ACROPOLIS LTD v. W&Q INVESTMENT LTD AND OTHERS

HCCW 218/2017 and
HCMP 1721/2017
(Heard Together)

[2018] HKCFI 1195

HCCW 218/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) PROCEEDINGS NO 218 OF 2017

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MISCELLANEOUS PROCEEDINGS NO 1721 OF 2017

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D E C I S I O N

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I. PRELIMINARY

1.  Aeso Holding Limited (“the Company”) was listed on the GEM Board of the Stock Exchange of Hong Kong on 13 January 2017.  Trading in its shares has been suspended since 12 June 2017.  The applications before this court form part of a raft of litigation [1] engendered by what, in essence, is a board fight between 2 warring camps of the Company concerning who are its shareholders/directors. 

2.  There are 2 matters before the court:

 (1) A summons dated 26 April 2018 (“the PL/Receivers summons”) taken out by the petitioner in HCCW 218/2017 for the appointment of provisional liquidators over the Company.  Alternatively, the appointment of receivers and managers over the Company and its operating subsidiary Aeso Limited (“Aeso HK”).

 (2) The substantive hearing of the amended originating summons in HCMP 1721/2017 (“the AOS”) by the Company, Aeso HK and individual directors for, inter alia, access to and production of all corporate and accounting documents of the Company, subsuming the summons of 19 April 2018 (“the 2^nd Inspection Summons”) taken out in the AOS which sought the same relief.

3.  At the conclusion of the hearing of the PL/Receivers summons, the AOS (and thus the 2^nd Inspection Summons) was adjourned pending the determination of the PL/Receivers summons which I now give.

II. INTRODUCTION

4.  Comprehensive and detailed accounts of the background facts are set out in the Reasons for Judgment dated 26 March 2018 of the Court of Appeal in CACV 276 & 277/2017 (“the CA Judgment”) as well as in the judgment dated 31 August 2017 of B Chu J (“the 31.8.17 Judgment”) in HCA 1496/2017 (“HCA 1496”) which was commenced on 26 June 2017 to which reference should be made for further detail. 

5.  Of the warring camps mentioned earlier, one is headed by Chan Siu Chung (“Jones Chan”).  The petitioner is his corporate vehicle and is the largest registered shareholder of the Company, holding 38.25% of its shares.  Jones Chan is the founder of the business of the Company which started in 2008 and carries on business providing fitting-out, renovation and contracting services in Hong Kong, conducted through Aeso HK, its operating subsidiary held indirectly through Aeschylus Limited.  Jones Chan is the only undisputed director on the board of the Company.

6.  The other camp is headed by the 2^nd respondent (“Wilson Liu”), a professional investor.  It is the petitioner’s case that the Wilson Liu camp comprises (i) Wilson Liu’s corporate vehicle, the 1^st respondent (“W&Q”), who is the 2^nd largest shareholder, holding 36.75% of the shares in the Company; (ii) the 3^rd and 4^th respondents (respectively “Zhang” and “Law”), non-executive directors of W&Q nominated by Wilson Liu; and also (iii) the 10^th to 12^th respondents (collectively “the Disputed INEDs”) but that is challenged as the Disputed INEDs maintain that they are independent non-executive directors of the Company.

7.  A summary setting out the nub of the petitioner’s complaints can be found in §§29 – 30 of the CA Judgment as follows:

“ 29. … (i) Wilson Liu never had any genuine intention to invest in or help list the business of Aeso HK, and his only interest was to create/acquire a ‘listed shell’, and (ii) at all material times, the New Directors acted in tandem and/or in accordance with the instructions or wishes of Wilson Liu/W&Q.

30. The [petitioner] also allege[s] that Wilson Chan/W&Q and others (including the Requisitionists were involved in a fraudulent scheme to seize control of [the Company], in particular by making a false representation in various ‘Letters of Independence’ to the effect that the Private Placees [2] were independent shareholders, whereas in truth and in fact the Private Placees, or a majority of them(including the Requisitionists and three other minority shareholders), were acting in collusion or in tandem with Wilson Liu/W&Q.”

8.  For present purposes, I intend to narrate, chronologically, only so much of the background that is relevant to the issues arising in the present application. 

A. The listing of the Company and placing of the shares in January 2017

9.  In October 2015, Jones Chan decided to list the business of Aeso HK on the GEM Board and was introduced to Wilson Liu, a pre-IPO investor who agreed to provide the listing expenses and agreed not to intervene in the operation of either Aeso HK or in Listco.

10.  A corporate reorganisation took place to facilitate the listing.  The Company was formed to hold (through a wholly-owned subsidiary, namely Aeschylus), Aeso HK, the sole operating subsidiary.  Before the listing Jones Chan owned 51% and Wilson Liu 49% of the Company.   

11.  The listing took place by way of private placement instead of a public offering, that being the advice of Daniel Kan [3] who, at the material time, was an employee of Anglo Chinese Corporate Finance (“Anglo Chinese”), the sponsor of the listing, the underwriter and joint book-runner.

12.  To comply with the listing requirements, 25% of the issued shares had to be in public hands.  It transpired that of the 4 sub-agents appointed by Dongxing, the co-underwriter, Cinda International Securities Co Ltd alone placed 24.75% of the 25% public float or almost 99% of the shares held by subscribers to whom shares were placed in the listing exercise (“Placees”).    

13.  At the date of the listing, the board of directors comprised (i) Jones Chan; (ii) HT Cheung; (iii) Zhang and Law; and (iv) 3 independent non-executive directors (“the Initial INEDs”).

B. The Requisition issued on 13 April 2017

14.  Exactly 3 months after the date of the listing, the 5^th to 9^th respondents who together held and still hold 10.825% of the shares (“the Requisitionists”) issued a requisition to convene an EGM to reconstitute the board of the Company by removing all its directors and replacing them with 5 new individuals including the Alleged INEDs (“the Requisition”).

15.  Given the highly unusual features of the Requisition identified in §125 of the 31.8.17 Judgment, the judge found that “the evidence overwhelmingly points towards the Requisition [being] really a device in the larger fraudulent scheme and the shares placed with the Placees were sham transactions”.  That finding was not disturbed on appeal: see CA Judgment at §39.

C. Removal of Zhang and Law, and the Disputed EGM

16.  On 9 June 2017, various events occurred: (i) Zhang and Law, without board authorization, caused the Company to issue an announcement that Zhang was the chairman and non-executive director of the Company.  The remaining 5 members of the board served a notice on Zhang and Law to remove them as directors and subsequently passed and served a written resolution the same evening to that effect; and (ii) although Wilson Liu’s camp had allegedly obtained an injunction in HCA 1357/2017 to restrain the directors from acting until the conclusion of the Disputed EGM, it was obtained without good basis[4]. In any event the directors did not receive notice of the injunction until 12 June 2017.

17.  Conflicting announcements from the Company followed on 11 and 12 June 2017 as to whether the EGM would proceed or be postponed, causing considerable confusion.  To compound matters, the EGM was held after typhoon signal 8 had been hoisted and shortly before the venue had to close.

18.  On 14 June 2017, Zhang as chairman issued a letter to the SFC to the effect that the EGM was held (“the Disputed EGM”) and various resolutions were passed (“the Disputed EGM Resolutions”) resulting in a new board consisting of Jones Chan, Zhang, Law and the Disputed INEDs (“the New Board”).

D. Events subsequent to the Disputed EGM

19.  On 26 June 2017, the petitioner and Jones Chan commenced a derivative action (namely, HCA 1496), seeking various declarations to the effect that the acquisition of shares in the Company by the Requisitionists, the Disputed EGM and the Disputed EGM Resolutions are null and void and of no effect. 

20.  By summons taken out on 30 June 2017, the petitioner and Jones Chan sought interim injunctions to restrain the New Directors from relying on and/or carrying out into effect the Disputed EGM Resolutions and any further resolutions passed by the respective boards of the Company and its subsidiaries in reliance on resolutions passed by the New Directors as purported directors of the Company.

21.  The Injunction Summons came before Au Yeung J on 30 June 2017 who adjourned it and gave directions (“the Au Yeung Ruling”) for the filing of evidence.  While she refused the application for interim injunctions pending determination of the summons, this was subject to undertakings given by the New Directors, Wilson Liu’s camp (comprising Wilson Liu, W&Q, Zhang and Law) and the Requisitionists who are the 5^th to 9^th respondents. 

22.  That Au-Yeung J intended to preserve the status quo and not to allow either camp to entrench themselves is reinforced by the fact that undertakings were required and summons adjourned and not dismissed. That was also Lisa Wong J’s reading of the Au Yeung Ruling [5].

23.  After the hearing on 30 June 2017, a number of events took place.  They are found at §§33 – 34 of the CA Judgment (reproducing §§64 and 67 of the 31.8.17 Judgment) where those events are chronicled:

“ 33. A number of events took place after the hearing before Madam Justice Au-Yeung on 30 June 2017. These were summarized in paragraph 64 of the Judgment:-

‘ (i) On 4 July 2017, Aeso received a letter dated 3 July from KL Gates (‘KLG’), solicitors acting for Dragon Success referring to a purported loan facility agreement entered into by Aeso with Dragon Success dated 8 June 2017 (‘Loan Facility Agreement’) pursuant to which Dragon Success had advanced to Aeso a total sum of about HK$34.8m, and that under the Loan Facility Agreement, Dragon Success may immediately demand repayment of the drawn down sums in the event the trading of Aeso’s shares is suspended for more than 15 business days or there is change in, among other things, Aeso’s management.

(ii) On 4 July 2017, Liu’s Camp called a board meeting and passed resolutions appointing Zhang as a director of Aeschylus and to require Jones Chan to provide all the books, records, bank statements, online password and/or token of all bank accounts of Aeso HK within 2 days.

(iii) On 5 July 2017, Liu’s Camp called a board meeting and passed resolutions that no repayment was to be made under the Loan Facility Agreement without written approval of all the members of the New Board and requiring Jones Chan to provide the draft of all financial records of Aeso to all the New Directors within 7 days.

(iv) On 5 July 2017, Zhang sent a letter to KLG demanding a copy of the Loan Facility Agreement. On the same day, Jones Chan sent a letter purportedly on behalf of Aeso to KLG acknowledging the alleged debt and requested for extension of time to repay, indicating that Aeso had cash flow problems.

(v) On 6 July 2017 Zhang sent an email to Jones Chan and the Financial Controller of Aeso Chiu Fu Keung (‘Chiu’) requesting them to provide books and records of Aeso within 7 days.

(vi) On 6 July 2017, Liu’s Camp called a board meeting and passed resolutions that all documents to be executed by Aeso are to be signed by two directors of Aeso, and all cheques to be signed and all bank accounts to be operated by two authorized signatories of Aeso. Later that day, Liu’s Camp called a board meeting of Aeschylus to appoint two additional directors both of surname Chan (‘Chans’) on the board of Aeso HK.

(vii) On 7 July 2017, the Chans called a board meeting of Aeso HK and passed various resolutions including adding the Chans as account signatories of all bank accounts of Aeso HK.

(viii) On 10 July 2017, Liu’s Camp called a board meeting and passed various resolutions including adding Zhang and another to be the authorized signatories of Aeso’s bank accounts with HSBC.

(ix) On 11 July 2017, Zhang said she learnt from the registered agent of Aeschylus that they received a letter dated 10 July 2017 from Sabals Law, lawyers purportedly acting for Aeschylus that Jones Chan had executed a purported share charge of the 1 share in Aeschylus on 8 June 2017 in favour of Dragon Success to secure the loan facility of HK$50m under the Loan Facility Agreement.

(x) On 13 July 2017, the Chans called a board meeting of Aeso HK and passed resolutions including adding the Chans as authorized signatories of Aeso HK’s accounts with HSBC and BEA and change the signing arrangement to allow any two of the authorized signatories to sign jointly to operate those accounts. On the same day, a nomination committee of Aeso appointed Zhang as an executive director on the New Board and 2 further board meetings were called by Liu’s Camp to add Zhang and another as authorized signatories of Aeso’s accounts with HSBC and to change the signing arrangement to allow any two of the authorized signatories to sign jointly.’

34. Also, there were 5 other related legal actions commenced after the 30 June 2017, as summarized in paragraph 67 of the Judgment:-

‘ (i) On 10 July 2017, a defamation action, namely HCA 1624/2017 was commenced by Wilson Liu against Jones Chan for defamatory remarks made by the latter.

(ii) On 12 July 2017, Acropolis filed a petition in HCCW 218/2017 against Liu’s Camp, the Requisitionists, the 3 Disputed INEDs, the 3 Minority Shareholders and the Company, seeking an order that the Disputed EGM and the Disputed EGM Resolutions be declared null and void ab ignitio and of no legal effect, the subscription of shares by W&Q and the Requisitionists and the other two subscribers be declared null and void and of no legal effect, or alternatively the Company be wound up.

(iii) On 21 July 2017, an action was commenced by Dragon Success under HCMP 1647/2017 against the Company for recovery of loans advanced to the Company under the Loan Facility Agreement and secured by the Share Charge, and a summons was issued on 31 July 2017 by Dragon Success to appoint interim receivers in respect of the 1 share in Aeschylus (‘Receivership Summons’).

(iv) On 24 July 2017, an action was commenced by the Company and W&Q under HCA 1737/2017 against Dragon Success, Jones Chan and HT Cheung for, among other things, a declaration that the Loan Facility Agreement and the Share Charge are null and void and for Jones Chan to provide all the books and records of the Company and to deliver the proceeds obtained under the Loan Facility Agreement, and further, the Company and W&Q obtained an ex parte injunction on 24 July 2017, which was later continued by Lisa Wong J on 28 July 2017 (‘1737 Injunction’).

 (v) On 4 August 2017, HCMP 1721/2017 was commenced by the Company and Zhang and others against Jones Chan and others for production and inspection of books and record of the Company and Aeso HK, and as seen earlier, it was under this action, the Production Summons was issued.’”

E. The 31.8.17 Judgment and appointment of receivers over Aeschylus

24.  On 31 August 2017, B Chu J heard (i) the Injunctions Summons issued by the petitioner and Jones Chan [6]; and (ii) a cross summons issued by W&Q to restrain Jones Chan from holding himself out as having authority to carry out acts on behalf of each of the Group without the authorization of respective boards and/or directly or indirectly obstructing resolutions passed by the respective board constituted pursuant to the Disputed EGM Resolutions of the Group.

25.  B Chu J granted injunctions to restrain, inter alia, the Wilson Liu camp, the Disputed INEDS and the Company being respectively the 1^st to 4^th, 10^th to 12^th and the 14^th respondents to the winding up petition, as well as Aeschylus Limited and Aeso HK (who are not named as respondents to the winding up petition but were the 15^th and 16^th defendants in HCA 1496) from relying on and/or carrying into effect the Disputed Resolutions passed at the Disputed EGM and dismissed the cross summons.

26.  On 4 September 2017, Au-Yeung J appointed receivers over the one share of Aeschylus held by the Company (through which the shares in Aeso HK are held) in an application brought by Dragon Success to recover loans advanced to the Company, subject to an option given to Wilson Liu’s camp to make payment of around $30 million into court in which event no receivers would be appointed.  No such payment was made.

F. The CA Judgment and subsequent new evidence on Placing

27.  The Court of Appeal granted leave to appeal from the 31.8.17 Judgment on errors concerning the balance of convenience only and not on the findings of merits.  In particular, the Judge’s finding that the evidence overwhelmingly pointed towards “the Requisition [being] a device in a larger fraudulence scheme and the shares placed to the Placees were sham transactions”  [7] was left undisturbed.

28.  The injunction granted by the judge was discharged but only on certain undertakings being given by W&Q, Wilson Liu, Zhang, Law and the Requisitionists [8] as follows:

“ (1) not to remove [Jones Chan] as a director from any of the boards of directors of the Company and its subsidiaries;

(2) not to unlawfully or unfairly deprive the rights enjoyed by [Jones Chan] as a director of the Company and its subsidiaries;

(3) not to remove [Jones Chan] as an account signatory of any of the bank accounts of the Company and its subsidiaries;

(4) to ensure that [Jones Chan] will remain as one of the account signatories whose signature would be required for the operation of the bank account of the Company and its subsidiaries.”

(collectively “the CA Undertakings”).

29.  The Court of Appeal considered that the CA Undertakings would provide “sufficient safeguards for [the Company’s] interests, and proper checks and balances of the competing interests of the parties” [9] .  Moreover, in the CA Judgment (at §50G–I), the Court of Appeal observed that Jones Chan would continue to be a director of the Company and “continue to contribute to the business and operations”.  The Court of Appeal must have contemplated that Jones Chan would have a continuing active role to play in the management of the Company as otherwise it would not have made those observations.

30.  Since the date of the CA Order, an expert report relating to the Placing of shares in the Company on 12 January 2017 to the public has become available.  Mr John Lees’s expert report dated 16 March 2018 is based on documents and information provided by Cinda pursuant to a third party discovery order of Harris J dated 9 January 2018.

31.  Mr Lees highlighted 10 additional [10] unusual features associated with 22 of the 49 Placees who acquired shares in the Placement through Cinda.  The 22 Placees include the Requisitionists.  Mr Lees concluded that the 22 Placees were acting in concert[11].

32.  The complete absence of any communications from Cinda to the Placees to inform them of the Placing or to solicit interest in subscription for shares in the Placing also is inexplicable unless the Placees were collectively pre-arranged to subscribe for shares in the Placing.

33.  The new evidence concerning the 22 Placees is highly relevant to the existence of “the larger fraudulent scheme” and reinforces evidence that B Chu J already considered to be “overwhelming”.  The alleged “independence” of the 22 Placees and thus of the Requisitionists becomes highly problematic.

III. APPLICABLE LEGAL PRINCIPLES

34.  The applicable law is well-settled law and is not controversial.  The court’s jurisdiction to appoint provisional liquidators over the Company after a winding up petition is presented is derived from section 193 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.  For the jurisdiction to be exercised, the applicant must (i) demonstrate a prima facie case for the granting of winding-up order, and (ii) show that in the circumstances of the case a provisional liquidator should be appointed: see Company Law in Hong Kong: Insolvency (2018 ed) at §3.002.

35.  A convenient statement of the relevant principles may be found in the judgment of Kwan J (as she then was) in Re Boldwin Construction Co Ltd & Others [2003] 2 HKLRD 237 at §29 where (at §29(4)) it was stated that whether a provisional liquidator should be appointed in all the circumstances has to be decided on the basis of commercial realities, the degree of urgency and need established by the petitioner, and the balance of convenience according to the circumstances.

36.  On the question whether a good prima facie case is made out for a winding up order, Mr Smith SC counsel for the petitioner relied on Re China Metal Recycling (Holdings) Limited (No 3) where reference was made to established English law principles to the effect that where what is sought is a winding-up order on the grounds that there has been contravention of regulations and winding up is in the public interest, the solvency or viability of the business of the company is not of itself significant, that the principal concern is the interests of the investing public and the integrity of the market, and that the appropriate sanction where there has been fraud in the promotion of the company will normally be the liquidation of the company. 

37.  Harris J concluded (at §40) as follows:

“ 40. It seems to me that this applies in Hong Kong just as much as it does in the UK. It is important that it is clear to those involved in the promotion of companies and the raising of finance in the equity markets that deceptive and misleading practices in the promotion of a company are likely to result in a winding up… Although the economic interests of creditors and minority shareholders are relevant in determining a petition such as the present, as the authorities to which I have referred make clear, the overarching consideration is the broader interest of market participants as a whole. That interest requires that serious misconduct is subject to unequivocal censure. The appropriate order in a case where a listing has been obtained by wholly dishonest fabrication of accounts would, in my view, almost invariably be a winding‑up order.”

38.  Mr Wong SC counsel for the Wilson Liu camp sought to distinguish that case on two grounds: first, that it was an action brought by the SFC as a public interest petition, and second, China Metal concerned a fraud in the business model of the company itself where it operated a round robin funds flow scheme deceiving investors by fraudulent accounts as to the true state of the company.

39.  Mr Smith submitted that whether the fraud was in the accounts presented or whether it was in deceiving the public into believing that there was a public float of 25% shares when in fact that was not the case but an attempted takeover by one of the major shareholders makes no difference in principle.  Moreover, the fact that in China Metal the petitioner was the SFC is because of a statutory provision that enabled the SFC to bring the action.  It does not preclude a contributory such as the petition from seeking a winding up based on that principle. 

40.  I do not consider the distinctions drawn by Mr Wong render the principle established by China Metal inapplicable.  I see no good reason why the principles under English law should not apply in Hong Kong.  In my view, the petitioner has surmounted the first hurdle of establishing a good prima facie case for a winding up order.

41.  As regards the circumstances that warrant the appointment of provisional liquidator, they are not limited to any particular type of circumstances.  In the context of equivalent English legislation, the editors of Buckley on the Companies Acts observed that the section “confers quite general powers on the court and, depending on the circumstances of each case, there may be other matters which may be relevant, such as public interest”.

42.  In each case the circumstances are necessarily highly fact-sensitive and it would be appropriate to turn to the facts pertaining in the present case.

IV. RECENT EVENTS GIVING RISE TO THE PRESENT APPLICATION

A. 19 March 2018—The 1^st board meeting of the Company

43.  A notice dated 14 March was circulated for a board meeting of the Company to be held on 15 March together with the proposed agenda barely more than 24 hours prior to the proposed meeting.  The agenda contained no fewer than 16 resolutions over a broad range of matters including a resolution to request Jones Chan to produce all the Company’s board resolutions and contracts including those of its subsidiaries from 13 January 2017 to the date of the resolution (“resolution 5”).

44.  Upon receipt of the agenda, given the short notice, his prior engagement and the large number of resolutions as to which he needed legal advice, Jones Chan requested a postponement of the meeting for 7 days to 22 March.  That request was repeated on 15 and 17 March but the Wilson Liu camp was unreceptive although no one had asked him about his availability prior to the issuance of the notice of meeting, nor was he consulted about the proposed agenda.

45.  Further, Jones Chan made it clear that not to afford him reasonable time to prepare for the meeting would unfairly deprive him of his rights as a director.  That notwithstanding, Jones Chan provided his preliminary comments to the proposed resolutions on 17 March, at the same time advising that he would be on annual leave from late March to early April.  In that context, in relation to resolution 7 that set the timeframe for production, he commented that the timeframe should be adjusted to take that fact into account. 

46.  In objecting to the meeting being held on 22 March,  Zhang, stated [12] that Wilson Liu’s camp did not give an undertaking to court that they would “bend over backwards to accommodate all [Jones Chan’s] requests however unreasonable they may be”.  The email went on to say that:

“ the undertaking [Wilson Liu’s camp] gave does not give [Jones Chan] the right to obstruct the operation of the company. [Jones Chan has] been given notice way in advance of the proposed meeting and provided with all the information required. Whether [Jones Chan] choose (sic) to participate in the proposed meeting is a matter for [Jones Chan].”

47.  On 19 March the petitioner’s solicitors (“TC”) wrote on Jones Chan’s behalf repeating and echoing the reasons for seeking the postponement of the meeting to 22 March.  TC also requested an adjustment to the 7-day timeframe for production in resolution 7 given Chan’s annual leave period [13]. It was reiterated that otherwise it would amount to an unfair oppression on Jones Chan.

48.  In the event, the meeting was re-scheduled for 19 March ostensibly on the basis that the majority of directors were able to attend.  However, it was not said that they would not be available on 22 March.  Notice that the board meeting would be held at 5:30 pm on 19 March was sent to Jones Chan at 4:37 pm of 19 March, giving him less than an hour’s notice. 

49.  The 1^st board meeting was held in the absence of Jones Chan.  Minutes of the 1^st board meeting were received at the latest by 23 March which showed that Jones Chan’s views on the resolutions had been ignored.  Resolution 5 required inter alia Jones Chan to produce within 7 days all the Company’s board resolutions and contracts from the date of listing including tenders referred to in the announcement made by Jones Chan on 6 February 2018 [14] management accounts et cetera.  The time frame for production remained unaltered (7 days), notwithstanding notice of Jones Chan’s annual leave period.

B. 28 March—The incident and the 2^nd board meeting

50.  On 20 March, BN advised TC by letter that board minutes were being finalized.  It went on to set out the resolutions that required Jones Chan and the Company’s finance director, Chiu[15], to take action within 7 calendar days.  It is unclear when exactly the actual board minutes were circulated except that it had occurred by 23 March.

51.  On 23 March, BN [16] gave notice that the New Board was minded to visit the Company’s office premises on 28 March at 11 am. 

52.  This was followed by a notice given on 24 March for a board meeting (“the 2^nd board meeting”) to be held on either 27, 28 or 29 March, seeking confirmation of directors’ availability although Wilson Liu’s camp had previously [17] been informed of Jones Chan’s annual leave (from late March to early April) approved and confirmed by the Company.   One of the items in the draft agenda [18] attached to the notice of meeting was to “follow up” on the 19 March resolution relating to production and access of office premises.

53.  TC’s reply of 26 March advised BN of Jones Chan’s annual leave from 28 March to 15 April approved by the company in January 2018. In addition, Chiu (responsible for the Group’s finance) was on annual leave from 16 March until 10 April.

54.  As to the proposed visit, there was no objection but because of recent episodes[19] of harassments against the Company and Jones Chan personally, for security reasons, that (a) it should be postponed till 16 April, after Jones Chan’s return from annual leave, (b) the visit be limited to board members only, their ID cards be produced at the time of the visit (c) the purpose(s) confirmed in writing.

55.  There was no reply to TC’s letter.  On 28 March, the day Jones Chan commenced his annual leave, a group sought to gain entry to the office premises.  It comprised Zhang, BN, 2 other individuals from BN and 4 well-built men (3 of whom were South Asian).  Staff members[20] felt alarmed and intimidated and called the police.  The group who were refused entry summoned a locksmith who arrived shortly afterwards.  The police arrived in time to intervene before the locksmith could attempt to break the lock.

56.  Later that same afternoon, the 2^nd board meeting took place.

C. 3 April—Warning letter sent to “senior management”

57.  The New Directors caused their solicitors BN to send a warning letter to “senior management” of Aeso HK on 3 April (“the 2^nd warning letter” [21]).  BN’s letter referred to its earlier letter of 14 July 2017 (“the 1^st warning letter”) that had requested production of documents and keys to the office premises and again demanded production of documents and records of Aeso HK and the Company by the recipients of that letter within 7 days.  The letter concluded by referring to the injunction the Court of Appeal (with copy attached) granted against Jones Chan on 2 March restraining him from obstructing the resolutions of the Group from being carried into effect and threatened the employees with legal proceedings for contempt in the event of non-compliance. 

58.  Draft minutes of the 2^nd board meeting were not circulated until 6 April at a time when Jones Chan was on leave in Australia.  Until receipt of the draft minutes, Jones Chan had no notice of the actual resolution(s) passed on 28 March as a “follow-up” on resolution 5.  Jones Chan returned from Australia on 9 April.

59.  On 10 April, TC wrote to BN with reference to their letters of 3 April sent on behalf of the Aeso HK to its former/existing employees.  In §9 of that letter, TC referred to an “intimidating” incident that occurred on 28 March (see §55 above) as a result of which many employees have resigned or indicated an intention to resign causing irreparable damage to Company and Aeso HK.

D. 16 April—Visit of New Board and the 3^rd board meeting

60.  The following day, 11 April, BN put forward a proposal to resolve the situation between the 2 camps.  It was proposed inter alia that (a) the New Board visit the office premises at 2 pm; (b) Jones Chan make available for inspection the records of the Company and Aeso HK as set out in the annex to the letter; and (c) Jones Chan sign all documents necessary for the addition of the Chans as account signatories of Aeso HK during the visit.

61.  On the same day, notice for the 3^rd board meeting was given together with the meeting agenda.  The agenda made no mention of the mass resignation of employees as a topic for discussion.

62.  TC replied on the 13 April that there was no objection to the proposed visit subject to essentially the same conditions as had been required for the earlier visit on 28 March.  On the same day, BN insisted that Zhang and Law would be accompanied by their solicitors. 

63.  On 16 April, the day of the visit, TC advised BN by letter that (a) Jones Chan was on sick leave that day with sick leave certificate issued by a government hospital; (b) however, Jones Chan had, on 13 April, issued an internal memo to his staff to facilitate the visit and to allow the New Directors and the company secretary to enter upon a showing of ID cards; (c) despite those arrangements, no staff would be there as the employees who had not resigned took urgent leave owing to the previous harassment and the 28 March incident; (d) TC on instructions sent a representative to open the door.

64.  Enclosed with the letter was a CD-ROM containing bank statements of the Company and Aeso HK from March 2017 to April 2018 being a further batch of requested documents.

65.  As to the visit itself, as reported by the representative (Sam Oh) who was sent to open the door, the group comprised Zhang, 2 of the New INEDs, BN and 2 members of his staff.  They reviewed documents in the office, BN answered incoming calls and spoke to the callers.  2 suppliers subsequently informed Aeso HK’s employees that when their calls were answered they were told that they should contact Zhang (the chairman) instead.

E. HCMP 571/2018

66.  On 19 April 2018, the Company and others took out an originating summons against 3 employees for inspection of “Records, Books and Papers of the Company and of Aeso HK”.

67.  Other than notices convening the 3 board meetings of the Company held on 19 March, 28 March and 16 April, Jones Chan is not aware of any other notice convening any board meeting of the Company and/or Aeso HK to authorize the commencement of such proceedings.

68.  Although leave to withdraw the originating summons was granted on 11 May 2018, costs were reserved.  It would appear from the evidence filed by the 3 defendants that none of them was ever an employee of the Company.  They were employees of Aeso HK but by 18 May, all of them had resigned from Aeso HK and were no longer its employees.

V. THIS APPLICATION

69.  The events giving rise to this hearing occurred within a short timeframe of about 6 weeks immediately preceding the taking out of the PL/Receivers summons on 26 April 2018.  They began within two weeks after the Court of Appeal’s order made on 2 March 2018 (“the CA Order”) but before its reasons were given on 26 March 2018 (“the CA Judgment”).

70.  It is the petitioner’s case that the Company’s current ‘parlous state’ in being in total paralysis is attributable to 5 factors, namely, (1) breakdown of mutual trust and confidence; (2) breach of the CA Undertakings by Wilson Liu’s camp; (3) the mass resignation of employees; (4) escalation of harassments against the Company, Jones Chan and his associates; and (5) ‘mud-slinging’ by New Directors against Jones Chan being detrimental to the public’s perception of the Company.  Those factors are considered below in a slightly different order.

A. The 5 factors

 1. Mass resignation of employees

71.  Prior to the date of the 2^nd warning letter, the Company/Aeso HK had a total of 34 employees.  The 2^nd warning letter was sent to the same 20 employees to whom the 1^st warning letter had been sent.  Between 6 and 17 April 2018, 23 of the employees tendered their resignations.

72.  Of the 23 employees, 14 of those who resigned had received the 2^nd warning letter.  The remaining 9 nonetheless resigned after learning of that letter from colleagues.  Those resigning include project managers, interior designers, quantity surveyors, administrative officer, site supervisors and operating managers.  The number of employees who resigned represented two thirds of the Company/Aeso HK’s employees.

73.  It is the petitioner’s case that as a result of the mass resignations, the business and operations of the Company/Aeso HK have been completely paralysed.  There are no sufficient personnel to follow up with ongoing projects or to obtain new projects. Customers have complained about the cessation of work and delay in progress and have threatened to claim damages.  The long-term damage to the goodwill and reputation of the Company’s business is severe and irreparable.  There was no denial that the Company/Aeso HK is in a state of total paralysis.

74.  The petitioner submitted that making threats of legal proceedings to employees was grossly unreasonable and the natural and foreseeable reaction of employees being threatened with legal proceedings and possible liability in court would have been to tender their resignations.

75.  At the hearing, Mr Wong submitted that Jones Chan was himself to blame for the mass resignations because had he complied with the numerous requests for production of documents there would not have been any need to involve the employees.  In other words, it was Jones Chan’s own breach of the CA Order that caused or made it necessary for the 2^nd warning letter to be sent.  That requires an examination of how the 2^nd warning letter came about.

76.  The authorization for the 2^nd warning letter was said to stem from the decision taken at the 2^nd board meeting of 28 March and that decision can be traced back to resolution 5 passed at the 1^st board meeting.

77.  Other than the fact that Jones Chan was not present at either of the board meetings, it is difficult to see how he could be responsible for the chain of events leading to the sending of the 2^nd warning letter.

78.  In so far as his non-attendance at the 1^st board meeting is concerned, I have set out in some detail how that came about.  In my view his request for a 7-day postponement in the circumstances could not be said to be unreasonable.  On 17 March he provided his preliminary comments inter alia highlighting a possible conflict with orders made in ongoing litigation. 

79.  Also the New Board had been informed on 17 March that he was due to be on annual leave in late March until early April and the exact dates of leave were provided on 26 March.  His annual leave had been approved by the Company in January.  That explains his non-attendance at the 2^nd board meeting.

80.  On the facts related above, Mr Wong submitted that the 7-day period for compliance with production request expired on 26 March.  But until receipt of BN’s letter of 20 March, Jones Chan could not have known whether, and if so to what extent, his comments had been taken into account and whether the New Directors in passing that resolution made the necessary adjustments to cater for the possible conflict.

81.  During the 7-day period from 20 March, a number of things happened.  Jones Chan sustained a fall causing a back injury.  The medical certificate issued by a government hospital shows that he was admitted as an inpatient on 22 March and upon his discharge later that day was granted sick leave from 22 March to 6 April.  That was followed by the request for access and notice for the 2^nd board meeting on 23 and 24 March that obviously required his immediate attention.  In normal circumstances, those matters would have constituted reasonable grounds to warrant a short extension of time for compliance but the relationship between the 2 camps was such that it did not happen. 

82.  Jones Chan’s annual leave commenced on 28 March.  Given those matters, while it could be said that Jones Chan could have produced at least some of the documents sought in the limited time available, as will become apparent that does not make him the cause of the 2^nd warning letter.  The atmosphere between the 2 sides was obviously so poisoned by that stage as to discourage any attempt at compliance. 

83.  While item 2 of the agenda for the 2^nd board meeting concerned a discussion to ‘follow-up’ on resolution 5, there was no suggestion or indication that it was to consider whether a 2^nd warning letter should be sent.  Jones Chan did not know about the proposal to send another warning letter until he received the draft minutes on 6 April.

84.  In so far as it is suggested that it was Jones Chan’s own failure to produce the documents requested in resolution 5 that ‘caused’ or necessitated the sending of the 2^nd warning letter, that also cannot be correct.  There is no logical nexus between any failure to produce documents and the decision to threaten employees.  The causal link is missing.

85.  Zhang filed evidence on behalf of Wilson Liu’s camp/the New Directors.  She submitted that the mass resignations were very likely “engineered” and “staged” by Jones Chan.  The reasons given were that the 1^st warning letter did not give rise to any resignations and, further, that the contents of the resignation letters have remarkably uniform themes.  As for the latter reason, there is no supporting evidence and, in the circumstances is nothing more than speculation on Zhang part.

86.  The fact that the 1^st warning letter sent in July 2017 did not cause any mass resignation at that time is irrelevant and cannot justify the sending of the 2^nd warning letter.  In any case, there is a signal difference between the 1^st and 2^nd warning letters in that the 1^st warning letter contained no threat of legal proceedings but only that non-compliance may result in summary dismissal.  The nature of the threat is thus markedly different.  The worst that could happen would be the termination of employment.  The employees would have no particular reason to prematurely terminate their own employment.

87.  Moreover, the conditions prevailing were very different: in July 2017, legal proceedings between the 2 camps had barely begun. The bulk of the litigation commenced after 30 June 2017.  By late March 2018, one is left in no doubt of the increasing bitterness and enmity by the sheer number of actions and court applications generated by the ‘war’. 

88.  Since July 2017 there has also been an escalation in incidents of harassment [22] which, quite naturally, impacted on the Company’s working environment.  For example, on 14 March 2018, 2 men arrived at the office of the Company/‌ Aeso HK and intimidated staff members, making threats concerning the closure of the Company causing staff members to call the police.  Then, a fortnight later there was the 28 March incident (when several well-built men and a locksmith sought to gain entry to the office) [23].

89.  The 2^nd warning letter appeared to have been indiscriminately sent almost 60% of the staff including relatively junior staff who cannot possibly be described as ‘senior management’.  It is to be noted that in the prospectus published for the listing, apart from Jones Chan, only 6 other employees were said to constitute ‘Senior Management’.  It is also incomprehensible that the recipients included 4 employees who had already left by the date of the 2^nd warning letter.

90.  Significantly, while the New Directors have issued legal proceedings against the Company’s employees, only 3 were named as defendants in HCMP 571/2018 (commenced on 19 April 2018) and another 3 in HCMP 1721/2017.  In all, only 5 of the 20 employees to whom the 2^nd warning letter was sent, were named as defendants to those proceedings.

91.  The petitioner has forcefully submitted that all that shows that Wilson Liu’s camp and the New INEDs have “intentionally and with full knowledge chosen to send threats to employees whom they knew there were no grounds for making such requests … [s]uch deliberate action could only mean that [they] either intentionally, or at least recklessly, caused the mass resignations of the employees and/or were acting for improper purposes”.

92.  It follows from the above, as night follows day, that responsibility for the sending of those letters lies squarely on the shoulders of the New Directors; it had the effect of depleting the workforce. I reject the submission put forward by the Wilson Liu camp (adopted by the New INEDs) which casts the blame on Jones Chan.  That is demonstrably wrong and is not borne out by the evidence.

93.  The episode causes concern on several fronts. Apart from highlighting a lack of integrity on the part of the New Directors in managing the Company’s affairs, it shows a reckless disregard for reasonably foreseeable consequences of their action and causing the ensuing state of paralysis of the Company and its operations. My provisional view on the available evidence is that it is the New Directors who have brought about the current ‘parlous state’ of the Company.

 2. Breach of CA Undertakings

94.  The CA Undertakings are set out in §28 above.

95.  Mr Smith submitted that there have been instances when Jones Chan was denied participation as director without justification.  For example:

 (a) Jones Chan did not know about the resolution passed to instruct BN to issue the 2^nd warning letter until after the event;

 (b) he had no prior notice of the resolution and decision to commence HCMP 571 nor was he given notice of any board meeting for that purpose;

 (c) BN claimed to have been delegated with authority to exercise powers as directors during the 16 April visit to the Company’s office premises as justifying the answering of telephone calls on behalf of the Company; and

 (d) the episode concerning changing bank signatories for Aeso HK which is dealt with below.

96.  On the available evidence, it is undeniable that Jones Chan was either kept in the dark or not given the opportunity as director to participate in the decision as regards items (a) to (c).  In relation to (c) as a director of Aeso HK was entitled to be notified of any proposed instructions/authority to be given to solicitors or delegation of directors’ authority to third parties but he was not given any prior notice nor was he consulted before the delegation. 

97.  On 4 April (when he was on leave in Australia) Jones Chan was sent the relevant banking documents for changing signatories to Aeso HK’s bank account from himself as sole signatory to 2 signatories consisting of Jones Chan and one of the Chans who had been appointed directors of Aeso HK on 7 July 2017.  However, the form was in blank. While Jones Chan had no objection to the change in signatories, he did not consider it appropriate to be the first of the three directors to complete the banking documents without knowing the credentials of the Chans.

98.  Mr Wong submitted that Jones Chan was making a mountain out of a molehill since the signatories’ ID numbers and address[24] appear in documents filed at the Companies Registry and is public information.  It was submitted that Jones Chan was being obstructive and uncooperative since information concerning the Chans had been tabled at the board meeting held on 6 July 2017.  It would appear from the minutes that the documents tabled comprised no more than a “background search” of the Chans and their statutory declaration.  What kind of “search” was conducted is not stated.

99.  As director of both the Company and Aeso HK, Jones Chan is entitled to know the credentials and background of those who will be the bank signatory for the bank accounts of the Company and Aeso HK.  It is not only about addresses and IDs.  Mr Smith submitted that he is entitled to see that the other persons who countersign are in fact the ones that are stated. I agree.  Jones Chan’s stance cannot be said to be unreasonable.  After all, Aeso HK is the only entity that generates revenue for the Company. 

100.  On the evidence, I find that the Wilson Liu camp has clearly breached the CA Undertakings. 

 3. Breakdown of mutual trust and confidence

101.  Although the acrimony between the 2 warring camps locked in bitter and extensive litigation is nothing new and patently obvious from the background to the present application, one has to approach the matter afresh, with somewhat of a clean slate commencing with the CA Order.

102.  It will have become apparent that the CA Order did not give unrestricted liberty and free reign to the New Directors to do whatever they wish with the Company’s assets and business at the costs of the Company’s and shareholders’ interests: it envisaged Jones Chan’s continued participation as director.

103.  Mr Smith submitted that CA Undertakings and CA Judgment were clearly “premised upon there at least being some vestige of cooperation and abiding by basic corporate governance rules”.  It is difficult not to agree with that sentiment.

104.  The email exchange relating to the date for holding the 1^st board meeting would appear to be the first contact or interaction between the 2 camps, post-CA Order, for deciding something as simple as a date for holding it.  I have set out Zhang’s email of 15 May (§46 above) for a better appreciation of its tenor from which a certain ‘attitude’ can be discerned.  It exemplifies the general approach of the Wilson Liu’s camp after the date of the CA Order towards Jones Chan and any requests emanating from his side.  It offers some insight into the Wilson Liu camp’s perception of the effect of the CA Order and how matters are to be run and decisions taken by the board in the future; in short, who the real boss is.  It left no room for considering the other side’s request rationally or objectively or affording any measure of accommodation. 

105.  Apart from imposing unrealistic and short deadlines for production notwithstanding special circumstances, the Wilson Liu camp/ the New Directors applied unrelenting pressure concurrently (through commencing proceedings against Jones Chan to obtain documents and information by way of interlocutory application) and disputing what would not appear to be unreasonable conditions relating to the requests from the Wilson Liu camp’s for access to office premises.  The constant barrage of demands and objections emanating from the Wilson Liu camp/the New Directors understandably took time to address, using up that would otherwise have been available to Jones Chan for complying with the requests.

106.  The deep mistrust caused the Wilson Liu camp to allege that (a)  the petitioner had ulterior motives for the winding up petition, that it was part and parcel of an alleged “fraudulent scheme” with Dragon Success to strip the Company of its operating subsidiary when not only had the Wilson Liu camp withdrawn their application to strike out the winding up petition, the courts have found on 2 occasions that there was no evidence of collusion between Jones Chan and Dragon Success[25]; (b) the mass resignation of employees was “engineered” and “staged” by Jones Chan without any supporting evidence; and (c) the various harassments that have taken place were a “staged” act as part of a “smear campaign”, again without supporting evidence.

107.  In my view, regrettably, the arrangement put in place in the interim by the CA Order until trial has proved beyond peradventure to be unworkable in practice.

108.  Pausing here, it is to be noted that the CA Order did not dispose of the underlying dispute concerning the Disputed EGM and Disputed Resolutions which are very much alive and remain issues for trial.  In that regard, I note that on 12 March 2018 Harris J directed [26] that the petition and HCA 1496 be tried together before the same judge but there be a split trial and for the issues other than the Counterclaim be tried first.  He also directed that there be a speedy trial of those issues and the timetable for the petition and HCA 1496 synchronised.

109.  A detailed timetable and directions have been given such that the CMC for setting the matter down for speedy trial should take place by about October 2018.  The parties should concentrate on having the underlying dispute determined as soon as possible.

 4. Escalation of harassments

110.  The petitioner submitted that since the CA Order there has been an escalation of harassments [27] against the Company, Jones Chan and his associates.

111.  Apart from 2 incidents [28] of harassments mentioned above which occurred on 13 and 14 March about which the Wilson Liu camp disclaimed knowledge, the petitioner submitted that there were further incidents of harassment, namely (i) the 28 March incident when Zhang tried to gain access office premises and brought along several well-built men as well as a locksmith described in §55 above; (ii) during the 16 April visit BN saw fit to answer calls randomly when he was neither an employee nor a director; and (iii) on 25 April when a person claiming to be the deliveryman from a well-known store went to Jones Chan’s home insisting to deliver something to him personally and was seen together with another man taking photos of Jones Chan’s car before knocking on his door frightening his family members and caused great distress, also demonstrate harassment.

112.  Prima facie, those incidents did occur.  The Wilson Liu camp has not explained why the first visit made to the Company’s office premises required not only the attendance of BN and members of his staff but also of several unknown and unidentified well-built men.  Belatedly, Zhang sought to explain that they were security personnel.  But why were they thought necessary in the first place if not to intimidate?  What function would they have served on that visit?  It is extraordinary behaviour on any view.

 5. Mud-slinging attempts

113.  The complaint is that the New Directors have made various attempts to issue biased announcements on behalf of the Company that do not reflect present a fair and balanced picture of the judgments but are slanted against Jones Chan by selectively quoting comments from judgments against him.  In other words, they were designed to cast Jones Chan in the worst possible light when the merits are far from being one-sided. 

B. Whether provisional liquidators should be appointed

114.  Mr Smith submitted that the key purpose of the application is to preserve the assets of the Company for the benefit of both his creditors and its shareholders to prevent it from sliding into further financial difficulties and/or insolvency by enabling professionals to hold the reins and restore its revenue stream.  The Company is in a “dire and parlous state” as recent events have caused the Company to be in a complete state of paralysis.

115.  In my view, this is a clear case that calls for the appointment of provisional liquidators.  Restoration of its operations and business is urgent and, given the circumstances, realistically, that can only be undertaken by an independent third party.

116.  The objections to such a course raised by the Wilson Liu camp, the Requisitionists (represented by Mr Chang SC) and the New INEDs (represented by Ms Law), in outline, are the following:

 (a) No one, not even the court, knows the true state of the Company other than Jones Chan who has not seen fit to disclose the Company’s management accounts and other financial information.  The court is not in a position to make an informed decision.

 (b) The appointment would not resolve the issues facing the Company and does not provide a solution when there is a viable alternative.

 (c) A conflict could arise between provisional liquidators if appointed and the Receivers appointed of the 1 share of Aeschylus Limited (“the Share”).

 (a) The Company’s financial condition

117.  The assertion that only Jones Chan is privy to the Company’s management accounts and financial information [29] is not accurate.  The Company shared that information with the Receivers who were appointed of the Share in September 2017 who are concerned with the preservation of the value of the Share.  They have filed a report dated 3 April 2018 (“the Report”) covering the period from the effective date of their appointment on 8 September 2017 to 29 March 2018.

118.  §4 of the Report sets out in some detail the work undertaken concerning the operations of the Group (comprising the Company, Aeschylus and Aeso HK), making enquiries with management of the Group for that purpose and conducting site visits. Having reviewed the requisite documents, they found no significant issue in the collection of accounts receivable and repayment of accounts payable.  They opined that Aeso HK should not have significant issue on the liquidity and going concern given projects for well-renowned customers unless there are unforeseen circumstances.  They considered the operations of Aeso HK to be normal and opined that management in general had been cooperative.

119.  It is clear from §4.9 of the Report that the Receivers will continue with their monitoring measures that include site visits on a quarterly basis, meetings with management whenever necessary, the review of major contracts, monthly bank statements, overall internal control of the Group and would provide advice on major issues encountered by the Group so as to protect the interest of the Group and hence the value of the Share.

120.  The Report was issued on the day the 2^nd warning letter was sent and obviously events since then have not been taken into account.

121.  Acceleration clauses featured in the submissions of both Mr Wong and Ms Law.  It was suggested that the appointment could trigger such clauses because the New Directors remain in a state of ignorance as to what borrowings the Company/Aeso HK have and also the they have not had sight of Aeso HK’s contracts.

122.  The point taken is a thoroughly bad one.  Given the nature of Aeso HK’s business which is the provision of services, its contracts with customers could not possibly include an acceleration clause since the latter only arises in contracts for loans.  The issue of triggering an acceleration clause upon an appointment of provisional liquidators simply cannot arise on the facts of the present case.  On the issue of borrowings, it is clear from the Report (§4.6) that all lines of credit were cut off on or about 11/12 June 2017 [30]. That led to the Dragon Success transaction and apart from the Dragon Success loan which is the security the Receivers are dealing with, there are no other loans.  There are no advances from any bank.

123.  For any business, the departure of two thirds of its employees would be a major blow that could well give rise to very serious consequences.  It is that event that has caused the Company and Aeso HK to be in its current state of paralysis.  Unless immediate steps are taken preserve and maintain Aeso HK’s revenue stream, it may likely soon find itself in financial difficulties.

 (b) Alternative to an appointment

124.  Mr Wong for the Wilson Liu camp, submitted that provisional liquidators should not be appointed because it would not resolve the problems and issues facing the Company and is not a solution.  It will not cause the employees who have resigned to return.  Rather, the alternative way forward as outlined in Zhang’s affirmation should be considered.  Both Mr Chang and Ms Law appeared to support the proposal, albeit that Ms Law sought to maintain that the New INEDs were neutral on the question of appointment.

125.  In Zhang’s affirmation (at §35) it is stated that W&Q is prepared to provide financial support of $30 million [31] so that the Company and its subsidiaries could continue as an on-going concern.  That paragraph also set out in broad terms the things that need to be done including (i) the review of the status of completed and ongoing projects, identifying projects that are delayed which may require additional resources and to take steps to speed up the progress, (ii) hire suitable new employees to replace those who have resigned and, in that regard, a head hunter has already been engaged to start searching for suitable candidates, and (iii) to seek to bid for and secure new projects by utilising contacts of the New Board.

126.  As regards the alternative plan outlined above, all that needs tobe said is that converting those aspirational steps into action is quite another matter when the ability of the New Directors to do so is uncharted territory: those steps require meticulous planning, coordination, communication and cooperation between different units and personnel, as the processes and operations are all being conducted on an ongoing, daily basis that will likely give rise to issues that need to be addressed during the implementation phase.  The hiring of new employees is not simply a question of delegation to a head hunter.  None of the New Directors has any experience in the business of the Company.

127.  What has been put forward as an alternative is nothing more than preserving the status quo.  As far as this court is concerned, given the events that have arisen, maintaining the status quo by not making any appointment is not a solution and the more so having regard to the reservations concerning the conduct of the New Directors highlighted above,[32] particularly when the present state of affairs has been brought about by their action.  As I have said, the arrangement resulting from the CA Order has proved to be unworkable.  To continue that course is not a realistic way forward.

 (c) Potential conflict

128.  Apart from associating herself with the point taken concerning the acceleration and the usual objection to the appointment of provisional liquidators that it was a Draconian remedy and one of last resort, Ms Law who appeared for the New INEDs professed to maintain that the New INEDs take a neutral position as far as this application was concerned.  Nevertheless, it was emphasised that Receivers are already in place for the protection of the assets and it is unnecessary for provisional liquidators to be appointed at the level of the holding company. Potential conflict between provisional liquidators (if appointed) and the Receivers was mentioned in passing and seemed to be a point also hinted at by Mr Chang.

129.  The Receivers have no involvement with the business activities of Aeso HK. Their mission is to ensure that the security they are holding is not being debased in some way but they have no power over the directors of the Company.  At §4.10 of the Report the Receivers stated that in the event of any significant issues arising which would affect the interest of the Group and therefore the value of the shares, subject to approval of the Court, the Receivers will have to exercise the powers conferred on them by paragraph 6(2) and 6(3) of the order to take control of and exercise their rights over the composition of the board. 

130.  Any potential conflict cannot arise without the Receivers making an application to the Court and if the Court does appoint provisional liquidators, such a conflict will simply not be allowed to arise. It is a non-point.

VI. DISPOSITION

131.  Having taken into consideration the submissions of the Wilson Liu camp, the Requisitionists and the New INEDs, I am not persuaded that provisional liquidators should not be appointed.  Even if criticism could be levelled at Jones Chan for not producing any of the documents at all by the time he went on annual leave, it would not constitute sufficient reason for the court not to exercise its discretion in making the appointment.  The objective here is not whether one party or the other ought to be punished or sanctioned.

132.  The overriding consideration and objective taking precedence over any other consideration given the circumstances is to adopt the option that offers the best prospects for normalising/restoring the revenue stream, the business and operations the Company/Aeso HK.  That course serves to maximise distributions to creditors and shareholders in the event of a winding up order being made.

133.  In my view, the appointment of provisional liquidators offers the best prospects for ‘normalizing’ or ‘stabilizing’ the Company/Aeso HK’s business and operations.  What is at stake is the business and operations of the Company/Aeso HK and it is critical for that to be functioning normally as soon as possible.  In so far as input or assistance from Jones Chan on particular aspects may be required, the provisional liquidators will be at liberty to tap into that resource at any time.

134.  The only remaining issue is whether an undertaking as to damages is required.  In the UK, unless the application was made ex parte, no such undertaking is usually required.  In Australia an undertaking is required unless there are appropriate reasons for not requiring an undertaking.  In Hong Kong the only authorities on the question whether an undertaking is required where the application is made inter partes appear to be Re Prudential Enterprise Limited (No 2) [2003] HKLRD 136 at §59 and in Re Jinro (HK) International Limited [2003] 3 HKLRD 459 at §40.

135.  The general practice in Hong Kong is not to require an undertaking to be given where the application is inter partes but there may well be cases where it is necessary to extract an undertaking on an inter partes application.  Re Jinro is an example of a case falling within the exception.  Given the somewhat special, if not unique, circumstances that arose in that case, the court required an undertaking as to damages from the applicant petitioners.

136.  In the present case, I do not consider there to be special circumstances that would warrant the exception to apply.  For that reason, an undertaking is not required.

The order

137.  The draft order submitted by the petitioner on 14 May 2018 has incorporated the Official Receiver’s comments of 11 May 2018 but not those made in its letter dated 14 May.  Subject to those additional comments being incorporated, there is to be an order in terms of the draft submitted on 14 May 2018.  For the avoidance of doubt, the petitioner is not required to provide an undertaking as to damages.

138.  There is also to be an order nisi of costs in favour of the petitioner with certificate for 2 counsel.

VII. HCMP 1721/2017

139.  In view of the appointment of provisional liquidators, the AOS is adjourned sine die with liberty to restore.  Costs are reserved.