THE OFFICIAL RECEIVER v. LAM WAI KEUNG

HCMP 4110/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4110 OF 2001

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J U D G M E N T

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1. This is an application by the Official Receiver for an order that the Respondent Lam Wai Keung shall not, without the leave of the court, be a director, liquidator, receiver or manager of a Company's property, or in any way whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company or any companies in Hong Kong for a period not less than one year and not exceeding 15 years, effective from the beginning of 21 days after the day on which such an order is made.

2. There are a number of grounds set out in the Official Receiver's various reports pertaining to the Respondent. First of all, pursuant to Section 168E, the Respondent has been convicted of a number of indictable offences of theft in connection with a company by the name of Glory Central Investment Limited, which I shall refer to as "the Company".

3. The Respondent was appointed a director of this Company in October 1995. Apparently in November 1995, negotiations were begun for a proposed joint venture with the registered owner of certain lots in New Territories, which were agricultural land. In November 1995 through until April 1996, the Company received various amounts of money, totalling about $2 million, from persons who were interested in purchasing units in a proposed development on the site of that agricultural land. However, at that stage, no attempt had been made to change the user of that land so as to enable any development to take place.

4. As a result of various complaints made by these potential purchasers, the Respondent was arrested in April 1996 and in December 1996, he, on behalf of the Company, entered into a settlement agreement with the Consumer Council, whereby it was agreed that the Company would repay the amounts so deposited by way of a number of instalments. However, only 2 instalments were met and it has since transpired that there were no funds in the Company to meet the instalments agreed upon by the Company.

5. In February 1997, the Respondent resigned as a director of the Company but remained the sole authorised signatory for its bank accounts and it would appear that as late as May 1997, substantial sums were withdrawn from the bank accounts of the Company.

6. In August 1997, a petition was presented for the winding-up the Company and in October of 1997, the Company was wound-up.

7. In February 1999, the Respondent was convicted of 24 counts of deception and 2 counts of theft, and he has since served a prison sentence of 2 years, having been released in February 2001.

8. After his release in February 2001, the Respondent has still failed to meet his obligations as a director of 5 other companies namely, Pacific Trump Holdings Limited, Loyal Cosmos Development Limited, Full Rich Limited, Champion National Holdings Limited and Honour Concept Properties Limited, in that no annual returns of these Companies have been filed with the Companies Registry.

9. However, the Respondent says that that was only because these companies have not been operating since his imprisonment. He has since resigned as director of these companies, his resignation having taken place 2 months before today.

10. On 31 July 2001, the present Originating Summons was issued for a disqualification order against the Respondent. I find on the evidence adduced in the Official Receiver's reports which have not been disputed by Mr Lam, who has filed an affirmation on 2 November 2001 and who has appeared in person today, that there exist ample grounds for a substantial disqualification order against him.

11. First of all, he had promised to make repayments to the potential purchasers in the Settlement Agreement when there were insufficient funds in the Company.

12. It is also clear that he has failed to keep proper books of account, in breach of Section 121 and Section 274 of the Companies Ordinance. Although in his affirmation in November, the Respondent says that he had, in February 1997, transferred his shares in the Company to Mr Yeung Kin Sang, who appears to be resident on the Mainland, the point remains that it was clear that even after the transfer of those shares, the Respondent was a director and then a de facto director of the Company and remained its sole authorised signatory. As such, it was his obligation to keep proper books of account.

13. The Respondent has also failed to explain the purpose of the substantial withdrawals from the 2 bank accounts of the Company. The withdrawals appear to be far larger and to be more irregular than ordinary administrative expenses which one would expect for monthly expenses of the Company.

14. Further, it would appear that there has been default in filing the annual returns of the 5 companies I have mentioned above, although I accept that if these companies have not been operating, one could accept as mitigation the lapse in statutory obligations.

15. The court has been previously referred to a number of cases in England relating to the appropriate period for disqualification. It has been said that there should be 3 tiers or 3 grades of disqualification periods, conveniently called the "top period", the "middle period" and "lower period". The lower period would be 1 to 5 years, middle period 5 to 10 years and the top period 10 to 15 years. It has been said that the lower period would be for "not very serious" situations, the middle period for "serious" situations and the top period for "particularly serious" situations.

16. Here, I take into account the fact that some substantial amounts paid as "deposits" have been lost and there is nothing in the evidence adduced by the Respondent to explain the use of those funds or where they have gone. The fact that the accounts books are not available makes it all the more difficult for the liquidator to trace the funds in question. Although the Respondent has been given the opportunity, both by way of filing affidavit and at the hearing today, to further explain himself, he has not taken advantage of the opportunities to do so. In these circumstances, I consider this to be in the situation between the middle and top grades of seriousness.

17. Accordingly, I would make an order that the Respondent be disqualified in terms set out earlier, for a period of 8 years from 21 days after this order.