CHAN MEI CHUN v. K & A INTERNATIONAL COMPANY LTD AND ANOTHER

HCCW 317/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO.317 OF 2013

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BETWEEN

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D E C I S I O N

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1.  This is an application of the 1^st respondent (“Company”) for a validation order under section 182 of the Companies Ordinance, Cap 32 (“Ordinance”). The Petition to wind up the Company was filed on 11 November 2013. It concerns a shareholders’ dispute and the petitioner seeks to wind-up the Company on “just and equitable” ground under section 177 (1)(f) of the Ordinance as well as on the ground of “unfair prejudice” under section 168A of the Ordinance.

2.  The principles governing the exercise of the court’s jurisdiction under section 182 of the Ordinance are well established.  In considering whether to make a validation order, the court must be satisfied that the interests of the unsecured creditors of the Company would not be prejudiced by such an order.  It has been held in Re Emagist Entertainment Limited[2012] 5 HKLRD 703 that, where the court is faced with a shareholder’s Petition in respect of a solvent company which has a valuable ongoing business, the directors should be allowed to continue to operate that business normally and without close supervision by the Companies Court.

3.  The evidence filed by the Company in support of this application is that the Company is solvent.  The initial response to this application by the petitioner is one of agreement.  However, it appears that a disagreement between the parties has since been developed by reason of the refusal by the Company to disclose in its supporting evidence its audited financial statements in full.  The matter has been blown up into an opposition by the petitioner to this application based on the contention that the Company is in fact insolvent.

4.  The petitioner’s contention is premised upon nothing more than forensic analysis of the disclosed excerpts of the Company’s audited financial statements.  I do not find such contention at all satisfactory.  The petitioner was, until very recently, a director of the Company and she must have a fair idea about the financial position of the same.  Not one word of evidence has been filed by the petitioner to make good her contention.

5.  Further, there is nothing in the Petition which suggests that the Company is not financially sound.  To the contrary, a buyout order is sought in the Petition as an alternative remedy.

6.  This court cannot allow the dispute and/or mistrust between the parties to prevail over the interest of the Company or its creditors.  The evidence is that the Company has a turnover of some HK$160 million.  There are employees and creditors to be paid.  I see no justification to allow his application to be developed into a satellite litigation.  The Official Receiver has expressed an agreement with this application.

7.  In the premises, and upon the undertaking of the Company that it will not pay any debts owed to its director until the determination of the Petition, I order that:

(1) Complete copies of the audited financial statements of the Company for the years ended 2010, 2011 and 2012 be supplied by the Company to the petitioner as soon as practicable;

(2) I make an order in terms similar to paras 8(1) and (2) of  Re Emagist Entertainment Ltd;

(3) The Company shall provide to the petitioner within 14 days of the end of each calendar month a brief statement of accounts summarising the expenses and payments of the Company for the relevant calendar month;

(4) There be liberty to apply;

(5) The costs of this application be in the cause of the Petition save that the costs of today’s hearing be borne by the petitioner to be taxed if not agreed.  Such order is appropriate given the contentious stance taken by the petitioner, which has been rejected by the court.