SECURITIES AND FUTURES COMMISSION v. ADAMAS ASSET MANAGEMENT (HK) LTD

HCCW 88/2021

[2021] HKCFI 729

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 88 OF 2021

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R E A S O N S  F O R  D E C I S I O N

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1.  On 9 March 2021, at the hearing of the Petitioner’s inter parte summons, I made an order that the ex parte order made by me on 25 February 2021 for the appointment of Chan Pui Sze and Mak Hau Yin of Briscoe Wong Advisory Limited as joint and several provisional liquidators of Adamas Asset Management (HK) Limited (“the Company”) be continued pending determination of the Petition (the first hearing thereof is scheduled on 2 June 2021) or until further order pursuant to section 193 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). These are my reasons.

2.  The Company was incorporated on 23 August 2011. It has, since 20 February 2013, been a licenced corporation under s.116 of the Securities and Futures Ordinance (Cap. 571) (“the Ordinance”) to carry on Type 9 (Asset Management) activities.  It is a fund manager or adviser of various funds formed under the laws of Cayman Islands for professional investors.

3.  As at the date of the Company’s latest semi-annual financial returns filed with the Petitioner for the period ended 30 June 2020, the Company had net assets under management (including pension funds and discretionary accounts) of HK$365,991,000 and a net loss of HK$3,338,000 for the half year period ended 30 June 2020.

4.  The sole shareholder of the Company is Adamas Management Holdings Ltd, which is wholly-owned by Mr Paul Lincoln Heffner (“Heffner”) through 2 BVI companies, namely, Net Effect Ltd (50%) and Extensive Yield Global Investments Ltd (50%).  Lau Barry Wang Chi (“Barry Lau”) was a substantial shareholder and director of the Company before 16 July 2020.  After he transferred all his shares to Heffner, he ceased to be a director from 16 July 2020.  Heffner had become the Company’s sole registered director.

5.  On 1 January 2021, Heffner committed suicide and died in Hong Kong.  Since then, all of the Company’s employees have resigned. The Company does not have any responsible officers or licensed representatives.  There is currently no one operating the Company or its business.  Heffner was the only person authorised to manage and handle the assets of the Funds managed by the Company, and the only authorised bank signatory of the Company.

6.  The Company acts as investment advisor/manager with duties and powers set out in various Investment Management/Advisory Agreements entered into with the general partner or offshore manager of the Funds.  Most of these agreements give the Company wide powers to manage the Funds on a discretionary basis.  Further, for the majority of the Funds, the Company has a duty to keep such books, records and statements as shall be necessary to give a complete record of all transactions which the Company carries out for the account of the Funds.  Some of the agreements require the Company to provide assistance with accounting, secretarial, legal and compliance functions.

7.  Of the 8 Funds managed by the Company, 2 of them are still active; 3 have been fully redeemed (and in respect of which the investors are waiting for final payments); 2 are in liquidation; and, regarding the last one, some classes of the fund have been fully redeemed with only partial payments made and for other classes, redemption requests having been received.  Although the Company does not have the right to wind up or terminate any of the Funds, as mentioned, some of them have been already redeemed or are in liquidation, and the remaining are likely to be terminated or redeemed in the near future with the result that the investors are or will be entitled to redemption payments or an orderly realization of their investments.

8.  The simple fact is that, since Heffner’s death, the Company has come to a standstill.  As he was the sole beneficial owner and director of the Company (as well as its holding BVI companies), there has been a complete deadlock at both the board and shareholder level.  In practice, no one has the proper authority to give instructions whatsoever (including instructions concerning the Company’s bank accounts) on behalf of the Company; there is no one in the Company to maintain, preserve or review the books and records of investments made in the Funds; and no one is there to answer any query concerning the Company.  Moreover, no one responded to a writ filed on 5 January 2021 against the Company.

9.  What is alarming is that, on 29 January 2021, Ms Vivien Li of Seekers International Ltd (“Seekers”), and two other persons known as “Ms Chiu” and “Barry” went to the office premises in Man Yee Building rented by the Company from Compass Offices.  Ms Li had purportedly received a call from one Mr Tang, who claimed himself to be a director of the Company, instructing her to go there to check the Company’s documents and records.  During that visit, Ms Chiu paid the outstanding rentals, and access cards to the premises were provided to Ms Vivien Li and Ms Chiu. However, Compass Offices did not see any record or documents being taken away.

10.  More importantly, a Form ND2A dated 15 July 2020 purportedly signed by Barry Lau as director of the Company was provided to Compass Offices.  The Form stated that, on 15 July 2020, Yorkton resigned as company secretary; Tang Tian Fu (“Tang”), who gave an address in Sichuan, was appointed as director; and Seekers was appointed as the new company secretary. This form was filed at the Companies Registry on 29 January 2021, which was after Heffner’s death. Barry Lau denied that he was involved in the said visit or any matters relating to the Company since July 2020.  Yorkton has confirmed that they are stilling acting as the Company’s company secretary; and in possession of the register of members, copies of the Company’s resolutions (which do not include any resolution to appoint Tang as director or Seeker as company secretary).  On the other hand, Seeker confirmed that it had not signed any engagement letter to be the Company’s company secretary and would not do further act unless an engagement letter had been signed and their bills settled.

11.  In the circumstances, there is compelling evidence that the said Form ND2A was a false document, and that Tang and Seeker have not been properly appointed as the Company’s director and company secretary. There appears to be an attempt by unknown persons to take over the control of the Company.  Following the registration of the said form, they would be able to misrepresent to the outsiders and the general public that they have the authority to act for and on behalf of the Company.

12.  The latest development is that, on 1 March 2021, Seekers resigned as company secretary of the Company.

13.  In law, it is trite that, before the Court appoint a provisional liquidator, the applicant must (a) demonstrate a prima facie case for the granting of winding-up order; and (b) show that in the circumstances of the case a provisional liquidator should be appointed, which is 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 (Acropolis Ltd v W & Q Investment Ltd and others [2018] HKCFI 1195 at §§34-35).  In the context of a public interest petition, the Court of Appeal stressed in Re Mandarin Resources Corp Ltd [1997] 1 HKLRD 405 at 409A-E that “the public interest must be given full weight”; and if it is proved or accepted that a fairly arguable case for a winding-up order has been shown, the Court should appoint a provisional liquidator if it is satisfied that some relief is called for in order to ensure that the status quo does not change for the worse before the hearing of the petition.  To be more specific, when there is a paralysis of the company or where a company has no directors to manage its affairs, appointment of provisional liquidators may be justified (McPherson & Keay: The Law of Company Liquidation (4^th edn), §§6-012-6-013; Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493).

14.  As to winding up of a company on public interest grounds under s.212 of the Ordinance, as stated in China Metal Recyclying (Holdings) Ltd [2015] 2 HKLRD 415, the overarching consideration is the public interest which would include advancement and achievement of the regulatory objectives of the Petitioner, namely, to provide protection for members of the public investing in or holding financial products, to minimize crime and misconduct the securities and futures industry.  The principal concern would be the interest of the investing public and the integrity of the market.

15.  On the facts of this case, it is reasonably clear that the Company is no longer capable of further operation.  I am satisfied that there is a strong prima face case that the Company should be wound up in the public interest so as to:

(a)  Assist in the orderly and expeditious winding up of the Funds managed or advised by the Company for the protection of the investors;

(b)  Preserve and maintain the information, documents and records of the Company and ensure that they will not be lost, disposed of, or otherwise misused or dealt with by unauthorized persons to the prejudice or detriment of the investors of the funds;

(c)  Carry out an independent investigation of persons or entities purporting to represent or act on behalf of the Company without authority; and

(d)  Manage and oversee the Company (being a licenced corporation under the SFO) so as to maintain the public’s confidence in the Petitioner’s licensing regime and its oversight of licensed corporations in Hong Kong.

16.  I am also satisfied that it is appropriate and necessary to appoint provisional liquidators pending the hearing of the Petition. As mentioned, there is compelling evidence that unknown persons have resorted to unlawful means to try to take control of the Company by misrepresenting to the outsiders and the general public that they have been authorised to act on behalf of the Company. The best way to stop such unlawful acts is to appoint provisional liquidators so that the whole world would know clearly that they are now the only persons properly authorised by the Court to act on behalf of the Company in the meantime. In any event, given that there is no person with proper authority to act on behalf of the Company, there is clearly a pressing need for provisional liquidators to be appointed to deal with the Company’s affairs, in particular, to discharge its duties expeditiously pursuant to the agreements relating to the Funds and the Ordinance, pending the determination of the Petition. To enable the Company to discharge its contractual and statutory duties properly, there is also clearly an immediate need to preserve and maintain the books and records of the Company. While the Petitioner has already obtained all physical documents and electronic records at the Company’s office premises, the Company’s historical documents and records are kept with an external storage provider called Spacebox the fees of which had only been paid up to July 2021.  The Petitioner has not accessed or copied the Company’s historical records stored at Spacebox, and is unable to prevent such documents from being destroyed or misused. Further, the Company’s soft copy documents are kept at a Microsoft Sharepoint account which fees have been paid up to 24 January 2021.  Microsoft indicated that they would retain customer data in a limited function account for 90 days ie until 24 April 2021.  Again, the Petitioner is unable to prevent the records stored in the Microsoft Sharepoint cloud servers from being accessed or misused.  The appointment of provisional liquidators would assist in preserving the Company’s books and records, and preventing them from falling into wrong hands.

17.  I am satisfied that, in view of their expertise and experience, Chan Pui Sze and Mak Hau Yin of Briscoe Wong Advisory Limited are fit and proper persons to be appointed as the provisional liquidators in this case.

18.  The court documents have been served on interested parties including the Companies Registry, and the Company’s associated companies in BVI and Hong Kong.  The Petitioner has also published the broad import of the ex parte order by press release on 26 February 2021.  No one has come forward to oppose the Petitioner’s application.  The Official Receiver, who has appeared, does not oppose the application.

19.  For the above reasons, I allowed the Petitioner’s inter parte summons to continue the appointment of the provisional liquidators pending the determination of the Petition or further order in terms of the draft order submitted by the Petitioner (with which the Officer Receiver agreed).