LU JUN v. YU QI AND OTHERS

HCCW 282/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 282 OF 2010

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REASONS FOR DECISION

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Introduction

1.  At the end of the hearing, I dismissed the petitioner’s application for the appointment of interim receivers of the 4^th respondent (“the Company”) pending the determination of this petition or until further order.  I indicated that reasons for the decision would be given later.  They appear below.

Background

2.  The petitioner commenced this petition in June 2010, relying on ss 168A and 177(1)(f), Companies Ordinance (Cap 32).  The gist of his complaints was:

(a) the respondents wrongfully excluded him from the Company’s management;

(b) the respondents wrongfully attempted to dilute his shareholding by increasing the share capital;

(c) the wrongful disposal of the Company’s asset (namely, shares in a Mainland company) at undervalue;

(d) the failure to declare/pay dividends.

3.  After a 4-day trial, the court decided in the petitioner’s favour as regards the 1^st and/or 3^rd respondents’ liability to buy out the petitioner.  Further, after another hearing, directions were given as to the valuation of the petitioner’s shares in the Company.  These include:

(a) the appointment of an independent valuer whose valuation should be final and conclusive;

(b) the parties are to provide the relevant documents to the appointed valuer for such purpose;

(c) the parties are at liberty to inspect such documents;

(d) the parties are at liberty to make written representations to the appointed valuer.

This application

4.  The petitioner frankly admitted during the hearing:

(a) the valuer has earlier been appointed;

(b) since the appointment:

(1) the valuer has not indicated that any of the parties have failed to provide the documents sought;

(2) the parties are yet to inspect the documents, or to make written representations.

He also accepted that this application is a preemptive step to ensure the valuation for the buy-out could be properly carried out.

5.  In these circumstances, I agree with the 1^st and 3^rd respondents that this application is misconceived (or at least premature).

6.  First, no doubt has been cast on the appointed valuer’s integrity or competence, nor is there doubt that it otherwise will be unable to perform its duty (whether for want of documents or not).  Hence, there was no need (at least no need yet) for the petitioner to take steps to ensure that the appointed valuer would be able to do so.

7.  Secondly, the obligation to buy out the petitioner falls on the 1^st and 3^rd respondents, and not the Company.  There is no suggestion they are financially unable to pay for the petitioner’s shares.

8.  Thirdly, the buy-out order has specified the valuation date to be the date of the petition.  Since the time of the buy-out order, the petitioner’s interest should lie more with the sale proceeds of his shares than the affairs of the Company (albeit he is in name still one of the Company’s shareholders).

9.  Fourthly, although there was a hint of dissipation of the Company’s assets, the petitioner (correctly) no longer pursued that ground at the time of the hearing.

10.  Finally, the appointment of a receiver over the assets and business of a company is a draconian remedy.  The discretionary power to do so should not be lightly exercised.

Certificate for two counsel

11.  The 1^st and 3^rd respondents sought such a certificate.

12.  Without disrespect to senior counsel, I agree with the petitioner that neither the nature of the hearing nor its complexity warranted the attendance of two counsel for the 1^st and 3^rd respondents.

13.  For this reason, I will decline the 1^st and 3^rd respondents’ request for such a certificate.