RE CORE-PACIFIC-YAMAICHI INTERNATIONAL (HK) LTD

HCCW 804/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 804 OF 2003

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D E C I S I O N

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1. I have before me an application for a validation order made ex parte on notice. The urgency of this application is because Core Pacific-Yamaichi International (HK) Limited ("the Company"), which is a securities trader and investment adviser under the Securities and Futures Ordinance, is engaged in various types of regulated activities. As a result of the presentation of the petition, the Securities and Futures Commission ("the SFC") has been making daily enquiries about the Company's business and activities. And if the business is adversely affected, there is a probability that the Company's licence to carry out those regulated activities might be suspended or revoked by the SFC.

2. The Official Receiver takes a neutral position in this application by the Company, as this is a shareholders' dispute and the insolvency of the Company is not in question. Mr Graham who appears for the petitioner does not object to a validation order in principle. He has placed a draft order before the court saying that there should be an undertaking from the Company with an additional paragraph in the order for the protection of the Company.

3. The petitioner's proposed alterations are objected to by Mr Tang, who appears for the Company. The undertaking sought by the petitioner is in these terms:

"The 1st respondent and 3rd respondent ("the Company") each undertake not to convene or purport to convene or hold or cause to be held any meetings of the board of directors of the Company or pass any resolutions of the directors of the Company without giving at least 48 hours prior written notice to all the directors of the Company."

4. The reason for requiring this undertaking is due to an allegation in paragraph 56(7) in the petition, which is to the effect that there is a regular practice by the respondents of holding two-men board of directors meeting without giving advance notice to the other directors or circulating minutes to all the directors subsequently. Mr Graham submitted that this practice was in breach of the Articles of Association of the Company, although this is not pleaded in the petition.

5. At this stage, I do not propose to require the Company to give such an undertaking for the making of a validation order. The court's primary concern in an application for a validation order is the solvency of the company and if the order is sought for the purpose of enabling the company to carry on trading, that the business would be carried on at a profit, so that the continuation of trading would enure to the benefit of all unsecured creditors at the end of the day. Under the terms of the validation order sought by the Company, any disposition or withdrawal is to be done in the ordinary course of business. That is what the Company must abide by. Any further complaint on the irregularity of holding board meetings, if warranted by circumstances, could be the subject of an interlocutory application by the petitioner.

6. The additional paragraph sought to be added to the order by the petitioner reads as follows:

"Save as permitted above, pending the hearing of the said petition or further order the Company through its directors and officers shall take all steps to preserve the assets of the Company and its controlled subsidiaries and shall not dilute or dissipate the capital or assets of the Company save to meet the ordinary expenses of the Company and its controlled subsidiaries."

7. I do not think it appropriate to add this order for these reasons. Firstly, the subsidiaries are not the subject of winding-up proceedings. Secondly, there is no allegation of any dissipation or dilution of assets of the Company or any of its subsidiaries in the body of the petition. The only place in which mention is made is in paragraph (2) of the prayer for relief, in which the petitioner seeks an order that pending the hearing of the petition or pending an order for relief under s. 168A or a winding-up order becoming effective, the Company shall take all steps to preserve the assets of the Company and its controlled subsidiaries and shall not dilute or dissipate the capital or assets of the Company save to meet the ordinary running expenses of the Company and its controlled subsidiaries. If circumstances should justify the interference of the court to restrain dilution or dissipation of assets pending the hearing of the petition, the petitioner could apply for interim relief. At the moment and as I have stated previously, on the draft as proposed by the Company, the Company is bound to make withdrawal or dispose of assets only in the ordinary course of its business.

8. For the above reasons, I make an order as follows:

(1) Notwithstanding the presentation of the petition herein on 25 July 2003,

(a) payment made into or out of the bank accounts by the Company in the ordinary course of the business of the Company (including the payment of legal costs incurred in making this application); and

(b) disposition of the property of the Company made in the ordinary course of its business for proper value,

between the date of the presentation of the petition or further order in the meantime shall not be void by virtue of s. 182 of the Companies Ordinance in the event of an order for the winding-up of the Company being made on the petition, provided that the relevant bank or any third party dealing with the Company shall be under no obligation to verify for itself whether any transactions through the Company's bank accounts or with the Company is in the ordinary course of the Company's business or that it represents full market value for the relevant transaction.

(2) Costs of and occasioned by this application be in the cause of the petition.