DU SHUI WING AND OTHERS v. FU KIN FUNG AND OTHERS

HCMP 846/2019

[2020] HKCFI 2924

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 846 OF 2019

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D E C I S I O N

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The Application

1.  Before me is an application by summons issued by the petitioners on 11 May 2020 (“the Summons”) for the appointment of a receiver/manager for the 5^th respondent company (“the Company”).

2.  The petitioners appeared by their counsel, Mr Erik Shum and Ms Christy Wong, on the instructions of Messrs Simon C W Yung & Co.

3.  As at the date of the hearing before me on 14 October 2020, the 1^st to 4^th respondents were acting in person.  The 1^st, 2^nd and 4^th respondents were present in Court and made submissions.  The 3^rd respondent was absent.  I shall say more about their legal representation below.

4.  The Company was absent and unrepresented at the said hearing.

5.  To begin with, the 1^st, 2^nd and 4^th respondents applied to me for an adjournment of the hearing.  That was objected to by the petitioners.  After having heard their respective submissions, I dismissed the application for an adjournment and proceeded to hear the application under the Summons.

The Amended Petition

6.  The petition was first presented on 11 June 2019.  It was subsequently amended on 13 January 2020 by the Order of Master J Wong dated 19 December 2019.

7.  The main facts as set out in the amended petition can be summarized as follows : -

(i)       The Company was originally incorporated in 2003 under another name.

ii)      The petitioners and the 1^st to 4^th respondents are all shareholders amongst other shareholders in the Company.

(iii)     The principal business carried on by the Company has been to manage 6 routes of green mini buses in the Kwai Chung area.

iv)     There are 32 mini buses in operation under the Company.  Such mini buses are either legally or beneficially owned by individual shareholders and/or shareholders jointly and/or limited companies set up by various shareholders.

v)      The Company is responsible for, inter alia, the distribution of passenger fares collected to the mini bus owners and the payment of wages to the drivers and staff of the Company.  Thus, it would appear that the function of the Company is actually that of a manager.

vi)     The 1^st, 2^nd and 3^rd petitioners and one Wong Chi Kwan (“Wong”) who is the son of the 4^th petitioner were the directors of the Company until the 1^st to 4^th respondents purported to replace them on 4 October 2018.

vii)    On 4 October 2018, the 1^st to 4^th respondents held a purported general meeting of the Company (“the Purported Meeting”) and purported to pass resolutions (“the Purported Resolutions”) to the effect that they had been appointed as new directors of the Company in place of the 1^st to 3^rd petitioners and Wong.

viii)   As the requirements of giving notice for convening a general meeting had not been complied with, the petitioners did not attend the said meeting.

ix)     By a letter dated 1 February 2019 and sent by their solicitors, Messrs Simon C W Yung & Co, the petitioners challenged the validity of the Purported Meeting and the Purported Resolutions and requested the 1^st to 4^th respondents to, inter alia :

(a)  provide the petitioners with the notice, minutes and other documents relating to the Purported Meeting;

(b)  refrain from carrying out acts as directors of the Company and from obstructing the 1^st, 2^nd and 3^rd petitioners and Wong from acting as directors of the Company;

(c)  reinstate the 1^st, 2^nd and 3^rd petitioners and Wong as directors of the Company and procure the filing of documents in the Companies Registry to record the directorship of the 1^st to 3^rd petitioners and Wong in the Company.

(x)      Up to the date of the petition, the 1^st to 4^th respondents had not replied to that letter or acceded to the said requests contained therein.

(xi)     As a result of the improper acts of the 1^st to 4^th respondents, since January 2019, the 1^st to 3^rd respondents could no longer access the Company’s bank account and what is known as the ‘Octopus Account’, because the signatories had been changed to the 1^st to 4^th respondents.

(xii)    Consequently, the Company failed to pay wages to the 41 drivers and salary to staff members for sometime.

(xiii)   On 7 March 2019, the petitioners sought to remedy the situation by calling an Extraordinary General Meeting (“EGM”) of the Company. After that, they still failed to change the Companies Registry record and the bank signatories.

8.  The petitioners claim that as a result of the conduct of the 1^st to 4^th respondents the details of which will be set out below, the Company and the petitioners have been seriously and unfairly prejudiced.

9.  In the prayer in the amended petition, the following reliefs, inter alia, are claimed : -

(i)      a declaration that the Purported Meeting and the Purported Resolutions are void and/or invalid and of no legal effect;

(ii)     an injunction retraining the 1^st to 4^th respondents whether by themselves or their servants or agents from acting as directors of the Company;

(iii)    the appointment of a receiver and/or manager of the Company;

(iv)   an order for the reinstatement of the 1^st to 3^rd petitioners and Wong as directors of the Company.

The Relevant Procedural History  

10.  Seeing that they were unable to remedy the situation and resolve the difficulties faced by the Company, the petitioners had no alternative but to apply to Court for interim relief.

11.  The petitioners issued a summons dated 26 November 2019 (“the November 2019 Summons”) seeking various injunction orders against the 1^st to 4^th respondents in relation to an Extraordinary General Meeting of the Company proposed by the latter to be held (“the Proposed EGM”).

12.  At the hearing of the November 2019 Summons, Ng J adjourned it to an early date to be fixed and gave directions for the filing of evidence upon the undertaking given by the 1^st to 4^th respondents that they would not proceed with the Proposed EGM until after the determination of the November 2019 Summons.

13.  On 11 May 2020, the petitioners issued the Summons now before me.

14.  The Summons first went before Linda Chan J who adjourned it for substantive argument and gave directions for the filing of evidence.

15.  On 6 July 2020, the November 2019 Summons also went before Linda Chan J who made no order on it upon the undertaking given by the 1^st, 2^nd and 4^th respondents that, until the determination of the petition filed on 11 June 2019 or further order of the Court, they would not call or hold any general meeting of the Company for the purpose of approving, ratifying or confirming the resolutions passed at the Purported Meeting.

16.  The Summons is supported by the 3^rd Affirmation of Du Shui Wing (the 1^st petitioner) filed on 11 May 2020 and his 4^th Affirmation filed on 8 October 2020.

17.  The respondents have not filed any evidence at all.

18.  It transpired that by a letter dated 3 July 2020 addressed to the Court by Messrs Jimmie K S Wong & Partners (“JKSW”), the then solicitors on the record acting for the 1^st to 4^th respondents, JKSW informed the Court that, inter alia, they had no further instructions to act for their clients and, further, that they had been told by their clients that their clients would file in Court Notices To Act In Person.

19.  In fact, by the time of the hearing before me, no Notice To Act In Person had been filed by any of the 1^st to 4^th respondents.

20.  Since after I had finished the hearing and reserved my Ruling on 14 October 2020, it has appeared on the Court record that another firm of solicitors, Messrs Chak & Associates LLP, has filed Notices Of Change Of Solicitors on 3 November 2020 to put itself on the record as acting for the 1^st to 4^th respondents in place of JKSW.

21.  According to the affirmation evidence of the 1^st petitioner filed in Court, the unfairly prejudicial conduct and mismanagement of the Company on the part of the 1^st to 4^th respondents are very substantial.  They have been summarized in the very helpful Skeleton Submissions by counsel for the petitioners as follows : -

“(1) Invalidly holding the Purported Meeting on 4 October 2018 and invalidly claiming to be the new directors of the Company after holding the Purported Meeting

(2) Preventing the Petitioners from accessing the Company’s Bank Account and Octopus Account since January 2019

(3) Failure to distribute in a timely manner the Octopus Fares to the Petitioners as owners of the Petitioners’ Mini Buses since January 2019

(4) Failure to provide the schedules setting out calculations of the Octopus Fares to the Petitioners as owners of the Petitioners’ Mini Buses since January 2019

(5) Failure to provide the Petitioners with Octopus Reports since about June 2019

(6) Failure to pay the wages of the Petitioners’ mini bus drivers and their MPF contributions, including holiday entitlements since January 2019

(7) Failure to pay due wages of Madam Choi and her MPF contributions since January 2019

(8) Failure to pay the terminus supervisors’ MPF contributions since January 2019

(9) Failure to file tax return for the period from 1 April 2018 to March 2019 and from 1 April 2019 to March 2020

(10) Failure to provide the Transport Department with Annual Financial Account of the Company of 2018 to 2019

(11) Failure to submit relevant documents in relation to the Government Public Transport Fare Concession Scheme for Elderly and Eligible Persons with Disabilities which was due on 13 March 2020

(12) Failure to appear in Court proceedings to defend actions bought [sic] against the Company

(13) Failure to distribute to the Petitioners the Transport Department Subsidies

(14) Failure to pay expenses related to daily operation of the Company since January 2019

(15) Attempt to gain further control of the Company, in breach of the Oral Agreement made between the Founder Members of the Company, including redirection of Company mail since January 2019

(16) Attempt to convene the Proposed EGM to be held on 5 December 2019

(17) Failure to Respond to the Petitioners’ Attempt to Settle the Disputes between the Parties

(18) Failure to carry out other management and operational matters.”

22.  The simple fact is that there is no evidence whatsoever filed by the 1^st to 4^th respondents to refute the allegations made by the petitioners.

The Law

23.  The Court is empowered to make an order for the appointment of a receiver and manager for a company under both section 21L of the High Court Ordinance and sections 724 (1) and 725 (2)(a)(iii) of the Companies Ordinance in a case where the company’s affairs are being conducted in a manner which is unfairly prejudicial to the interests of its members generally or of one or more of its members.

24.  It is well-established that the considerations for whether such an order should be granted are similar to those set out in the case of American Cyanamid Co v Ethicon Ltd [1975] AC396.

25.  In the case of Re Zealot [2008] 1 HKLRD 386, Kwan J (as she then was) applied by analogy the principles enunciated in the American Cyanamid case and held that, in determining whether interim receivers should be appointed, the Court would have to consider the following questions : -

(i)    whether there was a serious issue to be tried;

(ii)   whether there was a proper basis for appointing receivers, such as jeopardy to assets and

(iii)  the balance of convenience.

Disposition

26.  Applying the abovementioned principles to the present case, first, there must be serious issues to be tried in light of the allegations made by the petitioners on affirmation which have not been refuted by any evidence from the 1^st to 4^th respondents.

27.  Secondly, in light of the complaints made by the petitioners which have not been denied by the 1^st to 4^th respondents, the Company is facing difficulties in its management and operation.  That must constitute a proper basis for the appointment of a receiver and manager for the Company.

28.  Thirdly, for the above reasons, the balance of convenience must also tilt towards such as appointment; otherwise the petitioners may suffer damage to their interests which may not be quantifiable in damages.  The petitioners have offered to give the usual undertaking as to damages.

29.  The petitioners have put forward the names of two certified public accountants for the proposed appointment.  After having considered the information provided to the Court, I have come to the conclusion that Mr Alvin Wan Tin Yau should be appointed.

Conclusion

30.  I therefore make an order in the following terms : -

Upon the usual undertaking as to damages given by the petitioners,

(1)     Mr Alvin Wan Tin Yau of Moores Rowland (HK) CPA Limited be appointed the receiver/manager of the Company (the 5^th respondent) pending the final determination of the amended petition, to manage and conduct the ordinary business of the Company including but not limited to calculating and distributing passenger fares to each mini bus owner operating under the licence of the Company, payment of operation expenses of the Company, salaries and MPF contributions of drivers and staff, rents and utilities of premises used by the Company, filing of the tax return of the Company and ensuring that the Company is properly represented in legal proceedings.

(2)     The appointed receiver/manager be authorized to charge a fee at the flat rate of $48,000 per month and take any steps including engagement of lawyers which may be necessary to assist him in the exercise of his powers and duties as receiver/manager of the Company.

(3)     The fees of the appointed receiver/manager are to be borne by and paid out of the funds of the Company, failing which such fees are to be paid by the shareholders of the Company according to the proportion of their shareholdings.

(4)     There be liberty to the parties and the appointed receiver/manager to apply.

(5)     The costs of the Official Receiver relating to this application be paid out of the assets of the Company in any event.

31.  Regarding the question of costs, since this is an application for the grant of interim relief, I make an order nisi that the costs of and incidental to this application be costs in the cause of the amended petition.