THE OFFICIAL RECEIVER v. AU YEUNG WAI CHUNG AND OTHERS

HCMP 2508/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2508 OF 2007

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J U D G M E N T

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Introduction

1. This is an application by the Official Receiver for an order for disqualification against the 1^st, 2^nd and 3^rd Respondents under section 168H of the Companies Ordinance (Cap 32). The application was first heard by me on 7 March 2008.  The solicitor representing the Respondents informed me that the Respondents would like to consider having the matter disposed of summarily by way of what it is commonly known as the Carecraft procedure.  I therefore adjourned the matter until today, and gave directions for the filing of agreed statements.

2. The Official Receiver and the Respondents have now reached agreement.  Two signed statements for the purpose of a “Carecraft ” settlement – one between the Official Receiver and 1^st and 2^nd Respondents, and another with that of the 3^rd Respondent - were filed with the court on 7 April 2008.

3. In the statements, the parties have set out the background leading to the insolvency of the companies of which the Respondents were directors, the agreed allegations and the periods of disqualification.

4. In the statement concerning the 1^st and 2^nd Respondents, the companies in question were Everfit Development Limited (“Everfit”) and Oceanic Power Investment Limited (“Oceanic”).  In the statement of the 3^rd Respondent, it only concerned with Everfit.

5. In the summary of allegations of unfitness, both statements set out four identical allegations.  They are (1) causing Everfit and Oceanic (in the case of the 3^rd Respondent, it is only confined to Everfit) to trade at the risk of creditors; (2) accounting records offence (in breach of section 122 of Cap.32); (3) non-submission of a statement of affairs under section 190 of Cap. 32, and (4) breach of directors’ duty to ensure due payments of mandatory provident funds contributions under the Mandatory Provident Funds Schemes Ordinance.

6. On the basis of the agreed facts, the parties have agreed to the periods of disqualification of 3, 2 and ½ and 2 years respectively for the 1^st, 2^nd and 3^rd Respondents.

Approach of the Carecraft Procedure

7. As it is set out in both of the Carecraft statements, the consent of the parties to the allegations does not bind me.  The adoption of the summary procedure does not do away any judicial function.  This procedure has been adopted and approved both in the UK court and the HK court for the purpose of saving costs and expenses.  A detailed discussion of the correct approach can be found in the English CA decision in Secretary of State forTrade and Industry v Rogers [1997] BCC155.

8. The said decision has placed emphasis on the importance for a judge to arrive at a decision based on the facts only agreed by the parties.  Should the judge hold a different view, the parties should be informed so that the parties may wish to proceed the matter differently, by, for example, a respondent wanting to adduce evidence to contest the allegations made against him.

9. Further, a judge is not bound by the agreement of the parties in making a disqualification order and the period to be imposed as agreed by the parties (See Rogers (ibid.)at 159G).

10. Having set out the broad approach, I will now consider the facts agreed by the Respondents.

Agreed Allegations

11. In the application, the two companies in question, Everfit and Oceanic were incorporated respectively in 1999 and 2000 for the purpose of operating two Chinese hot pot restaurants in different locations, one in Mong Kok and one in Tusen Wan.  The 1^st Respondent and the 2^nd Respondent are husband and wife, who together with the 3^rd Respondent, were the only directors of Everfit since 2003 until the company was compulsorily wound up on 17 March 2004 under HCCW 34 of 2004.  The 1^st Respondent and the 2^nd Respondent were the directors of Oceanic from January 2001 to the company being compulsorily wound up on 3 December 2003 under HCCW 1128 of 2003.

12. The total amount of proofs of debt submitted by the creditors of Everfit was in the sum of about $2 million, but the total value of the assets realized by the joint and several liquidators is less than $300.  As for Oceanic, the amount of proven debt was $6.2 million, and the value of the assets realized by the same liquidators is only about $4,600.

13. Concerning the 1^st allegation causing Everfit to trade at the risk of creditors, the Respondents agreed that the restaurant business operated by Everfit was closed suddenly without notice given to the employees.  Further the financial statements disclosed that Everfit had been insolvent since about April 2002.  They all accept that they, as directors of Everfit, ought to have been aware of the insolvent position of the company. 

14. The 1^st and 2^nd Respondents further agreed very similar misconduct concerning Oceanic.

15.  Regarding the According Records Offence, it is agreed that the Respondents had failed to comply with the obligations imposed by section 122 to cause to be made out and laid at the annual general meeting of Everfit and also of Oceanic, a profit and loss account and balance sheet for each year.

16. Regarding the 3^rd allegation of failing to submit statement of affairs under section 190, the Respondents all agree that no statement of affairs has been submitted to the liquidators in respect of the two companies they were respectively concerned with.

17. As for the last allegation, the Respondents agreed that they have failed to cause Everfit to comply with the mandatory duty of paying MPF contributions.  The amount of proofs filed by the Mandatory Provident Fund Schemes Authority was $22,000 in respect of Everfit’s default paying MPF contributions of 5 employees.

Whether a case of disqualification order made out

18. On the above undisputed facts, I am satisfied that the requirements for disqualification under section 168H(1) is made out, that is, I am satisfied that all the three Respondents have been directors of the respective companies which have become insolvent while they were respective directors of the companies; and that each of their conduct as a director of the respective companies, either taken alone or taken together with the conduct as a director make each of the Respondent unfit to be concerned in the management of a company.

19. Disqualification is therefore mandatory. 

20. In determining the period of disqualification, I should have regard to the matters set out in Parts I and II of the Fifteenth Schedule to Cap.32.  I accept Mr. Mok’s submissions that Paragraph 4 of part I (the extent of the directors’ responsibility for any failures by the directors of the company to comply with section 122) and paragraph 5(a) of part II (the failure to comply with section 190).

21. Further I am not prevented from considering any matters outside the 15^th Schedule.  In this case, I note however that it is expressly agreed that all the three Respondents have no previous misconducts as directors or disqualification order.  More importantly, as pointed out by Mr. Yeung, solicitor for the Respondents, there is no allegation of dishonesty or fraud alleged each of the Respondents, and that each of them has not willfully committed the misconducts.

22. On the above basis, I am satisfied that the period of disqualification should fall within the minimum bracket as laid down as Re Sevenoaks Stationers (Retail) Ltd [1990] BCC 765.

23. Having considered the various relevant factors listed in Re Westmind Packaging Services Limited (No. 30 [1998] BCC 836) a court may take into account when considering the length of disqualification, I find that the different periods of disqualification for the three Respondents as agreed by the parties is appropriate so as to reflect the different roles they have played in the respective companies, the totality of their misconducts, age and personal circumstances.

24. Having further taken into account their respective mitigating factors, and looked at the matters in the round, I consider that the appropriate periods of disqualification for the 1^st, 2^nd and 3^rd Respondents should respectively be 3, 2 and ½ and 2 years.  Under rule 10 of Cap 32, the order is take effect from the beginning of the 21^st day after the day on which the order is made.

25. The Respondents have also agreed to pay the costs of the Official Receiver within 30 days. The 1^st and 2^nd Respondents each pays $12,500, and the 3^rd Respondent, $10,000. I so order.