Company and Insolvency — Applicable interest rate on the purchase price made under a Buy-Out order

In winding-up petition on the grounds of unfair prejudicial conduct, it is not uncommon for the Court to make a buy-out order first (“the Buy-Out Order”), then later an order for appointment of valuer with a valuation date falling on the date of the subsequent order (“the Valuation Date”). Therefore, the final valuation (i.e. the purchase price) will only be quantified by the valuer further down the line.

The Court in Re Power Hong Kong Limited [2023] 5 HKLRD 369 considered, inter alia, two interesting questions arising in such circumstances: –  

(1) Whether the purchase price should carry the judgment rate even before the purchase price is quantified because prima facie the judgment rate is applicable from the date of the judgment which in the present case is the date of the Buy-Out Order; or whether the lower commercial rate (usually at prime rate plus 1% p.a.) should be applicable; and

(2) Whether the interest rate, be it the judgment rate or the commercial rate, should be accrued from the date of the earlier Buy-Out Order (i.e. the date of the judgment), or the later Valuation Date on which the purchase price is assessed because any price change between the two dates would be reflected in the purchase price as at the Valuation Date.

On the first question, the Court noted that the Court of Appeal had adopted both the judgment rate and the commercial rate in different cases but the issue was not seriously argued, see Re LehmanBrown Ltd (CACV 272/2011, 13 March 2013) and Re New Century Iatrical Inv Management Ltd [2020] HKCA 481. 

The Court therefore resorted to the principle of awarding judgment rate in an ordinary writ action in which post-judgment interest rate is a penal rate imposed where a judgment for a quantified sum has not been paid, to encourage the paying party to honour a money judgment as soon as possible. The Court saw no difference in principle between that case and the present one regarding the penal nature of adopting the judgment rate for post-judgment interest after a judgment sum has been quantified. Therefore, the Court applied the commercial rate, and held that awarding the judgment rate before there was a finally ascertained sum for payment is contrary to principle and does not serve the purpose of encouraging the paying party to honour a money judgment.

On the second question, on the face of it, it may sound counter-intuitive that interest be accrued even before the date of valuation. The Court held that the petitioners are entitled to be paid the purchase price as at the Buy Out Order and it is only a matter of practicalities that the purchase price cannot be ascertained until sometime later. In the circumstances, the Court held interest should start to be accrued from the date of the Buy Out Order even though the purchase price has yet to be ascertained.

Ross M.Y. Yuen (with Eddy Mui) acted for the respondents.

Ross Yuen

Called to the Bar in 2008, Ross has developed a general civil practice with particular emphasis on land and commercial law.

• Chin Ling Wah by her son and next friend Shum Lui v Shum Chau[2022] 3 HKLRD 372 (the Court allowed mentally incapacitated person’s next friend to obtain order for sale under the Partition Ordinance without making prior application under the Mental Health Ordinance)

• Lead Harvest Group Ltd & Ors v Cheong Wing Electric Limited & Ors(LDCS 6000/2018) [2022] HKLdT 8, 7 Feb 2022 (the Tribunal set record breaking reserve price of over HK$5 Billion in compulsory sale application)

• Hung Yip (HK) Engineering Co Ltd v. Kinli Civil Engineering Ltd[2021] 1 HKLRD 860 (applicant of injunction to restrain presentation of winding-up petition to demonstrate presentation would be abuse of process which is not the same as demonstrating bona fide defence on substantial grounds)

• Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong[2020] 4 HKLRD 831 (calculation of effective rate of interest to determine if maximum permitted under Money Lenders Ordinance had been exceeded and exercise of discretion under s.25(1), (2)(b) of the Ordinance)

• Monat Investment Ltd v. All Person(s) in Occupation of Part of the Remaining Portion of Lot No 591 in Mui Wo D.D. 4 No.16 Ma Po Tsuen, Mui Wo, Lantau Island and Another[2020] 4 HKLRD 330, [2020] HKCFI 1970 (whether a squatter’s unlawful actions preclude his adverse possession claim from succeeding).

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This article was first published on 12 January 2024.

Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.