XCHRX KWAN KAM WAH v. CHAN WAI MING AND OTHERS

HCCW 632/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO. 632 OF 1999

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D E C I S I O N

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1. The present application is made on behalf of three respondent shareholders of the Company for an anticipatory validation order to permit payments to be made out of the Company's funds notwithstanding the presentation of a petition under the Companies Ordinance. The Petition claims relief under section 168A and alternatively a winding-up order on the just and equitable ground.

2. The application first came before me yesterday. An order is sought that payments listed in a Schedule to certain draft Minutes of Order be validated by the Court so as to remove the risk of their being held void under section 182 of the Ordinance.

3. The Company, in which the Petitioner is a 30% shareholder, is involved in the purchase and processing of poultry on the mainland for resale and distribution in Hong Kong. Among its customers are certain well-known fast food outlets. A significant part of the payments listed in the Schedule involves payments to poultry suppliers on the mainland. Another relevant portion of the payments is in respect of the Company's transportation costs.

4. I was told that both the Petitioner and the Respondents were in principle in favour of a validation order being made. However, the Petitioner, by his counsel (Mr. B K Ho then appearing), indicated that he was not satisfied that the proposed payments to the listed suppliers were genuine, stating that he had not come across their names before and that he suspected them of being fictitious.

5. Mr. Rimsky Yuen, appearing for the Respondents, indicated that his clients had always been and remain ready and willing to provide the Petitioner with access to the documentation he has asked to see to assuage his fears. However, the Petitioner had not availed himself of the offer of inspection on the ground that the documents offered were "merely historical".

6. The Petitioner also expressed doubts as to the genuineness of the transportation expenses listed for payment, suggesting that they looked as if they had been inflated by up to five times the proper cost, or at least that such high expenses were indicative of poor management.

7. It appeared to me yesterday that the dispute effectively involved the Petitioner complaining about a lack of information in circumstances where the Respondents were saying that they had no objection to providing it. I therefore adjourned the hearing to today in the hope that given the opportunity overnight of inspecting relevant documents, the Petitioner's fears would either be removed or his case could be developed on the basis of specific evidence rather that allegations based on unsubstantiated and possibly imaginary fears.

8. This morning, the 3rd Respondent filed a substantial further affirmation exhibiting in two box files, documents aimed at refuting the allegation that the suppliers listed are fictitious. He deposes to the genuineness of these documents and says that the originals were all produced to the Petitioner yesterday evening. He explains that many of the orders for poultry are placed orally with mainland suppliers who are accustomed to and prefer oral transactions and who also generally require payment in cash as many do not maintain bank accounts. Accordingly, written purchase orders and cheque payments in such cases do not exist. However, the 3rd Respondent exhibits the Company's written records for deliveries of poultry received and also receipts issued by suppliers upon being paid in cash.

9. The 3rd Respondent also rejects the Petitioner's suspicions in relation to the transportation expenses. He deposes to their genuineness and maintains that they are charged at a proper rate, pointing out that the Petitioner has not disclosed the basis for his allegation that transportation could be arranged at 1/5 of the cost.

10. The Petitioner has not filed any additional evidence. He is represented today by his solicitor, Mr. Louis Chan Wan Yat, who informed the Court that his client was willing to consent to those parts of the draft validation order which encompassed the payments specifically identified in the Schedule. However, the Petitioner still objected to that part of the draft Order whereby anticipatory validation would be granted to prospective payments by the company in respect of expenses and liabilities incurred in the ordinary course of business. He invited me to adjourn the Summons in relation to this part of the application to give his client more time to reassure himself as to the genuineness of the relevant payees and proposed payments.

11. I have some sympathy for the Petitioner's desire to be given specific details of payments made out of the Company's assets with a view to his satisfying himself that such payments are made bona fide in the ordinary course of the Company's business. However, in my view, that objective can be met by providing the Petitioner with a weekly detailed report of payments, enabling him to make such checks as he may desire in order to satisfy himself of the genuineness or otherwise of such payments. I do not see any virtue in merely putting off my dealing with payments in the ordinary course of business which the Company must inevitably make if it is to remain a going concern.

12. Mr. Yuen informed me that his clients were willing to give an undertaking to provide, until further Order, the Petitioner's solicitors with such a weekly Schedule on each Monday, identifying in relation to the preceding week, the date, amount, payee and purpose of each payment made, identifying each payee by name and address. The Respondents were also willing to permit the Petitioner to inspect on 3 working days' notice, all existing documents supporting or evidencing each such payment.

13. In the light of the undertaking offered and having considered a handwritten further revised draft of the Minutes of Order, I will make an Order in terms of the said handwritten draft initialled by me. The Order grants anticipatory validation as sought, on the 3rd Respondent's undertaking to provide information as aforesaid.

14. Having heard the parties further as to the costs of this application, I Order that such costs be reserved to be dealt with together with the Petition.