PETER DE KRASSEL AND ANOTHER v. FRANCIS ROXAS MORAN AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGEMENT

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1. This was the hearing of one of the issues in winding up proceedings whereby Bozell Asia (Holding) Limited seeks a winding up order in respect of CAL/Bozell Holdings Limited. For convenience I will refer to that company as either "the Company" or "CBH". This was also the hearing of Miscellaneous Proceedings wherein Mr. Peter De Krassel and CAL International Limited seek to restrain any further steps in the winding up of CBH whether voluntary (including pursuant to section 228A of the Companies Ordinance) or compulsory and various other relief including declarations relating thereto.

2. The winding up petition as at presently constituted seeks an order for winding up, with alternative relief, on the grounds of insolvency as well as other grounds. On the 5th June 1996, I ordered that the issue in the winding up proceedings as to whether CBH was unable to pay its debts within the meaning of section 177(1)(d) of the Companies Ordinance be heard at the same time as the issues in the Miscellaneous Proceedings.

BACKGROUND

3. Bozell Asia (Holding) Limited (which I shall refer to as "BAH") is a company incorporated in Hong Kong. It is one of the companies within what is termed the Bozell Group of Companies. That Group carries on business throughout the world as an advertising agency and representative and in the direct selling of media representation. BAH is the Asian Regional holding company of the Group. There is no dispute between the parties in this case that the Bozell Group has substantial assets and that BAH in particular has substantial assets as its disposal.

4. CAL International Limited (which I shall also refer to as "CAL") is a company incorporated in the British Virgin Islands and is controlled and owned by Mr. Peter De Krassel and his wife Zhu Liang who has more frequently been referred to in this Action as Miss Tiffany Chu. Again there is apparently little dispute about this, CAL is a comparatively small entity operating on a very much localised basis. Miss Tiffany Chu in particular appears to have substantial connections in the People's Republic of China in ways which would be of assistance in the advertising business. I would mention that although a direct comparison of the financial strength of CAL on the one hand and the companies within the umbrella of the Bozell "Group", on the other, would not be meaningful, CAL does appear to have access to funds and funding of some surprising size if one were to take the representations as to its financial ability to their fullest.

5. The Company was formed on the 23rd June 1993. It was however subject to a Shareholders' Agreement dated the 14th December 1993. For reasons which will emerge there are grounds for believing that the Shareholders' Agreement may have had a long gestation period. That however, does not have a direct bearing on the matters arising in this case, since despite some of the submissions made to me I do not consider it necessary or correct to examine the pre-contract correspondence. On the other hand it may be convenient if I set out here some of the terms of the Shareholders' Agreement.

THE SHAREHOLDERS' AGREEMENT

6. This was a multi-party agreement. The parties to it were BAH, CAL, Mr de Krassel, his wife Tiffany Chu and CBH itself. The Agreement recites some of the background facts leading up to what was the joint enterprise in the form of the running of CBH. Specifically the Agreement recites that the parties were able to provide complementary facilities with a view to the establishment of a joint venture vehicle, namely CBH, to carry on the business of a media sales procurement agency and representation in China. Ms Chu was a citizen of the People's Republic of China. She was stated to have established connections in Hong Kong and China in the relevant business. Furthermore Mr de Krassel also had experience and connections in the same business both, in Hong Kong and other parts of Asia. The personal participation of Mr de Krassel and his wife in the business to be run was stated to be the principal consideration for BAH's involvement.

7. The Agreement further provided that BAH would enter a services agreement to provide the services of Mr Anderson to BAH and correspondingly CAL would enter a services agreement to provide the services of Ms. Chu to BAH. In respect of both Ms. Chu and Mr. Anderson the services agreements, drafts of which were annexed to the Shareholders' Agreement, were dated the 14th December i.e. the same day as the Shareholders' Agreement but were deemed to commence on the 1st September 1993. They were both for terms certain of 18 months. In respect of the services of Ms. Chu there would be a fixed fee for the period up to the 28th February 1994 of US$190,000 payable monthly. In respect of Mr. Anderson the fee was to be US$150,000.

8. Whereas the Agreement records that BAH had not traded actively, it also states that BAH was actively pursuing the opportunity to enter a joint venture with Zhong Da Yin Da Economic and Trade Development Corporation through its wholly owned subsidiary CAL/Bozell Limited. That venture was referred to as the Beijing Advertising and Public Relations Joint Venture. The Joint Venture was to be implemented through another company namely CAL- Bozell Strategic Communications Limited (or "CBSC" for short).

9. The arrangement was to be that CBL would hold 50% of CBSC. Since CAL and BAH would each hold 50% of the shares in CBH, it can be seen that CAL and BAH would each have an indirect interest in CBSC of 25%. There was a pre-emption provision such that if either party wished to sell its shares, the other party had a right of first refusal.

10. The funding for CBH was to come entirely from BAH. There was to be first of all, a loan of US$200,000 to CBH for the purposes of ordinary working capital and general operational expenses. That was to bear interest and was repayable at the maximum rate possible provided the company had sufficient funds. There was to be a second loan from BAH to CBH of US$1,200,000. The first $800,000 of the second loan was to be payable after the issue in Beijing of the Business licence to CBSC and the remainder was to be made one year later. Each tranche of the second loan was to be used for making a back to back loan to CBL for on lending in like tranches to CBSC. The various provisions were clearly designed to ensure that BAH was repaid its loans prior to any other payments by CBH, CBL or CBSC.

11. The Agreement also provided in paragraph 28 that the Agreement should prevail over the Memorandum and Articles for the time being of CBH to the extent of any inconsistencies that may arise between the Agreement and the Memorandum and Articles.

Provisions as to Board Meetings

12. Clause 12.1 of the Agreement provided that there were to be 5 directors, 3 of whom should be appointed by BAH and 2 to be appointed by CAL. Clause 11.2 provided that in the event of there being no quorum at a Board meeting then the meeting should be adjourned to be held as stipulated in the applicable provisions of the Articles. In this regard reference can also be made to clause 12.12 of the Agreement which provided that if at any meeting (of the directors) a quorum shall not be present, the meeting would be adjourned until the same time on the same day in the following week and if at such adjourned meeting a quorum were not present, the directors' present should constitute a quorum for the business set out in the agenda for the meeting. Clause 12.4 is in similar terms to Article 130(1) of the Articles which again were annexed as part of the Shareholders' Agreement. Clause 12.4 provided that a quorum of the Board should be 5 directors.

BAH's Role with regard to CBH

13. The performance of the accounting duties and functions of CBH including the maintenance of accounting records was to be procured by BAH, at least until the Board otherwise determined. BAH's role in the management of the Company was further emphasised by clause 19.2 which stipulated that BAH should lead and control the initiation and incorporation of CBH and should control the business activities of CBH in connection with the establishment and operation of CBL, as a wholly owned subsidiary of CBH for the purposes of entering into the Beijing Advertising and Public Relations Joint Venture.

14. The control exercised by BAH was subject to clause 13.1. That provided that the Major Decisions which were set out in Schedule 2 should require the prior written consent or sanction of both BAH and CAL. Clause 13.1 further provided that no decision or resolution of the directors or of CBH in general meeting should be taken or passed unless such consent or sanction had first been obtained.

Major Decisions

15. At this stage it would be convenient to set out some of the Major Decisions since these have been the subject of some of the argument in this case.

16. The Agreement itself defined Budget as meaning the budget for the activities of CBH and its subsidiaries agreed between BAH and CAL on an annual basis for the then forthcoming year.

17. Clause 15.1 provided that the first auditors of the company should be Messrs. KPMG Peat, Marwick of Hong Kong. Clause 15.3 provided that the parties should cause CBH to provide each of BAH and CAL with periodic financial and operating reports, not less frequently than each quarter and also annual audit of the books and accounts of CBH by the auditors.

18. The cost of setting up CBH was provided in the Agreement to be borne by CBH.

19. Finally I should also make reference to clause 29.1 of the Agreement which provided that CBH was a party to the Agreement for the purpose of confirming that it was aware of and that it would (to the extent that it was able to do so) observe the provisions of the Agreement so far as they related to CBH and for the avoidance of doubt, nothing in the Agreement should be deemed effective to fetter any of CBH's statutory powers.

20. Before leaving the summary of the Shareholders' Agreement, I should note that CBL was neither a party to the Agreement nor was it a party to the service agreements relating to either Mr. Anderson or Ms. Chu.

Operation Of CBH Initially

21. It would appear that after the signing of the Shareholders' Agreement, CBH operated in the manner envisaged under the Agreement. CBL formed the joint venture company CBSC together with the Zhong Da Yin Da Economic and Trade Development Corporation. This was pursuant to the Joint Venture Contract annexed to the Agreement. CBL and Zhong Da Yin Da each still own 50% of the shares in CBSC. There is no dispute that the first and second loans referred to in the Agreement have been made. In the circumstances, US$1.2 million has been loaned with back-to-back loan agreements with CBL and US$200,000 has been loaned as operating expenses of CBH.

22. Pursuant to clause 12.7 of the Agreement, the 3 directors provided to be appointed by BAH and the 2 directors to be appointed by CAL were duly appointed on the 17th December. One of the directors appointed on behalf of BAH has subsequently been replaced but nothing turns on that.

Payment for Services and Expenses

23. There is no dispute that the relevant payments have been made in respect of the service agreements of Mr. Anderson and Ms. Chu. Indeed one of the first events which happened after the signing of the Shareholders' Agreement was that on the 16th December 1993, Ms. Chu requested payment in respect of her services as a director for the months of September to December 1993. As has been noted above the combined amounts totalled US$340,000.00, US$190,000.00 in respect of Ms. Chu and US$150,000 in respect of Mr. Anderson, up until March 1994.

24. Under the terms of the service agreements, CBH also undertook that in respect of Ms. Chu it would by way of reimbursement pay or procure to be paid to Ms. Chu all reasonable travelling, hotel and other expenses incurred by her in or about the performance of her duties under the agreement. In respect of Mr. Anderson there were corresponding obligations. Requests for payment of these expenses were put in by Ms. Chu from time to time and there were exhibited copies of the signed request forms from Ms Chu. Furthermore, Mr. De Krassel also put in requests for payment.

25. The calculation has been made that bills at least to the extent of approximately US$89,981.51 were settled in respect of expenses certified by Ms. Chu or Mr. De Krassel and in addition to the payments in respect of director's services.

26. During the course of his evidence Mr. Moran, who was one of the directors of CBH appointed by BAH said that demands by CAL and Tiffany Chu had on occasions been made by writing 'way above' him by going directly to the Chief Executive Officer of Bozell, Jacobs, Kenyon and Ekhardt, which is a world-wide holding company. Since CBH did not have any funds available, those funds had to be sought from BAH's holding company.

27. It is BAH's case that in addition to the first and second loans provided for in the Shareholders' Agreement it has advanced or caused to be advanced to CBH or on its behalf the sums of US$236,801.84; US$195,572.91 and US$181,191.28 making a total of US$613,566.03.

28. Matters which culminated in the present proceedings can be identified as commencing in July 1995. A proposal was put forward by Mr. Anderson on behalf of BAH to Mr. De Krassel on behalf of CAL that CBH required further funding to the tune of US$2,500,000. CAL was invited to contribute an equal share.

29. Without going into the matter in great depth, it is apparent from the figures which I have given that CBH was indeed in need of further financing. The US$1.2 million, of the second loan provided in the Shareholder's Agreement, had been duly passed to CBSC. That left only the loan of US$200,000 and whatever profit could be derived from trading operations as working capital. It is apparent from the accountant's reports that although the turnover of CBSC was rising in 1995 from 1994 and was on the face of it, a significant amount. The net loss for 1994 was some RMB 3 million and in 1995 RMB 1.699 million. The most optimistic view of CBSC for 1996 is that it should make a profit.

30. In evidence, Mr. Anderson explained that US$2.5 million was intended to make CBH truly competitive in the market. For example, US$250,000 had been budgeted for training and BAH looked towards opening offices in other parts of China. That indeed was one of the advantages of the licence owned by CBSC that it was not confined to one office.

31. It would of course be noted from the analysis of the indirect interest which BAH had in the joint venture that if it alone were to provide finance for the joint venture it would be putting up 100% of the capital and obtaining in return only 25% of the profit.

32. By letter of the 21st July 1995 signed by Mr. De Krassel, CAL indicated that subject to audit it would be prepared to contribute an equal share of a mutually agreed budget if it were allowed an active role in future management. This it would be noted came at the end of a letter in which Mr. De Krassel had made severe criticism of the conduct of BAH in relation to observance of its obligations to direct business in China to the joint venture.

33. The scene was thus set for a considerable falling out between the parties. It is unnecessary to recite all the events which took place thereafter save that on the 4th August 1995 a statutory demand was sent by BAH to CBH for the full amount of US$613,566.03. A copy was sent on the 7th August to Mr. De Krassel and Ms. Chu.

34. On the same day, a Board meeting of CBL was held and a letter was sent by Miss Amy Chow, a solicitor apparently employed by CAL, indicating that it was CAL's view that BAH was not acting in accordance with the terms or at least spirit of the Shareholders' Agreement.

35. On the 14th September 1995, BAH made an offer to purchase CAL's shares in CBH for a sum of US$100,000. This has been referred to as an insulting offer. At any rate, that offer was rejected by CAL.

36. On the following day, Mr. Moran gave notice of a directors' meeting of CBH to consider and pass the necessary resolutions to wind up CBH pursuant to section 228A of the Companies Ordinance. The meeting which was called for the 25th September 1995 was not held due to an insufficient quorum. On that occasion neither Mr. De Krassel nor Ms. Chu nor Mr. Anderson could attend. Notice of the adjourned meeting was sent out on that date to all directors. Neither Mr. De Krassel nor Ms. Chu indicated that they would not be available to attend the adjourned meeting which was scheduled for the 2nd October 1995. Apparently both Mr. De Krassel and Ms. Chu were in Hong Kong at that time but chose not to attend the meeting. The 3 remaining directors of CBH held a directors meeting on the 2nd October and resolved that Mr. Stephen Cheung and Mr. Jan Blauuw be appointed as provisional liquidators of CBH. Mr. Moran made the statutory declaration which followed closely the terms of the Ordinance. The material parts read as follows:-

The notice of appointment of the provisional liquidators and notice of the auditors' meeting was advertised in the Gazette on the 13th October 1995.

37. On the 24th October 1995, BAH presented the winding up petition on the grounds of insolvency. This was followed two days later by commencement of the Miscellaneous Proceedings action. The Notice of Originating Motion sought declarations and an injunction to restrain any further steps in the section 228A winding up or any other winding up proceedings and various other orders upon which I have not been addressed at any great length. Ex parte relief was granted. The winding up petition was amended to include other grounds. Eventually in June of this year application was made to me that the issue as to whether CBH is unable to pay its debt should be heard at the same time as the issue in the Miscellaneous Proceedings action. That Order was made and this matter thus came for hearing.

ISSUES ON THE SECTION 177 WINDING UP

38. I propose to deal with the question of the winding up on the grounds of insolvency first.

39. A company is insolvent if it is unable to pay its debts as they become due. A statutory demand under section 178 is merely a means of proof of insolvency but is not a sine qua non for the success of a petition on the grounds of insolvency. Moreover, the fact that the full amount of the statutory demand may not be proved to be owing does not invalidate a demand or render the company involved any less insolvent.

40. On behalf of the Respondents, a number of points have been taken with the view to showing that there is no money due to BAH. In the first place it is said that money was not lent by BAH but was lent by other companies within the Bozell family of companies. The payments were in fact made by other Bozell companies directly either to CAL or to other persons or entities named by CAL as being entitled to payment in respect of travelling and other expenses. It is said that because CBH, and for that matter CBL also, did not have a bank account, the money or balances for the respective payments were advanced, if anything, "through" but not "to" CBH. The real debtor was said to be either CBL or CBSC.

41. In my view these arguments are inherently flawed. Taking first of all the amounts due under the agreements for directors' services, which as I have indicated alone totalled US$340,000, the Shareholders' Agreement was clear. It was CBH's obligation to pay these sums as, indeed, the expenses. The timing of the Agreement and the agreements for directors' services makes clear beyond a peradventure that there was no deviation from the working arrangements envisaged in the Shareholders' Agreement that it was CBH's responsibility to pay these sums and it was BAH which was supplying or at the very least procuring the funds for CBH. BAH having procured the payment of US$200,000 working capital, it would be wholly unreal to suppose that it should be taken that thereafter some other entity was procuring the payment of the remainder of the funds which came from the same source and were treated in an indistinguishable way. The immediate demand for payment in respect of director's services shows that it was intended that the provisions of the Agreement would be carried out. Even the Respondents' accountant in his report does not appear to take issue that the amounts due to BAH in respect of the Chu and Anderson "salaries" rather it is indicated that they should be treated in the same way as the other loans made by BAH and repaid when there are sufficient profits to do so.

42. Furthermore, there were other expenses including a sum of HK$226,015.39 which the Respondents' solicitors' letter of the 28th April 1994 records as having been agreed between the parties would be settled through CBH.

43. If I were in any doubt, which I am not, that the amounts loaned were procured by BAH and are thus repayable to BAH, I would have little hesitation in allowing the substitution of any other Bozell company which could be shown to be the party to whom and only whom the debt was liable to be repaid.

44. The question of whether a debt is owing impinges on 2 matters in relation to winding up. The first is whether there is a bona fide dispute on substantial grounds as to the existence of the debt. If there is the winding up petition is invariably dismissed or at least stayed. The question also impinges on the matter of the locus standi of the Petitioner since if the Petitioner cannot show he is a creditor he has no basis on which to present a petition.

45. I see no reason why the amounts which have been advanced whether by way of the amounts due under the agreements for services or otherwise should be treated as only repayable when the company has sufficient funds, as the other loans are required to be. For such deferment to happen it would be necessary to imply some term into the Agreement and I see no basis for that.

46. In my view however, the Petitioner has clearly established that a debt is owing to it by CBH. There is no valid argument that at the very least the amounts of US$340,000 in respect of directors' services, US$89,981.51 in respect of expenses certified by Ms. Chu or Mr. De Krassel and HK$226,015.39 which the Respondents' solicitors' letter of the 28th April 1994 records as having been agreed between the parties would be settled through CBH were owing to BAH. Of that only US$200,000 was covered by the loan to CBH provided for in the Shareholders' Agreement. In so holding I am not in anyway taken to be holding that the other amounts making the figure of US$613,566.03 were not also owing. It is simply that in respect of those sums I can see no argument whatever, and indeed there is clear positive proof of the demand for payment of those sums by CAL.

47. Indeed the conclusion that the company was insolvent was one to which even Mr. Nick Hill the accountant on behalf of the Respondents was driven to reach at paragraph 8.8 of his report of the 21st June 1996.

48. It is also said on behalf of the Respondents that BAH had alienated its right to present a winding up petition without the consent of CAL by reason of Major Decision No. 14. In my view this argument is wrong. Even it were right it would merely be a right as between CAL and BAH. As I indicated above in accordance with the terms of the Shareholders' Agreement CBH acquired no rights thereunder. Hence even if BAH were acting contrary to Major Decision No. 14 that would be a matter of a private right between the two shareholders. However, I consider that the public interest lies in insuring that insolvent companies should not remain a hazard to potential creditors.

49. Mr. Tong QC on behalf of the Petitioner pointed out that the Shareholders' Agreement did not envisage an interminable joint venture. I accept that. I see nothing in the Shareholders' Agreement which obliges BAH to continue to provide further finance on an indefinite basis and in increasing amounts. In my view Mr. Tong is correct when he says that the right to present the winding up petition on the grounds of insolvency could only be excluded by clear and unambiguous wording. Such wording is not provided by Major Decision 14.

50. For these reasons I hold that BAH is not barred from presenting the winding up petition.

51. The major grounds upon which Mr. Whitehead ably argued that the petition should be dismissed, were on a number of bases founded upon the Shareholders' Agreement. In summary it can be said that it is the Respondents' case that the Petitioner was in effect seeking to circumvent the provisions of the Shareholders' Agreement and has indeed acted improperly in managing CBH in such a way that it has become liable to these proceedings to the detriment of CAL. It is said that because there were no budgets prepared at least for the later years there was no provision in any budget for the loans that were made and thus the Major Decision No. 8 and 16, which I have referred to above, had not been complied with. In my view that argument must be wrong. The Major Decisions were only required to be agreed to by all shareholders. It is quite clear that the directors appointed by CAL namely Ms. Chu and Mr. De Krassel were well aware of the large amounts which were being required. They even wrote to the Chief Executive Officer of the world-wide company, as I have already referred. It must have been quite clear that the expenses which were being run up by CBH were far in excess of the US$200,000 which BAH had agreed to put into the Company at the commencement. In addition the expenses incurred were not expenses of such on an usual nature that in my view a Board meeting would have been required.

52. For these reasons I hold that BAH is not barred from presenting the winding up petition.

53. The Company's accountants were changed from KPMG Peat, Marwick without the consent of CAL. That was a breach of the provisions of the Agreement. Apart from that fact, nothing is said to stem from it. It is not suggested that there is anything wrong with the accounts as such. It is not suggested that the accounts would have been any different had KPMG Peat, Marwick prepared them. The reason advanced for the change was simply that the new accountants were cheaper and the change was a measure to cut costs. That reason was not challenged. In the event I cannot see that the change of auditors, although challengeable for other reasons, can form the basis of a ground for challenging the right to a winding-up order.

OTHER GROUNDS FOR REFUSING WINDING UP ORDER

54. It was suggested that BAH's conduct really amounted to putting pressure on Mr. de Krassel to sell his shares for a derisory amount. It was said that it was +2 in effect a corporate trick which deprived CAL of its just shareholding. In my view, unfortunately, this is the reality of the business world. Joint ventures are there primarily to make money for those who venture. Whilst it might be expected that this Agreement would last for 15 years I see nothing in it which requires BAH to continue to fund the project. Mr Moran in his evidence did at first say that no consideration had been given to obtaining further funds in the period from July 1995 onwards but on the following day came back to give his evidence that he remembered the matter had been considered previously but found impossible. Despite the fact that it was subject to harsh criticism by Mr Whitehead I accept Mr. Moran's evidence as it is clear that it would be hardly likely that further financing for the joint venture could be found from outside sources. In this context I would mention that although suggestions of further financing in general terms were aired in Court, nothing specific was put as to whether that financing would take the form of loans, new injection of capital or otherwise which would leave the joint venture arrangements intact.

55. Much was sought to be made of Mr. Anderson's answer when he agreed with the suggestion by Mr. Whitehead in cross-examination that he would not be surprised if Bozell bid for CBH's shares in CBL should CBH be wound up. In the first place it must be noted that in the hypothetical situation put forward there is nothing on the face of it wrong in one party seeking to buy some or all of the assets from the liquidator. Provided any dealings are done on an equal footing it would open to either Bozell or CAL to bid for the CBL shares belonging to CBH. The fact that one party may be in a financial position to out bid the other does not make their conduct unconscionable. I do not see this as a device to circumvent the Shareholders' Agreement. In this I consider that what Mr. Anderson said in evidence is pertinent: Bozell never intended the arrangement to be like an open cheque book. Whereas the Shareholders' Agreement might have been expected to last for 15 years, that could only be on the basis that it was profitable and that Bozell or either party had clearly not committed to unlimited financing. I accept what Mr. Anderson said that BAH considered that it had put in all the financing, almost the entirety of the expertise and most of the business. It was clearly a decision which it was open to it to make to decide that it would not change the structure of the arrangement to give CAL or its directors management duties if it considered they did not have the expertise. CBH had run out of money and BAH was not obliged to bale it out any more. If the consequence of refusing to bale it out was that BAH would be left in a position where it could purchase the business, that is a feature of this joint-venture at least.

Section 228A of the Companies Ordinance

56. As has already been noted on the 15th September 1995 a notice of a Board meeting of the Company was sent out. The meeting could not take place on the appointed day namely the 25th September, due to a lack of quorum. On that day both Ms. Chu and Mr de Krassel, and it would seem Mr. Anderson, were not in Hong Kong. Notice of the adjourned meeting was then sent out and that was held on the 2nd October 1995. Mr de Krassel said in his affidavit that he and his wife "saw no benefit in attending as it would constitute an acquiescence of the 1st, 2nd and 3rd Defendants' wrongful acts." Hence the meeting went ahead without Mr de Krassel and his wife and the resolution that the Company be wound up under the provisions of Section 228A of the Companies Ordinance was passed by those present.

57. The first point taken by the Respondents is that the meeting was not duly held. It is said that there is a conflict between Clauses 11.2 and 12.12 of the Shareholders' Agreement. In my view whatever conflict there might be said to be between those provisions is at best apparent but not real. Although it is said in Clause 11.2 that the adjourned meeting is to be held in accordance with the provisions of the Articles, the only provision to which attention has been drawn in this context is that relating to the quorum being 5 Board members namely Article 130(1). That in the context of adjourned meetings is only, of course, partially apposite. That Article does not specifically deal with adjourned meetings whereas Clause 12.12 does. However, even if there were a conflict between the provisions of the Articles to which Clause 11.2 directed attention and Clause 12.12 that conflict would, it seems to me, have been resolved by Clause 28 to which I have referred to above: the specific provisions of the Agreement would prevail. In any event it would be noted that there is apparently no dispute that Mr. De Krassel and his wife had adequate notice of the meeting and precisely the resolution to be put to the meeting. Their absence was deliberate and it does not seem to me to be in accordance with the spirit, at least, of the Shareholders' Agreement that they should deliberately refuse to attend a Board meeting.

58. The important point in relation to the Section 228A winding-up provisions seems to me to be the circumstances in which it can be used. Subsection (1) requires that a Statutory Declaration is made by one of the directors verifying that:

59. There is little guidance as to the application of this Section. Its provisions appear to operate in the absence of any further order. As Mr. Tong Q.C. pointed out there are no provisions which enable the application of the Section to challenged. The only comparable provision seems to be Sub-Section (2). That provides for the prosecution of those making a Declaration without having reasonable grounds for the opinion that the company cannot by reason of its liabilities continue in business. The limitations of Sub-Section (2) are obvious. In particular there seems to be no provision in respect of Declarations made where there is no basis for saying that there are good and sufficient reasons for the winding up to be commenced under Section 228A. Nevertheless, I have no doubt that a Court would use the powers to stay a winding up if it should be shown that the Section has been abused or misused.

60. In the present circumstances I consider that there is no doubt that the view could properly have been formed by the directors that the Company should be wound up. However, I consider that there are perhaps reasons for doubting the accuracy of the conclusion that there were good and sufficient reasons for the use of Section 228A rather than one or other of the provisions for winding up including Section 177 and Section 228. From its reference to good and sufficient reasons, Section 228A appears to envisage circumstances which make it impractical if not impossible to use one of the other provisions. I bear in mind that Section 228A is directed to powers and obligations of directors, whereas Section 177 is, of course, a provision which applies to creditors' rights to seek a winding up and Section 228 relates to powers of the company in general meeting. For practical purposes in the present case the distinction between the entities may be immaterial. In the present circumstances I doubt that there was sufficient reason which required the use of Section 228A rather than Section 177 (pr perhaps 228). Given the provisions of the Shareholders' Agreement and the requirement for some consensus in relation to a voluntary winding up it seems to me that some urgency ought to be shown before it could be said that there are good and sufficient reasons to use the shorter and simpler route in circumstances where there could be expected to be disagreement.

61. I bear in mind however, that the directors had legal advice at their meeting, albeit from a solicitor about whose presence the Respondents directed some criticism due to conflict of interest. If the winding up had been unjustifiable on the basis of insolvency then it would have been necessary to take such steps to rectify the wrongful use of the proceedings as are necessary.

62. The Respondents sought to rely on Mr Moran's statements in cross-examination whereby he agreed to suggestions made by Mr. Whitehead to the effect that the purpose behind the use of Section 228A was to "get rid of" Mr de Krassel. Those concessions have to be viewed in the light of the background to the circumstances in which Section 228A was being employed. The Company had run out of money and needed financing over and above that provided for by the Shareholders' Agreement. That could not be provided for in a manner acceptable to either of the shareholders. What I understood Mr Moran to be saying was that in those circumstances something had to be done to break the impasse. Since neither party was willing to provide the finance on terms acceptable to the other winding up was the only option. The fact that Bozell might end up with the 50% interest in CBSC is not in my view in the present circumstances something indicative of underhand manipulation or misuse of the Shareholders' Agreement. It is a fact of commercial life. As I have pointed out it is just as much open to CAL to bid for the shares. The fact that they may not out bid Bozell does not mean that BAH is required to continue to provide more and more finance and reap so small a percentage return.

63. In the present situation I do not consider that it is necessary to do more than stay the winding up proceedings under Section 228A and allow the winding up to proceed under the compulsory provisions relating to insolvency. There is no question here of there being conflict between the wishes of different classes of creditors and hence such considerations do not apply. In so far as costs have been duplicated they should be disallowed.