YEO BOON ANN AND ANOTHER v. MARSPAN LTD AND ANOTHER

HCMP 2230/2020

[2021] HKCFI 2799

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2230 OF 2020

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BETWEEN

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J U D G M E N T

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1.  In these proceedings, the joint and several trustees in bankruptcy (“Trustees”) of Margaret Chiu (“MC”) apply to be registered as the shareholders of the 1,000 issued shares in the capital (“Shares”) of Marspan Limited (“Company”), and for a certificate for the Shares to be issued in their names. They also seek an order that the Company and its directors do take all necessary steps to effect the registration and to issue the share certificate to the Trustees.

2.  MC was declared bankrupt under an order made by the Court (“Bankruptcy Order”) on 22 April 2020, by which Order the Trustees were also appointed as the provisional trustee of the estate of the bankrupt. At a general meeting of creditors held on 4 August 2020, the Trustees were appointed as the joint and several trustees of the estate.

3.  One of the significant assets of MC is her ownership of the Shares in the Company, which Company in turn is the registered owner of Lots 2 and 630, DD 238, Hang Hau Wing Lung Road, Clear Water Bay, Sai Kung in the New Territories (“Property”). According to the annual return of the Company dated 24 May 2018, MC was the registered shareholder of 999 shares in the Company, and CIE Secretarial Services Limited (“CIE”) was the registered shareholder of the remaining 1 share in the Company. The directors of the Company were MC, CIE and ULU Essentials Corporation Limited. Upon the making of the Bankruptcy Order, MC ceased to be a director of the Company under Article 112 (d) of the Company’s Articles.

4.  On the documentary evidence and information available to the Trustees, the one share in the Company, registered in the name of CIE, is and was at all material times held on trust for MC. MC herself stated on oath in proceedings before the Court that the one share in the Company was held on trust for her.

5.  The Trustees rely on section 58 of the Bankruptcy Ordinance (“Ordinance”), under which the property of a bankrupt shall vest in the Official Receiver on the making of a bankruptcy order, and shall forthwith pass to and vest in any provisional trustee or trustee who is appointed, without any necessary convenience, assignment or transfer. Upon shares in a company being vested in a trustee in bankruptcy, the trustee would be entitled to call upon the company to admit him as a member, or to transfer the shares to another person, provided that such entitlement is stipulated in the articles of association of the company. Counsel relies on In Re Bentham Mills Spinning Company (1879) 11 Ch D 900, and draws analogy from Re Sunrise Air Condition Equipment Ltd [2019] HKCFI 1056 and Lui Fung He v Chartersince Surveyors (Hong Kong Commercial) Ltd [2018] HKCFI 1481, in the context of property vesting in an administrator upon the death of a shareholder.

6.  On the Trustees’ case, MC’s ownership in the 999 Shares registered in her name became vested in the Official Receiver upon the making of the Bankruptcy Order, and have become vested in the Trustees by operation of law since their appointment as trustees in bankruptcy on 4 August 2020.

7.  The Articles of the Company expressly provide that any person becoming entitled to shares in consequence of the bankruptcy of a member may transfer such shares to himself or to any other person, provided that he produces due evidence of his entitlement (Article 36). Under Article 37, if the person so becoming entitled shall elect to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. By virtue of Article 38, the person shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the shares. Under Article 13, every member of the Company has the right to a certificate for all the shares registered in his name or to several certificates each for one or more of such shares.

8.  On the Trustees’ case, they satisfy the requirements under the Articles for their registration as the holders of the Shares, their entitlement being evidenced by the Bankruptcy Order and the memorandum of their appointment. The Trustees have executed a signed notice in writing pursuant to Article 37 of the Articles of the Company, electing to be registered as the shareholders of the Shares, and they claim that they are entitled to be issued a certificate for the Shares.

9.  The Trustees claim that their registration as the shareholders of the Company is essential for their due and proper administration of MC’s estate. The powers to be exercised under section 60 (1) of the Ordinance include doing all things as may be necessary for administering the bankrupt’s estate and distributing its assets, including selling all or any part of the property of MC as the bankrupt. They claim that without being registered as members of the Company, they are unable to call a shareholders’ meeting to appoint themselves as directors, and take control of the board (which upon the making of the Bankruptcy Order was left with only 2 corporate directors), in order to manage the affairs and assets of the Company. They need to exercise their rights as shareholder to obtain access to and inspect the books and accounts of the Company, in order to fully realize the value of the Shares as well as the assets of the Company (which include the Property). The orders sought by the Trustees in these proceedings are, on their case, necessary to enable them to properly carry out or continue to carry out their duties as trustees of MC’s estate.

10.  On leave granted by the Court on 5 February 2021, Mr Tan Wai Kee (“Tan”) was joined in these proceedings to oppose the grant of the relief sought by the Trustees. Tan claims to be entitled to 50% of the beneficial interest in the Shares of the Company. According to the evidence filed on behalf of Tan, he is the former husband of MC. They married in 1983, and separated in around 1993. Tan claims to have purchased the Property as the matrimonial home of the couple, and had nominated the Company (which was then his wholly owned corporate vehicle) to hold the Property. Following the couple’s separation, Tan verbally agreed with MC to transfer the legal title of all of his shares in the Company to MC, but with Tan retaining 50% of the beneficial interest in the Shares. It is claimed that the common intention of MC and Tan at the material time was that if the Property was to be sold, both Tan and MC would be entitled to 50% of the proceeds of sale of the Property. This is all on the evidence adduced on Tan’s behalf, to assert his rights “as beneficial owner over the Shares in (the Company)”.

11.  It is Tan’s case that in about June 2002, he no longer wished to bear the responsibility for the corporate administration of the Company. On the other hand, MC wished to be assured that she could continue to reside at the Property if Tan should remarry. The parties therefore agreed in 2002 that Tan should transfer to MC the legal title of all his shares in the Company, but that Tan would continue to have beneficial ownership of 50% of the Shares. On 3 July 2002, the 1,000 Shares in the Company were transferred from Tan’s nominees to MC at nil consideration, and MC transferred 1 Share to CIE.

12.  There have been other legal proceedings instituted in relation to the ownership of the Shares and of the Property.

13.  HCMP 1484/2019 (“HCMP 1484”) is a mortgagee action commenced by CS Credit Limited (“CS”) against MC and the Company. In November 2019, MC had procured the Company to mortgage the Property in favour of CS, and HCMP 1484 was instituted by CS against MC and the Company for possession of the mortgaged Property. Tan claims that the mortgage had been created without his knowledge or consent.

14.  HCA 1852/2020 (“HCA 1852”) was commenced by Tan against the Company and CS, seeking declarations that Tan “owns a 50% (or 100%) beneficial interest in the Property”, that the Company “holds 50% (or 100%) of the beneficial interests in the Property” on trust for Tan, and that such interests are binding on CS.

15.  HCA 153/2021 (“HCA 153”) are proceedings commenced by CIE and Far East Consortium Limited (“FE”) against the Trustees, Tan, the Company and CS, in which declarations are sought that FE is the beneficial owner of 1/6 of the Property, that CIE holds one share in the Company on trust for FE, and that FE’s interests are binding on the Trustees, Tan, the Company and CS.

16.  On 3 February 2021, the Court ordered HCMP 1484 and HCA 1852 to be tried together, the trial commencing on 24 November 2021.

17.  CS had applied in April 2021 for a trial of various preliminary issues in HCA 153, and for the trial to be heard with the trial in HCMP 1484 and HCA 1852.

18.  The Trustees claim that in the present action, they only pursue relief in relation to the 999 Shares which are registered in the name of MC. The dispute over the one share registered in the name of CS (and said to be held on trust for MC) can be ventilated and determined in the legal proceedings to be tried in November. The Trustees maintain that there can be no dispute that the 999 Shares should be vested in the Trustees, notwithstanding Tan’s purported claim of ownership of 50% of the beneficial interest in the Shares of the Company. Even if Tan should ultimately succeed in establishing his claim to the 50% interest in the Shares of the Company, this does not affect the vesting of the legal title to the 999 Shares in the Trustees. Nor does the vesting of the legal title in the Trustees defeat any claim of Tan, or any person purporting to have a beneficial interest in the Shares. On behalf of the Trustees, Counsel pointed out that the Trustees will hold and continue to hold the legal property vested in them, on trust for the creditors and other interested parties, including any beneficiary under a trust, who will have the same rights against the Trustees as the beneficiary had against the bankrupt in respect of the beneficial interest held on trust.

19.  The Trustees rely on the definition of the estate of a bankrupt, set out in section 43 of the Ordinance. This comprises all property belonging to or vested in the bankrupt at the commencement of the bankruptcy, excluding (under section 43 (3)) only “property held by the bankrupt on trust for any other person”. According to the authorities, such exclusion from the general definition of the estate only refers to property held on a bare trust, when there is no beneficial interest vested in the bankrupt at all.

20.  Fletcher, The Law of Insolvency (5^th edition) states at paragraph 8.057:

“…it is essential that the bankrupt should be merely a ‘bare’ trustee of any property if it is to escape transmission to his trustee in bankruptcy; if in addition to being trustee, the bankrupt enjoys a beneficial interest in the trust estate, the property does not come within the exemption created by s 283 (3) (a), which relates to property held on trust for ‘any other person’.” (Emphasis added)

21.  The Court held in The Governors of St Thomas’s Hospital v Richardson [1910] 1 KB 271, as follows:

“But as far as the bankrupt has a beneficial interest in property it passes to his trustees to form part of his divisible estate, and this nonetheless because the balance of the property is held by the bankrupt in trust for others. The trustee in bankruptcy will take the same position in respect of the property as the bankrupt; he will hold it on the same trusts and be entitled to the same beneficial interest and no more.”

22.  As Counsel for the Trustees pointed out, the above analysis was approved and applied by the Court of Appeal in Hong Kong, in its explanation of section 43 (3) of the Ordinance, in Hong Chi Yung v Chung Ngai Kit, unreported, CACV 223/2016, 26 June 2017 at paras 14-18, and also in Re Chan Lik Chung [2019] HKCFI 2868.

23.  As MC was holding the 999 Shares in the Company for herself and (on Tan’s case) on trust for Tan, she is not holding the Shares on bare trust for “any other person”, such that the Shares are not excepted from falling within the definition of bankrupt’s estate, and to be vested in the Trustees.

24.  On behalf of Tan, it was argued that as MC had agreed to hold 50% of the legal interest on behalf of Tan, it is indisputable that she was holding 500 of the Shares in the Company on trust for Tan, and these 500 Shares should fall within the exclusion provided for under section 43 (1).

25.  I have to agree with the Trustees, that Tan’s case in these proceedings has all along been a claim for 50% of the beneficial interest in the Shares in the Company (paragraphs 6 to 10 of the affirmation of Wong Lai Shan Eva (“Wong Affirmation”). The judgment of the Supreme Court of British Columbia (“BC Judgment”), which is relied upon by Tan as supporting his claim, held that MC only has a beneficial interest in 50% of the value of the Shares, the parties having agreed that Tan would be entitled to receive 50% of the proceeds of sale of the Property. Counsel for the Trustees pointed out that the BC Judgment is not admissible evidence of the truth of the findings of facts, but in any event, the BC Judgment does not assist Tan’s contention that he holds 500 Shares of the Company. Further, neither Tan nor the Company are parties to the BC Judgment, as the proceedings were between MC and her husband at the time, one Mr Piche.

26.  A claim to 500 individual shares in the Company is distinct from a claim to 50% of the entire shareholding of the Company. I accept the submissions of Mr Jin SC that the 999 Shares registered in the name of MC and the one Share registered in the name of CIE can be treated as 2 aliquot portions of the issued share capital of the Company, registered under the names of 2 different shareholders. The 999 Shares form an undivided bulk.

27.  The judgment in Hunter v Moss [1994] 1 WLR 452 does not establish the general proposition that a claim to 50% of the Company’s issued share capital is the same as a claim to 500 Shares in the Company. As explained in Pearson v Lehman Brothers [2010] EWHC 2914 (Ch) (at paragraphs 227 to 232), in the context of the more complex issue of the fungibility of a block of shares and whether there is sufficient appropriation, the only conclusion in Hunter v Moss (itself subject to some academic and judicial criticism) is that there is no objection, on the grounds of uncertainty of subject matter, to a trust of a part of a shareholding of a trustee. In Pearson itself, the Court expressed the preferred analysis of a beneficial co-ownership share in the identified fund, to the notion of seeking to identify a particular part of that fund which the beneficiary owns outright - which analysis does not assist Tan’s claim in this case.

28.  The claim made by Counsel on behalf of Tan at the hearing in June 2021, as to Tan’s claim to 500 Shares in the Company, is therefore different to his claim for relief made in the Wong Affirmation filed in these proceedings, and is also inconsistent with the claims made and relief sought by Tan in HCA 1852. There, his pleaded case is a claim for 50% (or 100%) beneficial interest in the Property, with no claim made to the Shares.

29.  Having considered the evidence and the submissions, I see no basis for refusing the relief sought by the Trustees. As Mr Jin rightly pointed out, this Court is not the proper forum to decide Tan’s claim of beneficial interests in the Shares. There is no direct evidence filed in this action on the details of Tan’s claims to the Shares, apart from the bare assertions made on his behalf in the Wong Affirmation.

30.  There is no sound basis and no necessity to adjourn the Trustees’ application for relief for determination by the Court in HCMP 1484 and in HCA 1852. The vesting of the 999 Shares does not affect Tan’s claim of beneficial ownership on the basis that 50% of the shareholding in the Company was held by MC on trust for him. In any event and as highlighted by Counsel for the Trustees, the claims made by Tan in HCA 1852 are to the Property, and the issue of ownership of the Shares is accordingly not the subject matter of the dispute in HCA 1852 and HCMP 1484. Without any proper summons issued in this action, and in HCMP 1484 and HCA 1852, and properly served on the parties in the latter set of proceedings, there is no proper basis for this Court to direct that the 3 actions should be heard together.

31.  I accordingly grant the order in terms of paragraphs 1 to 3 of the Amended Originating Summons in relation to the 999 Shares in the Company, with liberty to apply. The costs of the opposition in this action are to be paid by Tan to the Trustees with certificate for one counsel.

32.  The costs of the Trustees’ application for leave to file the 2^nd affirmation of Chan Leung Lee, to inform the Court of the various legal proceedings affecting the Company and the Shares, are to be in the cause, which will therefore be included in the costs allowed above to the Trustees.