RE KING\'S DYEING & WEAVING FACTORY LIMITED (IN LIQUIDATION)

RE KING\'S DYEING & WEAVING FACTORY LIMITED (IN LIQUIDATION)

On the facts the court found Kings insolvent, the cheque exchanges were a sham to disguise old liabilities as new advances, the non‑disclosure of the debenture was deliberate, and the dominant intention in granting the debenture was to prefer the family‑connected creditor Kazan; accordingly the debenture was a fraudulent preference and void and the challenged payments/interest were voidable dispositions.

Citation
RE KING\'S DYEING & WEAVING FACTORY LIMITED (IN LIQUIDATION)
Parties
Applicants (liquidators): Official Receiver and Joint Special Managers (E. Johnstone; N.P. Etches); Respondent (debenture Holder): Kazan Properties and Investments Limited; Subject Company: King's Dyeing & Weaving Factory Limited (in liquidation)
Court
Court of First Instance
Jurisdiction
Hong Kong
Judgment Date
5 January 1988
Case Number
HCCW217/1986
Procedural Posture
Companies Winding Up (fraudulent Preference and Voidable Dispositions) / Hearing on Summons for Declarations Under Companies Ordinance Following Compulsory Winding Up
Outcome
Declaration that the debenture in favour of Kazan (17 June 1986) is a fraudulent preference and void; specific payments and interest to Kazan declared void; floating charge invalid under s267 (conceded); further orders and costs to be determined after submissions.
Legal Topics
Fraudulent Preference, Voidable Dispositions, Registration of Charges, Floating Charge Invalidity, Debenture/charges
Source Language
EN
Company Law Insolvency Law Security Interests Fraudulent Preference Voidable Dispositions Registration of Charges Floating Charge Invalidity Debenture/charges

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Parties

Official Receiver and Joint Special Managers (E. Johnstone; N.P. Etches)

Applicants (liquidators)

Kazan Properties and Investments Limited

Respondent (debenture Holder)

King's Dyeing & Weaving Factory Limited (in liquidation)

Subject Company

Procedural Posture

Companies Winding Up (fraudulent Preference and Voidable Dispositions) / Hearing on Summons for Declarations Under Companies Ordinance Following Compulsory Winding Up

Legal Issues

  1. 1 Whether the debenture dated 17 June 1986 in favour of Kazan was a fraudulent preference and therefore void under s266 of the Companies Ordinance
  2. 2 Whether the floating charge element was invalid under s267 as created within 12 months of winding up
  3. 3 Whether specific payments and interest paid to Kazan constituted void dispositions or fraudulent preferences (s182 and s266)

Ratio Decidendi

On the facts the court found Kings insolvent, the cheque exchanges were a sham to disguise old liabilities as new advances, the non‑disclosure of the debenture was deliberate, and the dominant intention in granting the debenture was to prefer the family‑connected creditor Kazan; accordingly the debenture was a fraudulent preference and void and the challenged payments/interest were voidable dispositions.

Court Disposition

Declaration that the debenture in favour of Kazan (17 June 1986) is a fraudulent preference and void; specific payments and interest to Kazan declared void; floating charge invalid under s267 (conceded); further orders and costs to be determined after submissions.

Orders

  • Declaration that the debenture dated 17 June 1986 in favour of Kazan Properties and Investments Limited was a fraudulent preference and is void under section 266 of the Companies Ordinance
  • Declaration that payments totalling HK$1,567,000 made between 17 June 1986 and 15 July 1986 by Kings to Kazan constituted fraudulent preferences and are void