NG YAT CHI AND ANOTHER v. MAX SHARE LTD AND ANOTHER

IN THE COURT OF APPEAL

1996, No. 252
(Civil)

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J U D G M E N T

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Ching, J.A. :

1. This is an appeal by two petitioners against an order striking out their petition in relation to Max Share Limited.

2. The company is a private one. We have not been shown its Memorandum and Articles of Association and so we do not know what precise restrictions they may contain as to the transfer of its shares. Some such restrictions there must be having regard to section 29(1)(a) of the Companies Ordinance, Cap. 32. Nor do we know what restrictions there may have been on the transmission of those shares.

3. The 1st Petitioner is an undischarged bankrupt. We have referred to his bankruptcy file to ascertain some of the dates which cannot be controversial. On 3rd February, 1992, a creditor not concerned in the proceedings before us obtained a money judgment against him. He did not satisfy the judgment and the creditor issued a bankruptcy notice which, after difficulties of service and extensions of time within which to pay, required him to pay the judgment debt by 17th June, 1992. He failed to comply and on 19th June, 1992, the bankruptcy petition was issued against him. This was followed by a receiving order on 29th July, 1992. On 17th August, 1992, his creditors resolved that he should be adjudicated bankrupt. An application for that purpose was made on 18th August, 1992, followed by an adjudication order on 28th August, 1992. The Official Receiver was the receiver and is the trustee in bankruptcy.

4. The 1st Petitioner was at all material times and still is the registered holder of 98,000 fully paid up shares in the issued share capital of the company. He became indebted to the 2nd Petitioner and charged the shares to him at a time before the creditor obtained his judgment. On 9th April, 1992, the 2nd Petitioner obtained a charging order absolute against them. On 28th July, 1992, the 2nd Petitioner obtained an order that the shares should be sold by public auction. The auction took place on 10th August, 1992, at which the 2nd Petitioner bought them. The bought and sold notes and the transfer form in favour of the 2nd Petitioner were signed by the Official Receiver as "Official Receiver and Trustee", the last two words being in handwriting. They bear the date 25th August, 1992. It may be that the documents were signed before a date was inserted or that the Official Receiver signed them as receiver on 25th August, 1992, and that the words "and Trustee" were added after the adjudication order. No point is taken on the fact that the Official Receiver apparently signed as trustee before his appointment as such.

5. On 21st August, 1992, that is to say before the date appearing on the transfer form, the 2nd Petitioner instituted proceedings against the company to have the shares registered in his own name. He was unsuccessful. We know no more of the proceedings other than that. On 9th December, 1992, the Official Receiver applied to the company to register the shares in his own name. This application was refused. We do not know the grounds upon which the refusal was made but in the face of an extant and valid transfer form in favour of and in the hands of the 2nd Petitioner it would appear on the authority of Ex parte Harrison, In re Cannock and Rugeley Colliery Company (1885) 28 Ch. D. 363 that that application was bound to fail. In that case the shareholder had charged his shares as security to a bank in whose favour he executed a transfer form. He was subsequently adjudicated bankrupt and his trustee in bankruptcy applied to the company to have his own name put upon the register of shareholders. This was refused. Upon an application to the Court it was held in the Court of Appeal that the refusal was justified having regard to the transfer form in favour of the bank. In the present case neither the Official Receiver nor the 2nd Petitioner appear to have taken their failure to have their names put upon the register any further.

6. On 28th January, 1993, the Official Receiver wrote to the solicitors of the company a letter which read,

"Thank you for your letter of 27 January.

I do not consider that I am the legal owner of the shares. I hereby disclaim any interest that I may have in them in accordance with Section 59 of the Bankruptcy Ordinance.

The only person entitled to vote the shares is the bankrupt ....."

We have not been shown the letter of 27th January, presumably of 1993, to which this letter was the reply. The Official Receiver filed no evidence but disputes that this letter was or amounted to a disclaimer.

7. The petition with which we are concerned was presented on 10th June, 1996. In it each of the petitioners claims to be a contributory of the company and seeks an order that it should be wound up on the just and equitable ground. In the alternative they each claim to be a member of the company and they ask for an order under section 168A of the Companies Ordinance that what they describe as their shares should be purchased by one of the other shareholders.

8. It would be convenient to deal first with the position of the 2nd Petitioner. So far as the winding up of the company is concerned, section 179 of the Companies Ordinance provides, in part, that,

"(1) An application to the court for the winding up of a company shall be by petition, presented ..... by ..... any contributory or contributories or the trustee in bankruptcy .....of a contributory, or by all or any of those parties, together or separately :

Provided that -

(a) a contributory shall not be entitled to present a winding-up petition unless -

(i) .....

(ii) the shares in respect of which he is a contributory, or some of them ..... have been held by him, and registered in his name, for at least 6 months during the 18 months before the commencement of the winding-up ....."

Section 171 of the same Ordinance provides that,

"The term 'contributory' ..... means every person liable to contribute to the assets of a company in the event of its being wound up, and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory."

Notwithstanding the wording of section 171 it is clear that a holder of a fully paid share is a contributory, see for instance In re Phoenix Oil and Transport Co., Ltd., (1958) 1 Ch. 560 and the cases therein cited. The 2nd Petitioner advances an argument that the shares are fully paid up, that he has given full value for them and that he is the beneficial owner of them so that, in equity, he should be given the locus standi to petition to wind up the company. The short answer is that equity has nothing to do with it. He does not comply with subparagraph (ii) of the proviso to section 179(1) in that his name has never been entered upon the register of members of the company and therefore he has no locus to present such a petition.

9. A similar position obtains insofar as the 2nd Petitioner seeks an order under section 168A of the Companies Ordinance. This provides, in part, that,

"(1) Any member of a company who complains that the affairs of the company are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of some part of the members (including himself) ..... may make an application to the court by petition for an order under this section."

Section 28(2) of the Ordinance defines a member as follows,

"Every ..... person who agrees to become a member of a company, and whose name is entered in its register of members, shall be a member of the company."

The 2nd Petitioner is not on the register of members and he has no locus standi to present a petition under section 168A. The Judge below was right to strike out the petition so far as it was one presented by the 2nd Petitioner for an order to wind up and for an order under section 168A. The appeal of the 2nd Petitioner is dismissed.

10. The position of the 1st Petitioner is not as simple. We deal first with his locus standi to present a petition to wind up the company. His name remains on the register of members and on the face of it he complies with subparagraph (ii) of the proviso to section 179(1). Three questions need to be considered. The first is the fact of his bankruptcy and the effect, if any, that that may have on his ability to present such a petition. The second is whether the letter of the Official Receiver dated 28th January, 1993, already set out above was or amounted to a disclaimer. The third is the effect upon the 1st Petitioner's right, if any, to present such a petition if the letter was a disclaimer.

11. So far as the first of these matters is concerned, section 58(1) of the Bankruptcy Ordinance, Cap. 6, provides that,

"Until a trustee is appointed the Official Receiver shall be the trustee for the purposes of this Ordinance, and immediately on a debtor being adjudged bankrupt the property of the bankrupt shall vest in the trustee."

Section 22(1) of the same Ordinance contains further provision that upon the making of an adjudication order the property of the bankrupt vests in the trustee. Section 42 of that Ordinance then provides, in part, that,

"The bankruptcy of a debtor ..... shall be deemed to have relation back to, and to commence at, the time of the act of bankruptcy being committed on which a receiving order is made against him ....."

Montefiore v. Guedalla (1901) 1 Ch. 435 was a decision in England under, inter alia, sections 43 and 54 of the Bankruptcy Act, 1883, which are the equivalent of sections 42 and 58 of our Ordinance. It is authority, if any be needed, that the vesting relates back to the act of bankruptcy. That vesting does not, however, deprive a bankrupt of his right to present a winding-up petition. So in In re Wala Wynaad Indian Gold Mining Company (1882) 21 Ch. D. 849 the headnote of the report reads, in part,

"A contributory of a company may present a petition to wind up the company where his name appears on the register as the holder of shares, though a trustee may have been appointed under a liquidation petition ....."

So also in In re H.L. Bolton Engineering Co., Ltd., (1956) 1 Ch. 577 a trustee in bankruptcy who had not succeeded in having his own name placed on the register of members was held not entitled to present a winding-up petition while in In Re KG Meat Supplies (Guildford) Limited (1966) 1 WLR 1112 the bankrupt, whose name was still on the register, was permitted to do so.

12. The attention of the Judge below was drawn to section 174 of the Companies Ordinance which provides that,

"If a contributory becomes bankrupt, either before or after he has been placed on the list of contributories -

(a) his trustee in bankruptcy shall represent him for all the purposes of the winding up, and shall be a contributory accordingly, and may be called on to admit to proof against the estate of the bankrupt, or otherwise to allow to be paid out of his assets in due course of law, any money due from the bankrupt in respect of his liability to contribute to the assets of the company."

In re H.L. Bolton Engineering Co., Ltd., (supra) is sufficient authority that the section applies only after a winding-up has commenced. By way of contrast see In re Cape Breton Company (1881) 19 Ch. D. 77 and In re Wolverhampton Steel & Iron Co., Ltd., (1977) 1 WLR 153 affirmed on appeal as reported at 860 of the same volume where the winding-up had already commenced and it was held that the trustee was the proper party to make application.

13. The attention of the Judge below was also drawn to section 179(1) of the Companies Ordinance, already set out above, and in particular to the words, "or the trustee in bankruptcy of a contributory". The question was whether or not those words gave to the trustee in bankruptcy not only the right to present a winding-up petition but whether it did so to the exclusion of the bankrupt. The Judge below left the question open but we have no doubt but that it must be answered in the negative. These words do not appear and have never appeared in the English legislation. It is clear to us that one of the prerequisites of locus standi to present a contributories' winding-up petition is that the petitioner must be on and, for the requisite period, have been on the register of members in accordance with the proviso in subparagraph (ii) of section 179. Section 179(1) enables both the contributory and his trustee in bankruptcy to present the petition, the latter clearly when his name has been placed on the register.

14. Our conclusion is that a contributory who has been adjudicated bankrupt retains his right to present a winding-up petition subject to any disclaimer by his trustee. It is to the question of disclaimer that we now turn. Section 59(2) of the Bankruptcy Ordinance provides that,

"The disclaimer shall operate to determine, as from the date of disclaimer, the rights, interests and liabilities of the bankrupt and his property in or in respect of the property disclaimed, and shall also discharge the trustee from all personal liability in respect of the property disclaimed as from the date when the property vested in him ....."

Two things are immediately apparent. First, the bankrupt is deprived of his rights as from the date of the disclaimer. On the other hand, the trustee is relieved of liability as from the date when the property vested in him. Nothing is said as to the rights of the trustee but since he stands in the place of the bankrupt he must lose his rights when the bankrupt loses his, see Ex parte Harrison (supra). Secondly, a disclaimer does not affect only the rights of the trustee. It also affects the rights of the bankrupt. After a disclaimer of shares, therefore, the bankrupt would be unable to present a contributories' petition to wind up. The trustee would be unable to have himself placed on the register of members and therefore would not be in a position to present such a petition. Nor would he be able to present such a petition even if his name had been placed on the register. He would also lose his rights to require the bankrupt to present the petition. Another consequence would be that neither the bankrupt nor the trustee could have been put on the list of contributories, see In re West of England Bank, ex parte Budden and Roberts (1879) 12 Ch. D. 288.

15. Mr. M.K. Tam who appeared for the Official Receiver submitted that the letter of 28th January, 1993, was not a disclaimer at all. He advanced two reasons. The first was that by that letter the Official Receiver was merely saying that, in colloquial terms, he no longer wished to be concerned with the shares. With respect, that is not acceptable. The letter in terms expresses a disclaimer under section 59 of the Bankruptcy Ordinance. It is not within the trustee's powers simply to say he will have or wishes to have nothing further to do with the shares. If he divests himself of any interest in them by way of disclaimer the consequences already set out will follow.

16. The second point advanced by Mr. M.K. Tam was that since the beneficial interest in the shares had been sold to the 2nd Petitioner they were being held in trust for him and therefore did not form part of the bankrupt's divisible property. He says that therefore there was nothing to disclaim so that the letter, even if read as a disclaimer, had no effect. Again, with respect, we cannot agree with this argument in its totality. By section 43 of the Bankruptcy Ordinance the divisible property of a bankrupt which vests in the trustee does not include,

"(a) property held by the bankrupt on trust for any other person."

However, the section goes on to provide that the divisible property shall include,

"(i) all such property as may belong to or be vested in the bankrupt at the commencement of his bankruptcy ....."

We have seen that the vesting of the bankrupt's property relates back to the date of the act of bankruptcy. At that time both the beneficial and the legal ownership of the shares were in the bankrupt. There was no trust at that stage and both the legal and the beneficial interest clearly vested in the trustee albeit subject to the charge in favour of the 2nd Petitioner which subsequently came into being. If the legal interest remained in the trustee when the beneficial interest passed to the 2nd Petitioner that was an interest which could have been disclaimed.

17. While we partly reject the points advanced by Mr. M.K. Tam, it is clear to us that there was nothing to disclaim for part of the reason he gives. Clearly the beneficial interest passed to the 2nd Petitioner. Over and above that he was given the transfer form properly executed. He was unsuccessful in having his name put on the register but registration on the register of members is no more than evidence of legal ownership. It does not confer legal ownership. What happened to the shares in the present case is very similar to what happened in Ex parte Harrison (supra). At page 368 of that decision, the Earl of Selborne said,

"..... it is well settled law that, subject to certain particular provisions of the law of bankruptcy, such as those with regard to reputed ownership, the trustee in bankruptcy stands in the shoes of the bankrupt as against other persons having preferable titles to that of the bankrupt. That being so, let us consider the position of an unregistered transferee for value as against a trustee in bankruptcy ..... As far as (the bankrupt) could do it, he gave and intended to give, by way of security, to the transferees the fullest right he was able to give, not only to the beneficial interest, but to that position which registration of the transfer would confer, whether it be called, by way of analogy, the legal title, or by any other expression. ..... He was completely estopped from denying that his ownership was transferred to them. I think that within the bankruptcy law they became the true owners of the shares, and the provisions of the bankruptcy law with regard to property in the order and disposition of the bankrupt with the consent of the true owner cannot here apply, because there was no consent of the true owners, the transferee having given notice of the transfer to the company and claimed to be registered. (The Bankrupt) therefore could not have been heard to say that he was entitled to have his name on the register as against the transferees."

The 2nd Petitioner was given the fullest right that the bankrupt and the trustee could give. That right included the right, if any, to have the 2nd Petitioner's name put on the register of members and for the 2nd Petitioner to direct the bankrupt to present a winding-up petition. We are of the view that the trustee divested himself of the legal interest upon the sale of the shares to the 2nd Petitioner. That being so, he had nothing to disclaim. It follows that, however ineptly the letter of 28th January, 1993, was framed there was nothing to disclaim and the letter was ineffective.

18. It follows from this conclusion is that we need not address the third issue. The 1st Petitioner holds neither legal nor beneficial interest in the shares but his name is still on the register and if the 2nd Petitioner requires him to present a winding-up petition he must do so against a proper indemnity as to costs. The same reasoning applies insofar as the petition is one by the 1st Petitioner for an order under section 168A.

19. In the result, the appeal of the 2nd Petitioner is dismissed but the appeal of the 1st Petitioner succeeds and we reverse the decision of the Judge below to that extent.

Keith, J.:

20. For the reasons given by Ching J.A., I agree that the 2nd Petitioner's appeal must be dismissed, and that the 1st Petitioner's appeal should be allowed. For my part, I have considerable sympathy with the judge below. The effect of the letter of 28th January 1993 was not as fully argued before him as it was before us, and the judge can, I think, be forgiven for concluding that the letter "disclaimed any interest which the 1st Petitioner might have in the shares". The true position was that the 1st Petitioner no longer had an interest in the shares, and the letter purporting to disclaim any interest in them was for that reason of no effect. It is apparent that Ex p. Harrison (1885) 28 Ch.D. 363, which as Litton V.-P. has said is the key to a proper understanding of the 1st Petitioner's position, was not drawn to the judge's attention.

Litton, V.-P.:

21. I have had the advantage of reading in draft Ching JA's judgment and would gratefully adopt his analysis of the issues involved.

22. Plainly, the judge's order striking out the 2nd appellant's petition must be upheld and accordingly the 2nd appellant's appeal must stand dismissed.

23. As regards the 1st appellant's position, the key to its proper understanding is the passage in the Earl of Selbourne's judgment in Ex parte Harrison, In re Cannock and Rugeley Colliery Company [1885] 28 Ch D 363 at 368, quoted in Ching JA's judgment, to the effect that once the registered owner of the shares (here the 1st appellant) has done everything within his power to vest ownership of the shares in the purchaser (here the 2nd appellant) then as far as bankruptcy law goes the 2nd appellant has become the true owner of the shares. It must follow from this that when the Official Receiver purported to disclaim the shares on 28 January 1993 he had nothing to disclaim. Since the 1st appellant's name remains on the share register his right to present a winding-up petition and to seek relief under section 168A of the Companies Ordinance must remain intact.

24. For these reasons I too would allow the 1st appellant's appeal and discharge the judge's order striking out his petition.

25. As to costs, our order nisi is that each party should pay its own costs of the appeal.