XCHRX CHOW CHE HUNG, REX v. SO WAI KEUNG, SIMON AND OTHERS

HCCW 634/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 634 OF 1999

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D E C I S I O N

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1. The Petition in this matter was presented on 16th July 1999 under sections 168A and 177(1)(f) of the Companies Ordinance.

2. The application before me today is for anticipatory validation of payments into and out of the company bank accounts in connection with its business.

According to the Petition, the Petitioner holds 705,000 of the 3 million shares issued and the Respondents hold the other shares. The Company carries on the business of a knitwear manufacturer, business having been started about 10 years ago. Much of the manufacture is done in factories on the mainland.

3. The Petitioner complains that he has been excluded from management and has effectively been expelled from the Company. He seeks either an order that shares be purchased by the Respondents with directions as to valuation, or that Company be wound-up on the just and equitable ground.

4. In the support of the present application, the 1st Respondent has filed an Affirmation in which he explains that the company has factories on the mainland and about 1,550 employees. It is apparently a successful company with unaudited profits for the year ended 31st March 1999 of over $7 million and with accumulated profits of about $22 million as at that date.

5. The 1st Respondent explains that presentation of the Petition and certain communications between the Petitioner and the Company's banks have led the banks to require security deposits and to reduce the Company's credit facilities. There has also been a threat to freeze the Company bank accounts if no validation order is obtained. Suppliers have demanded that the Company settle all outstanding charges and withdrawn credit. This has led to a tight credit position.

6. The Petitioner does not in principle object to a validation order being made. It is accepted that this Company is a going concern and should be protected from being damaged by the issue of the Petition. However, perhaps understandly, the Petitioner is concerned that he has been excluded from information and asks the court to impose conditions before making any validation order. He says that such conditions are necessary as a reasonable basis for safeguarding his position now that he has been made an outsider. The suggested condition is that the Company or the Respondents be required to give the Petitioner notice of all intended payments exceeding $80,000.00 3 working days beforehand.

7. However, there is no suggestion that there has been any previous misappropriation of the Company's assets, nor is there any evidence of a risk of this occurring in the future.

8. In such circumstances, I am not satisfied that a condition requiring prior notification is justified. It seems to me likely to engender a very large amount of unproductive work and may possibly also encourage interference with the management of the Company.

9. In my judgment, sufficient protection of the Petitioner's position would be achieved if he was provided with full information of the payments made out of the Company's accounts on a weekly basis, such information to include the dates and amounts of each payment, to whom they were made and the purpose of such payments. Such payments should also be supported by documents, if in existence, and the Petitioner should be entitled inspect such documents if he wishes. An undertaking to provide such information has been offered by the Respondents.

10. I will ask the parties to produce a draft Order reflecting those terms.