THE OFFICIAL RECEIVER v. FAN SIU TING AND ANOTHER

HCMP 916/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 916 OF 2004

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J U D G M E N T

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Background

1. Preciousfield Limited (“P Ltd”) was incorporated in Hong Kong on 1 June 1995.  A winding up order was made by the Court on 8 September 2000 in HCCW 335/2000.  Upon investigation by the liquidators, P Ltd was found to be insolvent as it had liabilities of $3,860,887.22 while assets realized, $2,859.00.

2. On the other hand, Elegant Wise Investment Limited (“EWI Ltd”) was incorporated in Hong Kong on 18 April 1997, and it was wound up on 6 March 2000 under HCCW 825/1999.  It was insolvent too as assets were realized at $630,338.30 when liabilities was in the region of $1.8 m.

3. Both the 1st and 2nd Respondents were at the material times directors of P Ltd and EWI Ltd.  In performing her duties as liquidators in these 2 companies, the Official Receiver (“OR”) found the conduct of the two Respondents unsatisfactory.  She formed the view that disqualification orders under Section 168H Companies Ordinance Cap 32 (“CO”) should be made against both Respondents in the public interest.

4. On 8 April 2004, the present proceedings were commenced.  The 1st Respondent filed an acknowledgment of service herein on 8 July 2004 indicating that she would not contest the application.  As to the 2nd Respondent, he did not file any acknowledgment.

5. A call-over hearing was held by me on 21 September 2004.  Although both Respondents did not turn up, there was insufficient time for the Court to deal with the matter and as such, it was adjourned to a date to be fixed for submissions with 2 hours reserved.

6. The matter went back before me on 17 November 2004.  5 reports and an affirmation from a Treasury Accountant were filed for OR.  The 1st Respondent was absent while the 2nd Respondent was present.  He submitted 2 letters, dated 11 October 2004 and 16 November 2004 respectively, with some attachments thereto.  Ms Fiona Lee, Assistant Principal Solicitor, for OR, told me that she had included all documents of the Respondents in the hearing bundles before the Court.  Against this background, this Court proceeded to hear the parties’ submissions.

Preliminary matter

7. Ms Lee told me that Section 168P CO required OR to serve not less than 10 days’ notice to the Respondents.  OR did not comply with it in the present case.  However, such requirement was directory only, and not mandatory (Re Ceda Ltd [1991] BCC 148).  In any event, there was no evidence that the two Respondents were prejudiced in any aspect.  I further heard no objection from the Respondents in this aspect.  Hence, such technical non-compliance of the rules did not affect the present applications.

8. I would add that, upon my enquiry, the 2nd Respondent made clear that, though not entirely agreeing with the submissions of OR, he intended only to apply to mitigate in the present proceedings.

Complaints by OR

9. OR made similar complaints against both Respondents.  In brief,

(a)    they failed to keep proper books of account, profit and loss account and balance sheets of P Ltd, EWI Ltd and some other companies, making it extremely difficult, if not impossible, for the liquidators to properly monitor the financial position of the said companies;

(b)    they issued a total of 23 dishonoured cheques amounting to a total sum of $320,265.55;

(c)    they misapplied funds of P Ltd and EWI Ltd in the respective sums of $1,068,000.00 and $1,550,000.00, explanations offered could not be believed or accepted in light of insufficient or contradicting evidence available in the hands of OR;

(d)    they caused EWI Ltd to be insolvent because it made a loan of $1.6 m to a subsidiary company Wellmix Property Ltd (“WP Ltd”) who eventually being wound up in HCCW 825/1999; and

(e)    they failed to complete properly the statement of affairs (“SOA”) of P Ltd and EWI Ltd.

Case of the 1st Respondent

10. The 1st Respondent made clear that she did not intend to defend for the present application.  She made no reply to OR’s specific complaints.  However, in the letter she wrote to OR on 16 March 2004:

“……股分嘅嘢我亦從來都冇問嘅，只知公司秘書到時到候出糧就打電話比我簽支票或文件，這麼多年來，我只是一名湊細佬的家庭主婦（當時帶着2個孩子番學放學）他們的運作我從來不知道，我亦無參與過。

我只係多年前宝島新開張，幫他們做過跟單、睇數、入銀行，做了差不多6-9個月，每月支5000元之後有新人加入話可以擴大做，我便沒有參與連5000元也沒有出，全部交回他們公司伙記處理。當我做果個時候，公司只係小規模做一二間會所，之後我就不知道，只知道公司做大咗，秘書小姐會打比我，簽支票同文件……”

Case of the 2nd Respondent

11. In summary, the 2nd Respondent said that:

(a)    P Ltd and EWI Ltd had no further funds to instruct accountants and auditors to prepare for the accounts and financial statements.  He did not know that he could retrieve those available documents from the ex-auditors or IRD.  In relation to other companies, they were either dormant or that he could not get the documents from the persons in control of them.

(b)    The cheques were indeed dishonoured.  He had no excuse.

(c)    He objected that the funds of P Ltd and EWI Ltd were misapplied.

(i)	For P Ltd, a number of explanations were offered.  Finally, the 2nd Respondent revised that:
	“在報告 Schedule 6 提及以下 $1,068,000 之不適當支出：

 

	收款人	日期	支票號碼	銀碼
1.	范小婷	4.8.1998	652424	$20,000
		3.9.1998	652496	$10,000
2.	C E Ltd.	9.4.1998	599052	$300,000
3.	Core Pacific Yamachi International (HK) Ltd.	6.7.1998	652355	$280,000
4.	吳松盛	30.1.1999	767310	$50,000
5.	江先生	30.1.1999	767308	$140,000
		30.1.1999	767309	$220,000
6.	S II Ltd.	30.1.1999	767314	$48,000

在上述第 1 項支出，因事隔多年已記不起支出原因，又因入數文件全部已呈交，貴署查核，盼貴署能提供此項及連同第2 至6 頁支出入數會計憑證，這可協助本人確實該等數項之支出原因；至於由上述第 2 至 6 項之支出，因數目比較大，本人還記得支出原因，分列如下：

第 2 項支出，應該是股東陳謀泉先生付與 C E LTD 代購入股票，但把支票誤寫抬頭為寶島有限公司，所以才把支票入到寶島有限公司之賬戶，然後支回 C E LTD，所以該支票是由陳先生簽署支出；

第 3 項支出，應該是 C E LTD 代股東尹啟榮先生清還欠股票公司數項，但因資金要兩次才籌足$280,000，所以，首先存入現金$30,000，然後，足夠資金後才把$250,000存入，跟着才由尹先生簽署支票付款；

第 4 至 6 項支出，應該是由泰僑企業有限公司借出 60 萬元，其中$50,000付與吳松盛，$140,000及$220,000付與江先生，餘下$1,420,000付與寶島有限公司支付薪金等支出；這筆 60 萬元款項是江先生用股票擔保借入，因此，此款項泰僑企業有限公司並沒有向寶島有限公司追討。(letter of 2nd Respondent dated 11 October 2004)”

(ii)	For EWI Ltd,

“本人吳松盛因並未有參與 Elegant Wise Investment Ltd 實則之管理及會計運作，固未能提供貴處所需之資產負債狀況。而整個運作是由范小姐及其先生負責。(letter of 2nd Respondent dated 28 December 1999) ”

(d)    Regarding the loan of $1.6 m to WP Ltd, it was said in EWI’s letter of 30 October 1998 that:

“Wellmix Property Ltd has involved in two Land Development project, one is situated at Nam Wai (Lot 931 DD 214 & Lot 929 DD 214 and the other one is located at section A of Lot No 59 in DD 175 Shatin N.T. and deposit of HK$800,000 and HK$16,500,000 had been paid respectively for the aforesaid location.  At present, we have given up to develop the Nam Wai project and legal proceeding has been taken against Ng & Yung for the refund of deposit of HK$800,000.

In view of above, your client’s money of HK$1,600,000 has been lent to Wellmix Property Ltd in the ordinary course of business and we anticipate that the said sum cannot be refunded to your clients in short period because the rest project is still under negotiation.”

(e)    He did his best in completing SOA.  Not being in control of everything, he could not provide OR with all the necessary information or documents.

Ruling

12. Upon careful consideration of the evidence, authorities and submissions, I am satisfied that OR has discharged his duty to prove all the complaints against both Respondents on balance of probabilities.

13. The major defences or explanations by the two Respondents that they did not know, they did not have the documents, and so on, could not sustain in light of the duties imposed upon directors of limited companies.  As Ms Lee pointed out that the duties of directors had been considered by Parker J in Re Bargins plc (No. 5) at p. 489, and agreed by Mornitt LJ on appeal at p. 535 to 536, namely:

“(i)    Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors.

(ii)    Whilst directors are entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions.

(iii)    No rule of universal application can be formulated as to the duty referred to in (ii) above.  The extent of the duty, and the question whether it has been discharged, must depend on the facts of each particular case, including the director’s role in the management of the company.”

Hence, in our case, when both Respondents abrogated their responsibilities as directors, without acquiring any personal knowledge, they were wrong in the eyes of the Court and could not escape the liabilities.

14. For the 2nd Respondent, he further purported to offer explanations to the alleged misapplication of monies in P Ltd.  However, with respect, his attempts failed OR and this Court.  The explanations changed from time to time when OR discovered contradicting evidence.  They lacked contemporaneous and corroborative evidence to support.  As I discussed them with the 2nd Respondent at the hearing, putting his case to the highest, which is not accepted by me on the available evidence, he still failed to keep proper books and accounts to reflect the transactions of the companies.

Mitigation

15. I hear nothing from the 1st Respondent to mitigate the sentence to be imposed.  But, the 2nd Respondent did say something of which I agree to accept some of them: he was remorseful, he learnt a lesson, he was in his mid-fiftes and, the longer the disqualified period, the more difficult it would be for him to re-build his life.

Conclusion

16. The authorities of Re Sevenoaks Stationers (Retails) Ltd [1990] BCC 765 and Re Westmid Packing Service Ltd (No. 3) [1998] BCC 837 are the leading authorities in assessing the appropriate period of disqualification of directorship.  Applying the principles thereof to our case, I agree with the suggestion of Ms Lee that 5 years, the upper end of the minimum bracket is appropriate in the circumstances for both Respondents.  Having further taken into account of the mitigation by the 2nd Respondent as aforesaid, I take off 1 year from the period for him.  As such, the following orders are made.

          (A)    From the beginning of the 21st day after the date of this order,

(1)	the 1st Respondent shall not, without leave of the Court,
	(a)   be a director of a company;
	(b)   be a liquidator of a company;
	(c)   be a receiver or manager of a company’s property; or
	(d)   in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for a period of 5 years; and
(2)	the 2nd Respondent shall not, without leave of the Court,
	(a)   be a director of a company;
	(b)   be a liquidator of a company;
	(c)   be a receiver or manager of a company’s property; or
	(d)   in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for a period of 4 years.

(B)    There be a costs order nisi, which will be made absolute within 14 days from today, that both Respondents shall pay OR costs of and incidental to this application, to be taxed if not agreed.