LO SUI LIN v. CHAN HUNG FOOK AND OTHERS

HCMP 41/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 41 OF 2016

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AND

HCCW 208/2016

COMPANIES (WINDING-UP) PROCEEDINGS NO 208 OF 2016

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J U D G M E N T

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Introduction

1.  There are four matters arising out of two sets of related proceedings before the court, namely,

(A) HCMP 41/2016 (“the OS proceedings”)
which was issued by Lo Sui Lin (“Madam Lo”) against Chan Hung Fook (“Mr Chan”), Lee Kai Hung (“Kenneth”) and Success Leader Development Co Limited (“the company”) and

(B) HCCW 208/2016
being a petition presented on 27 June 2016 by Mr Chan and Kenneth (collectively “the petitioners”) against Madam Lo and the company for an order that the company be wound up on the just and equitable ground.

2.  In the OS proceedings Madam Lo seeks an order that an EGM of the company be called and convened for resolutions removing Mr Chan as director and appointing Lee Fung Har (“Virginia”) in his place with immediate effect.

3.  Subsequent to the date of the petition, the following summonses were issued:

(a) on 29 September 2016 the petitioners applied for the appointment of an interim receiver;

(b) on 8 November 2016 the petitioners applied for an order that Madam Lo deliver up the company chop(s) in her possession or control; and

(c) on 14 November 2016, Madam Lo applied to strike out the petition pursuant to Order, 18 rule 19 on the grounds that the petitioners have no cause of action, the petitioners frivolous and vexatious and an abuse of the process of the court.

4.  On the second day of the hearing, the parties were able to reach agreement concerning the company chop summons which was disposed of by way of a consent order upon the undertakings set out therein.  Accordingly, the substantive matters to be determined are (1) the OS proceedings; (2) the strikeout summons; and (3) the interim receivership summons.

Background

5.  Madam Lo is the mother of Kenneth and Virginia.  Her late husband Lee Kam Hoi (“the deceased”) passed away on 23 November 2011.  Mr Chan is the deceased’s cousin.

6.  In the 1970s, the deceased started a business known as Lee Tat Metal Manufactory.  Madam Lo assisted the deceased in that business until 1979.  By then, she had 4 children to care for and ceased to work in the business.

7.  Mr Chan joined Lee Tat in 1980 and assisted the deceased.  Other affiliated manufactories were set up.

8.  In 1985, the deceased purchased his first property, No 34, Wing Kwong Street in his personal name.

9.  On 20 September 1988, the deceased acquired the company off-the-shelf and used it to acquire and hold real properties.  Whilst the deceased paid for the issued capital of 1 million shares of HK$1 each in the company, he did not wish to be a shareholder or director.  He caused 700,000 shares (representing 70% of the issued capital) to be issued to Madam Lo, 200,000 shares (20%) to his son Kenneth who was then only 14 and 100,000 shares (10%) to Mr Chan who had been assisting him in the business since the early 1980s.

10.  It is the petitioners’ case (as pleaded in §8 of the petition) that the arrangement agreed between the deceased and Mr Chan and understood by Madam Lo and Kenneth was that:

(a) The deceased would have complete control of the affairs and assets of the company.

(b) He would entrust the management of the company to Mr Chan to look after the properties to be held by it.  For that reason, Mr Chan was appointed one of its directors.

(c) Madam Lo was appointed as the second director as the law then required a company to have two directors.  However, she would not participate in the management of the company and her role would be confined to that of the “paper” director only to sign all the necessary papers.

(d) The deceased did not want to put Madam Lo in a position to deal with the assets of the company as he had always been wary that Madam Lo might misspend, squander or even be cheated out of the hard earned savings held in the form of the properties in the company.

(e) Through the company the deceased would and did use its assets and income to support and benefit Madam Lo, the petitioners and the manufactories.

11.  During his lifetime the deceased increased the share capital of the company twice.  Currently, Madam Lo holds 3,166,666 shares (approximately 83.33%), Kenneth holds 422,222 shares (approximately 11.11%), and Mr Chan holds the remaining 211,112 shares (approximately 5.56%).

12.  The company holds the following properties acquired on the dates set out below:

Date purchased		Property
October 1988		G/F No 36, Wing Kwong Street, Kowloon
March 1989		Flat G, 6/F, Block 5, Whampoa Garden
October 1992		G/F, No 26, Wing Kwong Street
May 1996		G/F, No 30, Wing Kwong Street

13.   In 1993, the deceased incorporated Lexsun Ltd (“Lexsun”) to hold the manufactories.  He made Kenneth the majority shareholder and Mr Chan and another long-time business associate, minority shareholders.  After his graduation, Kenneth joined the manufactories in 1997.

14.  The deceased died of kidney and other illnesses on 23 November 2011 and Madam Lo became the sole administratrix in March 2012.

15.  So far as the assets of the company are concerned, they comprise the four properties described in §12 above as well as a van that had been used by the manufactories.  The mortgages on the properties were discharged prior to the deceased’s death.  The current status of those properties are as follows:

(a)   Flat G:
That was the matrimonial home.  After the deceased’s death it was occupied by Madam Lo and Virginia until the end of 2012 and thereafter by Virginia only.  In October 2015, Madam Lo rented it out under a two-year lease expiring on 26 October 2017 at the monthly rent of $22,500.

(b)   No 26:
This together with Nos 30 and 36 have been rented to the manufactories since their respective purchase.  No 26 was rented to the manufactories until May 2011 and is currently rented out to third parties under a two-year lease expiring on 15 June 2017 at a monthly rent of $15,000.

(c)   No 30:
This was rented to the manufactories until November 2006.  It is currently rented out to third parties under a two-year lease expiring on 31 March 2018 at a monthly rent of $15,000.

(d)   No 36:
Prior to July 2015, Nos 34 and 36 had been occupied by the manufactories as a single unit and the wall separating them had been demolished.  Because of the sale of No 34, the wall had to be reinstated prior to completion which took place on 31 July 2015.  Since 30 September 2015, No 36 has been rented to the manufactories under a three-year lease expiring on 30 September 2018 at a monthly rent of $9000.

Cause of the breakdown in relationship

16.  The company operated and was managed on the basis as described in §10 above until mid-2015 when the relationship between the petitioners and Madam Lo broke down.  The petitioners and Madam Lo gave different accounts of its cause.

17.  According to the petitioners, in mid-2015 Madam Lo informed Kenneth that No 34 (which was an asset of the estate) had been sold and asked him for the title deeds.  Kenneth was upset that he was not consulted beforehand because it had been agreed and understood between the petitioners and Madam Lo that they would attempt to sell the properties en bloc to secure a better deal.

18.  That agreement had come about following negotiations on two prior occasions (in August 2011 and 2013) for an en bloc sale of Nos 26, 30 and 36 with an asking price of $18 million per unit which was much greater than a sale of the units individually.  Those attempts by the deceased and the petitioners were unsuccessful because the buyer could not secure 80% of the ownership of the buildings involved.

19.  The petitioners’ case is that Kenneth was persuaded by Mr Chan to accede to Madam Lo’s request for the title deeds but as a condition, Madam Lo orally agreed that she would transfer back to the petitioners some of her shares so that the petitioners would retain control of the company. Mr Chan then proceeded to instruct the company’s accountants and auditors to prepare the documents to effect the transfer.  Those documents together with other compliance documents of the company were delivered to Madam Lo for signature several weeks later.

20.  Not only did Madam Lo retract from her agreement, she made a serious allegation that Mr Chan had attempted to cheat her of her shares. That contributed significantly to the souring of the relationship.

21.  Madam Lo denies ever entering into such an agreement with Kenneth/the petitioners.  However, for the purposes of the strikeout, the court must proceed on the basis of the petitioners’ case.  (Madam Lo’s account remains relevant for the OS proceedings.)

22.  A series of events then occurred after 21 September 2015 that resulted in the applications now before the court.  Chronologically, they were as follows:

(a)   According to Madam Lo, sometime after 21 September 2015, Virginia discovered that among the company’s documents delivered for Madam Lo’s signature were transfer documents relating to the transfer of 60.4% of Madam Lo’s shares (representing 50.33% of the company) to the petitioners at nominal value.

(b)   On Madam Lo’s instuctions, on 14 October 2015, her then solicitors (“SY”) wrote to the company and its directors expressing astonishment that their client was asked to sign instruments of transfer.  SY stated that because of that incident, Madam Lo (i) no longer had faith in Mr Chan or trusts his management of the company; (ii) revoked all her signatures on any of the unused blank cheques requesting their immediate return to Madam Lo; and (iii) made a request for inspection of the accounts and all relevant books of the company. SY unilaterally imposed a 7-day deadline for a response, failing which it threatened legal proceedings.

(c)   Several days later, on 19 October 2015 Madam Lo entered into a tenancy agreement (which according to the petitioners was done without the knowledge of the board), renting out Flat G at $22,500 per month with the deposit of $45,000 and has since been in receipt of the rent and deposit payable thereunder.

(d)   As no response to the 14 October letter had been received, on 26 October 2015, Madam Lo requested the company to convene an EGM to pass resolutions for the removal of Mr Chan and the appointment of Virginia in his place.

(e)   When the company failed to convene the requested EGM, on 30 November 2015, SY requisitioned an EGM for 23 December 2015 but the EGM was inquorate as the petitioners failed to attend the meeting.

(f)   Meanwhile, on 11 December 2015, the company responded to SY’s letter of 14 October 2015 to the effect that the company’s accounts had been prepared and were available for inspection by prior appointment. 

(g)   On 8 January 2016, Madam Lo issued the originating summons in the OS proceedings.

(h)   On 23 March 2016 Mr Chan offered to appoint Virginia as an additional director but his offer was rejected.

(i) On 20 April 2016, Kenneth issued administration proceedings (HCMP 979/2016) and on 22 April 2016, the petitioners proposed a voluntary winding up which Madam Lo rejected.

(j)Between 4 May 2016 and 21 June 2016, Madam Lo entered into a number of agreements, culminating in that of 21 June 2016 (“the Chinese agreement”) to sell her shareholding in the company to Chow Wai Kam (who and whose nominee is hereafter referred to as “the purchaser”) for $20 million.  To date, she has received down-payments/advances from the purchaser of $10 million.  (The petitioners were not made aware of the Chinese agreement until 23 July 2016.)

(k)The petition was filed on 27 June 2016.

(l)On 29 September 2016, the petitioners filed the interim receivership summons (followed on 8 November 2016 by the company chop summons).

(m)   On 14 November 2016, Madam Lo issued her summons to strike out the petition.

23.  In late November 2016, the Urban Renewal Authority (“URA”) was authorised to proceed with a development project of an area that covers, among others, Nos 26, 30 and 36.

24.  On 4 January 2017, the petitioners received a written offer from WH Chik & Co (“WHC”) solicitors representing the purchaser to buy the petitioners’ 16.66% shares for $8 million which was increased to $10 million on 17 February 2017.  It would appear from the January letter that negotiations had commenced in August 2016, the petitioners’ then asking price was $10 million. 

I.   THE STRIKEOUT SUMMONS

25.  Logically, the strikeout summons should be dealt with first since its outcome is likely to have a bearing on the other summonses.

26.  The petition was brought on the following bases:

(a)   A breakdown of trust, confidence and relationship between the petitioners and Madam Lo and the ousting of Mr Chan from management arising from:

(1)   Madam Lo’s sale of No 34 at an undervalue without consulting Kenneth;

(2)   Madam Lo’s retraction from her agreement with Kenneth that she would transfer back some of her shares to the petitioners;

(3)   Instead, Madam Lo accused Mr Chan of attempting to cheat her of her shares and commenced the OS proceedings to remove Mr Chan as director and to appoint Virginia in his place;

(4)   Madam Lo’s refusal to render an account of the administration of the deceased’s estate and to distribute part of the sale proceeds of No 34 to Kenneth;

(5)   Since September 2015, Madam Lo has without the authority of the board rented out Flat G and refused to divulge details of the tenancy agreement or to account for the rent paid but received by her.

(b)   The loss of the substratum.

(c)   Further loss of the substratum, breakdown of trust and confidence and relationship, and ouster from management arising from the Chinese agreement.

27.  There is no dispute as to the applicable principles.  In an application to strike out:

(a)   it is assumed that the particulars and allegations in the petition and the supporting affidavits would be established and the conflicts resolved in favour of the petitioner;

(b)   it is only in a plain and obvious case that the court would exercise its discretion to strike out the petition or parts thereof; 

(c)   the applicant bears the burden of showing that the petition would fail on the ground that there is an alternative remedy available to the petitioner and that the petitioner is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy; and

(d)   where the application is on the grounds that the petition is frivolous or vexatious, that is generally understood to mean unsustainable and evidence that does not require testing by cross examination and uncontentious background information may be taken into account: see Re Four Twenty Co Ltd, HCCW 278/2004, 6 January 2005.

28.  I turn to consider Madam Lo’s challenges to the petition.

(A)Loss of trust and confidence and breakdown of relationship

29.  Ms Fong counsel for Madam Lo highlighted two matters:

(a)   Ebrahimi v Westbourne Galleries Limited & Ors [1973] AC 360 has no application because there was never any mutual trust between Madam Lo and the petitioners; and

(b)   in any event, the loss of confidence has to relate to the conduct of the company’s affairs rather than to Madam Lo’s private life, citing Loch v John Blackwood Limited [1924] AC 783, 788.

30.  The basis of her first submission was that such mutual trust as existed was between the deceased and Mr Chan/the petitioners and that the Ebrahimi principles are not applicable when Madam Lo was not party to that mutual trust.  It was said that §8(d) of the petition suggests that even the deceased did not trust Madam Lo.

31.  That approach appears to be misconceived. For striking out purposes, the arrangement as pleaded in §§8 and 18 of the petition must be accepted.  It was an arrangement between the deceased and Mr Chan and understood and accepted by Madam Lo and Kenneth.  The company was formed and continued on the basis of, inter alia, “the arrangement, dynamics and roles” described in §8 of the petition.  It is the petitioners case that the company would be used as a vehicle to hold assets under the control of the deceased and the management of Mr Chan for the benefit of the deceased’s family, Mr Chan and the manufactories as a whole and it was never intended that Madam Lo would have control of the affairs and assets of the company.

32.  Even on Madam Lo’s own evidence, she has never been involved in the management of the company although, throughout, she was the majority shareholder and it is not disputed that the company paid for the deceased’s and Madam Lo’s household expenses.

33.  In so far as the second matter is concerned, the matters complained of involved, inter alia, a breach of the agreement to transfer some of Madam Lo’s shares which event was characterised by Madam Lo as an attempt by Mr Chan to deceive her into making the transfer and using that as a pretext to remove him from the directorship he has held and served for 28 years; Madam Lo’s refusal of Mr Chan’s offer that Virginia be appointed an additional director; and renting out Flat G without authorisation and retaining the deposit and rental paid.  They are all matters that relate to Madam Lo’s conduct as a director in regard to the company’s business.

34.  In my view, the petition and supporting evidence show a prima facie case that the association formed is one that contains the elements identified in Ebrahimi that attract the superimposition of equitable considerations.  In the circumstances, the contention that Mr Chan has no arguable case for a contractual or equitable right to participate in management is misplaced.

(B)Loss of substratum

35.  On the petitioners’ case, the substratum of the company is that it is a vehicle to provide benefits to the deceased’s family members and his cousin and close business associate Mr Chan.  It is a small family company which was not formed to pursue commercial activities that involved outside shareholders.

36.  Under the terms of the Chinese agreement, Madam Lo is obliged to change the composition of the board and cause outsiders to be appointed directors as a result of which the petitioners would be “locked in”.  On implementation, the right to manage would fall to the incoming majority shareholder with the consequence that the petitioners will have no say or control at all in respect of the future affairs and direction of the company.  The petitioners contend that those events would bring about a loss of the substratum.

37.  Given the URA project and its impending acquisition of Nos 26, 30 and 36, the proceeds to be received by the company would be a significant amount, likely to be in the range of $50 – $80 million.  What is clear is that the petitioners would not be in a position to control the direction the incoming board might wish to take.  For example, it may not wish to distribute the net proceeds on a pro rata basis but deploy the proceeds in other commercial ventures.  For that reason, the petitioners consider that the company would be in a state that could not have been contemplated by the parties when it was formed, resulting in a loss of substratum.  I would agree that they have shown an arguable case.

Alternative remedy available?

38.  Ms Fong submitted that as there are other remedies or processes available to the petitioners, winding up being a remedy of last resort would not be made.  It would appear that the ‘processes’ relied on was nothing more than the negotiations that had taken place between the intended purchaser of the petitioners’ shareholding and the petitioners conducted through an intermediary Tsui Tsz Chun allegedly acting for the purchaser.

39.  It is unnecessary to go into those negotiations. As counsel for the petitioners explained, the real stumbling block to any agreement was the intended purchaser’s insistence that the petitioners warrant and undertake that there has not been any act or omission on their or their associated companies’ part which adversely affect the compensation receivable for the resumption of Nos 26, 30 and 36: see condition 4 of the offer letter dated 17 February 2017.

40.  The written offers from the intended purchaser was made through his solicitors, W H Chik & Co (“WHC”) who were also Madam Lo’s solicitors.  While on 25 April 2017 WHC reopened the earlier offer of 17 February 2017, it remained subject to the conditions stated in the 17 February letter.  Of the 8 conditions to which the offer was subject, 5 of those were not acceptable to the petitioners including condition 4 mentioned above.

41.  On those facts, Madam Lo has not discharged the burden of showing that the petition would fail on the ground that there is an alternative remedy available to the petitioner.

Conclusion

42.  Accordingly, I have no hesitation in concluding that the strikeout summons should be dismissed.  There is to be order nisi that costs of the strikeout summons be to the petitioners.

43.  Having dealt with the strikeout summons, the two remaining matters are the OS proceedings and the interim receivership summons.  As the petition is ongoing, the receivership summons should be dealt with next.

II.   THE PETITIONERS’ APPLICATION FOR INTERIM RECEIVERSHIP

44.  Madam Lo objects to the application on various grounds.  It was said that (1) she has no complaint over the way Mr Chan has been managing the properties; (2) there is no risk of dissipation of the assets of the company given that the title deeds are in the petitioners’ possession; and (3) any loss is compensable in damages.

45.  So far as (1) is concerned, if Madam Lo is seeking to suggest that she is on good terms with Mr Chan, that is obviously untrue.  §24 of her written submissions in support of the OS proceedings reads:

“ [Madam] Lo lost all her trust on [Mr] Chan after finding out the true nature of the Share Transfer Dox and the fact that [Mr] Chan wanted to deceive her. There is no dispute that [Madam] Lo on the one part and [the petitioners] on the other part have fallen out and whatever mutual trust and cooperation there might have been is now replaced by mistrust and suspicion.”

46.  Madam Lo submitted that the appointment of an interim receiver is a remedy of last resort, that the court’s discretion should be exercised with very great circumspection even when the company is not actively trading and regard must be had to the possible effect of the receivership on the undertaking of the company.  Those principles are not controversial.

47.  While the company is not engaged in commercial activities and is a small family company holding investment assets, three of the four properties that it owns (ie Nos 26, 30 and 36) have become valuable as a result of the URA redevelopment project.  To date, negotiations with URA have been conducted by Mr Chan.  The URA carried out a survey on 16 March of this year and the project has been gazetted.  It is anticipated that URA will be making written offers in the coming months.

48.  The proceeds are projected to range between $50 – $80 million.  It is therefore imperative and in the company’s interest that negotiations with URA are conducted in an efficient way and in a manner that would not be plagued by the ongoing disputes between the petitioners and Madam Lo, disputes that have marred their relationship for almost two years.

49.  That aside, it is apparent from §15 above that the leases are coming up for renewal in the coming months, the first is due as soon as mid-June 2017.  Given Madam Lo’s avowed purpose for convening an EGM is to remove Mr Chan as a director and her contractual obligation to the purchaser alter the composition of the board, in those circumstances, it would be idle to suggest that Mr Chan will be continuing to manage the properties or conduct the URA negotiations.

50.  The petitioners have adduced evidence to show that Madam Lo has in the recent past realised all her assets of value that are known to the petitioners.  The sale of her shares in the company at what the petitioners consider to be at considerable undervalue underlines her apparent financial plight.  

51.  While Madam Lo maintained at the hearing that she has no complaints as to Mr Chan’s management, there is concern that should the court order that an EGM be held in the near future, the petitioners will have to hand over the title deeds of the properties to Madam Lo who would be in control of the board. The petitioners’ concern is that once the title deeds are in her possession and control, equitable mortgages is one possible use that could be made of the deeds.  That concern (which, in the circumstances, is not entirely fanciful) is exacerbated by the fact that Madam Lo has failed to comply with court orders made in HCMP 979.  So far, 3 orders have been flouted and Madam Lo has not given any reasons for non-compliance.

52.  Further, in the course of the hearing, it transpired that neither Madam Lo nor the petitioners could shed light on the title deeds to Flat G.  Both sides deny having possession of the same.  That issue also needs to be resolved.

53.  Counsel for Madam Lo focused on the fact that there was nothing to show that the company’s assets were in imminent danger of loss or dissipation because the petitioners have control over the assets.  But that will not be the case once the board’s composition is altered as is Madam Lo’s contractual obligation to the purchaser.

54.  In any event, whether or not the assets are in imminent danger or at risk of dissipation is but one of the considerations (albeit in some cases the overriding consideration) that the court takes into account when exercising the discretion.  It is not an essential requirement in every case.  As will become apparent, it could be said that the assets of the company are in jeopardy and need preservation.

55.  Counsel for the petitioners referred to the founding principle for the appointment of receivers is to be found in Featherstone v Cooke (1873) LR 16 Eq 298 which is that the existence of disputes between different members of the governing body of a company which prevent its affairs being carried on properly, is a ground for the intervention of the court by injunction and receiver to protect the property of the company, but the interference of the court will be continued only until the governing body is duly appointed: see W v W [1998] 2 HKLRD 77 at 85E–I.  The founding principle was echoed in the decision of Rogers J (as he then was) in Chinese United Establishments Limited v Cheung Siu Ki [1997] 2 HKC 212.

56.  The present case involves a small asset holding family company that is not engaged in commercial activities.  The most urgent business facing the company are the URA negotiations that have to be conducted shortly. As the parties are at loggerheads and the success of those negotiations will have a direct impact on the value of the company's assets, in order to preserve the value of those assets, it is appropriate (if not also necessary) for the court to exercise its discretion to appoint an interim receiver.

57.  The petitioners and Madam Lo have each come forward with a candidate for appointment.  In terms of the proposed remuneration, their charges are comparable.  Whoever is appointed will be answerable to the court in respect of his office as interim receiver.  There is no question but that his duties must be discharged impartially and in the interest of the company.

58.  Having considered their respective CVs, Ms Simone Kong of Manivest Group of Companies should to be appointed interim receiver.  An agreed draft order of her appointment is to be submitted for approval.

III.   OS PROCEEDINGS

59.  Madam Lo’s application is for an EGM to be convened for the purpose of passing resolutions to remove Mr Chan as director and to appoint Virginia in his place with immediate effect.

60.  Her supporting affirmations explained that this came about because of the discovery of the transfer documents for Madam Lo’s signature shortly after 21 September 2015 and the failure of the company and Mr Chan to respond to SY’s letter of 14 October 2015.  As earlier noted, the petitioners have given a different account (see §§17 – 21 above) and the factual dispute that arises can only be resolved at trial.

61.  As regards SY’s letter, the company did respond (albeit later than the unilaterally imposed 7-day deadline) on 11 December 2015 to the effect that the accounting documents were available for inspection by prior appointment.

62.  It is not known whether that invitation was first taken up prior to the commencement of the OS proceedings but inspection of the accounts and supporting documents as well as the company’s cheque-books did not take place until 2 March 2016. Other than a request made on 3 March 2016 for copies of all tenancy agreements (supplied by 18 March 2016), no further requests or enquiries have been made.

63.  Madam Lo invokes section 570 of the Companies Ordinance which confers a discretion on the court to order a meeting where it is “impracticable” to call a meeting of the company in any manner in which meetings of that company may be called.  She relies on the fact that the meeting she requisitioned for 23 December 2015 was inquorate to establish impracticability.

64.  It is relevant to note that on 23 March 2016 (thus well before the first hearing of this application on 29 April 2016) it was made known to Madam Lo that Mr Chan would accept the passing of a resolution to appoint Virginia as an additional director without his being removed.  That offer if taken up would have enabled Madam Lo to gain control of the board without pursuing the OS proceedings but for reasons unknown, Mr Chan’s offer was rejected.

65.  Ms Fong relied on E-Harbour Services Ltd [2014] 5 HKLRD 180 and Re Mandarin Capital Advisory Limited [2011] 2 HKLRD 1003 to show that an oral agreement or understanding between shareholders as to joint management was normally not a sufficient ground for refusing to order a meeting which would enable the majority shareholder to exercise his statutory right to remove a director and that “strong evidence” of an unqualified right to participate in the management while the minority remained a shareholder normally evidenced in writing would be required.

66.  That may well be so in the context of shareholders in a commercial setting (with which those two cases were concerned), entering into business arrangements at arms’ length.  The circumstances prevailing in the present case are wholly different: what we have is an informal family arrangement concerning a small family company that was not even engaged in commercial activities but used only as an asset holding vehicle.  In those circumstances, I consider it wholly unrealistic to expect written agreements.

67.  The real question, however, is whether the court ought to exercise its discretion where the only purpose of the EGM is the ousting of Mr Chan from his directorship, when that “ouster” is one of the grounds for the petition to winding up the company on the just and equitable basis.  Although there are observations in the two cases referred to the effect that the precise reason for removing a party as a director will generally be irrelevant, in so far as there is such a general rule, I consider that the present case falls outside it.  

68.  In the circumstances of this case, the court must consider the backdrop to the dispute that has precipitated the filing of a petition to wind up the company on the just and equitable ground and the other applications before the court.  It would be wrong to allow the status quo to be dramatically changed given the winding up petition that is pending, when for the past 28 years Madam Lo has not been involved in the affairs of the company other than being a “paper” director.  

69.  As in the case of Re Rich Treasure Enterprises Ltd [2001] 3 HKLRD 769, the correct course would be for the winding up petition to proceed as quickly as possible.  Accordingly, I would order a speedy trial of the petition.  Meanwhile, the affairs of the company would be managed by an interim receiver.

Conclusion

70.  In those circumstances, it would be appropriate to make no order on the OS proceedings.  There is to be an order nisi that the petitioners are entitled to costs of the OS proceedings.