Re Grande Holdings Ltd

Court of Appeal
Civil Appeal No. 40 of 2015
Cheung, Yuen and Chu JJA
Company Law
24 November 2015

Winding-up – proof of debt – debt based on early termination of swap transactions executed under agreement – whether debt liquidated – debt ascertained in accordance with contractual formula – debt not unliquidated

ASM was the assignee of debts owed by C, a company in liquidation, to a bank (the “Bank”) arising from the early termination of swap transactions executed under a master agreement of the International Swaps and Derivatives Association (the “Agreement”). The early termination amount initially owed by C was calculated by a fixed formula in the Agreement based on the “Close-out Amount” to be determined by the Bank and the “Unpaid Amount” calculated by the Bank in accordance with a further provision in the Agreement. In a notice issued to C in March 2010, the Bank set out its calculation of the early termination amount. A creditor challenged the admission of ASM’s proof of debt and applied for a declaration that ASM was not entitled to vote at the first meeting of creditors pursuant to r. 125 of the Companies (Winding-up) Rules (Cap. 32H, Sub. Leg.) as it was an unliquidated debt. The Judge held it was an unliquidated debt (see [2015] 1 HKLRD 755). ASM appealed.

Held, allowing the appeal, that:

  • A liquidated debt was a pre-ascertained liability under the agreement of the parties. This included a contractual liability where the amount due was to be ascertained in accordance with a contractual formula or contractual machinery. The sum did not have to be indisputable. That was the case here. The mere fact that stochastic calculus was involved, which contained “variables the value of which change randomly, for example, floating interest rates”, did not mean that the amount was not so ascertained.
  • The Close-out Amount could hardly be described as speculation or a best estimate. The notice of amount payable calculated by the Bank was accompanied by correspondence between the Bank and other banks, but none of these banks were able to provide a quote on the Close-out Amount. Further, C had clearly accepted the figure by its express confirmation and by partial payment made. The provisional liquidators considered how the debt had been ascertained and there was no contrary evidence to fault their view that it was in the nature of a liquidated sum.
  • An application by way of summons in a winding-up proceedings could be made by provisional liquidators, liquidators, creditors, contributories or persons having interests in C after it was wound up in respect of issues arising from or relating to C’s liquidation. While the proof of debt might not be conclusive and final, a determination of ASM’s right to vote which might have a huge implication on how the rights of the creditors were to be resolved, was final in nature.

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