WONG SEE SIK v. WONG LAP YAN AND ANOTHER

HCCW 179/2019

[2021] HKCFI 1817

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 179 OF 2019

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BETWEEN

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D E C I S I O N

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1.  There is before the Court a summons dated 20 October 2020 (“Summons”) issued by the 1^st Respondent (“R1”) to strike out §§70-73 and the prayer for winding up relief in the petition dated 10 June 2019 (as amended on 8 August 2019 and re-amended pursuant to the order made on 17 June 2021) (“Petition”) on the grounds that (1) the Petition discloses no reasonable ground for seeking winding up relief against the 2^nd respondent (“Company”), and (2) the seeking of winding up relief is frivolous, vexatious or otherwise constitutes an abuse of the court’s process.

A. Background

2.  The petitioner (“P”) and R1 are siblings[1]. 

3.  The Company was incorporated in Hong Kong in December 2004.  It has 2 issued shares which are held by P and R1 as to one share each.  From December 2004 to January 2007, P and R1 were the only directors of the Company.  Since January 2007, R1 has been the sole director of the Company.   

4.  Sun Kee Restaurant (“Restaurant”) was established by the late father of P and R1 (“Father”) in 1983 who, together with the mother of P and R1 (“Mother”), operated the Restaurant as a family business until 1997 when P began to work at the Restaurant on a part time basis.  In 1999, Father passed away and Mother became the only person in charge of and operated the Restaurant while P and R1 worked at the Restaurant after they finished their work. By 2001, all the debts incurred by the Restaurant during the Asian financial crisis were repaid. 

5.  In December 2004, Mother intended to pass the helm to P and R1, and the Company was incorporated as the vehicle to operate the Restaurant.  At around the same time, P and R1 began to work full time at the Restaurant. 

6.  The Company has all along been operating at a profit in that according to the “2018 Accounts” (as defined in §8(3) below), the Company had net profits in excess of $1.4 million in the years ended 31 March 2017 and 2018.

B. Parties’ cases

7.  It is P’s case that there was “a common agreement and understanding”, alternatively, “a common understanding implied or inferred from their conduct over the years” (“Common Understanding”) that (1) each of P and R1 shall participate in the management and operations of the Company/Restaurant as partners; (2) each of them has to be consulted on major matters or decisions concerning the Company/Restaurant; (3) the profits of the Company would eventually be split amongst the family members including P; and (4) each of them (including Mother) would be entitled to receive regular monetary allowances from the Company).

8.  P contends that the affairs of the Company have been conducted by R1 in an unfairly prejudicial manner in that:

(1) R1 has set up a competing restaurant in the name of Sang Kee in Tsuen Wan (“Sang Kee TW”);

(2) since 2015, P has been excluded from the management of the Restaurant/Company, contrary to the Common Understanding;

(3) save for the audited accounts for the years ended 31 March 2012 to 31 March 2018 (“2012 to 2018 Accounts”) provided to P on 13 March 2019, P has not been provided with any information concerning the Company and P’s legitimate requests and questions on the financial affairs of the Company were ignored by R1;

(4) there is a “gross deficiency of dividends” in that whilst the Company earned net profits of over $1 million per month, R1 only distributed dividends of less than $10 million to P.  At the same time, $300,000 per year was paid to R1 as “emoluments” without the knowledge or consent of P; and

(5) R1 wrongfully asserted that P had orally agreed to sell her 50% shareholding in the Company for HK$9.1 million in 2015 (“Oral Agreement”).  This is the subject matter of HCA 1028/2019 commenced by R1 against P[2].

9.  Relying on the above complaints, P seeks as primary relief an order that R1 shall purchase her shares at a fair value.  The grounds for seeking winding up as an alternative relief, as pleaded in §§71-73 of the Petition, are as follows:

(1) P has not been able to resort to self-help remedies, as the without prejudice negotiations between the parties did not bear fruit.  In particular, P made an open offer on 2 January 2019 to sell (a) her 50% shareholding in the Company, (b) her 20% shareholding in “OTTO Company”[3], (c) her 1/3 interest in the Southorn Property and (d) her interest in the Sun Hung Kai Foundation Fund for $20 million (“Open Offer”), but R1 rejected the same (Self-help remedies ground);

(2) any buy out order made against R1 may be difficult to enforce, and it is uncertain whether R1 will have the ability to pay the price to P if ordered by the Court to do so (Uncertain financial ability ground);

(3) the Company is “deadlocked and there is a complete breakdown of trust and confidence” between P and R1 (Breakdown of trust ground); and

(4) there is a need for investigation into the Company’s affairs, in view of the denial of information to P and the doubtful accuracy of the financial statements prepared by R1.  There is a “reasonable suspicion” that R1 “might have” kept substantial funds belonging to the Company outside of the Company (Need for investigation ground).

10.  R1 denies the allegations.  His case is that:

(1) There was no Common Understanding.  Instead, it was the common intention and understanding between P, R1 and Mother when the Company was set up, that Mother and R1 would be the ultimate decision makers within the Company/Restaurant, and the management functions would be largely left in the hands of R1.  P would be consulted from time to time by R1 and Mother, and would assist in their running of the business.

(2) There was no diversion of business opportunity, given that (a) R1 was the ultimate decision maker of the Company after Mother’s retirement; (b) R1 had pursuant to the Oral Agreement paid the full consideration to P and became the sole beneficial owner of the Company; and (c) out of courtesy and familial relationship, R1 had in mid-2017 informed Mother and P of his intention to invest in Sang Kee TW.  P’s consent can be inferred from her act in taking charge of Sang Kee TW’s opening ceremony, giving advice to R1 on its operational matters, dining at Sang Kee TW on numerous occasions and participating in its gatherings with staff.

(3) P was not excluded from management.  It was her decision to stop working at the Restaurant/Company owing to her  arguments with Jeff.

(4) There was no denial of financial information.  It was only in December 2018 that P, for the first time, requested R1 to provide her with the Company’s financial statements and information, whereupon R1 provided the 2012 to 2018 Accounts to her. 

(5) There was no proper basis to question the 2012 to 2018 Accounts which had been audited by the auditors without any qualification or adverse opinion. 

(6) R1 had full power to decide on the mode and timing of distribution of profits to family members, which were made in the form of salaries, employee bonuses, credit card repayments made by the Company, and other financial support and funding.  From 2004 to 2015, P regularly received such distributions in the amount of at least HK$600,000 a year, which represented a significant proportion of the Company’s net profits in those years (which ranged from HK$1.1 million to HK$2.8 million).   

C. Applicable principles

11.  The principles governing an application to strike out a petition have been summarised by Kwan J (as she then was) in Re Four Twenty Company Ltd, HCCW 278/2004, 6 January 2005, §5 as follows:

“(1) It is assumed that the particulars and allegations in the petition and the supporting affidavits of the petitioner would be established and the conflicts resolved in favour of the petitioner …

(2) The application should be approached with the greatest circumspection and it is only in a plain and obvious case that the court should exercise its discretion to strike out the petition for winding up or the parts complained of …

(3)     The burden is on the applicant to show that it is plain and obvious that the petition for winding up would fail on the ground 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 …”

12.  In Re Wong To Yick Wood Lock Ointment Ltd [2001] 2 HKC 618, Yuen J (as she then was) held that:

(1) Winding up on a contributory’s petition is a remedy of last resort and would not be granted if the petitioner is acting unreasonably in insisting upon it instead of pursuing an available alternative remedy (at 623D-E).

(2) It is only in a plain and obvious case that the court should exercise its discretion to strike out a claim before it has gone on to a full hearing (at 623H-I).

(3) If it is clear that there is no real possibility or prospect of a winding up order being made at trial, it cannot be just for a company to have the threat of a winding up order hanging over its head (at 624A-B).

(4) Winding up a solvent and profitable company is not in the interests of any of its members.  It may result in the sale of assets at break up value, without regard to goodwill and the “know-how” of the company (at 624G-I).

(5) There would be no real prejudice to the petitioner by striking out the claim for winding-up order if (a) there is no ground or basis which would entitle the petitioner to a winding-up order only, but not an order under the predecessor of ss 724-725 of the Companies Ordinance (Cap 622) (“CO”); and (b) no substantive benefit that a petitioner would gain from a winding-up order which he would not from a buy out order (at 625C).[4]

13.  In considering whether to strike out a winding up relief in a petition against a company which has an ongoing business, the Court is nevertheless concerned that the petitioner is not left with a personal remedy only (such as a buy out order) (Re Kinong Group Ltd [1999] 4 HKC 100 at 104F-105G, applied by the Court of Appeal in Re Prudential Enterprise Ltd [2002] 1 HKLRD 267 at §14).

14.  In Re Raising Engineering Ltd [2015] 5 HKLRD 22, Harris J reiterated (§§6-7) the principle expounded in Re Wong To Yick Wood Lock Ointment Ltd, and emphasised that a prayer for winding up as an alternative relief should only be included if that is the relief that the petitioner prefers or if it is considered that it may be the only relief to which he is entitled, and the petitioner has to plead the facts he relies on in forming that view in the petition. 

15.  Further, Mr Martin Ho, counsel for R1, submits (and I agree) that the mere fact that allegations of misappropriation of assets and accounting irregularities are advanced does not, of itself, justify the bringing in of liquidators to investigate those matters, especially if the Court will have to adjudicate on those matters in assessing liability for the unfair prejudice petition.  The principle was explained by Barma J (as he then was) in Re M Kirpalani (HK) Ltd, HCCW 618/2009, 23 June 2010, §§29-30, in this way:

“29. That said, however, it does not seem to me that the allegations in this case are such as would, even if fully made out, justify the making of a winding up order in respect of the Company. The alleged misappropriations or misuse of the funds of the Company all involve fairly small amounts, and can readily be taken into account (if they are ultimately made out) when valuing Arjan’s shareholding in the Company. Although Mr Maurellet suggested that the matters identified might be the ‘tip of the iceberg’, that would appear, at this stage to be speculative. But even if further instances of misuse of the Company’s funds were to come to light in the course of the proceedings (for example, after discovery has been given of the Company’s financial records), these too, could be taken into account for in the process of valuing Arjan’s shareholding so as to enable him to be bought out at a fair value.

  30. Although Mr Maurellet suggested that the existence of such claims (and potential further claims) would mean that a valuer would have difficulty in arriving at a valuation of the Company, it does not seem to me that this would be the case.  If the matter proceeds to a trial, the court will have to consider the allegations and come to a view as to whether or not they are made out.  In doing so, it will be necessary for the court to make factual findings as to the various allegations.  Thereafter, the court would, if it were satisfied that a buy out order should be made, either take the matters into account in coming to a view as to the price at which Arjan should be bought out, or (if, as is more likely, a sale at a valuation to be conducted by a qualified valuer is ordered) include in its order directions to the valuer as to how to deal with these matters.”

D. Discussion

16.  For the purpose of this application, Mr Ho is prepared to proceed on the basis that P is able to prove all her complaints in the Petition and to succeed in the application, R1 has to satisfy the Court that:

(1) there is no reasonable prospect of the Court making a winding up order against the Company at trial as none of the 4 grounds relied on by P (as summarised in §9 above) can justify the Court granting such relief; and

(2) P is acting unreasonably in pursuing the winding up relief when a buy out order is sufficient to address or put an end to all her complaints.   

17.  I turn to the 4 grounds relied on by P. 

D1. Self-help remedies ground

18.  Mr Ho contends that this is a non-point, given that the parties have been engaging in without prejudice negotiations and R1 has made various offers to P. In any event, R1 is not seeking to strike out the entire Petition on the ground that he has made a reasonable offer to buy out P’s shares (cf Re Prudential Enterprises Ltd (2002) 5 HKCFAR 375 §§7-8, 11-14 (per Ribeiro PJ)).  The fact that no agreement has been reached simply means that the Petition will have to proceed.  I agree.  Mr Michael Lok, counsel for P, (rightly) does not advance any submission in opposition to Mr Ho’s contention. 

19.  I should add that while the steps taken by the parties to resolve their dispute is not relevant to the present application, it is relevant to the question of what, if any, relief should be granted by the Court at trial and who should bear the costs of the proceedings.  It is also mandated by Order 1A rule 3 of the Rules of the High Court, which requires the parties and their legal representatives to assist the Court to further the underlying objectives of the rules[5].  For this purpose, it is incumbent upon the parties to deploy all the means reasonably available to them so as to put an end to their dispute before and after commencement of these proceedings.  I would expect P to make open offer(s) or Calderbank offer(s) to sell her shares in the Company to R1, having formed the view that the relationship between the parties has completely broken down and that the 2 shareholders are in a state of deadlock.  This has not been done in the present case, as the Open Offer covers other companies and the basis of selling the various assets for $20 million has not been explained.  The practitioners should be aware of the criteria for making a reasonable offer[6], and there is no explanation as to why P has not made such an offer to R1.  

D2. Uncertain financial ability ground

20.  Mr Ho submits that R1, with the assistance of Mother, has the means to pay the $20 million under the Open Offer, which far exceeds the price payable for P’s shares in the Company.  Specifically, R1 will be able to raise fund from the following means, and in the following amounts:

(1) R1 is the sole registered owner of a property situated at Southorn Garden (“1^st Unit”) and its market price is $7.6 million.  The property is unencumbered.   

(2) R1 is a co-owner of another unit at Southorn Garden alongside with P and Mother (“2^nd Unit”).  Taking into account the outstanding mortgage loan of $450,000, and its market price of $9.6 million, R1’s interest is worth around $3 million.

(3) Mother has filed an affirmation in support of R1’s application and gives an undertaking to unconditionally provide financial support/funding up to $14,111,361.94 (being the total value of the stocks she held at bank and her 1/3 interest in the 2^nd Unit) if R1 is ordered by the Court to buy out P’s shares in the Company.

(4) R1’s 50% shareholding in the Company would mean that P could not possibly be left with an empty judgment (Re Chun Yip Holdings Ltd, HCCW 463/2012, 26 March 2015, §§59-60, per Harris J; Re Chuen Chun Company Ltd [2021] HKCFI 205, §§9-10, per DHCJ William Wong SC).

21.  Mr Lok contends that it is still doubtful whether R1 will be able to comply with any buy out order to be made by the Court for the following reasons:

(1) The 1^st Unit is the matrimonial home of R1 and his wife and, as such, is “not normally an asset one would expect a party making a buy out offer would wish to realise except as a last resort” (Re T-Hero Industrial Company Ltd [2019] HKCFI 1374, §44, per DHCJ Le Pichon). 

(2) Mother is of advanced age (73 years old).  She lives in the 2^nd Unit.  A large part of her assets consist of shares in listed companies the value of which will fluctuate and there is no certainty that they will be of the same value by the time R1 is required to buy out P’s shares.  It is also unrealistic to suggest that Mother should sell all her shares which may constitute a substantial part of her savings.

(3) As regards R1’s 50% shareholding in the Company, there is no evidence to suggest that a charge or mortgage can be created over such shares as security for a loan if R1 requires.

22.  While I can see that the 1^st and 2^nd Units are not assets which can readily be realised by R1 but the point is not about whether or not R1 can realise such assets quickly.  Rather, the consideration is whether R1 has sufficient assets within the jurisdiction such that a buy out order obtained by P will not be left unanswered.  This is satisfied by R1, taking into account the following facts and matters:

(1) The 1^st Unit is unencumbered and, therefore, worth $7.6 million.  In addition, R1 is willing to give an undertaking not to dispose of or encumber the 1^st Unit pending determination of these proceedings or further order of the Court (“1^st Undertaking”).

(2) I have no reason to doubt that Mother will comply with the undertaking given to the Court.  Even if the value of the shares portfolio held by Mother fluctuates, they remain substantial assets which can be used by R1 for the purpose of complying with the buy out order.

(3) The value of R1’s shares in the Company will move hand in hand with the value of P’s shares.  If the value of P’s shares increase, so will the value of R1’s shares.  If necessary, it will be open to R1 to use the entire shareholding (which he will purchase from P) as security to raise a loan to finance the purchase.  However, in light of the value of the 1^st Unit and the undertaking given by Mother, it is unlikely that R1 will need to resort to such borrowing. 

D3. Breakdown of trust ground

23.  Mr Ho submits that in the majority of cases where unfair prejudice petitions are presented in respect of joint venture companies (especially those held on a 50-50 shareholding basis), the Company would be deadlocked in the meantime.  P has not begun to show why a buy out order would not be able to satisfactorily address P’s concerns in this regard.

24.  On the other hand, Mr Lok submits that R1 has been “far from most sincere or genuine as to an amicable buy out of P’s 50% shareholding”.  The mere fact that negotiation has gone nowhere should also be a sufficient reason for maintaining the winding up relief.  Reliance is placed on the observations of Anthony Chan J in Shih Hua Investment Co Ltd [2017] 3 HKC 393 §84 and DHCJ Blair in Re Good Time Refrigeration Company Ltd [2019] HKCFI 1017 §35.  I do not think the observations in Shih Hua and Good Time assist P, given that she has not done her part in facilitating a buy out, for the reasons stated in §19 above. 

25.  Mr Lok contends that it is becoming increasingly commonplace for a winding up order to be made in order that a blameless minority may want to leave the company and realise his investment, where there is a complete breakdown of trust and confidence in a quasi-partnership.  Reliance is placed on a passage in Hollington on Shareholders’ Rights, 9^th ed, §10-17, which refers to Re Paramount Powers (UK) Ltd [2019] EWCA Civ 1644, §§34-40.  Read in its proper context, the learned editor first refers to the well-established principle that there is no unilateral right of withdrawal for a minority shareholder, as explained in O’Neill v Phillips, and observes that the House of Lords did not consider the alternative winding up relief in that case.  The discussion focuses on to what extent the petitioner’s conduct which contributed to the breakdown in trust and confidence would lead to the court refusing to grant the winding up order relief sought. 

26.  Mr Lok also relies on the Privy Council’s recent judgment in Chu v Lau [2020] 1 WLR 4656 where Lord Briggs (§§14-17) described a “functional deadlock” and “an irretrievable breakdown in trust and confidence” between participating members of a quasi partnership as the 2 situations in which a “just and equitable” winding up may be ordered, and explained that a company may be ordered to be wound up where there is a complete “functional deadlock” even if the company is not a quasi partnership.  He submits that where, as here, the 2 siblings can no longer work together in the Restaurant, winding up is at least one of the options available to the Court whether or not the Company is a quasi partnership.   

27.  In §14 of Chu v Lau Lord Briggs said this:

“A just and equitable winding up may be ordered where the company’s members have fallen out in two related but distinct situations, which may or may not overlap. First, a winding up may be ordered to resolve what may conveniently be labelled as a functional deadlock. This is where an inability of members to cooperate in the management of the company’s affairs leads to an inability of the company to function at board or shareholder level. Functional deadlock of this paralysing kind was first clearly recognised as a ground for a just and equitable winding up by Vaughan Williams J in In re Sailing Ship Kentmore Co [1897] WN 58, a decision on the jurisdiction conferred by section 79 of the (UK) Companies Act 1862 (25 & 26 Vict c 89).”

28.  In my view, the relevance of deadlock and breakdown in trust and confidence is this.  Where the petitioner relies only on deadlock and breakdown in trust and confidence as the bases for seeking relief under ss 724-725 of the CO and s 177(1)(f) of the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap 32) (“CWUO”), it may be difficult for the respondent to demonstrate that there is no reasonable prospect of the Court granting a winding up order against the company. This is because while deadlock and breakdown in trust and confidence are established bases for the Court to wind up a company, they may not constitute “unfair prejudice” for the purpose of ss 724-725 of the CO.  This seems to me to be the reason underpinning Harris J’s holding in Re Raising Engineering Ltd, where His Lordship held that a prayer for winding up should only be included if that is the relief that the petitioner prefers or if it is considered that it may be the only relief to which he is entitled, and the facts he relies on in forming that view have to be pleaded in the petition.

29.  In the present case:

(1) The matters complained of by P all go to show that R1 has conducted the affairs of the Company in an unfairly prejudicial manner.  It is clear from §67 of the Petition that P relies on the same “unfairly prejudicial conduct as pleaded above” as the bases for contending that the mutual trust and confidence between P and R1 have “completely and irretrievably broken down”. 

(2) I do not think it is right to characterise P’s case as a “functional deadlock”, given that the Company has since 2007 been managed by R1 as its sole director, and there is no suggestion that there is any matter which has not or cannot be dealt with by the shareholders as a result of any deadlock at the general meeting.

(3) In any event, there is no plea in the Petition that winding up is the relief that P prefers or that it may be the only relief to which she is entitled.   

30.  That being the position, I do not think the Breakdown of trust ground can justify the Court granting a winding up order against the Company. 

D4. Need for investigation ground

31.  Mr Ho contends that it is plain and obvious that this is not a sound reason for seeking winding up relief, given that:

(1) the matters complained of by P will be investigated at trial and taken into account in the valuation exercise, and it is unnecessary for such matters to be investigated by a liquidator, relying on the ratio of Barma J in Re M Kirpalani (HK) Ltd, HCCW 618/2009, 23 June 2010, §§29-31, 35; and

(2) although P asserts that there is “doubtful accuracy of the financial statements prepared by [R1]”, there is no plea that the Court should look behind the audited accounts of the Company, all of which have been audited by the auditors without any qualification or adverse opinion.

32.  Further, P has been provided with brief statements of accounts summarising the expenses and payments made by the Company in its ordinary course of business pursuant to the validation order made by Harris J on 19 August 2019.  R1 is prepared to give an undertaking to the Court to continue to provide such documents to P if the winding up relief is struck out by the Court (“2^nd Undertaking”). 

33.  Mr Lok accepts that the matters complained of by P will be investigated at trial and (if established) will be taken into account in the valuation of P’s shares.  He argues that “where there is a prima facie case that the affairs of a company require investigation, that in itself could  be a sufficient reason for making a winding-up order”, citing Re Comtowell Ltd [1998] 2 HKLRD 463 at 472, per Le Pichon J (as she then was); and Haw Par Pharmaceutical Holdings Pte Ltd v Hua Han Health Industry Holdings Ltd [2019] 4 HKLRD 286 at §§7-17, per Kwan VP).  Mr Lok also cites some cases where the Court refused to strike out the winding up relief sought because of the need for investigation (Leung Tak Ming v Chan Ching Chuen [2019] HKCFI 1017, §32, per DHCJ Blair; Shih Hua Investments Co Ltd v Zhang Aidong [2017] 3 HKC 393, §83, per Anthony Chan J). 

34.  I am unable to accept Mr Lok’s argument, which seems to be based on a misunderstanding of the ratio in Re Comtowell Ltd.  In that case:

(1) The petition was presented by the company based on s 177(1)(a) of the former Companies Ordinance (Cap 32), following a special resolution passed by the majority shareholder (WFM) to wind up the company.  Reliance was also based on the company’s inability to pay debts and the need to investigate the company’s affairs.

(2) The former shareholder and director of the company, who claimed to be a major creditor (Mr Maydwell) opposed the petition on the grounds that it would be detrimental to the creditors and the beneficial owners of the share capital of the company to have it wound up, given that the value of its sole asset might appreciate in future and, although the company (whilst under his management) had failed to file its annual returns for 5 years and had not prepared any audited accounts in the past, there was no need to investigate its affairs. 

(3) It was in this context that the learned judge considered the view of the majority shareholder (WFM) that the company’s affairs required investigation was not unreasonable (at 471C-J).  The discussion on the need for investigation was directed at the question whether such investigation was a sufficient advantage to justify the making of a winding up order (at 471J-472E):

“Mr Tam for the Official Receiver invited the court’s attention to the decision of Chadwick J in Bell Group Finance (Pty) Limited (in Liquidation) v. Bell Group (UK) Holdings Limited [1996] 1 BCLC 304. There it was held (at p.314) that even in the absence of a provision such as the proviso to section 125(1) of the Insolvency Act 1986 (being the equivalent provision to section 180(1) of Cap.32) :

“... it was recognised, as early as 1892, that the need for an investigation was itself of sufficient advantage to justify the making of a winding-up order in the interests of an unsecured creditor. That principle was reaffirmed by Buckley J and by the Court of Appeal in Re Crigglestone Coal Co Ltd [1906] 2 Ch 327. Buckley J said (at 332) :

‘ The company will often put forward, as if it were a matter of defence, that there are no assets to wind up. It is not a matter of defence at all. The Court has often refused an order upon that ground, but not because it lies in the debtor’s mouth to say that he is not amenable to the jurisdiction because he has no property, but because the Court does not make an order where no benefit can result. If the order will be useful (not necessarily fruitful) there is jurisdiction to make it. This view is illustrated by the fact that in many cases, and particularly since the Act of 1890, the Court will make an order, not because there are assets, but in order to provide the machinery for ascertaining whether there cannot be shewn to be assets. Re Krasnapolsky Restaurant and Winter Garden Co is an illustration of this.’ ” (underlined added)

35.  Unlike Re Comtowell, the Company is solvent and has a profitable business.  More importantly, all the matters complained of by P will be investigated and determined at the trial of the Petition.  That being the position, I do not think that the Need for investigation ground provides a basis to justify P seeking the winding up relief against the Company.

36.  Even if, contrary to my view, the 4 grounds or any one of them can justify the winding up relief sought by P, I consider that there is no prospect of the Court making a winding up order against the Company for the following reasons:

(1) The Company has an ongoing and profitable business.  There is no reason why the Court would wind up the Company thereby putting an end to its business, which would not be in the interests of any shareholders.

(2) On the other hand, if P succeeds in her complaints, the Court will make buy out order and the Company will be valued as a going concern so as to reflect its ability to generate profits in future.  This is generally done by applying a multiple to the average or median profits generated by the Company in the past, multiply by P’s 50% shareholding and without any discount.  The price payable to P would be much higher than what she would receive in a liquidation of the Company, taking into account (a) the interruption to the Restaurant’s business (which would come to a halt) and the adverse impact on the price which may be realised from a sale of the Restaurant, (b) the possibility that the Restaurant would have to be sold on basis of a forced sale, (c) the remuneration, costs and expenses to be paid to the liquidator, which would be substantial, and (d) the liability of the Company to pay the various fees prescribed by the Companies (Fees and Percentages) Order (Cap 32C). Moreover, unlike a buy out order which would entitle P to be paid the price for her shares, in a liquidation, P would only be able to receive distribution after the assets are realised and all the remuneration, costs and expenses are paid. 

(3) There would be no real prejudice to P by striking out the  winding up relief given that (a) there is no ground which would entitle P to a winding up order only, but not a buy out  order under ss 724-725 of the CO; and (b) no substantive benefit P would gain from a winding up order which she would not gain from a buy out order. 

E. Conclusion

37.  For the reasons set out above, I consider that it is an appropriate case to strike out §§70-73 and the prayer for winding up relief in the Petition.  As this Court has accepted the undertaking offered by Mother and the 1^st and 2^nd Undertakings offered by R1, they should be incorporated in the order on the basis that they will last until “the determination of the Petition or further order of the Court”.

38.  As for costs, I make a costs order nisi that P is to pay the costs of and occasioned by the Summons, to be taxed if not agreed.