THE OFFICIAL RECEIVER v. LAI KWOK YING & ANOTHER

HCMP 4813/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4813 OF 2002

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J U D G M E N T

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The Application

1. This is an application by the Official Receiver for a disqualification order against Mr. Lai Kwok Ying, the 1st Respondent and Mr. Lai Kwok Man, the 2nd Respondent in this action, under Section 168H of the Companies Ordinance, Cap. 32 ("the Ordinance"). Both the 1st and 2nd Respondents were former directors of Enfield Construction Company Ltd and Wing Mou Construction Company Ltd ("the Companies").

2. The 1st Respondent through his solicitors and the 2nd Respondent himself filed their Acknowledgement of Service on 17 January 2003 and 5 December 2002 respectively. Both of them indicated that they would not contest the application.

"Carecraft" Procedure

3. Shortly prior to the date of the 1st hearing, both Respondents had sensibly opted to follow the "Carecraft" procedure and filed their respective Schedules. The 1st Respondent has further filed an Affirmation in support of his grounds of mitigation.

4. "Carecraft" procedures originated from England from a decision of Ferris J. in Re Carecraft Construction Co. Ltd [1993] BCLC 1259. By adopting the "Carecraft" procedure, the court can proceed in a summary way when both parties have agreed on certain unopposed facts based on which the directors concerned could be disqualified. Such procedure received judicial approval in Hong Kong first in the case of Re Design Positive Architects Planners Ltd., 26 August 2002, HCMP 6570 of 2000. Yuen J. (as she then was) found no reason, whether in theory or practice, why a similar summary procedure should not apply in Hong Kong. Such procedure was more recently applied by Kwan J. in Re Emperor Hotel Management Company Ltd, 4 December 2002, HCMP 1464 of 2001.

5. It is well established by both the English and Hong Kong authorities that under the "Carecraft" procedure, the court is not entitled to make findings upon materials other than the agreed facts. However, the procedure would not oblige the court to make a disqualification order and the court would not be bound by the period of disqualification agreed by parties and it still retains the discretion to consider the appropriate disqualification period. If the court is of the view that the agreed facts do not establish a case of disqualification order, he would make known his views and the summary procedure would not be adopted and the application would proceed to a full hearing.

6. As stated in Re BPR Ltd [1998] BCC 259 and Re Emperor Hotel Management Company Ltd (supra), the agreed facts between the parties would be better to be set out in the appendix to this judgment so as to avoid any misstatement that may prejudice to the interests of the Respondents. The Schedules for "Carecraft" Procedure applicable to the 1st and 2nd Respondents are annexed as Appendix A and B respectively. The Schedules contain the both the agreed facts and mitigation factors. In this case, parties have no disputed facts.

Background leading to the Disqualification Proceedings

7. Enfield Construction Company Ltd. ("EC Ltd") was incorporated in Hong Kong on 5 November 1985 with its former name of Linkman Company Ltd. Both the 1st and 2nd Respondents were directors and shareholders of the company. EC Ltd commenced its creditors' voluntary winding up on 27 November 1998 under Section 228A of the Ordinance. Joint and Several Liquidators were appointed and assisted by a committee of inspection.

8. Wing Mou Construction Company Ltd. ("WM Ltd.") was incorporated in Hong Kong back in April 1970. While the 1st Respondent was the director and shareholder of the company, the 2nd Respondent was at all material times the Financial Director. WM Ltd also commenced its creditors' voluntary winding up on 28 November 1998. Joint and Several Liquidators and Committee of Inspection were appointed.

9. The Companies were licensed contractors of government works with their main business of construction. As stated in the 1st Report of the Official Receiver dated 21 November 2002, the assets of the Companies were insufficient for payment of their debts and other liabilities and the expenses of winding up. I am satisfied that the Companies are insolvent within the meaning of Section 168H(2)(a) of the Ordinance.

10. The 1st and 2nd Respondents are undischarged bankrupts under bankruptcy orders made on 24 November 1999 and 16 October 2000 respectively.

11. The unfit conducts relied upon by the Official Receiver against both Respondents are the conviction of various charges of forgery under Section 71 of the Crimes Ordinance. Both Respondents admitted that during the period of their directorship with the Companies, they had committed various counts of forgery of commercial documents. The Respondents also admitted that they were equally responsible in colluding with each other in preparation of the forged documents. After trial, both Respondents were sentenced to 18 months of imprisonment but suspended for 2 years in District Court under Case No. DCCC 787/1999.

12. The Official Receiver also complained against the 1st Respondent for remaining as director of 2 companies namely, Famous Engineering Limited and Great Fair Engineering Limited while being an undischarged bankrupt.

13. On the basis of the agreed facts, the conducts of both Respondents were totally unacceptable as they had made use of their capacity as directors of the Companies fabricated various commercial documents and presented the same to a bank. While the motive behind the forgery may be a mitigation factor to be considered later in this Judgment, such conducts of the Respondents when they were directors of the Companies clearly make them unfit to be concerned in the management of a company. I am satisfied that the conditions in Section 168H(1) of the Ordinance are met and hence, it is mandatory to make a disqualification order against each of them.

The 1st Respondent's Mitigation

14. The agreed mitigation factors are set out in the Appendix A and I am not going to repeat them here in details. In gist, the 1st Respondent claimed that the mere purpose and the resulting effect of the fabrication of the documents was to accelerate the payment of short-term loans by the then First Pacific Bank Ltd. under the ready line of banking facilities so as to meet the cash flow problems then faced by the Companies. However, it is accepted by the Official Receiver that there was no fraud on the general body of the creditors of the Companies. The 1st Respondent is remorseful of his misconduct and has rendered full co-operation with the Official Receiver. Further, the adoption of the "Carecraft" procedure saves a lot of time and costs of the Official Receiver.

15. Regarding the complaint against the 1st Respondent of remaining as directors of 2 companies while he is an undischarged bankrupt, the Official Receiver accepted that such misconduct is only due to the mere ignorance of the prohibition under Section 156 of the Ordinance. The 2 companies in question had remained dormant with no business activities while the 1st Respondent was a bankrupt. The 1st Respondent has resigned his directorship shortly after he was made aware of the prohibition.

16. As the 1st Respondent cannot agree with the Official Receiver on the length of the period of disqualification, with no objection from the Official Receiver, the 1st Respondent has filed an affirmation shortly before the 1st hearing in support of his grounds of mitigation with a view to persuading this Court to impose a shorter period of disqualification.

17. The 1st Respondent first set out in the affirmation his education background and how he led the success of the Companies. I doubt if these factors would give much support to the 1st Respondent's mitigation. I agree with Mr. Tam for the Official Receiver that we should focus more on how the Respondent caused the collapse of the Companies rather than how he made the success of them. In any event, I attach minimum weight to such factors in considering the period of disqualification.

18. Equally, I cannot see any particular relevance of the negotiation between the 1st Respondent and the Winsor Group to take a stake in the Companies. It would not assist the 1st Respondent in his mitigation.

19. The 1st Respondent then tried to explain that as a result of the ICAC investigation, the banks withdrew all credit facilities originally made available to the Companies which constituted "the single and most important factor" to the liquidation of the Companies. While the 1st Respondent may wish to shift the blame in causing the collapse of the Companies to such external factors, I cannot ignore the fact that the fraud committed by the Respondents in their capacity as directors of the Companies contributed, in my view, a considerable extent to the winding-up of the Companies.

20. Mr. Andrews, Counsel for the 1st Respondent, submitted that throughout the whole transaction in question, there was no monetary gain obtained by the 1st Respondent personally. The whole motive was to rescue the Companies from cashflow problem by obtaining accelerated payments from the bank by no more than 2 weeks.

21. The main mitigating factor, I believe, which the 1st Respondent and Mr. Andrews wish to put forward is the combined effect of the disqualification order and the 1st Respondent's own bankruptcy. The 1st Respondent was made bankrupt on 24 November 1999 and from then, he was prohibited by Section 156 of the Ordinance from acting as director of any company. If the Court eventually imposes a further period of disqualification of 5 years as proposed by the Official Receiver, it was submitted by the 1st Respondent that effectively, he would be disqualified for a total of 9 years. According to the 1st Respondent, such period was too long in light of the seriousness of the case and the lack of aggravating features.

22. Regarding the period of disqualification, Mr. Andrews submitted that the Court should take into account of the previous 3-year period of disqualification because of the bankruptcy of the 1st Respondent and consider a further period of disqualification. He suggested the appropriate starting point for the period of disqualification in this case should be 4 years after citing the Judgment in Re Emperor Hotel Management Company Ltd. (supra) where in that case Madam Justice Kwan imposed a period of disqualification of 4 years when there was no personal gain proved against the respondent. Discounting the past 3 years when the 1st Respondent was disqualified as director because of his bankruptcy, Mr. Andrews urged me to impose a minimum period of disqualification. He contended that 2 years would be sufficient to do justice in this case.

23. Mr. Andrews further submitted that in the criminal trial, despite the serious nature of the offence, after considering the mitigation, the trial judge gave a suspended sentence and did not see fit to disqualify the Respondents from acting as director while he had jurisdiction to do so. Mr. Andrews urged me to take into account that the trial judge should have in mind his power to disqualify but chose not to impose a disqualification order.

24. Since I was asked to consider the sentencing in the criminal trial, it would only be fair for both parties if part of the transcript of the criminal trial relating to the reasons for sentence given by HH Judge Muttrie be made available. As such, the 1st hearing which was only scheduled for half an hour was adjourned so that the Official Receiver could obtain such transcript from the District Court.

25. The transcript was filed by the Official Receiver in March 2003 and made available to both Respondents. Although Judge Muttrie was of the view that the forgeries in question committed by the Respondents were of the most serious of the kind, contrary to what Mr. Andrews submitted, I cannot find in any part of the transcript to indicate at all that the learned Judge had ever considered the possibility of imposing a disqualification order against the Respondents. Perhaps, Mr. Tam of the Official Receiver was correct to say that as the prosecution had never applied for a disqualification order, the learned Judge had not duly considered the same in passing the sentence.

The 2nd Respondent's Mitigation

26. The 2nd Respondent shared the same agreed mitigation factors with the 1st Respondent, the details of which are set out in Appendix B. Unlike the 1st Respondent, the 2nd Respondent agreed (though with reluctance according to his oral submission) that before taking into account of any mitigation factors, the seriousness of this case would fall within the lower end of the middle bracket of the 3-tier tariff laid down in Re Sevenoaks Stationers (Retail) Ltd. [1990] BCC 765. Subject to the overriding discretion of the Court, both parties agreed that after taking into account of all mitigation factors, the appropriate period should be 5 years from the date of the disqualification order. However, in his oral submission, the 2nd Respondent urged me to impose a shorter period of disqualification so as to give him a chance for rehabilitation.

Period of Disqualification

27. Since it is accepted and agreed by parties that both the 1st and 2nd Respondents were equally culpable in the forgery, despite the fact that the 1st Respondent was legally represented at this hearing and made additional factors of mitigation on top of those agreed factors, I take the view that unless the 1st Respondent can persuade me to accept some favourable mitigation factors which are applicable to him alone (which I find none), the 1st and 2nd Respondents should have more or less the same period of disqualification. On the other hand, I do not accept the suggestion of Mr. Tam for the Official Receiver to give the 2nd Respondent an arbitrary discount of about 5 months being the period between the 1st and the adjourned hearings simply because the adjournment was caused by the oral submission of the 1st Respondent's Counsel. In any event, the 1st hearing was scheduled for half an hour and parties should have expected to have an adjourned hearing in order to allow the Court sufficient time to hear all the submissions. Furthermore, the 2nd Respondent may be benefited out of the adjournment if the transcript of reasons for sentencing supported the contention of Mr. Andrews. In any event, the 2nd Respondent had not sought to correct the submission of Mr. Andrews at the 1st hearing.

28. While the Respondents' bankruptcy in the past years and their conducts during the bankruptcy may be relevant mitigation factors in assessing the appropriate period of disqualification, I do not accept the arguments of Mr. Andrews that the Court should simply discount the period of bankruptcy already elapsed from the proposed period of disqualification subject to the minimum period of 1 year disqualification. It is not a simple exercise of arithmetic. In fact, I doubt if I should give a substantial discount to the period of disqualification that I intend to impose against the Respondents simply because they were prohibited from acting as directors because of their bankruptcy.

29. Section 156 of the Ordinance only makes it an offence for an undischarged bankrupt from acting as director directly or indirectly except with leave of court. It is not a disqualification as such. The provision is quite different from the disqualification proceedings under Section 168H of the Ordinance which concerns with the conduct of a person during his directorship with a company. The scope of the latter proceedings is clearly wider as the disqualification order would affect not only a person acting as director but also other offices such as liquidator and receiver. In my view, Sections 156 and 168H operate separately and independently under the Ordinance.

30. In considering an appropriate period of disqualification against the Respondents, I bear in mind the objectives of such an order as established in the UK Court of Appeal case of Re Westmid Packing Service Ltd. (N0.3) [1998] BCC 837 which was followed in Hong Kong most recently in Re Wealth Property Agency Company Ltd. HCMP5157/2001. It was held that the primary purpose of disqualification is to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies have showed them to be a danger to creditors and others. The period of disqualification must reflect the gravity of the offence. It must contain deterrent elements.

31. In this case, it is right for me to follow the well-established guidelines and tariffs laid down by the English Court of Appeal in Re Sevenoaks Stationer (Retail) Ltd. (supra) whereby the top bracket for over 10 years should be reserved for most serious cases. The middle bracket of 6 to 10 years should apply to serious cases not warrant the top bracket. Finally, the minimum bracket of 5 years or below should apply to relatively less serious cases.

32. The offence of forgery is a serious offence involving integrity and dishonesty of the person concerned. While the directors are entrusted with fiduciary duty in the management of the company, making use of such capacity to commit forgery even purportedly for the benefit of the company would, in my view, amount to a breach of trust. I agree with the Official Receiver that such misconduct on part of the Respondents would place them, in my judgment, the lower end of the middle bracket. However, after taking into account of all the relevant mitigation factors and in particular, the adoption of the "Carecraft" procedure, no personal gain out of the misconduct and no loss caused to creditors, their ages and their remorseful over the misconduct, I impose a disqualification of 4 years against each of them.

Suspension of the Disqualification Order

33. The Official Receiver has in this case and in some of the previous cases raised their concern over the wordings of the order in light of the provision of Rule 10 of the Companies (Reports on Conduct of Directors) Regulations. Rule 10 provides that unless the Court otherwise orders, a disqualification order takes effect at the beginning of the 21st day after the day on which the order is made.

34. In Re Emperor Hotel Management Company Ltd (supra), Madam Justice Kwan after considering the English case of Re Cannonquest Ltd [1997] BCC 644 at 648 to 649, ordered in that case that the disqualification order was to take effect from the beginning of the 21st day after the day on which the order is made so that a temporary suspension was given to the respondent with a reasonable period within which to put his house in order so as to comply with the disqualification order. Madam Justice Kwan however made clear in her Judgment that the term of the disqualification order would begin from the date of the order. In the order drafted by the Official Receiver and approved by the Court, the following wordings are used:

"The above s.168H order against the 1st Respondent shall be suspended for 21 days pursuant to Rule 10 of the Companies (Disqualification of Directors) Proceedings Rules and take effect on 25 December 2002"

35. Subsequent to the Re Emperor Hotel Management Company Ltd case, the Official Receiver apparently found the said wordings unsatisfactory as they may not be in accordance with the said Rule 10. The Official Receiver in one of my disqualification cases of Re Datatech (Far East) Company Limited, HCMP 4675/2002 invited me to revise the wordings of the order to "... for a period of [ ] years effective from the beginning of the 21st day after the date of the this Order". I indicated to the Official Receiver in that case that since I was bound by the Order approved by Madam Justice Kwan in Re Emperor Hotel Management Company Ltd case, it would be more appropriate for the Official Receiver to seek clarification from Madam Justice Kwan in another case decided by her in Re Wealth Property Agency Company Limited, (supra) before they perfected the Order in that case. I was later informed by the Official Receiver that Madam Justice Kwan has approved the order in the said revised wordings as proposed by the Official Receiver. As such, I believe the revised wordings should be adopted for the future disqualification cases.

36. Thus, the orders I make are as follows:

(1) Pursuant to section 168H of the Companies Ordinance, the 1st and 2nd Respondents shall not, without leave of the court, (a) be a director of a company; (b) be a liquidator of a company; (c) be a receiver or manager of a company's property; or (d) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company for a period of 4 years effective from the beginning of the 21st day after the date of this Order.

(2) By consent, the 1st Respondent do pay the Official Receiver HK$10,000.00 as agreed costs between the Official Receiver and the 1st Respondent in these proceedings which costs shall be due and payable at the expiry of 3 months from the date of discharge of the bankruptcy of the 1st Respondent under HCB 2317/1999. Interest on the said sum of $10,000.00 at statutory interest rate(s) on judgment debt shall run from its due date to the date of payment.

(3) By consent, the 2nd Respondent do pay the Official Receiver HK$10,000.00 as agreed costs between the Official Receiver and the 2nd Respondent in these proceedings which costs shall be due and payable at the expiry of 3 months from the date of discharge of the bankruptcy of the 2nd Respondent under HCB 2318/1999. Interest on the said sum of $10,000.00 at statutory interest rate(s) on judgment debt shall run from its due date to the date of payment.

APPENDIX A

SCHEDULE FOR CARECRAFT PROCEDURE

(Re: 1st Respondent)

Introductory Section

1. The facts set out in this Schedule are made and agreed on the footing that the case against the 1st Respondent will be dealt with by the court by way of Carecraft procedure at the adjourned hearing or further hearing of the Originating Summons issued herein. Should the court decline to dispose of these proceedings under the Carecraft procedure and the case has to proceed under the usual procedure with or without a trial, this Schedule (with the exception of this Introductory Section) shall not be referred to or relied on by one party against the other party unless the written consent of that other party is obtained.

2. The admissions made and the facts agreed in this Schedule are made for the only purposes of the present disqualification proceedings against the 1st Respondent and any related or subsequent application by the 1st Respondent under Sections 168I(2) and 168Q of the Companies Ordinance (Cap.32) ["the Ordinance"] or otherwise for leave to act as a director.

3. Under no circumstances shall any admission or agreement made by a party in this Schedule be used by the other party in any civil or criminal proceedings or quasi-legal proceedings or for any purposes other than those proceedings and purposes mentioned in Paragraph 2 of this Introductory Section.

4. In this Schedule the parties hereto adopted the same abbreviations and definitions of the terms and expressions used in the 1st Report of Official Receiver filed herein on 21st November 2002 ["the OR 1st Report"]. A reference to the OR 1st Report or any paragraph of it shall include a reference to the exhibits mentioned in it.

Part 1 (Facts Agreed)

Background

5. The 1st Respondent admits the background of Enfield Construction Company Limited ["EC Ltd."] and of Wing Mou Construction Company Limited ["WM Ltd."] as stated in Paragraphs 3 to 8 and Paragraphs 10 to 14 of the OR 1st Report.

6. The 1st Respondent admits that both EC Ltd. and WM Ltd. were insolvent companies within the meaning of Section 168H(2)(a) of the Ordinance as stated in Paragraphs 9 and 15 of the OR 1st Report.

7. The 1st Respondent admits that due notice under Section 168P of the Ordinance was served on to him as stated in Paragraph 16 of the OR 1st Report.

8. The 1st Respondent admits that he is an undischarged bankrupt under Bankruptcy No.2317/1999 in which the bankruptcy order was made on 24.11.1999.

Matters relating to the question of unfitness

A. Commission of crime

9. The 1st Respondent admits that during the period of his directorship of EC Ltd. and WM Ltd. he committed the 19 counts of forgery as stated in Paragraphs 20 to 27 of the OR 1st Report. The 1st Respondent agrees that the words "19 counts of forgery (i.e. 2nd to 10th Charges inclusive)" appearing in Paragraph 25 of the 1st Report should read as "19 counts of forgery (i.e. 2nd to 20th Charges inclusive)".

10. The 1st Respondent admits that he was equally responsible as the 2nd Respondent in their collusion in the preparation of the forged commercial documents mentioned in Paragraphs 20 to 27 of the OR 1st Report.

B. Remaining as director while bankrupt

11. The 1st Respondent admits that he remained as director of two companies while being an undischarged bankrupt as stated in Paragraphs 28 and 29 of the OR 1st Report.

Part 2 (Facts Not Agreed)

12. - None -

Part 3 (Agreed Mitigation Factors)

13. The Applicant has obtained verification from the Highways Department that the works covered by each Payment Voucher Input Verification and each Payment Vouchers List (all being subject matters in the DCCC 787/1999) had already been completed by WM Ltd. or EC. Ltd. (as the case may be) and no extra money was made to WM Ltd. due to the collusion of fabrication of documents by the 1st and the 2nd Respondents. The Applicant accepts that WM Ltd. had a ready line of banking facility from the First Pacific Bank Ltd. at the relevant times and that that the mere purpose and resulting effect of the fabrication of documents by the 1st and the 2nd Respondents was to accelerate the payment of short-term loans by the then First Pacific Bank Ltd. under the ready line of banking facilities so as to meet the cash flow problems then faced by WM Ltd. and EC Ltd.

14. The 1st Respondent's acts of misconduct in this particular case involve dishonesty but except the First Pacific Bank Ltd. being induced to make a loan earlier than it would have been , there was no fraud on the general body of creditors of WM Ltd. or EC Ltd.

15. The 1st Respondent, now aged 49, is remorseful of his misconduct. He has rendered full co-operation with the Official Receiver since he was served with the S.169P notice. The adoption of Carecraft procedure by the 1st Respondent saves a lot of time and costs of the Applicant as well as the Court.

16. The 1st Respondent himself made substantial investment in the business of WM Ltd. and EC Ltd. and mortgaged his own residential property to secure the grant of banking facilities to WM Ltd. and/or EC Ltd. His said property was Flat N2 on 16th Floor, Block N of Sunshine City, On Shing Street, Shatin which was considered to have a net equity value of about $2M when it was mortgaged to the bank in June 1994 to procure the banking facilities aforesaid.

17. The 1st Respondent remained as a director of Famous Engineering Ltd. and Great Fair Engineering Ltd. while being an undischarged bankrupt merely due to his ignorance of the legal prohibition under S.156 of the Ordinance. The two companies had remained dormant since about the end of 1998 and had no business activities while the 1st Respondent being a bankrupt. The 1st Respondent resigned his directorship of both companies with effect from 21.11.2002 shortly after having been told of the legal prohibition at an interview at the Applicant's office on 18.11.2002.

18. All preferential creditors of WM Ltd. have been paid in full as shown in the letter dated 3rd January 2003 (enclosures omitted) which is annexed to this Schedule.

Part 4 (Proposal for Disqualification)

Based on the admissions and agreed facts set out in Part 1 of this Schedule -

19. The 1st Respondent consents to a disqualification order being made against him under S.168H of the Companies Ordinance for that his conduct as director of EC Ltd. and WM Ltd. makes him unfit to be concerned in the management of a limited company.

20. The parties cannot agree to the length of disqualification period and shall leave it to be decided by the Court.

21. The 1st Respondent shall pay the Applicant a sum of $10,000.00 as agreed costs between the Applicant and the 1st Respondent in these proceedings which costs shall be due and payable at the expiry of 3 months from the date of discharge of the bankruptcy of the 1st Respondent under HCB 2317/1999. Interest on the said sum of $10,000.00 at statutory interest rate(s) on judgment debt shall run from its due date to the date of payment.

Dated the 20th day of January , 2003.

APPENDIX B

Schedule for Carecraft Procedure

(Re: The 2nd Respondent)

Introductory Section

1. The facts set out in this Schedule are made and agreed on the footing that the case against the 2nd Respondent will be dealt with by the court by way of Carecraft procedure at the adjourned hearing or further hearing of the Originating Summons issued herein. Should the court decline to dispose of these proceedings under the Carecraft procedure and the case has to proceed under the usual procedure with or without a trial, this Schedule (with the exception of this Introductory Section) shall not be referred to or relied on by one party against the other party unless the written consent of that other party is obtained.

2. The admissions made and the facts agreed in this Schedule are made for the only purposes of the present disqualification proceedings against the 2nd Respondent and any related or subsequent application by the 2nd Respondent under Sections 168I(2) and 168Q of the Companies Ordinance (Cap.32) ["the Ordinance"] or otherwise for leave to act as a director.

3. Under no circumstances shall any admission or agreement made by a party in this Schedule be used by the other party in any civil or criminal proceedings or quasi-legal proceedings or for any purposes other than those proceedings and purposes mentioned in Paragraph 2 of this Introductory Section.

4. In this Schedule the parties hereto adopted the same abbreviations and definitions of the terms and expressions used in the 1st Report of Official Receiver filed herein on 21st November 2002 ["the OR 1st Report"]. A reference to the OR 1st Report or any paragraph of it shall include a reference to the exhibits mentioned in it.

Part 1 (Facts Agreed)

Background

5. The 2nd Respondent admits the background of Enfield Construction Company Limited ["EC Ltd."] and of Wing Mou Construction Company Limited ["WM Ltd."] as stated in Paragraphs 3 to 8 and Paragraphs 10 to 14 of the OR 1st Report.

6. The 2nd Respondent admits that both EC Ltd. and WM Ltd. were insolvent companies within the meaning of Section 168H(2)(a) of the Ordinance as stated in Paragraphs 9 and 15 of the OR 1st Report.

7. The 2nd Respondent admits that due notice under Section 168P of the Ordinance was served on to him as stated in Paragraph 17 of the OR 1st Report.

8. The 2nd Respondent admits that he is an undischarged bankrupt under Bankruptcy No.2318/1999 in which the bankruptcy order was made on 16.10.2000.

Matters relating to the question of unfitness

A. Commission of crime

9. The 2nd Respondent admits that during the period of his directorship of EC Ltd. and WM Ltd. he committed the 20 counts of forgery as stated in Paragraphs 20 to 27 of the OR 1st Report.

10. The 2nd Respondent admits that he was equally responsible as the 1st Respondent in their collusion in the preparation of the forged commercial documents mentioned in Paragraphs 20 to 27 of the OR 1st Report.

Part 2 (Facts Not Agreed)

11. - None -

Part 3 (Agreed Mitigation Factors)

12. The Applicant has obtained verification from the Highways Department that the works covered by each Payment Voucher Input Verification and each Payment Vouchers List (all being subject matters in the DCCC 787/1999) had already been completed by WM Ltd. or EC. Ltd. (as the case may be) and no extra money was made to WM Ltd. due to the collusion of fabrication of documents by the 1st and the 2nd Respondents. The Applicant accepts that WM Ltd. had a ready line of banking facility from the First Pacific Bank Ltd. at the relevant times and that that the mere purpose and resulting effect of the fabrication of documents by the 1st and the 2nd Respondents was to accelerate the payment of short-term loans by the then First Pacific Bank Ltd. under the ready line of banking facilities so as to meet the cash flow problems then faced by WM Ltd. and EC Ltd.

13. The 2nd Respondent's acts of misconduct in this particular case involve dishonesty but except the First Pacific Bank Ltd. being induced to make a loan earlier than it would have been, there was no fraud on the general body of creditors of WM Ltd. or EC Ltd.

14. The 2nd Respondent, now aged 42, is remorseful of his misconduct. He has rendered full co-operation with the Official Receiver since he was served with the S.169P notice. The adoption of Carecraft procedure by the 2nd Respondent saves a lot of time and costs of the Applicant as well as the Court.

15. The 2nd Respondent himself made substantial investment in the business of WM Ltd. and EC Ltd. and mortgaged his own residential property to secure the grant of banking facilities to WM Ltd. and/or EC Ltd. His said property was Flat A, 15th Floor, Block 7, Villa Athena, Sai Sha Road, Ma On Shan, Shatin which was jointly owned by the 2nd Respondent with his wife and which was considered to have a net equity value of about $2M when it was mortgaged to the bank in February 1997 to procure the banking facilities aforesaid.

16. All preferential creditors of WM Ltd. have been paid in full as shown in the letter dated 3rd January 2003 (enclosure omitted) which is annexed to this Schedule.

Part 4 (Proposal for Disqualification)

Based on the admissions and agreed facts set out in Part 1 of this Schedule -

17. The 2nd Respondent consents to a disqualification order being made against him under S.168H of the Companies Ordinance for that his conduct as director of EC Ltd. and WM Ltd. makes him unfit to be concerned in the management of a limited company.

18. The parties agreed that before taking into account of any mitigation factors, the seriousness of this case falls within lower end of the middle bracket of the 3-tier division mentioned in Re Sevenoaks Stationers (Retail) Ltd. [1990] BCC 765; and that subject to the overriding discretion of the Court, the appropriate period of disqualification, after taking into account of all mitigation factors, shall be five (5) years beginning with the date of the disqualification order.

19. The 2nd Respondent shall pay the Applicant a sum of $10,000.00 as agreed costs between the Applicant and the 2nd Respondent in these proceedings which costs shall be due and payable at the expiry of 3 months from the date of discharge of the bankruptcy of the 2nd Respondent under HCB 2318/1999. Interest on the said sum of $10,000.00 at statutory interest rate(s) on judgment debt shall run from its due date to the date of payment.

Dated the 17th day of January 2003.