RE HWA CHIN INDUSTRIAL LTD

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING UP)

NO. 513 OF 1994

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JUDGMENT

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1. This is a petition to wind up the company Hwa Chin Industrial Limited on the just and equitable ground. The petition is presented by Einbeck Holdings S.A. which is a Panamanian company and which is a 50% shareholder in the company. The company was set up with the money for the capital provided by a Mr. Tan who is the person behind Einbeck Holdings S.A. and was, according to the petition, a quasi partnership with him and Mr. Huang.

2. When the petition was filed last year, Mr. Huang opposed the petition. That opposition was maintained up until yesterday, when counsel on behalf of Mr. Huang informed the Court that, although the original grounds of opposition were valid, circumstances in the company had now changed. The business which it was previously contemplated the company would undertake is no longer available, that therefore caused the opposition to the petition to be withdrawn. I was invited to make a winding up order. However, counsel for the Opposing Contributory has argued that the costs should not be awarded in the normal way but the fair order for costs would be there should be no order as to costs.

3. I have a great deal of sympathy with the submissions which have been made very eloquently for the Opposing Contributory but regrettably for the reasons which I shall outline, I do not think it right to accede to them. In my view, unfortunately, this company was "heading for the rocks" in colloquial terms and the inevitable has probably happened.

4. The petition is comparatively short and the facts are to a large extent not disputed. I will try to outline the basic facts as I see them as they emerge from such parts of the evidence as my attention has been drawn and from the submissions which have been made.

5. Initially, Mr. Tan as I say, put up the money up both for the shares of the Petitioner and for the shares of the Opposing Contributory. Mr. Tan is a businessman with diverse interests largely in Indonesia and in particular, interests in a glass business P.T. Asahimas Flat Glass Co. Ltd. The company was set up primarily to do business in China and to take advantage of Mr. Huang's, the Opposing Contributory's connections in China.

6. To start with, the business appears to have continued in a manner which might have been anticipated and although it made an overall loss in some years, there was a profit made which was of course wiped-out by previous losses. In 1989 the first events happened which are of some note. A Mr. Chan who was Mr. Tan's representative on the board ceased to be a director. I say no more about that. If the petition had been heard and evidence had been given, I understand there would have been a dispute about the circumstances but I say no more than a neutral fact that he ceased to be a director. There are grounds for querying whether any of the directors are now validly appointed but, again, I feel it unnecessary to go into that other than to say that there seem to be reasons for saying, on the basis of the Articles, that no director may be validly appointed. That is not to say that if a shareholder's meeting were called that could not happen.

7. In 1991, however, things took a slight turn for the worse. There seems to have been a falling out between Mr. Tan and Mr. Huang and indeed that came to litigation which was commenced in 1992 between the parties. That has yet still to be resolved. Again I do not consider it right to go into any of the details of that, save to say that there was this litigation which appears to go to the root of the relationship.

8. The business which the company was undertaking in China on behalf of Asahimas was withdrawn. This put the company in a certain amount of difficulty. In order to alleviate that, the company then became an agent for another Indonesian glass manufacture, P.T. Mulia Glass, which was a competitor of Asahimas.

9. Mr. Barlow on behalf of the Petitioner submitted that this was contrary to the intention of the setting up of the Company since part of the intention was to further Mr. Tan's own other business interests. I do not proceed upon that basis since on my reading of the Petition the company was set up to further its own business interests. Naturally where one has a major shareholder in what is in effect a partnership, one would anticipate those interests would coincide with the interests of the major partner and of course it is no doubt a matter of considerable irritation to Mr. Tan if on the one hand he has a major business interest in Indonesia and on the other hand a company which he has effectively set up to do business in China is in competition with it.

10. The matters really came to a head last year. The company had been making consistent losses and had been supported by director's loans from Mr. Huang. Had it not been for those it would clearly have gone under. Inspection of the company's accounts shows that despite a comparatively small turnover, Mr. Huang had a salary which was perhaps in excess of the turnover and there were other business expenses which are set out in para. 19 of the Petition. Looking just at those figures, however, I do not see anything particularly amiss there. The salary appears to me to be low. The expenses do not seem to me to be out of the way if one considers that a company is realistically trying to find business for itself.

11. There was, however, a meeting on the 18th of July 1994 which was apparently the first shareholder's meeting for some 7 or 8 years. At that meeting Mr. Huang, the Opposing Contributory, tried to persuade his other shareholder's representatives that there should be an injection of capital. That was unsuccessful and those who represented Mr. Tan rejected that suggestion. However, those who represented Mr. Tan said that the company should be wound up. The Opposing Contributory said that he was prepared to consider that proposal provided that the outstanding commission, which incidentally would not have cancelled out the company's outstanding debts but perhaps might be said to have gone some of the way to do that, was paid. The meeting broke up in disagreement.

12. Thereafter, perhaps not immediately but thereafter, the petition was filed. Mr. Li on behalf of the Opposing Contributory says that the company was by no means then in a situation where in default of further finance from the shareholders it had to cease trading, because it had prospects for this year at least, and thereafter of having good business. The Opposing Contributory relies on certain documents copies of which were filed. The Petitioner, however, says that business was no more than pie in the sky and the inevitable happened: that business evaporated.

13. I find it difficult to draw a final conclusion as to those submissions without having heard the whole petition and the oral evidence and the cross-examination in respect thereof. It does seem to me that really the situation had been arrived at by July of last year where effectively Mr. Huang and Mr. Tan were at loggerheads. The only thing that they could have agreed about in respect of the company was, perhaps, that it should be wound up but Mr. Huang, I do not say unreasonably, was holding out for payment of a commission which he rightly or wrongly believed Mr. Tan was in a position to make sure was paid. Again I do not pass any final comment on that at this stage because I have not heard any cross-examination of the witnesses, but there does seem, however, to me to be a basis upon which those submissions could be made and perhaps justification in Mr. Huang's feelings in that regard Mr. Huang had been responsible for the day-to-day management of the company as, indeed, had been envisaged when this company was set up. But the situation had been reached where the company was, short of something exceptional happening, unlikely to be able to carry on and therefore the tentative partial agreement as to the winding-up should really have been something to which the party should have worked towards from July last year.

14. I regret therefore that I am not convinced that a change of circumstances occurred since, indeed, probably, May, when this petition was first to be heard but had to be adjourned, and now at any rate to the extent that it is something upon which I can rely. Looking at it perhaps in another way, I cannot say on what is presented before me that the petition, particularly para. 20 and para. 21, was bound to fail which, looking at it in this light, is something which I would have to hold if I were to deprive the Petitioner of its costs which would otherwise follow the event.