RE ASHER & CO. (HONG KONG) LTD.

HCCW 150/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 150 OF 1998

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D E C I S I O N

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1. This is an application taken out by the Official Receiver under section 221 of the Companies Ordinance, Cap. 32. The Official Receiver seeks an order against Mr Ng Chi Yeung Simon ("Mr Ng") to be examined on oath regarding the dealings, affairs or property of Asher & Co. (Hong Kong) Limited ("the Company") and an order against Messrs Ng & Tse, solicitors, to produce for inspection by the Official Receiver the files of Messrs Simon Ng & Co. in acting on behalf of the Company in relation to various matters as specified in the summons. Mr Ng is a solicitor and a director of the Company from 27 March 1996 to 14 January 1998. At all material times, he carried on his legal practice as the sole proprietor of Messrs Simon Ng & Co. His firm has since become a partnership, Messrs Ng & Tse.

2. At the hearing, I was informed by Mr Swaine, who appeared for the respondents, that the application for production of documents is not opposed. Further, Mr Ng is not opposed to giving answers in writing to written interrogatories to be served by the Official Receiver. His only objection is to be examined orally in a private examination.

The background

3. The background giving rise to this application may be stated as follows.

4. A petition was presented to wind up the Company on 3 March 1998. A winding-up order was made on 13 May 1998 and Messrs Jeremy Miles Barr and Raymond Sze Hoi Chon were appointed joint and several liquidators ("the liquidators") by an order dated 20 August 1998.

5. The liquidators submitted a report to the Official Receiver on the conduct of the directors pursuant to section 168I(3) of Cap. 32. As a result, the Prosecution and Directors Disqualification Section of the Official Receiver conducted an investigation in relation to the conduct and dealings of the former directors of the Company. One of the matters investigated was the payment of HK$485,150.00 by the Company to Messrs Simon Ng & Co. between January and March 1998 and a breakdown of the payment is as follows:

6. The Official Receiver requested Mr Ng for information and documents relating to the above payments. Correspondence was exchanged between them in this respect from 28 May 1999 to 23 April 2001. Substantive replies were provided by Mr Ng in his letters dated 3 September 1999 and 30 November 1999. No reply by letter was apparently made by Mr Ng to the last three letters of the Official Receiver dated 26 August 2000, 8 March 2001 and 23 April 2001.

7. While the Official Receiver was carrying out the above investigation by letter with Mr Ng, the Official Receiver made a report to the Law Society on 28 August 2000 regarding Mr Ng's conduct as a solicitor in relation to the payment of HK$485,150.00 by the Company to Messrs Simon Ng & Co. As a result, the Conduct Section of the Law Society carried out an investigation and correspondence was exchanged between Mr Ng, the Law Society and the Official Receiver from December 2000 until August 2001 when the Investigation Committee of the Law Society eventually reached a decision on the matter. Mr Ng furnished his substantive response to the matters raised by the Official Receiver to the Law Society in his letters dated 15 December 2000 and 8 May 2001.

8. On 6 June 2001, the Official Receiver issued a summons under section 221 seeking an order to examine Mr Ng and an order to produce documents against Messrs Ng & Tse, the same relief as sought in the present application. That application was opposed by Mr Ng mainly on the ground that it was oppressive, as the liquidators (not the Official Receiver) had issued a letter of demand to him dated 27 July 2001 that if he should fail to pay HK$485,150.00 within seven days they would institute proceedings against him to recover the said sum on the allegation that the payments constituted fraudulent preference under section 266. The application was withdrawn by consent on 27 September 2001, because the Official Receiver did not wish to prejudice or embarrass in any way the proceedings in fraudulent preference contemplated by the liquidators. It was submitted by Miss Ismail, who appeared for the Official Receiver in the present application, that the earlier application was mistakenly withdrawn, with hindsight. The liquidators caused a writ to be issued by the Company against Mr Ng in the District Court on 16 October 2001 to recover payment of HK$485,150.00 and this action is pending.

9. On 15 October 2001, the Official Receiver issued a fresh summons under section 168IA for an order of public examination against Mr Ng. That application was opposed. Under section 168IA(1), the Official Receiver is required to establish a prima facie case that would render a person liable to a disqualification order for an order of public examination to be made against him. At the hearing of that summons on 22 February 2002, it became apparent that as Mr Ng had resigned as a director on 14 January 1998 and as there was no evidence before the court to suggest that he was a shadow director within the meaning of section 168C(1) when the payments were made after his resignation, the Official Receiver would not have been able to establish a prima facie as required. In view of that, the Official Receiver decided not to proceed with the application. I therefore made an order dismissing the summons and gave leave to the Official Receiver to issue a new summons under section 221 within seven days thereof. This was done on 1 March 2002 and this is the application I am concerned with.

10. It is common ground that the court has jurisdiction to make an order under section 221 on the application of the Official Receiver (Re C A Pacific Finance Limited and C A Pacific Securities Limited, HCCW Nos. 36 and 37 of 1998, 6 November 2001, Yuen J). This is because the Official Receiver does not drop out of the picture on the appointment of liquidators in the private sector. As stated in C A Pacific, the Official Receiver would still have many interests in the course of a winding-up, as in section 191 (to report to the court if fraud is committed), section 204 (to exercise general control over liquidators), and section 168P(2)(b) (to apply for a disqualification order against an officer of the company). It is also common ground that in exercising the power under section 221, the court has a general and unfettered discretion to order an examination after balancing all the factors involved - "on the one hand the reasonable requirements of the administrator to carry out his task, on the other the need to avoid making an order which is wholly unreasonable, unnecessary or 'oppressive' to the person concerned" (British & Commonwealth Holdings Plc. v. Spicer and Oppenheim [1993] A C 426 at 439D, per Lord Slynn; see also Chark Fung Securities Co. Ltd & Ors. v. Chan Kwong Hung [2001] 2 HKC 335 at 339B to D, per Rogers VP).

The grounds of opposition

11. It was submitted by Mr Swaine that an order for the oral examination of Mr Ng would be unreasonable, unnecessary or oppressive on the following grounds.

12. Firstly, Mr Ng has, although belatedly, made an offer by a letter dated 17 September 2002 that he is "prepared in principle, subject to terms being agreed, to give written answers on oath to written questions, in lieu of an oral examination". At the hearing on 10 October 2002, Mr Swaine repeated the offer on behalf of Mr Ng, apparently without any condition this time.

13. Secondly, it was submitted that by the investigation carried out by the Official Receiver by correspondence directly with Mr Ng from May 1999 to April 2001 and indirectly through the Law Society from August 2000 to August 2001, Mr Ng had provided substantive answers on no less than four occasions and he has answered every question raised by the Official Receiver adequately and without obfuscation. If the process of investigation by correspondence was "drawn-out", this was because Mr Ng was subjected to "essentially the same questions being repeated with no evident purpose". Further, it was asserted that there is no inconsistency in the answers provided. Insofar as the Official Receiver may have any further questions arising out of the answers already given, the Official Receiver could have raised follow-up questions in writing and Mr Ng would provide his answers in writing.

14. Thirdly, an oral examination would be far more expensive as compared to written interrogatories and answers and the Official Receiver has not shown why it is necessary to have an oral examination as opposed to written interrogatories.

15. Fourthly, it was suggested that there is a collateral purpose of the Official Receiver in conducting an oral examination and that it is to assist the liquidators in recovering the sum of HK$485,150.00 from Mr Ng in the proceedings pending in the District Court. The oral examination under section 221 would be used as a rehearsal of the cross-examination of Mr Ng in the fraudulent preference action. It would be oppressive to order Mr Ng to be examined orally as this would expose him to liability in the other action.

16. Fifthly, Mr Ng would suffer prejudice if he were to be orally examined on an open-ended basis with no prior knowledge of the questions that might be put to him and he would have no opportunity to formulate his answers. Mr Swaine drew my attention to the fact that in Chark Fung Securities, even though an order for oral examination was made, it was directed that the examinee should be provided with questions to be asked together with relevant documents one month before the date fixed for the examination.

The Official Receiver's views

17. One of the factors to be taken into account in the balancing exercise whether to order an oral examination is the views of the office holder who has specific functions to discharge in a liquidation. In assessing what are the reasonable requirements of the Official Receiver in seeking the order, great weight should be given to his views. This is because he would have detailed knowledge of the problems that existed in relation to the state of affairs of the company, the information he would require in order to carry out his duties properly, and the extent to which his enquiries should be pursued (Chark Fung Securities, supra. at 339G to 340A). In the present case, the Official Receiver takes the view that an oral examination is called for notwithstanding that Mr Ng has given substantive answers in his four letters that I have referred to and in his affidavit filed in November 2001 to oppose the earlier application made under section 168IA. The reasons given by the Official Receiver for this view may be stated as follows.

18. Firstly, the Official Receiver wishes to find out more about Mr Ng's conduct in the management of the company, and whether he was a shadow director at the material time when the payments in question were made by the Company to Mr Ng's firm. The Official Receiver would like to pursue this enquiry, notwithstanding Mr Ng's assertion in correspondence and on affidavit that he had little practical involvement in the affairs of the Company even when he was a director and one of the authorised signatories of the bank accounts, apart from providing professional services as the legal adviser of the Company and its company secretary. It was pointed out that Mr Ng was the only director resident in Hong Kong at all material times, the other directors and the person who was the ultimate beneficial owner of the Company are residents of Thailand. The Official Receiver would also like to obtain information from Mr Ng regarding the roles of the other directors of the Company.

19. Secondly, according to the answers given by Mr Ng, he has admitted that of the five payments made to his firm, only two of the payments (for HK$80,000.00 on 23 January 1998 and HK$50,150.00 on 23 February 1998) were for legal services rendered by Mr Ng to the Company. For the remaining payments of HK$355,000.00, Mr Ng has said that these sums were paid to his firm pursuant to the instructions of the Company that the account of his firm was to be used as a conduit and that the funds received were all paid out on the specific instructions of the financial controller and/or the personal assistant of the financial controller. Of the funds received in this manner, the bulk of this in the sum of HK$200,000.00 was remitted by Messrs Simon Ng & Co. to Eastern Printing Public Co. Ltd ("Eastern Printing") in Thailand on 17 March 1998. Eastern Printing held all but one share in the Company. The remittance of this sum, which was the Company's money according to Mr Ng, was made after the winding-up petition was presented against the Company. The arrangement to use the account of Mr Ng's firm as a conduit was to circumvent a notice of assignment given by a secured creditor of the Company, East Asia Heller Limited ("EAH"), to specified customers of the Company in December 1997, pursuant to a Receivables Purchase Agreement and Lease Agreement entered into between the Company and EAH in March 1997, by which the customers were obliged to make payment to EAH as the assignee instead of to the Company. A writ was issued by EAH against the Company in the High Court on 6 January 1998 for outstanding rentals of the equipment leased by EAH to the Company and for delivery up of the equipment or payment of its value.

20. The Official Receiver made inquiries with Mr Ng regarding the above arrangement, which was to the detriment of the secured creditor. Mr Ng's answer was as follows:

"It was all along the Firm's [i.e. Messrs Simon & Co.] professional view that EAH was not entitled to collect in the receivables as they did. Unfortunately, [the Company] lacked the necessary funds to challenge this matter in Court. In any event, the professional duty is owed to the client [i.e. the Company] and not to EAH as a third party. We are therefore not obliged to comment."

The Official Receiver does not regard this answer as satisfactory, nor do I.

21. Thirdly, of the two payments that Mr Ng asserted were payments for legal services rendered, no bill was ever issued by his firm for the payment of HK$80,000.00 but merely a receipt. The receipt gave the file number as "SN/1264", which is the same as the file number given for the general retainer services provided by the firm to the Company for 1996 and 1997, for which the Company was separately billed. As for the payment of HK$50,150.00, there would appear to be an overlap with part of the services rendered for which HK$80,000.00 was paid, insofar as this related to the dispute between the Company and EAH. Further, the bill issued for HK$50,150.00 (bill no. 1705) was described as charges for services rendered in respect of (1) a share purchase agreement and (2) EAH "for the period from 14 August 1997 to 9 February 1998", which is different from the explanation given by Mr Ng to the Official Receiver in his letter dated 3 September 1999 and repeated in his letter to the Law Society dated 15 December 2000. In his last letter to the Law Society dated 8 May 2001, Mr Ng made a further assertion that the description of the services rendered as stated in bill no. 1705 was "merely a general description" and did not set out in full the services rendered. The Official Receiver would like a detailed explanation on the above matters as they have not been answered or satisfactorily answered notwithstanding the rounds of letters and would like to inspect the files of the firm for the general retainer services, and other files for which legal services were rendered to the Company as specified in the present summons.

22. Fourthly, of the general retainer services provided by Mr Ng's firm to the Company in 1996 and 1997 for which the Company was billed the total sum of HK$500,000.00, the bill in 1996 was dated "2 January 1996" and was for "retainer services rendered/to be rendered for the period from 1 January 1996 to 31 December 1996". The Company was only acquired by the beneficial owner from Thailand pursuant to an acquisition agreement dated 27 March 1996. The Official Receiver is of the view that further inquiry is required.

23. Fifthly, in respect of the sum of HK$355,000.00 which was paid to the firm but not for legal services rendered, three receipts were issued by the firm as follows:

24. The description of the purpose of payment of HK$355,000.00 in the above receipts is clearly at odds with the explanation of Mr Ng that his firm was not the ultimate recipient of the funds but was merely a conduit. The Official Receiver is not satisfied with the explanation provided so far that the account department of Mr Ng's firm "was not properly instructed on the description of each payment received" and is of the view that further investigation is called for.

25. Sixthly, both the liquidators and the Official Receiver take the view that the records of the Company that have been made available so far are inadequate.

26. For the above reasons, the Official Receiver is of the view that further information is required to discharge his statutory duties and seeks the order in the present summons.

Exercise of the discretion

27. Having considered the views of the Official Receiver as to the inadequacy of the answers provided by Mr Ng, I am not inclined to accept Mr Swaine's submission that Mr Ng has provided a clear and satisfactory answer to every question raised by the Official Receiver, nor do I think the extent of the further investigation is such that it could effectively be dealt with by written interrogatories. I am firmly of the view that the balance comes down in favour of the Official Receiver in ordering an oral examination. It would be a lot more appropriate for the Official Receiver to get to the bottom of the enquiries with an oral examination, as this would afford an opportunity for any ambiguity or obfuscation in the answers to be cleared up at once.

28. As for the alleged collateral purpose in assisting the liquidators to obtain evidence in the claim for fraudulent preference, which is denied by the Official Receiver, I am not persuaded that this should out weigh the public interest in ensuring that the Official Receiver should have the information he seeks to discharge his statutory functions.

29. Having regard to the investigation already carried out by the Official Receiver, it seems to me that Mr Ng should have a fairly clear idea of the lines of questions that may be put to him in an oral examination. Besides, the investigation to be carried out in this instance could hardly be as complex as in the case of Chark Fung Securities. I do not see the need for Mr Ng to be provided with the questions to be asked before the oral examination.

30. For the above reasons, I would exercise my discretion and order that Mr Ng should attend before a Master of the High Court on a date and time to be fixed, with half a day reserved, to be examined on oath concerning the dealings, affairs or property of the Company.

31. As mentioned earlier, the application for production of documents is not opposed. I order that Messrs Ng & Tse, solicitors, do produce for inspection by the Official Receiver, within 21 days of this order, the files of Messrs Simon Ng & Co. in acting on behalf of the Company in relation to those matters as specified in paragraphs (1)(a) to (e) of the summons.

32. As the summons seeks an order that there be no order as to costs, I do not propose to make any award of costs in respect of the summons, except for the costs incurred for the hearing on 10 October 2002. That hearing was necessitated due to Mr Ng's opposition of the summons. I see no reason why costs should not be awarded against the unsuccessful party. I make an order nisi that there be no order as to the costs of the summons issued on 1 March 2002 save that Mr Ng is to pay the Official Receiver's costs of the hearing on 10 October 2002 forthwith.