RE KIU MAY CONSTRUCTION COMPANY LIMITED

RE KIU MAY CONSTRUCTION COMPANY LIMITED

Section 265(5B) is to be interpreted strictly: it only permits giving contributors an advantage where the indemnity was given for the costs of litigation and the specific purpose (institution of proceedings and recovery by means of that indemnity) was fulfilled; absent such fulfilment and absent real risk taken by...

Source-derived case information.

Citation
RE KIU MAY CONSTRUCTION COMPANY LIMITED
Parties
Company (subject): Kiu May Construction Company Limited; Liquidator (applicant): Official Receiver; Respondent (potential Defendant): Great Eagle Company Limited; Creditor (contributor): Federal Enterprises Co. Ltd; Creditor (in Person): Chu Bing Cheuk
Court
Court of First Instance
Jurisdiction
Hong Kong
Judgment Date
12 July 1985
Case Number
HCCW65/1984
Procedural Posture
Companies Winding Up / Application for Directions (chambers)
Outcome
Application granted in part: strict interpretation applied; recovered sum to be retained in the liquidation and not distributed to contributing creditors
Legal Topics
Winding Up, Liquidator Indemnity, Distribution of Assets, Statutory Interpretation of S.265(5 B)
Source Language
en
Company Law Insolvency Civil Procedure Winding Up Liquidator Indemnity Distribution of Assets Statutory Interpretation of S.265(5 B)

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Parties

Kiu May Construction Company Limited

Company (subject)

Official Receiver

Liquidator (applicant)

Great Eagle Company Limited

Respondent (potential Defendant)

Federal Enterprises Co. Ltd

Creditor (contributor)

Chu Bing Cheuk

Creditor (in Person)

Procedural Posture

Companies Winding Up / Application for Directions (chambers)

Legal Issues

  1. 1 Whether s.265(5B) applies where creditors contributed to fund litigation but proceedings were not instituted and a settlement was received
  2. 2 Whether contributors who provided indemnities are entitled to preferential distribution of recoveries absent actual risk taken or institution of proceedings
  3. 3 Whether the Official Receiver may apply under s.265(5B) prior to any recovery being effected to secure contributors' costs

Ratio Decidendi

Section 265(5B) is to be interpreted strictly: it only permits giving contributors an advantage where the indemnity was given for the costs of litigation and the specific purpose (institution of proceedings and recovery by means of that indemnity) was fulfilled; absent such fulfilment and absent real risk taken by contributors, the contributors are not entitled to preferential distribution and the recovered sum remains part of the liquidation for pari passu distribution.

Court Disposition

Application granted in part: strict interpretation applied; recovered sum to be retained in the liquidation and not distributed to contributing creditors

Orders

  • Recovered sum from Great Eagle to be retained in the liquidation and not distributed to those creditors who made contributions towards the costs
  • Official Receiver is entitled to make an application under Section 265(5B) prior to any recovery being effected to secure contributors' costs by court order