LAU REIMER MARY JEAN v. TING WAI MONASTERY LTD

HCCW 286/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 286 OF 2017

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D E C I S I O N

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1.  I have before me a petition issued on 19 September 2017 seeking a winding-up order of the Company on the ground of insolvency. The petitioner relies on an unsatisfied statutory demand to prove insolvency. The Company is a charitable company formed to promote and support the Buddhist faith and to do so through the operation of a monastery known as Ting Wai Monastery. I also have before me today a summons issued on 20 September 2017 to appoint Mr Frank Yuen and Mr Kennic Lui as provisional liquidators.

2.  It has become apparent through the evidence that has been filed by the petitioner and also Ms Lung Yan Loi, that the way in which the Company has been managed in terms of corporate governance since its incorporation in 1963 has been unsatisfactory, and as a consequence there appear to be no reliable records, which demonstrate that anybody has been properly appointed as a member or a director of the Company.  As one would expect, the original Memorandum and Articles of Association had subscribers and identified the members of first board of directors, but it would appear that all the named persons have subsequently died, and none of the parities who have filed evidence have been able to produce to the court records which reliably record others subsequently becoming members of the Company, the appointment of directors, or the proper passing of resolutions by the Company in general meeting appointing directors.

3.  This is relevant to the applications before me in various ways.  Principally that it goes some way to explain the reason why the petitioner asserts that she is owed over two million Hong Kong dollars by the Company.

4.  There is no dispute that the petitioner made a total payment of $2,236,347.90 on or about 27 June 2017 to the Government to settle a demand note issued in respect of work carried out on slopes thought by the Buildings Department to be dangerous which were adjacent to the monastery and which the Company was liable to deal with.  The payment was made because it appears that those people who at the time thought they might be directors of the Company could not agree how the liability should be dealt with.  Subsequently, disputes have arisen about the identity of the membership and board of the Company which have led to separate legal proceedings.

5.  As I have mentioned there is no dispute that the relevant payment was made.  For present purposes the issue is whether the petitioner has a right to be reimbursed the amount that she has paid to the Government and thus has locus to present the petition.  I accept that she does.  Although that the petitioner may well not have been a de jure director of the Company, she was clearly proceeding when she made the payment on the basis that she was a director and that the payment was made to settle a debt owed by the Company and that it was in the Company’s best interest that this took place in order to avoid further interest accruing on the liability to the Government.  

6.  Mr Yu, who appeared for the petitioner, brought my attention to the decision of the English Court of Appeal in Re German Mining Co.[1] In that case, directors of a company which did not contain in its articles the power to raise finance to support and advance the company’s operations, themselves provided such finance.  In due course the company was wound up.  The issue arose as to whether the advances made were provable in the liquidation.  Lord Justice Turner explains at p 427 of the decision the relevant principles and why the directors were entitled to prove:

“The question before us in this case was mainly argued on the part of the Appellants, upon the ground that, according to numerous decisions at law, which were cited in the argument, the directors of companies are in the position of agents. Their powers are derived from, and limited by deeds under which they are appointed; and acts done by them beyond the limits of their powers do not bind the companies of which they are directors; and it was insisted on the Appellants’ behalf that, it having been established at law that this company was not liable to the bankers for the monies advanced by them, it followed, as a necessary consequence, that the Respondents could not be entitled to be repaid by the company the monies which they had paid, in discharge [52] of the amount due to the bankers; but although directors undoubtedly stand in the position of agents, and cannot bind their companies beyond the limits of their authority, they also stand, in some degree, in the position of trustees; and all trustees are entitled to be indemnified against expenses bonâ fide incurred by them in the due execution of their trust. There is no inconsistency in this double view of the position of directors. They are agents, and cannot bind their companies beyond their powers. They are trustees, and are entitled to be indemnified for expenses incurred by them within the limits of their trust. If therefore it appears that monies advanced by the directors of companies have been duly applied for the purposes of the trust reposed in them (and it can make no difference whether the monies were originally advanced, or were in the first instance borrowed, and afterwards repaid by them), it may well be, that they may be entitled to be repaid by their companies the monies which they have so advanced, although the persons from whom they have borrowed for the purpose of making the advance may not be entitled to recover against the companies. The question, in the one case, depends upon the powers of the directors; in the other, upon the rights incident to the character which they fill. What those rights may be, must depend in each case upon the deeds by which they are appointed; for, no doubt, a company’s deed, or any other deed, may be so framed as to deprive directors or trustees of the right to indemnity, and, if parties think proper to accept directorships or trusts under deeds so framed, they must abide by the consequences; but the right of indemnity is incident to the position of a trustee, and if it is sought to exclude that right, the provisions for that purpose must, as I apprehend, be clearly expressed.”

7.  As I have already explained, there is some doubt as to whether or not the petitioner was ever properly appointed as a director.  However, it seems to me to be quite clear that in making the payment she proceeded on the basis that she was, and indeed her conduct generally demonstrates that she was acting as a shadow director of the Company.  It seems to me that this being the case, the principles explained in the passage which I have just quoted are applicable and in these circumstances the petitioner is a creditor of the Company and has locus to present the petition.

8.  I have also received evidence from Ms Lung Yan Loi, the nun who has been managing the affairs of the monastery.  She disputes that the petitioner is entitled to repayment, although that dispute seems to be based on the assumption that the right to repayment, if any, would arise under article 63 of the Articles of Association.  Whilst I accept that article 63, which I do not need to deal with, is arguably not applicable, it seems to me that this is irrelevant for the reasons that I have just given.

9.  Generally, it would appear to me quite clear that given the entirely unsatisfactory state of the records of the Company and the uncertainty about its membership and directors, it is desirable that independent professionals take charge of its affairs and that a mechanism is identified for remedying of the current problems of the Company, both in terms of internal administration and also financial, and that a plan is developed which allows the Company to promote and advance the objects for which it was formed, even if that eventually necessitates the liquidation of its assets and the distribution of any surplus to another charity which promotes or advances the same charitable objects.  Partly because of the difficulty in identifying validly appointed members, it is unclear who other than the petitioner has sufficient interest to wind up the Company.  And as I understand it, the petitioner’s reason for issuing the petition is not in order to recover the money that she has advanced on behalf of the Company but to instigate the kind of process I have just been describing to remedy the current unsatisfactory state of the Company. 

10.  I will make a winding-up order but before doing so, I will appoint provisional liquidators on the terms of the order which the parties have agreed or, in the case of Ms Lung, have no comments on.  This is in order that there are provisional liquidators appointed under section 193 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, technically in place before I formally order the winding up of the Company in order that they can immediately proceed to take charge of the Company’s affairs pursuant to section 194.

11.  An issue arose before me as to how the Secretary for Justice’s costs should be dealt with.  Mr Ma who appeared for the Secretary for Justice as parens patriae of charities seeks an order, which he suggested is conventional, that the Secretary for Justice’s costs are paid out of the assets of the Company on an indemnity basis, and Mr Ma took me to a decision of Mr Justice Johnson Lam (as he then was) in HCMP 1053/2008 involving a Letter of Wishes dated 23 April 1996 of Law Ting Pong, [2] which, he suggested, illustrated that this is the normal approach.  I accept that it is generally the correct approach although this case is unusual as I am faced with a winding-up petition. 

12.  It does not seem to me immediately clear why the Secretary for Justice should automatically get the kind of costs order that Mr Ma has sought if a company formed for charitable purposes goes into liquidation, for example, at the instigation of a creditor, and it is clear that the company is insolvent, and there will be no surplus available for distribution.  The present case, I accept, does not fall within that category as it appears likely that some surplus, possibly a considerable surplus, will be available.  I also accept that given the unsatisfactory features of the matter to which I have referred, it was desirable for the Secretary for Justice to intervene in order to ensure that charitable purposes were properly represented. 

13.  I will, therefore, make orders in respect of the summons to appoint provisional liquidators, that the petitioner’s costs are paid out of the assets of the Company as are the Secretary for Justice’s costs on an indemnity basis. 

14.  I will make the normal winding-up order.  That will also provide for the Secretary for Justice’s costs to be paid out of the assets of the Company on an indemnity basis. 

15.  The costs of the Official Receiver in respect of the provisional liquidation application I assess at $8,000.  I make no assessment in respect of the Official Receiver’s costs on the winding-up petition.