On 12 March 2024, the Court dismissed an application by the Petitioner to reverse the adjudication of the Joint and Several Liquidators (“Liquidators”) over its proof of debt, which was based on a default judgment obtained against the Company (“POD”).
Background
The Petitioner there lodged the POD claiming to be a creditor of the Company in the sum of US$9,333,672.35 and HK$15,872.21. The Petitioner’s claim was based on, inter alia, a default judgment against the Company in another action, the underlying claim of which relates to four loans that were purportedly assigned to the Petitioner.
The Liquidators admitted the principal element of one of the loans as an ordinary claim in the amount of US$1,007,959.60 but rejected the rest of the claims in the POD. The Liquidators considered that there were no loan agreements or contemporaneous documents evidencing the alleged loans, Further, the evidence showed that certain sums allegedly advanced were in fact not used by the Company.
Dissatisfied with the decision, the Petitioner applied to have it reversed, contending that the POD should be admitted in full.
Applicable Legal Principles
In line with established legal principles, the Court proceeded to consider the application de novo.
The Court considered that in deciding whether to admit or reject a proof of debt, a liquidator carries out a quasi-judicial function. The liquidator does not act on behalf of the company and hence may go behind a judgment or a stated account which before the winding up would have been binding on the company.
The usual grounds under which a liquidator may go behind a judgment include, among others, miscarriage of justice. In this respect, where the proof of debt is based on a default judgment, the ground of “miscarriage of justice” may be particularly relevant since a default judgment, by its very nature, involves a one-sided presentation of the facts, the objectivity and accuracy of which may be subject to challenge or further scrutiny.
Analysis
The Court rejected the Petitioner’s contention that it was wrong for the Liquidators to go behind the default judgment and to form its own view on the existence of the alleged loans. In particular, there is no requirement that a liquidator should seek to challenge the judgment (or a charging order granted in respect of the judgment) before looking behind the judgment.
The Court accepted the Liquidators’ case that had the Company properly defended the proceedings, it would have succeeded in establishing that the alleged Loans in question were not owed by the Company. Further, the Court examined all the relevant evidence and contemporaneous records provided by the Petitioner. It held that the Petitioner has failed to discharge its burden of proving that the alleged loans were genuine debts owed by the Company to the Petitioner.
Conclusion
As a result, the Liquidators’ decision was confirmed and the application was dismissed.
The full judgment is available at https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=158719
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Mr. Andrew Nicholas Hart, Solicitor Advocate of Hart Giles, for the Petitioner
Mr. Justin Lam and Mr. Billy Liu, instructed by J. Chan, Yip, So & Partners, for the Joint and Several Liquidators
