Re C.A. PACIFIC FINANCE LTD. (in Liquidation)

Re C.A. PACIFIC FINANCE LTD. (in Liquidation)

Where available shares in a particular line match client claims those shares must be delivered to clients subject to payment of liquidators' reasonable costs and any broker's lien and subject to SFC statutory subrogation; where there is a shortfall the rule in Clayton's case is inapplicable and unjust; because cash clients neither authorized pledging nor did CAP Securities in practice pledge their shares before the last days, it is presumed CAP Securities exhausted shares attributable to margin clients first; accordingly remaining shares in each line must be allocated first to cash clients (subject to clause 4 defaults and clause 6 lien), with any balance allocated to margin clients...

Citation
Re C.A. PACIFIC FINANCE LTD. (in Liquidation)
Parties
Applicant (company in Liquidation): C.A. Pacific Securities Limited (in Liquidation); Applicant (company in Liquidation): C.A. Pacific Finance Limited (in Liquidation); Interested Party / Petitioner: Securities and Futures Commission
Court
Court of First Instance
Jurisdiction
Hong Kong
Judgment Date
20 December 2000
Case Number
HCCW36/1998
Procedural Posture
Companies (winding Up) Action / Application for Directions on Allocation of Clients' Shares in Liquidation
Outcome
Directions granted on allocation: priority to cash clients within each stock line; margin clients receive remaining shares subject to charges; interpleader if indebtedness disputed; classification scheme and objection procedure ordered; delivery subject to costs, lien and SFC subrogation.
Legal Topics
Proprietary Rights of Clients, Allocation of Shortfall in Trust Property, Classification of Clients (cash V Margin), Application of Clayton's Rule, Pari Passu Distribution, Statutory Subrogation, Interpleader, Broker's Lien
Source Language
EN
Insolvency Trusts and Fiduciary Law Securities Law Company Law Civil Procedure Proprietary Rights of Clients Allocation of Shortfall in Trust Property Classification of Clients (cash V Margin) +5 more

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Parties

C.A. Pacific Securities Limited (in Liquidation)

Applicant (company in Liquidation)

C.A. Pacific Finance Limited (in Liquidation)

Applicant (company in Liquidation)

Securities and Futures Commission

Interested Party / Petitioner

Procedural Posture

Companies (winding Up) Action / Application for Directions on Allocation of Clients' Shares in Liquidation

Legal Issues

  1. 1 Whether CAP Securities' clients had proprietary interests in shares held via CCASS and, if so, how remaining shares should be allocated in lines with shortfalls
  2. 2 Whether the rule in Clayton's case applies to allocation of shares in CCASS
  3. 3 Proper method for allocating shortfalls between cash clients and margin (CAP Finance) clients

Ratio Decidendi

Where available shares in a particular line match client claims those shares must be delivered to clients subject to payment of liquidators' reasonable costs and any broker's lien and subject to SFC statutory subrogation; where there is a shortfall the rule in Clayton's case is inapplicable and unjust; because cash clients neither authorized pledging nor did CAP Securities in practice pledge their shares before the last days, it is presumed CAP Securities exhausted shares attributable to margin clients first; accordingly remaining shares in each line must be allocated first to cash clients (subject to clause 4 defaults and clause 6 lien), with any balance allocated to margin clients...

Court Disposition

Directions granted on allocation: priority to cash clients within each stock line; margin clients receive remaining shares subject to charges; interpleader if indebtedness disputed; classification scheme and objection procedure ordered; delivery subject to costs, lien and SFC subrogation.

Orders

  • Clients classified as cash clients if no Memorandum of Deposit executed and as margin clients if Memorandum of Deposit executed; notice of classification to be given
  • Priority: in each line of stock remaining shares to be allocated first to cash clients who acquired that stock (subject to sale under Client Agreement clause 4 and clause 6 lien), then the balance to margin clients