RE GRAND BRIGHT INTERNATIONAL INVESTMENT LTD

HCCW 283/2021

[2022] HKCFI 264

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 283 OF 2021

________________

________________

________________

D E C I S I O N

________________

1.  On 3 August 2021 Yan Chung Tin issued a petition to wind up Grand Bright International Investment Limited, which was incorporated in October 2007, pursuant to section 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32. On 30 August 2021 Yan Chung Tin (“Dr Yan”) issued an ex parte summons seeking the appointment of provisional liquidators over the Company. I declined to make an order on an ex parte basis and directed that an inter partes summons be issued. This was done on 9 September 2021.

2.  The case advanced in the winding up petition is quite simple.  Dr Yan owns 4,999 shares of the Company.  The Company has three other shareholders.  Tong Mei Wah (“Tong”) who also owns 4,999 shares and Chan Kim Wan (“Chan”), Wong Shui Lun (“Wong”) and Yan Lin Hing (“Yan”), who each own 1 share respectively.  Dr Yan, Chan, Wong and Tong are directors.  The Petition says that the Company is in the business of selling household furniture in [5]. In [25] it is stated that the Company is solvent, but no basis is asserted for this, which does not follow from anything preceding [25] in the Petition.  In [12]–[16] it is asserted that HK$29,394,630 has been misappropriated from the Company on the instructions of Tong, Wong and Chan.  However, other than stating that Dr Yan does not know why the transfers to which he refers in [13] of the Petition took place he does not explain why he assumes that the transfers were improper.  The Petition does not say what steps he took to investigate the matter or what inquiries he made of Tong, Wong and Chan.  All that Dr Yan says in the Petition ([16]) is that they have refused to discuss the matter with him.  Remarkably the Petition does not refer to a single document.  As a petitioner can only rely on facts and matters asserted in a petition[1], the Petition barely advances a case that if proven at trial could justify the relief sought.  For example, in [14] it is asserted that “Without informing the Petitioner through the Company’s Board of Directors or otherwise, on the instruction of the directors, Tong, Wong and/or Chan had in total transferred at least HK$29,394,630.00 out of the Company’s Bank Accounts.”  The Petition does not assert any fact or matter, which supports what appears to be intended to be an allegation of irregularity by Tong, Wong and Chan.  Dr Yan was a director of the Company and he does not say that he did not have access to the Company’s accounting records and bank statements.  He does not explain how he contends he should have been informed of the transfers.

3.  Dr Yan’s 2^nd affidavit made in support of the application for the appointment of provisional liquidators (the first simply affirms the contents of the Petition) does not explain what the Company does, why it was set up, when it commenced business, who manages it, what accounting records it has, who keeps them, what its historical turnover, expenditure and profit has been, and what efforts Dr Yan has made to inspect the accounting records.  It is not until one gets to [29] that one finds a casual reference to the Company not having audited financial statements since the year ending 31 December 2018.  However, Dr Yan has not exhibited the most recent audited financial statement or explained why there are no subsequent accounts.  There is, perhaps unsurprisingly, nothing to suggest that he has exercised the very wide rights he has as a director to inspect all the Company’s accounting records whenever he wishes to[2].

4.  Dr Yan’s complaint relates to transfers:

(1)     totalling HK$150,000 made from the Company’s 1^st account with Bank of China between January 2020 and April 2020;

(2)     totalling HK$1,734,630 made from the Company’s 2^nd account with Bank of China between March 2020 and March 2021;

(3)     totalling HK$27,510,000 made from the Company’s account with HSBC between January 2020 and May 2021.

5.  Dr Yan says in [4] of his 2^nd affidavit that he became aware of these transfers only upon looking at the Company’s bank statements in April 2021.  He does not explain why he had not looked at earlier bank statements.  I note that it is asserted in [9] of the Petition that on the setting up of the Company “It was also agreed that the Petitioner, being a director and significant shareholding member of the Company would be kept fully informed and involved in the management of the Company at all material times.”  It is not Dr Yan’s case that he was excluded from such management of the Company as he wished to involve himself in prior to April 2021.

6.  In [11] of his 2^nd affidavit Dr Yan says “I was greatly alarmed at these significant withdrawals, which in the case of the HSB Account; amount to over HK$1.5 million per month, which is simply outside of normal business expenditure for the Company. Normal business expenditure of the Company to Union Group (as defined below) for supply should only amount to HK$150,000.” He does not explain why he says the normal business expenditure with Union Group was about HK$150,000, I assume since the first sentence refers to monthly expenditure, each month up to April 2021.  It is, therefore, not possible to assess whether what Dr Yan’s says is correct.

7.  In [12] he tells the Court “I have since found that many of the unauthorised transfers were to Union Group International Limited (‘Union Group’).  Union Group was one of the suppliers of the Company. Union Group is a company where 50% of the shareholding is held by Ko Chi Hung（高志雄）(‘Ko’), Tong’s husband. The other 50% shareholding is held by my mother Ko Yin Fun （高燕芬）.  My mother informed me that Ko has been acting improperly and using funds from Union Group for further transfers to personal use and/or buying assets under his and Tong’s immediate family names, enriching themselves to the detriment of Union Group. Despite the irregular and unauthorised transfers to Union Group from the Company’s Bank Accounts, I note that Union Group had not been fulfilling the Company's orders for furniture supplies leading to customer complaints.”

8.  He does not tell the Court when his Mother told him that Ko had been misappropriating money from the Union Group or what she had done to prevent it.  It is not until [23] that Dr Yan tells the Court that Tong is his Mother’s Brother’s Wife.  In the final sentence of [12] one gets the first reference to any business activity.  Dr Yan does not, however, tell us why the Company was acquiring furniture.  It is not until one reads the Respondent’s evidence that one discovers it operates a furniture shop.

9.  The documents Dr Yan has exhibited are of no assistance in understanding the Company’s business or assessing his complaints.  The 2^nd affidavit exhibits bank statements, summaries of payments prepared by Dr Yan, a few shorts letters, which shed little light on why Dr Yan believes the transfers about which he complains were improper, and the result of a company’s search of a supplier of the Company called, in English, Dongguan Koach Furniture Company Limited (“Koach”), which as the name suggests is a furniture manufacturer in Dongguan.  There are no audited financial statements or management accounts exhibited and no explanation in the body of the affidavit for their absence.

10.  The thrust of the remainder of Dr Yan’s 2^nd affidavit is that:

(1)     Tong, Wong and Chan have caused the Company to change its “subcontractor” to Koach, which is controlled by Tong’s husband Ko;

(2)     Despite his objection Tong, Wong and Chan have diverted the Company’s business to Koach, by which I take it Dr Yan means using Koach rather than Union Group;

(3)     Tong, Wong and Chan have refused to acknowledge that money has been misappropriated from the Company;

(4)     Tong, Wong and Chan need to be removed from the management of the Company and replaced with provisional liquidators, although as he suggests in [28] the Company is not carrying on business and does not explain what assets are at risk it is not clear what corporate interests provisional liquidators are required to protect as presumably the Company’s bank accounts are frozen; and

(5)     In August 2021 Dr Yan’s Mother visited a shop called Venice operated by the Company (this is the first reference to the business of the Company in Dr Yan’s 2^nd affidavit) and discovered it was using the credit card machine of another company.  I note that this was after the Petition was issued and the Company says that this was necessary as the credit card companies had stopped the use of the Company’s own credit card machine because of issue of the Petition.  That having been said in Madam Tong’s 2^nd affirmation filed on behalf of the Company she explains that the reason for this was that Dr Yan’s Mother had caused Hang Seng Bank to suspend all banking facilities, which she says also answers Dr Yan’s next complaint, namely, that the Company had not paid the staff’s July salary.

11.  I read the Petition and Dr Yan’s affidavits before reading the skeleton arguments.  It seemed likely that Dr Yan had omitted a material amount of information about the Company’s affairs.  Madam Tong’s 2^nd affirmation demonstrates this to be the case.  Madam Tong explains that the Company traded as Venice Design Gallery.  Its business involved the procurement of the manufacture and sale of furniture and interior design and renovation works.  Since 2006 the Union Group had run and operated furniture shops.  Union Group was owned by Madam Tong’s husband Ko Chi Hung and his sister Ko Yin Fun, who is Dr Yan’s Mother. The business was run by Madam Tong, Ko Yin Fun and her younger sister, Ko Yin Ling.  Madam Tong suggests that as a result of having to close one of the shops operated by Union Group because of a falling out with its landlord, the Company was formed enabling Chan to negotiate a new lease with the landlord for the operation of a shop owned by the Company. Mr Chan and Mr Wong are passive shareholders.  The Company is managed by Ko Yin Fun, Ko Chi Hung, Ko Yin Ling and Madam Tong.  Dr Yan holds his Mother’s interests in the Company. He is a doctor working for the Hospital Authority.  He has never been involved in the management of the Company and I expect that active involvement in the management of a business would have been inconsistent with his contract of employment.  Essentially the present dispute involves a falling out between siblings.  None of this was explained in the Petition or Dr Yan’s 2^nd affidavit as it clearly should have been because it is relevant.  All of what I have explained is so obviously relevant that it suggests that it was purposefully omitted.  In his 3^rd affidavit Dr Yan does not dispute any of the matters to which I have just referred.  He simply ignores them.  It seems to me that the way in which the evidence supporting the application has been presented is highly unsatisfactory and calls into question the reliability of that evidence.

12.  I am not going to descend into a detailed consideration of the allegations and counter allegations contained in the evidence concerning the transfers of which Dr Yan complains.  It is clear to me that even assuming that Dr Yan satisfies the first of the criteria for appointing a provisional liquidator, namely, that a prima facie case for a winding up has been made out, it seems clear to me that a need to appoint provisional liquidators to protect the assets of the Company has not been made out.  The other reason advanced for appointing provisional liquidators is the need to investigate the affairs of the Company and in particular the use of its funds.  It does not seem to me that this is necessary or justified in the present circumstances.  First, Dr Yan has not taken the steps available to him to obtain accounting records and investigate the matters of which he complains.  Secondly, a validation order was granted in September 2021 which, as is now common, required expenditure records to be provided to him. There is no justification or need in my view for appointing provisional liquidators now to undertake the kind of investigations that might be required, if the Company were to be put into liquidation.