then some injustice may result from the refusal of a stay. This must be set against the difficulties that a stay would cause to the liquidator in all other cases and also be viewed in the context of the many and varied advantages that limited liability otherwise confers.”

6. Penlington JA in Re S Zhong Shan International Investments Co Ltd[8] also cites Re A&BC Chewing Gum Ltd[9] with approval and applies it in declining an application for leave to appeal a winding-up order made by Mayo J (as he then was) on the grounds of insolvency. These decisions have been followed by Kwan J (as she then was) in Re King Pacific International Holdings Ltd[10]and Re China International Business Development (Hong Kong) Limited[11]. Kwan J refers to a short decision of the Court of Appeal in Re Cirtex Co Ltd[12] in which the Court of Appeal refers to A&BC Chewing Gum[13], with apparent approval. It would, therefore, appear that the established Hong Kong practice approved by the Court of Appeal is quite clear, namely, that a winding-up order will not be stayed pending appeal; certainly not stayed simply on the basis that the criteria by reference to which such applications in general litigation are assessed, principally that any appeal will be rendered nugatory unless a stay is granted, are satisfied.

7. However, Mr Manzoni referred me to a decision of Yuen J (as she then was) in Re Max Share Ltd[14] in which her Ladyship took a different approach. It should be said at the outset that the judgment makes no reference to either of the Court of Appeal decisions to which I have referred, which suggests that Yuen J may not have been referred to them. Yuen J refers to a decision of Supreme Court of Victoria, Brinds Ltd & Ors v Offshore Oil NL & Ors (No 2)[15], which considers the way in which the court’s discretion to grant a stay, which I do not understand it to be disputed that the court has, should be exercised. The facts of Brinds are relevant and unusual. A winding up was ordered on 5 May 1983 on the grounds of insolvency. The winding-up order was stayed on the same day for 14 days and the stay extended until determination of the appeal, which was dismissed on 16 December 1983. On 2 February 1984 the Full Court gave the applicant leave to appeal to the Privy Council. Counsel was asked if the applicant wished to apply for a stay and was told they did not wish to do so. On 14 March 1984, the applicants having changed their minds, an application was made for a stay pending appeal to the Privy Council, which was adjourned and having subsequently been restored was heard on 2 October 1985. By that time liquidators had been in office for over two years and, it would appear, had undertaken a substantial amount of work[16]. The principal judgment is that of Fullagar J with whom the other two members of the court agree. Fullagar J draws a distinction at p245 (2^nd paragraph) between an application to stay a winding-up order before it has become effective (which is the present case) and one made long after liquidators have been appointed. He goes on to refer with apparent approval to the decision of Plowman J in Re A&BC Chewing Gum Ltd[17], although the application had been made sometime after liquidators had been appointed. I note in passing that at p246 (3^rd paragraph) Fullagar J notes that “[It] has long been accepted in the law that it is not desirable that insolvent companies should remain free to operate. It is, as a matter of public interest, not desirable”. This is, of course, correct and a subject that I return to at [10]. Fullagar J then goes on to summarise the reasons for granting a stay advanced by counsel on behalf of the applicants at p245:

“1. Irreparable harm would be caused to Brinds if the...