THE OFFICIAL RECEIVER v. CHUNG SHIU POR

HCMP 706/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 706 OF 2008

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R U L I N G

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1. The present application by the Official Receiver is brought under Section 168H against the Respondent, Mr Chung, concerning his conduct while acting as a director of a company called Sino Cheer Limited.

2. The originating summons, together with the first report in support of the application, was duly served on Mr Chung.  As a matter of fact, Mr Chung, while he is acting in person, had returned an acknowledge of service indicating that he does not intend to contest the application and further indicates that he does not wish to adduce any mitigating factors to justify for a shorter period of disqualification.

3. At the hearing today, Mr Chung did not attend and I decided to proceed with the application in his absence.

4. The company was incorporated in Hong Kong on 1 September 1997.  Before it was wound up by a court on 10 November 2004 under Companies Winding-up 1055 of 2004, the company engaged in the business of an insurance broker.  Mr Chung was appointed as a director of the company in January 2001. According to the records of the company, Mr Chung had been the director of the company up to the date of the company being wound up.

5. After the company was wound up, Messrs Nedderman and Yan Miu Ping were appointed as the joint and several liquidators of the company and, up to the time of the application, the liquidators had received proofs of debt in the total sum of about $440,000.  However, they only realised assets in the total amount of less than $10,000.

6. In the circumstances, I am satisfied that the company, in light of this evidence filed, was insolvent.  The Official Receiver relies on four grounds in support of the application that Mr Chung is unfit to be a company director.  First is accounting record offences that he had been in breach of sections 121, 274 and 122 of the Companies Ordinance; second, failure to submit statement of affairs in breach of section 190 of the Companies Ordinance; and third, Mr Chung had failed, or the company had failed, to pay Mandatory Provident Fund contributions; and lastly, Mr Chung had failed to keep himself properly informed of the financial position or affairs of the company.

7. According to the reports on the first of the two grounds, the Official Receiver says that apart from copies of two audited accounts, Mr Chung was unable to produce any books or records of the company.  Further, Mr Chung did not know the whereabouts of the books when he was being called upon by the Official Receiver.  There were also no updated audited accounts.  According to the information gathered by the Official Receiver, the last audited accounts were made up only to 31 December 2002.

8. When Mr Chung was asked for an explanation at the meeting with the Official Receiver, he could not put forward an explanation.  He simply answered that he had no idea.

9. In relation to the second ground of the failure to submit the statements of affairs, Mr Chung, as a director, has totally ignored his duty to submit his statement of affairs of the company to the liquidators.  The explanation he had given was simply just not satisfactory.  He said that the liquidators have failed to contact him, and that he did not know that he was required to complete the statement of affairs.

10. In relation to the third ground of the non-payment of the MPF contributions, the total amount involved was about $55,000 and the explanation given by Mr Chung was due to the cash-flow problem the company faced.

11. I come to the last ground of the conduct being relied on by the Official Receiver, i.e. his failure to keep himself being informed of the financial situation of the company.  According to the summary set out in the submissions of Mr Mok for Official Receiver.  Mr Chung’s misconduct was described as follows:

“Mr Chung could not explain the nature and purpose of payments from the company's bank accounts.  Those payments that were referred to were set out in paragraph 25 of the report but was the payment from the various composite account with Wing Hang Bank, Bank of China and Hang Seng Bank.  And further, Mr Chung has signed audited accounts without trying to find out what he was signing.  He did not know what accounts had been kept and when he was asked to explain what these various activities or acts point to the reports, I have an impression that Mr Chung seemed to give a very wouldn't-care-less sort of response to the questions asked by the Official Receiver.”

12. After having considered the evidence filed by the Official Receiver and in light of the total lack of challenge filed by Mr Chung, I am satisfied that all the grounds being relied on by the Official Receiver are made out.

13. In coming to this finding, perhaps I should add one particular observation. So far as the last ground is concerned, that is, Mr Chung's failure to keep himself informed of the financial situation of the company.  Although the evidence seems to suggest that Mr Chung had withdrawn moneys from the company's account without a satisfactory explanation, there was no allegation of Mr Chung had improperly misappropriated the company's funds for any improper purpose.  I would take this into account when I consider the appropriate period of disqualification.

14. After having found the grounds being made out, I conclude that the grounds are sufficient to establish that Mr Chung, as the director of the company, was not suitable to be engaged in the management of the company.  In coming to this conclusion, of course, I have also considered all the factors set out in fifteenth schedule of the Companies Ordinance.  I have not just confined myself to only the factors discussed above.

15. In light of the conduct which I have found proved against Mr Chung, I am of the view that Mr Chung is simply unable to handle corporate affairs in any responsible manner.  I am, therefore, bound by section 168H of the Companies Ordinance to make a disqualification order against him.

16. Subject to the minimum and maximum disqualification periods specified in the Companies Ordinance in section 168H(4), the length of disqualification is at a court’s discretion.  According to the established principle laid down in the English authority of Re Seven Oaks Stationers Retail Limited, this case should be at the lower bracket as submitted by Mr Mok, who further submitted that a period of three years is appropriate.

17. In considering the appropriate period of suspension, I would take into account several factors.  First, Mr Chung has not sought to contest the application.  He had indicated that he would not challenge the application, or put forward any explanation to excuse his misconduct.  Secondly, I have observed that the conduct being complained of were conducts of unfitness in the sense of Mr Chung having failed to take the responsibility of a proper and fit director.  There was no evidence of whatever sort suggesting Mr Chung having acted dishonestly or fraudulently orirresponsibly.

18. I would therefore give some discounts to these factors which, in my view, would go, to a certain extent, to mitigate his conduct.  I will accept Mr Mok's submissions of three years,  with a slight discount of three months in light of those matters which I set out above.

19. I therefore make a disqualification order of two years and nine months in terms of the originating summons, and that the two years and nine- month period should begin on the 21st day when this order is made.

Costs

20. So disqualification of two years and nine months in terms of the originating summons, the order to begin on the 21^st day of this order being made. Mr Chung do pay costs of the application, to be taxed if not agreed.