JOHN EDWARD HAWORTH v. ASIA UNION SURVEY SERVICES LTD AND 5 OTHERS

HCCW 1248/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1248 OF 2004

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D E C I S I O N

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1.  There are two summonses issued by Asia Union Survey Services Ltd (“the Company”) for variation of a validation order made by Barma J on 17 December 2004 as varied by the order of Sakhrani J on 31 December 2004.

2.  The purpose of the variations sought is to allow the Company to make three kinds of payment: special bonus to directors and employees, profits tax for 2004/2005, and year-end bonus to directors and employees.

3.  The Company has been engaged in the business of providing marine and cargo surveying services.  The petition presented against the Company is for relief under section 168A and for winding up on the just and equitable ground in the nature of a shareholders’ dispute.

4.  The Official Receiver has adopted a neutral stance in these applications and has not appeared today, taking the view that the solvency of the Company is not in issue.  That must be right.

5.  According to the unaudited accounts as at 30 June 2005, the net current assets stood at $2.3 million odd and profit for the year is in the sum of $621,000.00 odd.  The bank balances at the end of July 2005 amounted to over $720,000.00.

6.  I cannot see how it could be right to say that the Company is only “marginally solvent” as contended by the petitioner.

7.  A special bonus has been paid in August for almost every year except 2003 to many, if not all, of the staff since 1995.  The management of the Company said that if no payment of special bonus were made this year, this would have a negative impact on staff morale.  There is keen competition in this field and the Company would like to retain quality staff.  The fact that the staff have no contractual entitlement to the special bonus is neither here nor there.  It does not seem to me this would make such payment not an expense in the ordinary course of business, as contended by the petitioner.

8.  The total amount sought for special bonus, paid to 15 persons, is HK$149,771.00.  Including the payment for mandatory provident fund, the total amount to be incurred for special bonus would be HK$157,994.75.  The proposed special bonus would not appear to be out of line with the figures for special bonus paid for some years as in 1996, 1997 and 1998, when the economy in Hong Kong was good.

9.  The payment of profits tax is not disputed.

10.  As for the year-end bonus, there is a provision in the employment contract of the employees of the Company that they would be paid an extra month’s salary at the end of the year as a bonus.  The total sum payable is HK$216,736.00.  The petitioner has no objection to the payment of year-end bonus.

11.    The petitioner has signed a consent summons in respect of the first application to allow for payment of special bonus and profits tax, but wished to reserve his right to challenge the payment of special bonus, contending that the payment would not be in the ordinary course of business and that the amount proposed to be paid is not reasonable.

12.  I was referred by Mr Suen for the Company to the decision of Barma J in Mi Fung Beads Co Ltd, HCCW No. 224 of 2004, 19 April 2004.  Paragraphs 27 and 28 showed quite clearly that even if a validation order is made, this does not mean that it would not be open to the petitioner to challenge the payment.  If the company should go into liquidation and that the payment was not made in the ordinary course of business or that it was in some way an abuse of the directors’ powers, the payment would not be protected by the validation order.

13.  In the order that I am going to make, I do not think it necessary to provide that the petitioner’s consent or his stance today would not prejudice his position to challenge the whole payment or the amount.

14.  As the Company is solvent, and it does appear to me that, prima facie, the payments sought to be made are in the interests of the Company, I do not propose to interfere with the exercise of the discretion of the management.  I should also say I am quite unable to see how the variation of the validation order sought today would have any adverse impact on the valuation of the shares of the Company, in the event that the petitioner is successful and a buy-out order made.

15.  I therefore make an order in terms of paragraphs 1 and 2 as per the draft submitted to me by the Company as amended.  As for costs, the hearing today is necessitated because the petitioner asked for one.  If they had given their consent, I see no reason why the application could not be dealt with on paper, although the Company would still need to file necessary evidence to satisfy the court that this is a proper case for variation of the validation order.

16.  I order that the costs of the hearing today be paid by the petitioner to the Company in any event.  Save as aforesaid, the costs of the two summonses are in the cause of the petition.