RE WELL BOND GROUP LTD

HCCW 389/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 389 OF 1998

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D E C I S I O N

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1.  This is a summons of the Official Receiver taken out against Mr Steven Todd Krause who is the liquidator of Well Bond Group Limited (“the Company”).  The summons was taken out on 22 December 2005 under section 204 of the Companies Ordinance, Cap. 32.

2.  Section 204(1) reads as follows:

“The Official Receiver shall take cognizance of the conduct of liquidators of companies which are being wound up by the court, and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by statute, rules, or otherwise with respect to the performance of his duties, or if any complaint is made to the Official Receiver by any creditor or contributory in regard thereto, the Official Receiver shall inquire into the matter, and take such action thereon as he may think expedient.”

3.  The Company was ordered to be wound up on 29 July 1998.  By an order made on 27 October 1998, Mr Krause and Geoffrey Alan Bourne, both of Insolvency Consulting Services Asia Ltd, now known as International Consulting Services (Asia) Ltd, were appointed joint and several liquidators without a committee of inspection.

4.  In April 1999, Mr Bourne passed away.  On 28 May 1999, Tang Lai Yuk Eliza was appointed liquidator in replacement of Mr Bourne.  On 30 March 2000, Ms Tang resigned as a liquidator due to ill health without a liquidator appointed in replacement.  Mr Krause has since been acting as the sole liquidator.

5.  In the course of audit of the liquidator’s accounts, the Official Receiver has become aware of breaches of sections 203 and 195 by Mr Krause.  Section 203(1) provides that:

“Every liquidator (other than the Official Receiver) of a company which is being wound up by the court shall, at such times as may be prescribed but not less than twice in each year during his tenure of office, send to the Official Receiver, an account of his receipts and payments as liquidator.”

Under section 203(3):

“The liquidator shall furnish the Official Receiver with such vouchers and information relating to the account as he requires, and the Official Receiver may at any time require the production of, and inspect, any books or accounts kept by the liquidator.”

Under section 195, it is provided that:

“Where in the winding up of a company by the court a person other than the Official Receiver is appointed provisional liquidator or liquidator under section 194, that person –

(a) shall forthwith give notice of his appointment to the Registrar in the specified form and give security in the prescribed manner to the satisfaction of the Official Receiver …”

6.  The Official Receiver made a number of requests and demands on Mr Krause and raised queries regarding the liquidator’s accounts and the liquidator’s bond.  Mr Krause did not reply or comply with the requests and demands.  There were persistent breaches of section 203 regarding the submission of the liquidator’s accounts and persistent failure to submit renewed liquidator’s bonds.  Mr Krause’s attitude in ignoring requests and demands has been described as unprofessional and irresponsible by the Official Receiver.  I agree.

7.  Further, a creditor and former director of the Company, James Sean, reported to the Official Receiver in September 2002 of the failure of Mr Krause to declare a dividend despite notice having been given by Mr Krause.  Mr Krause has sent a letter to Mr Sean with a notice to creditors alleging that he had complied with the Official Receiver’s requests in filing additional forms and he had requested the Official Receiver to issue dividend cheques.  These allegations are not true.  He had also failed to report to the Official Receiver the current status of the administration of the estate of the Company and on the declaration of dividend, despite repeated requests and demands by the Official Receiver.

8.  This summons first came before me on 3 February 2006.  On that day, I made an order requiring Mr Krause to file and serve within 14 days an affidavit to deal with the matters as listed in the schedule to the summons of the Official Receiver as sought in paragraph 1(6) of the summons.  This was to give him the final opportunity to comply with the Official Receiver’s requests and demands and to give a proper explanation to the court.  I adjourned the rest of the summons to 21 February 2006.

9.  A sealed copy of my order on 3 February 2006 was served on Mr Krause on 6 February 2006.  On 20 February 2006, Mr Krause wrote to the Official Receiver to apologise for the lateness of his reply, stating that he had been trying to complete the necessary liquidation procedures and he expected to have all forms and necessary advertisements completed by 6 March 2006.  He explained that because of financial constraints and lack of staff support, he had been unable to attend to such matters within the time requested by the Official Receiver and as ordered by the court.  He further assured the Official Receiver he would be attending to all the issues as a matter of urgency, and he requested an adjournment of the summons.

10.  The Official Receiver acceded to Mr Krause’s request and obtained an adjournment of the summons.  The summons was first adjourned to 10 March and later to 31 March 2006 to accommodate Mr Krause.

11.  On 30 March 2006, he submitted a bundle of documents with a covering letter to the Official Receiver.  As the Official Receiver required time to go through the bundle of documents served the day before the hearing, the summons was again adjourned to today.

12.  After consideration of the documents provided on 30 March 2006, the Official Receiver wrote to Mr Krause on 1, 10 and 19 April 2006 to request for outstanding information and documents regarding his affidavit which should have been filed, the liquidator’s bond and progress with regard to the declaration of dividend.

13.  On 25 April 2006, the Official Receiver wrote to Mr Krause regarding the statements of accounts submitted with his letter on 30 March 2006, making a number of enquiries and stating in what respects he has still failed to answer previous queries and what specifically are outstanding from him.

14.  This is not the first time that the Official Receiver has issued a summons under section 204 against Mr Krause.  A summons was issued in August 2002, and I had made an order against him on 30 October 2002, requiring him to submit a reply to the Official Receiver’s queries, to submit the liquidator’s accounts (the 4^th to 8^th liquidator’s accounts), and to provide security to the satisfaction of the Official Receiver pursuant to an order dated 27 October 1998.

15.  The Official Receiver has helpfully prepared a summary of the information and documents provided by Mr Krause up to 30 March 2006 in respect of each of the matters to be attended to as per the present summons.  The outstanding matters for each item are listed in the third column of that summary annexed to the Official Receiver’s 4^th report dated 3 May 2006 as “OR-22”.  I do not propose to set out these matters in full.

16.  In summary, Mr Krause failed to comply with the order on 30 October 2002, in that he failed to respond fully to the Official Receiver’s letters regarding the queries on the liquidator’s accounts from 29 January 1999 to 28 January 2000 (the 2^nd and 3^rd liquidator’s accounts).  There were further breaches of sections 203 and 195 in that:

(1) he had failed to submit to the Official Receiver the amendment sheet for the 7^th liquidator’s account for the period from 29 July 2001 to 28 January 2002;

(2) he had failed to give satisfactory reply or comply fully with the Official Receiver’s letters with regard to format checking queries on the 4^th to 10^th liquidator’s accounts for the period from 29 January 2000 to 28 July 2003;

(3) he had failed to submit to the Official Receiver the 12^th to 15^th liquidator’s accounts for the period from 29 January 2004 to 28 January 2006; and

(4) he had failed to submit a renewed liquidator’s bond after the previous bond expired on 26 October 2004.

17.  To date, no affidavit has been filed by Mr Krause in compliance with the order made on 3 February 2006.

18.  Just before the hearing commenced, Mr Krause submitted an affidavit made by him on 3 May 2006, exhibiting his proposed final report to the creditors.  The Official Receiver has not had the opportunity of going through this proposed final report in detail, but from a cursory reading of the proposed final report, it does not appear to this court that Mr Krause has dealt with all the outstanding matters that should be dealt with as listed in the summary in “OR-22”.  He has failed to respond to the Official Receiver’s enquiries with regard to the administration of the estate of the Company and his failure to declare a dividend, despite two notices of intended preferential payment and dividend published in the gazette dated 17 January 2003 and 26 March 2004.  Mr Krause should give a proper explanation to the court, the Official Receiver and the creditors.

19.  I take a very serious view of these persistent breaches of Mr Krause.  I note in his latest affidavit, he has again offered an apology stating that the principal reasons for his delay in complying with the Official Receiver’s requests and demands are due to a lack of personal funds which led to the closure of his offices and the need to terminate the staff and seek alternative employment.  He stated that he should now be in a position to finalise this liquidation and he would be able to expedite the closure of the administration.  He has further given an undertaking to ensure that all matters would be dealt with in co-operation with the Official Receiver no later than 31 May 2006.

20.  In respect of paragraphs 1(1) to (5) of the summons, I order that the outstanding information and documents as set out in the third column of “OR-22” to the 4^th report of the Official Receiver be submitted by Mr Krause to the Official Receiver within 28 days hereof.

21.  Mr Krause has agreed to pay the Official Receiver’s costs of this application personally.  I assess the costs of the Official Receiver on a gross sum basis at $48,000.00 up to 3 February 2006.  Mr Krause is also to pay the further costs incurred by the Official Receiver since that date.  If the amount is in dispute, it will be taxed by the court.