THE OFFICIAL RECEIVER v.TANG CHUN KWONG

HCMP 2333/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2333 OF 2004

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J U D G M E N T

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1. This was an application by the Official Receiver (“OR”) under Section 168H Companies Ordinance (Cap 32) (“CO”) for a disqualification order against Mr. Tang Chun Kwong (“Mr. Tang”), a former director of a wound-up company called Alpha Plus Development Construction Limited (“the Company”).

2. Notice under Section 168P of CO was served on Mr. Tang on 3 August 2004.  Then, the proceedings herein were commenced on 13 September 2004 by way of originating summons.  All the necessary documents, including a detailed report from OR and an affirmation by a Treasury Accountant, were duly served on Mr. Tang.  On 4 October 2004, he filed an acknowledgment with this Court indicating that he would not be contesting the matter.  Ms. Tsang, a senior solicitor for OR, at the hearing on 10 November 2004, told me that she had served her written submissions and authorities upon Mr. Tang on 6 November 2004.  She heard no objection from Mr. Tang who further represented that he would not be attending the hearing.

3. With that background, evidence from OR and written submissions from Ms. Tsang, I agreed with OR’s view that the appropriate period of disqualification for Mr. Tang should be 5 years.  I further indicated that a written judgment would be given at a later date.

4. According to the uncontradicted evidence before the Court, the Company was incorporated in 1998 for the purpose of conducting decoration and construction business.  On 20 December 2000, under HCCW 902/2000, upon petition by its ex-employee(s), the Company was wound up.  HK$1,033,646.00 was proved to be the outstanding debts while no assets could be recovered at all.  The Company was therefore insolvent within the meaning of section 168H(2)(a) CO.  I was further satisfied that Mr. Tang was a director of the Company from 19 May 1998 until its dissolution, and caught also by section 168H(1)(a) CO.

5. Mr. Tang was at the material times the only active director and responsible personnel of the Company.  The complaints of OR upon Mr. Tang were four-folded.  First, there was no accounting record for the Company after 30 September 1999 and Mr. Tang failed to offer any explanation for the banking transactions of the Company from October 1999 to December 1999.  Second, despite repeated demands, Mr. Tang failed to submit the Statement of Affairs (“SOA”) of the Company to the liquidators.  Third, the failure on the part of Mr. Tang to keep accounting records and to produce SOA of the Company caused the jobs of the liquidators extremely difficult, if not impossible.  This was even worse because the OR did remind Mr. Tang of his such statutory duties even before the hearing of the winding up petition of the Company.  Still, Mr. Tang failed OR.

6. Finally, with the limited information available, OR discovered that the Company was insolvent because Mr. Tang owed the Company a sum of HK$3,079,120.00.  He denied the same but OR was not satisfied the explanation offered because Mr. Tang had confirmed the debts in the audited financial statements of the Company.  Further, from October 1999 to December 1999 when the Company did not maintain any accounting record as aforesaid, there were a total of “unexplained” cash withdrawals from its bank account in the total sums of HK$545,970.00.

7. In determining the appropriate period for disqualification, there is no doubt that useful reference can be located in two English authorities:

(a)      Re Sevenoaks Stationers (Retail) Ltd [1990] BCC 765 CA at p. 771-772, per Dillion LJ:

“I would for my part endorse the division of the potential 15-year disqualification period into three brackets, ……

1.     The top bracket of disqualification for periods over ten years should be reserved for particularly serious cases.  These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again.

2.     The minimum bracket of two to five years’ disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious.

3.     The middle bracket of disqualification for from six to ten years should apply for serious cases which do not merit the top bracket.”

(b)      General assistance can be found from Re Westmid Packing Services Ltd (No. 3) [1998] BCC 836, at p. 837-838:

“The following should be taken as general guidance as to what is relevant and admissible evidence for the purpose of determining the length of a disqualification period ……

1.      It was of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realize that these are inescapable personal responsibilities.

2.      ……

3.      The primary purpose of disqualification is to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies showed them to be a danger to creditors and others.  Despite the fact that the courts have said disqualification is not a ‘punishment’, in truth the exercise that is being engaged in is little different from any sentencing exercise.  The period of disqualification must reflect the gravity of the offence.  It must contain deterrent elements.  That is what sentencing is all about, and that is what fixing the appropriate period of the disqualification is all about.  In relation to the period of disqualification the facts of the offence are obviously important but many other factors ought (and in reality do) come into play.

……

7.      A wide variety of matters – including the former director’s age and state of health, the length of time he has been in jeopardy, whether he has admitted the offence, his general conduct before and after the offence, and the periods of disqualification of his co-directors that may have been ordered by other courts – may be relevant and admissible in determining the appropriate period of disqualification as may any period of de facto disqualification……

8.      The appropriate period of disqualification is something which, like the passing of sentence in a criminal case, ought to be dealt with comparatively briefly and without elaborate reasoning.  It is obviously undesirable for the judge to be taken through the facts of previous cases in order to guide him as to the course he should take in the particular case before him.  The principles applicable to the court’s jurisdiction under the Act are now reasonably clear.  The application of those principles to the facts of the particular case is a matter for the trial judge.  The citation of cases as to the period of disqualification will, in the great majority of cases, be unnecessary and inappropriate.

9.      ……”

8. Applying these principles to the present case, I agreed that Mr. Tang should be condemned of his failure to observe the duty of a director in relating to the accounting matters of the Company for 3 months from October 1999 to December 1999.  Though the period appeared to be short, it left OR an impossible task to complete and a big question mark towards the funds of the Company.  The matter was further aggravated by the fact that OR had reminded Mr. Tang to do so before and after the winding order being made.  Hence, in OR’s view, as shared by me, it deserved the top punishment within the minimum bracket.  Although Mr. Tang had not taken any step to defend the application, there was no reason why costs should not follow the event and I therefore also allowed costs to OR, as prayed by Ms. Tsang.

9. In conclusion, I made the following orders:

(1)   Mr. Tang should 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 effective from the beginning of the 21^st day after the date hereof.

(2)   Mr. Tang did pay OR the costs of and incidental to this application.