Titan Petrochemicals Group Ltd and the Companies Act
| Jurisdiction | Bermuda |
| Judge | Hargun CJ |
| Judgment Date | 17 November 2021 |
| Docket Number | CIVIL JURISDICTION 2019: No. 383 IN THE SUPREME COURT OF BERMUDA (COMMERCIAL COURT) COMPANIES (WINDING UP) |
| Year | 2021 |
| Court | Supreme Court (Bermuda) |
In the Supreme Court of Bermuda
Hon. Chief Justice Hargun
CIVIL JURISDICTION 2019: No. 383 IN THE SUPREME COURT OF BERMUDA (COMMERCIAL COURT) COMPANIES (WINDING UP)
Mr. steven White and Mr. John McSweeney of Appleby (Bermuda) Limited for Sino Charm International
Mr. Rhys Williams of Conyers Dill & Pearman Limited for the Company
Ms. Lilia Zuill of Zuill & Co for Zhang Qiandong
Issue of costs following a contested winding up hearing; whether company entitled to the “usual compulsory order” providing for the payment of the company's costs for preparing and appearing at the hearing; whether the court should make a Bathampton order; whether the court should make a non-party costs order; relevant principles to be applied in relation to non-party costs order
This Ruling deals with the identification of the appropriate order which the Court should make following its Judgment dated 11 August 2021 (“the Judgment”). The background to these proceedings is set out in the Judgment.
The winding up proceedings related to the Petition presented by Sino Charm International Limited (“Sino Charm” or the “Petitioner”) seeking a winding up order in relation to Titan Petrochemicals Group Limited (the “Company” or “Titan Group”) under section 161(e) of the Companies Act 1981 (the “Act”). The Petition was based upon a Statutory Demand for the debt which remained unpaid. The essential dispute between the parties at the hearing was whether the debt in question was disputed bona fide and on substantial grounds.
The parties filed extensive affidavit evidence in support of and in opposition to the winding up Petition. In support of the Petition, in addition to the affirmation of Xue Zhengye formally verifying the Petition, the Petition was supported by seven affirmations of Mr. Zhou Bing (“Mr. Zhou”), a director of Sino Charm. In opposition to the relief sought in the Petition, there were three affirmations by Mr. Lai Wing Lun (“Mr. Lai”), who is the non-executive Chairman of the Titan Group and has the day-to-day conduct of the liquidation of Fame Dragon International Investment Limited, (“Fame Dragon”), a 66.46% shareholder of the Titan Group, two affirmations of Zhang Qiandong (“Mr. Zhang”), an executive director of the Titan Group, and an affirmation of Lui Kit Yit of Messrs. Michael Li & Co., solicitors acting for the Titan Group in the Hong Kong proceedings, who exhibited the pleadings filed in the Hong Kong action.
The Petition was supported by Marine Bright Limited (“Marine Bright”), who claimed to be a creditor of the Company for at least HK $423,000,000. Marine Bright's standing as a creditor of the Company was disputed by Docile Bright Investments Limited (In Liquidation) (“Docile Bright”), who claimed to be a creditor of the Company for the same debt and opposed the relief sought in the Petition. The Petition was also opposed by Fame Dragon.
Following a two-day hearing, the Court by its Judgment concluded that the Company's dispute in relation to the Petitioner's debt was not being pursued bona fide and on substantial grounds. In the circumstances, the Court dismissed the application of the Company that the Petition should be dismissed. The Court also expressed the view that there was persuasive evidence that the Titan Group was, in fact, insolvent and was likely to be insolvent at the time of the presentation of the Petition.
Having considered the views of the creditors and contributories, the Court concluded that the appropriate order to make was that the Company be wound up under the provisions of sections 161(c) of the Act.
The Judgment was formally handed down on 11 August 2021. At that hearing, the Court ordered that the Petitioner's costs be paid out of the assets of the Company as an expense of the liquidation (i.e. in priority), as were the costs of Marine Bright, a supporting creditor.
The issue of costs in respect of the Company and other parties who appeared to oppose the Petition was adjourned, with directions for filing submissions. The hearing of that application took place on 15 October 2021.
At the hearing, the Petitioner sought the following orders in relation to the issue of costs:
(i) The usual order that there should be no order as to costs for those contributories/creditors appearing on the Petition to unsuccessfully oppose it;
(ii) A non-party costs order against Mr. Zhang that he pay the Company's costs of the Petition on the basis that he was the person who instigated unjustifiable opposition to winding up and/or an order that;
(iii) The Company's costs of the Petition are not to be paid until all secured creditors have been paid in full (the Bathampton order).
The position taken by the Company was that the Court should make the “usual compulsory order” made on a winding-up petition which provides for the payment of the company's costs for preparing and appearing at the hearing of a successful winding up petition as an expense of the liquidation. The Company contended that there was no evidence that the sole executive director of the Company acted for an improper purpose or for personal gain. The Company submitted there is no factor which would justify anything other than the “usual compulsory order”.
The position taken on behalf of Mr. Zhang was identical to the position taken by the Company. Mr. Zhang also urges the Court that the appropriate order to make in the circumstances of this case was the “usual compulsory order”.
As noted above, the “usual compulsory order” made on the winding up petition includes provision for the payment of the company's costs for preparing and appearing at the hearing of the successful winding up petition as an expense of the liquidation. This proposition is supported in paragraph 3–157 of French, Applications to Wind Up Companies, 4 th Edition, OUP.
Mr. Williams for the Company argues that in this case, such an order should be made because (a) the attorneys were duly instructed on behalf of the Company; (b) those directing the affairs of the Company at the relevant time considered that it was in the best interests of the Company to oppose the winding up petition in the way, and on the grounds, that it did; (c) those directing the Company were not acting in their own interests in a way which was in conflict with the best interests of the Company; (d) the work done by the attorneys on behalf of the Company was in fact in the best interests of the Company; and (e) there is no factor which would justify refusing to allow the Company's costs to be an expense in the winding up.
Mr. Williams also highlights the importance of the “usual compulsory order” in relation to the representation of publicly listed companies in winding up petitions in the offshore context. He says that the “usual compulsory order” ensures that the attorneys instructed by a company to oppose the petition can expect that in the ordinary circumstances, win or lose, their fees and disbursements will rank as an expense of the liquidation. Were it otherwise, he submits, it would be difficult for attorneys to act for a company facing a winding up petition because they would have no assurance of being paid.
The Court accepts, as submitted by Mr. Williams, that whilst in some cases the attorneys might be able to come to an arrangement with those standing behind the company for the payment of fees and disbursements in closely-held companies, such arrangements are likely to be unsuitable for publicly listed companies. The Court also accepts, as pointed out by Hoffmann J (as he then was) in In re A Company [1991] 1 WLR 1003 at 1006 C-D, that the Court needs to keep in mind the fact that a particular costs order may result in depriving the attorneys instructed by the company of their costs. The unfairness of this result is a factor the Court needs to keep in mind when considering the appropriate order to make.
Mr. Williams accepts that of course, the Court retains a discretion on the facts of any individual case to make an order other than the “usual compulsory order”, but such an order can only be justified in rare, exceptional circumstances. This accords with the statement of Hoffmann J in In re A Company at 1005 D that “ Although [the “usual compulsory order”] is the normal practice, the Court retains a complete discretion and can vary the usual order.”
An issue which occasionally arises is what approach the court should take in circumstances where substantial costs have been incurred by an insolvent company in unsuccessfully defending a winding up petition. The “usual compulsory order” in the circumstances ensures that the shareholders of the insolvent company have little or nothing to lose and the burden of the litigation costs incurred by the company falls on the general body of the unsecured creditors. In circumstances where the court is satisfied that the company's opposition was unjustified, the court can order a modification to the “usual compulsory order” by postponing the timing of payment to ensure that the company's costs will not be discharged out of the assets until unsecured creditors have been paid in full. This has been referred to as the Bathampton order following the judgment of Brightman J in In re Bathampton Properties Ltd [1976] 1 WLR 168. Brightman J justified the making of the Bathampton order in the case of an insolvent company on the basis that it produces “a result of which is just and fair as between [the shareholders of the company] on the one hand, and the general body of creditors on the...
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