Introduction

Buyout order is a common remedy sought by a petitioner in unfair prejudice petitions and winding-up petitions (as an alternative remedy). However, such remedy may not necessarily be the end of the matter as the petitioner may still encounter difficulties in enforcing the buyout order.  In Leung Chi Tung v Au Yeung Fan and Others HCCW 504/2005, the Court of First Instance held that a buyout order which had not been complied with constituted a “judgment debt”, as a result of which the petitioner may seek a court order against the defaulting party for examination of his assets, means and liabilities.

Background

In 2007, the Petitioner obtained a Court order that the 1^st and 2^nd Respondents purchased his shares in the company.  Valuation of the Petitioner’s shares was made pursuant to the buyout order but that process took an inordinate period of time.  On 30 September 2011, Harris J made an order regarding the value of the Petitioner’s shares as between him and the 1^st Respondent. 

Subsequently, on 18 July 2012, Harris J made an order (the “Order”) that completion of the Petitioner’s shares with the 1^st Respondent take place on or before 8 August 2012 (the “Completion Date”).  The Order required that at completion the 1^st Respondent should give a cashier order/ solicitors cheque of a specified sum drawn in favour of the Petitioner and the Petitioner to execute and deliver all documents for the purpose of effecting the transfer of the Petitioner’s shares to the 1^st Respondent.

Completion did not take place on the Completion Date.  Upon the Petitioner’s application, the Court made an examination order against the 1^st Respondent pursuant to Order 49B of the Rules of High Court (“RHC”) as to whether any and what debts are due to him and whether he has any and what other property or means of satisfying the order (the “Examination Order”).  The 1^st Respondent’s application to set aside the Examination Order was dismissed by Master.  The 1^st Respondent further appealed as to whether a buyout order which had not been complied with constituted a “judgment debt”.

The Parties’ Arguments

The 1^st Respondent contended that the Order did not create an immediate obligation to pay but a future debt, which could arise on the Completion Date.  Further, the Order was contingent on the Petitioner being able to comply with his obligations on the Completion Date.  As such, the 1^st Respondent argued that there was no judgment debt and Order 49B of the RHC was not applicable.

On the other hand, the Petitioner contended that a buyout order with a fixed purchase price and date of payment satisfied the conditions of judgment debt under Order 49B of the RHC.  In support of his argument, the Petitioner relied on Duke of Beaufort v Phillips  (1847) 1 De G & Sm 321; 63 E R 1087, which held that a purchaser in default under the decree for specific performance is a judgment debtor.

The Court’s Decision

The Court considered that a buyout order was similar in nature to a decree for specific performance.  In the present case, the Order had the effect of creating binding obligations as from the making of the Order on both the Petitioner and the 1^st Respondent to be performed on the Completion Date.  Such obligations came into being when the Order was made although their performance was not due until the Completion date and was not contingent on the other party performing his obligations.  In other words, the obligation of the 1^st Respondent to make payment on the Completion Date was not contingent on the Petitioner taking all necessary steps to transfer his shares to the 1^st Respondent.  Therefore, the 1^st Respondent’s appeal was dismissed.

Conclusion

This case shows that a party in default of compliance with a buyout order is a judgment debtor, who, upon application of the non-defaulting party, may be ordered to be examined by the Court.  It is worthy to note that, under Order 49B of the RHC, where there is reasonable cause to believe that an examination order may not be effective in securing the attendance of the defaulting party, the Court is also empowered to make an arrest order pending examination.