CHOW HING ERIC v. WIDE LAND PURCHASING CENTRE LTD AND OTHERS

HCCW868/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.868 OF 2005

------------------------------

-------------------

-------------------

--------------------------

D E C I S I O N

--------------------------

Introduction

1. This is an application by Wide Land Purchasing Centre Limited (“the Company”) for a validation order, pursuant to section 182 of the Companies Ordinance, as per the summons filed with the court on 13 December 2005.  The need for this application arises in this way. 

2. The Company is a going concern with a core business of providing hire purchase finance to consumers who purchase electrical and home appliances from various dealers.  The operation of the Company’s ordinary business requires the smooth payments in and out of various bank accounts so that the Company can arrange for the payment of the purchase price to the dealers on behalf of the consumers.  It also involves the selling and/or disposal of such goods retaken from those customers who have defaulted in making repayment of their hire purchase loans.

3. The petition was presented on 17 November 2005.  Since then, the Company’s bank accounts have been frozen.  The Company is not able to pay its employees salaries, ordinary operational expenses and to continue its ordinary business because the Company cannot arrange for any payments to the dealers.

4. The petitioner is not opposing the application but seeks to impose certain conditions as part of the order to be made by the court.  I will look at these proposed conditions in turn.

Reporting Condition

5. The first condition is referred to as the Reporting Condition, which is not controversial.  The rationale behind the Reporting Condition is to enable the petitioner to monitor the performance of the Company of the validation order to be made by the court.  The condition which the parties agree reads as follows :

(1)

The Company is to provide, until further order of the court, the petitioner’s solicitors with a bi-weekly schedule on every other Monday, commencing on 9 January 2006, identifying in relation to the preceding two weeks (a) the date, amount to payee and purpose of each payment made out of the Company’s bank account and identifying each payee by name and address; and (b) the date, transferee and purpose of each disposal of properties made by the Company and identifying each transferee by name and address.

(2)

The petitioner be permitted to inspect on five working days’ notice, all existing documents supporting or evidencing each payment out of the Company’s bank accounts.

Approval Condition

6. The other two conditions that the petitioner seeks to impose are more contentious.  The first is referred to as the Approval Condition.  In paragraph 16 of the petitioner’s 2^nd affirmation filed in response to the application, he has this to say : “I also hope that it is a requirement to obtain my approval in advance of the sale of the properties in the hire purchase transactions.  Of course, I undertake not to withhold my approval unreasonably.  No doubt I will be penalised in cost if the Company has to apply for a specific validation order because of my unreasonable objections.”  It is the sale of the Company in the hire purchase transactions which the petitioner hopes to have his approval built in as a safeguard, or condition, as part of the validation order. 

7. However, in his oral submissions, Mr Lau, appearing for the petitioner, says that it is the two properties, land properties of the Company, that the petitioner is most concerned with.

8. In my view, the Approval Condition is objectionable in principle.  The petitioner is no longer a director of the Company.  His case on exclusion is to be tried and determined at the trial of the petition.  If at this interim stage the court accedes to his request and imposes the Approval Condition as sought, it would give the petitioner power which only a director may have, insofar as the disposal of the properties of the Company is concerned.  It is an abuse of the jurisdiction in relation to the grant of validation order. 

9. Further, it is impracticable to impose such a condition.  Given the current state of the parties’ relationship, such a condition is nothing but a recipe of further chaos and dispute.  When the parties’ disputes spill over to the daily disposal of properties in the ordinary course of the Company’s business, it is certainly not beneficial to its smooth operation, which is, after all, what the validation order aims to achieve in the first place.  I am not going to accede to his request.

Condition relating to directors’ salary

10. The last condition that the petitioner seeks to impose relates to the directors’ salary.  I first note that it is not a complaint in the petition that the two individual respondents, who are directors of the company, have siphoned off the Company’s assets in the disguise of directors’ remuneration.  There is no other form of complaint whatsoever raised against the individual respondents regarding their salary.

11. Whereas it is the establishment of the other company, the Viable Health Company Limited by the two individual respondents, which led to the current dispute, it does not necessarily follow that the salary paid to them as directors is not a proper remuneration for their services rendered to the Company.  What has been said in the second affirmation of the petitioner in this regard is nothing but speculation.

12. I will therefore refuse to impose any condition on the directors’ salary.

Conclusion

13. I will therefore make an order in terms of paragraphs 1 and 2 of the summons filed on 13 December 2005 subject to the Reporting Condition which I have set out earlier in my ruling and there will be liberty to apply.

[Discussion re costs]

14. Costs will be in the cause of the petition.