THE OFFICIAL RECEIVER v. TO KIT WAN DORIS AND ANOTHER

 HCMP3166/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3166 OF 2004

_________________

______________________

______________________

________________

J U D G M E N T

________________

1. This is an application by the Official Receiver for disqualification orders against the 1st Respondent, Madam To Kit-wan Doris, also known as To Kit-wan, and the 2nd Respondent, Mr Wong Hing-wah.  Both Respondents were, at the material time, directors of East China Security Limited (“the Company”).

2. At the first call-over hearing, it was adjourned to enable the Official Receiver to apply for substituted service of the Originating Summons against the 1st Respondent, and also the case could not be disposed of summarily since I took the preliminary view that the disqualification period may exceed five years.

3. Subsequently, the Originating Summons and the Reports were served on the 1st Respondent in accordance with the substituted service order made by Master Hui on 9 March 2005.  At the same time, the Reports were duly served on the 2nd Respondent.

4. At the second call-over hearing on 20 June 2005, the 2nd Respondent appeared in person.  Upon hearing the 2nd Respondent, I gave leave for him to file and serve evidence in opposition and/or mitigation within seven days.  No evidence was filed whatsoever by the 2nd Respondent since then in opposition of this application or in support of his mitigation.

5. The Official Receiver restored the hearing and the matter was heard by me today.  Notice of adjourned hearing was duly served on the 1st and 2nd Respondents.  The 1st Respondent was absent today and the 2nd Respondent appeared in person.  No acknowledgment of service was filed by either Respondents.  The Official Receiver mainly relied upon his 1st Report in support of the allegations made against the 1st and 2nd Respondents.

6. At this hearing, I seek confirmation from the 2nd Respondent that he did not wish to contest the application of the Official Receiver.  He would not dispute the allegations made in the Reports of the Official Receiver and he admitted those allegations as facts of the case against him.  The 2nd Respondent just wished to put forward mitigating factors so that the court may consider to impose a lenient sentence on him.  Nothing has been filed by the 1st Respondent.

7. In this case, there is no dispute that the Company was insolvent while both Respondents were directors, so that section 168H(1)(a) is satisfied.  What the Official Receiver is required to establish is that the conduct of the Respondents as directors of the company, either taken alone or taken together with their conduct as directors of any other company or companies, makes them unfit to be concerned in the management of the company.  A disqualification order is mandatory if the requirement of 168H(1) are satisfied.

8. In determining the question of unfitness, the court shall have due regard to the matters mentioned in Part I and Part II of the 15th Schedule of the Companies Ordinance.  This is so provided under Section 168K of the Companies Ordinance.

9. I accept in this case that the Official Receiver has established those conducts on the part of both Respondents in question fall under paragraph 3(h) & 4 of Part I and paragraph 5(a) and (da) of Part II of the 15th Schedule, and the court can consider other kinds of unfitness, even though those matters were not mentioned in the 15th Schedule.

10. In this case, I need to mention that the 1st Respondent is an undischarged bankrupt under a bankruptcy order granted against her on 26 May 2003 in HCB5950 of 2003.  She was also under a current disqualification order of five years made against her on 12 January 2001 which took effect from 2 February 2001 to 11 January 2006.

11. For the 2nd Respondent, he was also subject to a previous disqualification order of two years made against him on 31 October 1996, effective from 21 November 1996 to 30 October 1998.

12. The Company was wound up by the court on 21 October 2002.  Both Respondents were appointed as first directors of the Company since 18 August 1994 and remained as directors up to the date of the winding-up order.  Both Respondents were also shareholders of the Company.

13. As a matter of fact, I find that all allegations of the Official Receiver made against the 1st and 2nd Respondents established.

14. In summary, I find that both Respondents were in breach of the accounting record offences under Sections 121, 122 and 274 of the Companies Ordinance.

15. No books of accounts were recovered by the liquidators in the winding-up of the Company.  Both Respondents failed to deliver any books or statement of affairs in respect of the Company after the grant of the winding-up order.

16. At an interview with the 1st Respondent, she claimed that the books and records were left at their previous office at Festigood Centre, whereby the mortgagee took possession of the property in June 2001.  However, the 1st Respondent even failed to account for the whereabouts of the books and records of the Company for the period after the mortgagee took possession of the premises in June 2001.  According to the Official Receiver’s investigation, the Company carried on business after June 2001, and there were bank records of the Company which show that the Company remained in operation up to the date of the winding-up order.

17. The Inland Revenue Department informed the liquidators that the Company did not file any returns or accounts since its incorporation in 1994.  Obviously, the 1st Respondent, as a director of the Company at the material time, failed to keep and preserve proper books and records of the Company as required under sections 121 and 274 of the Companies Ordinance and prepare any audited financial statements in accordance with section 122 of the Companies Ordinance.

18. For the 2nd Respondent, he tried to allege that he was precluded from the affairs of the Company and he left the Company about half a year after the Company commenced business in 1994.  Since 1996 to 1998, he had been working as an estate agent and a tourist guide thereafter.  According to him, all cheques of the Company were signed and controlled by the 1st Respondent.

19. Even though the court may accept that the 1st Respondent was the major operator of the affairs of the Company, there was evidence from the Official Receiver to show that the 2nd Respondent did involve in the activities of the company.

20. The 2nd Respondent all along remained as a director of the Company and was one of the signatories of the bank accounts of the Company up to its winding-up.  According to the cheques drawn in respect of the bank accounts of the Company for the period from March 1997 to December 2002, the Official Receiver discovered that the 2nd Respondent still continued to sign cheques throughout the years.

21. While the 2nd Respondent asserted that he signed cheques when the other director was not in Hong Kong and he carried on the operation of the Company as a shareholder and the signatory of the accounts, this does not absolve his duty as a director to maintain proper books and accounts of the Company.

22. Accordingly, I also find that the Official Receiver’s complaint against the 2nd Respondent for the accounting record offences established.

23. For both Respondents, they were in breach of the obligation under section 190 of the Companies Ordinance to submit a statement of affairs after its winding-up.

24. For the 1st Respondent, she was also found unco-operative with the Official Receiver and the liquidators in the winding-up of the Company and in this proceedings.

25. The 1st Respondent was also in breach of the requirement under Section 156 of the Companies Ordinance since she acted as director during the currency of her bankruptcy.  She was made bankrupt in May 2003 and she continued to act as director of two other companies up to 30 April 2004.

26. The more serious breach made against the Respondents which may influence the court to impose a longer disqualification period is the breach by both Respondents in respect of their previous and current disqualification order.

27. The 2nd Respondent was subject to a disqualification order dated 31 October 1996 for a period of two years, effective from 21 November 1996.  The 2nd Respondent was present at the hearing of the disqualification proceedings.  After the grant of the disqualification order, the Official Receiver has written to the 2nd Respondent to remind him of the prohibitions under the order and the criminal sanctions that may attach if there was any breach.

28. As at the date of the disqualification order, the 2nd Respondent was a director of the Company, East China Security Limited, and also East Asia International Removal Limited.  East Asia International Removal Limited was later wound up by the court on 25 June 1997.  The 2nd Respondent remained as a director of East China Security Limited and East Asia International Removal Limited up to the winding-up of the said two companies.  Therefore, he was in breach of his previous disqualification order in respect of East China Security Limited for the period from 21 November 1996 to 31 October 1999, and in respect of East Asia International Removal Limited, the period from 21 November 1996 to 25 June 1997.

29. The 2nd Respondent claimed that he did not know he had to take active steps to resign.  The Official Receiver considered that even though he did not deliberately breach the order, at least he was reckless not to take active steps to resign and there is no excuse for his default.

30. The 1st Respondent was also subject to a current disqualification order made against her on 12 January 2001 for a period of five years, effective from 2 February 2001.  At the material time of the currency of the disqualification order, she was a director of the Company and also East Asia Worldwide Limited.

31. Furthermore, after the disqualification order was imposed, she accepted appointment as a director of China Wayson Holdings Limited on 28 February 2001.  She remained as director of East China Security Limited up to its winding-up on 21 October 2002.  She only resigned as director of the said two companies on 30 April 2004.  So she was in breach of the disqualification order imposed against her in respect of those three companies at different periods.

32. Despite the disqualification order being imposed against her, it is obvious from the evidence adduced by the Official Receiver that the 1st Respondent still played, and continued to play an active role in the management of the Company.

33. The 1st Respondent claimed that she was not aware of the disqualification order made against her and she was absent at the hearing of the previous disqualification proceedings.

34. I accept the submissions of the Official Receiver that the 1st Respondent should be fully aware of her disqualification proceedings and the order made against her.  On this, I accept the evidence from the Official Receiver that all previous correspondence in respect of the previous disqualification proceedings were sent by the Official Receiver to the 1st Respondent at the Festigood Centre address and none was returned and undelivered.  That address was the latest contact address provided by the 1st Respondent and it was the registered office of the Company in question at all material times.  At the previous interview, the 1st Respondent confirmed that the Festigood Centre address was her contact address, although she did not receive, according to her allegations, the correspondence.

35. I accept that the Official Receiver has proved to my satisfaction that the 1st Respondent should be aware of the disqualification proceedings and the order made against her previously and she has chosen to act in contravention of the terms of the order.

36. In conclusion, I find that all allegations of the Official Receiver made against the 1st and 2nd Respondents established as a matter of evidence so as to render them unfit to be concerned in the management of the company.  As a result, it is mandatory for this court to make a disqualification order against both Respondents.

37. In considering the appropriate period of disqualification against the Respondents, I bear in mind that the objectives of the order are to protect the public against the future conduct of the companies by persons whose past record as directors of insolvent companies have shown them to be a danger to the creditors and the others and such order should have deterrent effect to the directors concerned and the period shall reflect the gravity of the conduct concerned.

38. In this case, I bear in mind that both Respondents were in breach of a previous disqualification order and this will be a second disqualification order that the court needs to be granted against them.

39. On this I bear in mind the tariff and guidelines laid down in the English Court of Appeal case of Re Sevenoaks Stationers (Retail) Limited [1990] BCC 765.  In that case, it was held by the English Court of Appeal that where someone has to be disqualified for a second time, the court will consider to impose a disqualification order which may fall within the top bracket which warrants a disqualification period of 11 to 15 years.

40. I was also referred to an English case of The Queen v Atterbury [1996] 2 Cr.App.Rep. 151.  In that case, a 12-year disqualification period was imposed for a respondent’s involvement in the management of a company in breach of a previous disqualification order, despite no dishonesty being established.

41. As provided under Section 168D(3) of the Companies Ordinance, where there was a previous disqualification made against a person, the fresh prohibition order will run concurrently with the previous one if the previous one has not yet been expired.

42. In this case, the 1st Respondent has tendered no evidence in support of any mitigating factors.  I consider that her breach was more serious than the 2nd Respondent’s and she warrants a longer disqualification period than the 2nd Respondent, in particular, taking into account that she accepted a fresh appointment as a director after the grant of the previous disqualification order against her.  I also take into account that she continued to be a director even though she was made bankrupt and her role in East China Security Limited was more active and dominant than the 2nd Respondent.

43. After taking into account of the gravity of the misconduct and unfitness made against the 1st Respondent, I consider that a disqualification period of 12 years is warranted.

44. Accordingly, I will grant the usual disqualification order against the 1st Respondent for a period of 12 years, effective from the beginning of the 21st day from the date of this order.

45. In respect of the 2nd Respondent, I have considered all his mitigating factors put forward at this hearing.  I consider that his role played in the Company was not the major one and he may not be in breach of his previous disqualification order deliberately.  He may be ignorant of the law which required him to take active steps to resign as a director and continued to be a director of the Company despite the imposition of the disqualification order against him.  However, ignorance of law is no defence.

46. I consider that the 2nd Respondent wished to have the shorter period of disqualification period so that he can contribute to the society.  Accordingly, I would put his case, after considering and taking into account his mitigating factors, at the top end of the middle bracket.

47. I would impose a disqualification period against him for a period of eight years.

48. So the usual disqualification order will be made against the 2nd Respondent for a period of eight years, effective from the beginning of the 21st day from the date of this order.

(Submissions on costs)

49. Costs of this action, including all costs reserved previously, be to the Official Receiver and be borne by the 1st and 2nd Respondents, to be taxed if not agreed.