CRYSTAL JADE CULINARY CONCEPTS HOLDING PTE LTD (formerly known as TUNGSWAY FOOD & BEVERAGE HOLDINGS (PTE) LTD) v. LEUNG YEE WAI MONA AND OTHERS

HCCW 506/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 506 OF 2007

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REASONS FOR DECISION

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Background

1.    The Company has three shareholders.  The Petitioner which has 24,000 shares.  The 1^st and 2^nd Respondents which have 48,000 shares each.  Each of them were at all material times directors of the Company.

2.    On or about 23 April 2007, the 1^st Respondent sent to the Petitioner a special resolution documents to be signed by the Petitioner for the purpose of commencing a members’ voluntary winding-up of the Company.  The Petitioner signed the special resolution sometime in July 2007.  Shortly thereafter, the other two shareholders signed the special resolution, which appointed Wu Shek Chun, Wilfred and Lam Siu Wing as joined and several liquidators (“liquidators”).

3.    The resolution (dated 27 July 2007) was filed at the Companies Registry with a Certificate of Insolvency on 3 April 2007.

4.    Subsequently matters came to the attention of the Petitioner, which led it to believe that the 1^st and 2^nd Respondents had in breach of their fiducially duties as directors set up a company in competition with the Company, which operated a restaurant in Tai Koo Shing.  The Petitioner complains that it was misled into believing that the landlord would not renew the lease of the Company and that as a consequence the Company should cease business and put itself into members’ voluntary liquidation.  The reality was, the Plaintiff says, that the 1^st and 2^nd Respondents wanted to take a lease of the same premises and operate their own restaurant business from it.  The Petitioner says that this is in fact what was happened.

5.    On 12 November 2007, the Petitioner issued the present Petition.  It seeks orders that the members’ voluntary winding-up be stayed and that the Company be wound up under section of 177(1)(f) of the Companies Ordinance.  The plaintiff also seeks in paragraph 2 of the prayer an order that the appointment of the liquidators be set aside.  The liquidators have read paragraph 2 of the prayer and paragraphs 76 to 81 of the body of the Petition as asserting that the members’ voluntary winding-up was not validly commenced and that the liquidators appointment was of no affect.

Application

6.    As a consequence the liquidators issued a summons under section 255 of the Companies Ordinance on 15 January 2007 seeking “the court’s guidance/direction in relation to the following matters:

(1)	whether or not the issues concerning the validity of the liquidators appointment and the stay of the members’ voluntary winding-up should first be determined;
(2)	whether or not the liquidators should, in the meantime, continue conducting the liquidation and the affairs of the Company …;
(3)	whether or not the liquidators should accede to the Petitioner’s requests for books and records;”.

7.    The submissions that have been filed on behalf of the Petitioner by Mr Wong do refer on a number of occasions to the Petitioner’s challenging the validity of the liquidators’ appointment.  I asked Mr Wong whether the Petitioner intended to seek an order that the special resolution passed in July 2007 was invalid.  Mr Wong told me that this was not the Petitioner’s intention.  The references to the invalidity of the appointment of the liquidators he said were made because of the possibility of the judge hearing the Petition stating in the Reasons for Judgment that the special resolution had been procured by a fraudulent misrepresentation.  Mr Wong suggested that if this was the case it would follow that the special resolution was void and thus the appointment of the liquidators was ineffective.

8.    The reason the summons was issued by the liquidators was because (so it was argued by Mr Maurellet on their behalf,) they found themselves in an invidious position, as it appeared to be asserted by the Petitioner that their appointment was invalid.  It is for this reason that they felt it is necessary to seek the guidance of the court on the matters set out in the summons.

Decision

9.    I am of the view that the directions that the liquidators seek in their summons are misconceived.

10.    In paragraph 1 of their summons the liquidators seek a direction as to whether or not the issues concerning the validity of their appointment and the stay of the members’ voluntary winding-up should be determined “first”.  By this they mean before the determination of the Petition.  However, the issues that paragraph 1 of the summons gives rise to are for all practical purposes the same as the Petition.

11.    Similarly, paragraph 2 of the summons which seeks guidance from the court as to whether or not the liquidators should continue conducting the liquidation is misconceived.  Until such time as an application is made successfully to stay the winding up, it is the liquidators’ responsibility to continue to liquidate the Company.  Those advising the liquidators have failed to appreciate that if the liquidators have a genuine concern about the viability of continuing with a voluntary winding-up given the dispute which has arisen in relation to their appointment or generally as to how the liquidation of the Company’s affairs should be conducted then they should have taken one of two courses.  They could either have convened a meeting of shareholders under section 228(1)(b) of the Companies Ordinance and put to shareholders resolutions to ratify the special resolution putting the Company into voluntary winding-up and appointing their liquidators or they could have sought an order to stay the voluntary winding-up pending the determination of the petition.  I, therefore, dismiss the summons.

12.    Paragraph 3 of the summons was not pursued at the hearing. 

Costs

13.    Mr Maurellet urged me to make an order that the liquidators’ costs be paid out to the assets of the Company, notwithstanding the fact that I have dismissed summons.  He argued that the summons was issued in the interests of the efficient liquidation of the Company.  In those circumstances, he said it would be wrong to penalize the liquidators by either depriving them of their costs or, as Mr Wong submitted, ordering that they personally pay the costs of the Petitioner.

14.    I note that Mr Wong did not dispute that given the position of the liquidators found themselves in it might be appropriate for them to make an appropriate application to the court for a stay of the voluntary winding-up.  However, he submitted that having failed to formulate an appropriate application to resolve the problems the liquidators say they face there is no reason why either the assets of the Company should be diminished by an order that the liquidators’ costs be paid out of those assets or that the Petitioner has its costs paid out of the assets of the Company which would prejudice it, qua shareholder, and the other shareholders of the Company.

15.    Although, I accept that no blame attaches personally to the liquidators for issuing their summons in my view, the court having concluded that the applications are clearly misconceived, it would be wrong for the Company’s assets to be used to pay the costs of either the liquidator or the Petitioner.

16.    I therefore order that the liquidators pay the Petitioner’s costs of the summons dated 15 January 2008 including the hearing on 24 January 2008.

17.    I make no order in respect of the costs of the 1^st or 2^nd Respondent.