RE SHIU FOOK COMPANY LIMITED

1988, No CWU185

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING UP

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J U D G M E N T

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1. This is an application for the appointment of a provisional liqudiator by Madam Wong Lee Mei Ying (the petitioner) following the presentation of a petition on the 14th November 1988 to wind-up Shiu Fook Company Limited (the company) on the just and equitable ground.

2. The petitioner is the second wife or concubine of Wong Kam Yin whom she married in November 1960. Wong Kam Yin's first wife was Madam Wong Chan Shun Kun who died on the 3rd November 1988.

3. The company was incorporated on the 22nd September 1961 as a private limited company for the purpose of manufacturing paper and paper products. However, since the manufacturing business ceased a few years ago the company has been concerned in the investment and development of land, in particular the leasing of property. The company has been run as a family business by the head of the family, Wong Kam Yin, who was the Chairman of the Board of Directors until his death on the 31st July 1988. By his first wife Wong Kam Yin had three sons, Wong Hong Chi, Wong Hong Chung and Wong Hong Leung and four daughters, and by the petitioner, two sons, Wong Hong Kam and Wong Hong Sun and four daughters. Wong Kam Yin always held a majority of the shares in the company whilst his two wives and other members of the family had shareholdings which varied from time to time. Various members of the family participated in the running of the business. The first directors of the company were Hong Kam Yin, the first wife, the petitioner, Wong Hong Chi and Wong Hong Chung. Subsequently, both Wong Hong Chi and Wong Hong Chung left the company, and in July 1967, the directors were Wong Kam Yin, the first wife and the petitioner. In October 1985 Wong Kam Yin's first wife ceased to be a director and was replaced by Wong Hong Leung. At the time of Wong Kam Yin's death, the permanent directors of the company were Wong Kam Yin, the petitioner and Wong Hong Leung.

4. The amount of the paid-up capital of the company is $1,500,000 divided into 15,000 shares of $100 each. When he died Wong Kam Yin held 4,716 shares whilst the other shareholders were the petitioner 2,005 shares, Wong Hong Kam 2,000 shares, Wong Hong Sun 2,000 shares, Miss Wong Lai Kit, a daughter of the petitioner 250 shares, Wong Hong Leung 800 shares, Wong Hong Chi 800 shares and the first wife 2,429 shares. Accordingly, at that time the petitioner held approximately 13% of the issued shares.

5. The petitioner states that she and Wong Kam Yin made plans in 1974 to emigrate, and in 1986 she and members of her family took up residence in Australia.

6. By the petition the petitioner alleges that the company ceased trading in about October 1985 and has been inactive since then apart from the collection of rents received in respect of properties owned by the company. These properties consist of a building at Shiu Fook Building at 35 Hung To Road, Kwun Tong and two units on the first floor of Gee Lok Industrial Building, also in Hung To Road.

7. The events which have led to the presentation of the petition arose on the 4th July 1988 when Wong Kam Yin was seriously ill. On that date a meeting was convened by Wong Kam Yin at which certain agreements were made between the members of both branches of the family concerning the properties at Hung To Road to the effect that Shiu Fook Building would not be sold and that Gee Lok Industrial Building would only be sold if it was necessary to discharge debts due to the bank. The minutes of this meeting were signed by all those members who were present including the petitioner. However, the petitioner now contends that no such agreement was made although no grounds have been put forward to substantiate this contention.

8. On the 24th July 1988, the petitioner alleges that Wong Hong Leung, together with Wong Hong Chung and Wong Hong Chi asked her to write something on a piece of paper with the letterhead of the company, to the effect that Wong Kam Yin wished to withdraw HK$1m. from the company's account as a "set-up fee". She enquired from Wong Kam Yin why he wanted this money, but states that he just murmured something and said nothing specific, whereupon she came to the conclusion that he was under some kind of pressure from his three sons. She was then informed by Wong Hong Leung that it was Wong Kam Yin's intention that he be appointed to be the Chairman of the Board of Directors and that Wong Hong Chi was to he appointed as a permanent director. However, the petitioner refused to accept this proposal. Reference was then made to the fact that Wong Hong Chung said that as the three brothers now represented the interests of their mother, Madam Wong Chan Shun Kun, they could command over a 50% majority and pass any resolution that they wished. The petitioner then consulted solicitors about these proposals, and by her solicitors' letter of the 29th July 1988 addressed to the Board of Directors of the company, challenged the resolutions purported to have been passed for the appointment of an additional permanent director and the approval of the payment of $1m to Wong Kam Yin. In this respect attention was drawn to Articles 6(v)(vi) and (ix) of the Articles of Association which read:-

"6. (v)    Wong Kam Yin, Wong Lee Mei Yin and Wong Hong Leung shall be Permanent Directors of the Company and they shall hold office as such so long as each of them shall hold the qualification shares of a Director in his/her own right and the said Wong Kam Yin shall be Permanent Managing Director and Chairman of the Board of Director's. In the event of the number of Permanent Directors being less than three by virtue of death or resignation or failure to hold the qualification shares or otherwise, the remaining Permanent Directors shall forthwith call an Extraordinary General Meeting and a new Permanent Director shall be elected by Ordinary Resolution;'

(vi)    'The quorum necessary for the transaction of the business of Directors may be fixed by the Permanent Directors and, unless so fixed, shall be three Permanent Directors.'

(ix)    'All decisions reached by the Directors at Directors Meetings shall require the consent of at least three Permanent Directors.'"

In that letter the petitioner intimated that she did not wish to have any changes made in the Board of Directors and requested that proper notice be given for any board meetings or shareholders' meetings of the company to be held in the future.

9. When she was in Australia at the end of July 1988, the petitioner received a letter dated the 29th July 1988 signed by Wong Kam Yin giving notice of an extraordinary general meeting of the company to be held for the purpose of passing the resolutions that had been purported to have been agreed on the 24th July 1988. This letter, ex: WLMY-11, reads as follows:-

"To Directors

Shiu Fook Company Limited

Dear Sirs,

    Pursuant to Section 113 of the Companies Ordinance, Laws of Hong Kong, I hereby require you to convene an Extraordinary General Meeting of the Company within 21 days to discuss the passing of the following resolutions as Ordinary Resolutions of the Company :-

1)    That in consideration of the long service to the Company of Mr. Wong Kam Yin, founder and permanent director of the Company, the Company do pay to Mr. Wong Kan Yin an ex gratia payment of HK$1,000,000 in recognition and appreciation of such long service;

2)    That upon the resignation, retirement or death of Mr. Wong Kam Yin, Mr. Wong Hong Chi shall be appointed permanent director in the place of Mr. Wong Kam Yin pursuant to Article 6(v) of the Articles of Association of the Company;

3)    That upon the resignation, retirement or death of Mr. Wong Kam Yin, Mr. Wong Hong Leung be appointed Chairman of the Company.

Dated the 29th day of 7, 1988.

(Sd) Wong Kan Yin"

10. Shortly after receipt of this communication the petitioner returned to Hong Kong and visited Wong Kam Yin in hospital before his death.

11. On the 19th August 1988, before the petitioner returned form Hong Kong to Australia, she said that she was approached by Wong Hong Chung, Wong Hong Chi and Wong Hong Leung with regard to a proposal to make Wong Hong Chi a permanent director and Wong Hong Leung as the Chairman of the Board, but that this request was refused.

12. Wong Hong Leung gave notice on the 21st September 1988 for an extraordinary general meeting to be held on the 13th October 1988. This meeting was attended by the petitioner who was elected as Chairman. The petitioner also represented at the meeting her two sons, Wong Hong Kam and Wong Hong Sun and her daughter, Wong Lai Kit whilst two other persons, Wong Ming and Paul Ng who were proxies for the petitioner holding five shares each. Wong Hong Leung and Wong Hong Chi attended the meeting and also represented their mother, Madam Wong Chan Shun Kun. During the meeting all members present agreed that two additional permanent directors, Wong Hong Chi and Wong Hong Kam be appointed to the Board of Directors. However, as the appointments would require a special resolution to amend the Articles of Association, all the members voted against the proposal. The petitioner went on to proceed with the other business on the agenda which included a proposal that all the properties be sold and the proceeds be distributed amongst the members upon a winding-up of the company. Wong Hong Leung disagreed with this proposal but agreed to sell the two properties at Gee Lok Industrial Building in order to pay debts due to the  Hong Kong Bank. The petitioner then produced a draft resolution in Chinese for the disposal of the Shiu Fook Building. Although Wong Hong Leung objected, the resolution was passed. Reference was also made to a purported renewal of the tenancy of the ground floorat 35 Hung To Road, between Wong Kam Yin on behalf of the company with the tenant upon which doubt was cast as to whether there was a legally binding agreement. A resolution was passed not to enter into a new tenancy agreement.

13. Both Wong Hong Leung and Wong Hong Chi had requested that the meeting be adjourned so that they could obtain legal advice in connection with these proposals but such request was refused.

14. Wong Hong Leung, in his evidence, has stated that he was agreeable to four permanent directors being appointed and agreed to the sale of Gee Lok Industrial Building. At the conclusion of the meeting, the petitioner repeated her proposal to dissolve the company by selling the properties and to distribute the proceeds to all the shareholders and requested the members to consider these proposals.

15. Subsequently Wong Hong Leung challenged the validity of the resolutions passed at the extraordinary general meeting by issuing a writ on the 27th October 1988 against the petitioner, Wong Hong Kam, Wong Hong Sun, Wong Lai Kit and the company for an injunction restraining the implementation of the proposals and the disposal of the company's properties. An ex-paste injunction had previously been granted by Duffy, J. on the 22nd October 1988 restraining the defendants from acting upon those resolutions. None of the defendants have sought to discharge the injunction.

16. The petitioner maintains that the affairs of the company have come to a complete standstill as there is deadlock amongst the permanent directors and mutual distrust amongst the shareholders of the company. It has therefore become impossible to conduct any business as the Articles of Association do not permit the petitioner to act alone on behalf of the Board of Directors. Accordingly the petitioner seeks a winding-up order on the just and equitable ground and claims that there will be a substantial surplus for the shareholders after payment of liabilities. The petition is resisted by the other remaining permanent director Wong Hong Leung.

17. Although the petitioner has alleged that deadlock arose following the extraordinary general meeting, she has in her affirmations made allegations of a long history of disputes between her side of the family and the family of Wong Kam Yin's first wife. However, these allegations which she says occurred several years ago, are not only very stale, but have no relevance to the present application. In so far as complaints have been made about the management and affairs of the company, upon which she was not consulted, even if they are accepted it is clear that she has had access to the premises of the company and has been afforded access to all the accounts and other relevant documents. Further she is a signatory to the company's bank account so that money cannot be withdrawn without her consent and signature.

18. The petitioner believes that although she and her family, at the moment, hold the majority shares in the company this may change when Wong Kam Yin's will is proved when they may become minority shareholders, for the family of Wong Kam Yin and his first wife will inherit those shares held by Wong Kam Yin. She fears that Wong Hong Chung, Wong Hong Chi and Wong Hong Leung will seek to dominate the company through the majority shareholding, whereas the provisions in the Articles regarding permanent directors reveal that this was not the intention of Wong Kam Yin so far as the future running of the company is concerned.

19. In order for a provisional liquidator to be appointed it must be established that the petitioner has shown a good prima facie case that upon the hearing of the petition, a winding-up order will be made and that it is right, in all the circumstances, for a provisional liquidator to be appointed, see Re Union Accident Insurance Co. Ltd. (1972)1 All E.R. 1105. As I am not trying the petition, I can only take a provisional view of the evidence. In respect of the evidence of deadlock, it appears that at the meeting of the 4th July 1988, although I have been invited by Mr Tang, Q.C., who appeared for the petitioner, that such agreement is not accepted, it is clear that at that time if there was an agreement, there was no intention to dispose of the company's properties. All the members present including the petitioner signed that document. Indeed, it is also set out in that agreement that dividends were anticipated to be made in September 1989. There is evidence that there should be four permanent directors which would have resulted in two representing the petitioner's side of the family and two representing the first wife's family, but this proposal was not implemented at the extraordinary general meeting held on the 13th October 1988. Although the agenda for that meeting had contained a reference that the properties of the company would be discussed, it is evident from the minutes that the proposals of the petitioner to sell came as a complete surprise to Wong Hong Leung and Wong Hong Chi. As I have said serious doubt has been levelled at the validity of the resolutions passed as to whether they should have been passed at a shareholders meeting rather than at a directors meeting which would have required the consent of three permanent directors in accordance with the Articles of Association.

20. The company, being a sole proprietorship or quasi partnership as submitted by Mr Tang, falls within the principles enunciated in the well known case of In re Westbourne Galleries Ltd. [1973] A.C. 360 so that if it is established that a state of deadlock has been reached, the court in its equitable jurisdiction can make a winding-up order on the just and equitable ground. Nevertheless, where a petitioner relies upon the just and equitable ground, he must come to the court with clean hands and in this respect my attention was drawn to the speech of Lord Cross in this case where he said at page 387:-

"A petitioner who relies on the 'just and equitable' clause must come to court with clean hands, and if the breakdown in confidence between him and the other parties to the dispute appears to have been due to his misconduct he cannot insist on the company being wound up if they wish it to continue. But the judge dealt with the case on the footing that the respondents loss of confidence in the petitioner might have been due to a tragic and inexplicable misunderstanding. If it was right in the light of the evidence to deal with this case on that basis then I would have thought that a winding up order should have been made".

21. The petitioner avers that there is no likelihood of agreement being reached in the future having regard to the existence of deadlock. However, it is clear that if there is disagreement between the parties, they must relate to acts done in the past and not those contemplated as likely to be done in the future, see Re Anglo-Continental Produce Co., Ltd. [1939]1 All E.A. 99.

22. Mr Thomas, Q.C., who appeared for Wong Hong Leung, apart from his submission that the petitioner has failed to show that she has a good prima facie case for a winding-up order, also submitted that the petitioner has acted unreasonably in seeking to have the company wound up instead of pursuing other remedies that are available and drew my attention to section 180(1A) of. the Companies Ordinance which provides:-

"Where the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the court shall not refuse to make a winding-up order on the ground only that some other remedy is available to the petitioners unless it is also of opinion that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy."

Three other available remedies that were suggested are firstly the agreement made at the extraordinary general meeting on the 13th October 1988 for the appointment of two additional permanent directors from which the petitioner resiled without explanation; secondly the petitioner has failed to take steps to offer her shares for sale and thirdly she has taken no steps to present a petition under section 168A of the Companies Ordinance on the grounds that the affairs of the company are being conducted in a manner unfairly prejudicial to the interests of some part of the members.

23. There is no doubt upon the evidence that Wong Kam Yin, as the head of the family, had built up the business for the benefit of the family members and that it appears, upon his death, he intended the company to continue. Upon a provisional view of the evidence the petitioner has not established that the business ceased in 1985 and has since remained inactive while there is considerable doubt as to the validity of the resolutions passed at the extraordinary general meeting held on the 13th October 1988. The petitioner's attitude at the meeting, by the production of her proposal to sell the company's properties without giving any proper notice and her refusal to grant an adjournment for the proposals to be considered, was unreasonable. Although no reasons have been given it would appear that the petitioner's intention is to sell her shares in the company in order that she can withdraw to Australia. Upon the evidence, there was no deadlock until the petitioner herself, at the meeting on the 13th October 1988, put forward her proposals to sell the company's properties. Such deadlock that arose was brought about by her own conduct. In the circumstances, Wong Hong Leung was quite entitled to take proceedings to restrain the petitioner from acting upon the disputed resolutions that had been passed at that meeting. It is significant that the petitioner has not been supported by any evidence from her own members of her family nor have they joined as petitioners in the presentation of the petition.

24. In my judgment, the petitioner has failed to show that she has a good prima faice case to wind up the company on the just and equitable ground for the evidence adduced is insufficient to support her contention of deadlock. Further her action in so doing is unreasonable for she has not taken advantage of another remedy by attempting to sell her shares. Mr Tang argued that there is only a limited market available for this purpose which I accept, but she has taken no steps to pursue this remedy.

25. Although a provisional liquidator can be appointed, having regard to the circumstances of the case, it is usual for a provisional liquidator to be appointed where there is jeopardy or danger to the assets of the company or there is a fear of dissipation of those assets or the company is insolvent. However, it is clear, and Mr Tang did not argue to the contrary, there is no danger or jeopardy to the assets for the petitioner is one of the signatories to the bank account. In addition, there is no evidence that the company is insolvent. Accordingly, even if I had held that the petitioner has a good prima facie case to seek a winding-up order at the hearing, I am quite satisfied that there is, in any event, no justification for the appointment of a provisional liquidator in the circumstances of this case. As a result, the application will be dismissed with costs including those of the Official Receiver. There will also be a certificate for two counsel.