NG WAI LING v. CHAN PING FAI RICKY AND ANOTHER

HCCW 260/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 260 OF 2008

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AND

HCCW 261/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 261 OF 2008

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BETWEEN

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AND

HCCW 262/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 262 OF 2008

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BETWEEN

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(Heard Together)

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D E C I S I O N

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1.  This is an application for a validation order regarding 3 companies – Honeycool Refrigeration & Engineering Company Limited, Lincoln Air-Conditioning & Engineering Company Limited and Hoovercool Engineering Company Limited (“Honeycool”, “Lincoln” and “Hoovercool” respectively).  These companies are the subject of 3 petitions presented under sections 168A and 177(1)(f) of the Companies Ordinance, Cap. 32.  They are in the nature of a shareholders’ dispute.  The petitioner seeks an order that each of these companies be wound up, alternatively the shares held by the deceased shareholder for whose estate the petitioner is the executrix should be bought by the 1^st respondent at fair value.

2.  The application was adjourned from 23 July 2008 for the 1^st respondent, who is the applicant, to produce the latest management accounts of all 3 companies, to give a cap of the monthly expenses with itemized breakdown, and to adduce objective evidence on the market value of 3 carparking spaces being the subject of a sale and purchase agreement between Hoovercool as vendor and a purchaser.

3.  The 3 companies are engaged in the business of property holding, investment and rental management.  Honeycool holds 1 landed property, Lincoln holds 10 properties and Hoovercool holds 5 properties.  It is the petitioner’s case that other properties held in the names of the shareholders in fact belong beneficially to the companies, I need not be concerned with that for present purpose.

4.  I am satisfied on the latest management accounts produced that all 3 companies are in a healthy financial position, notwithstanding that Honeycool on the accounts has current liabilities of $1 million odd, a net deficit of $291,769 and accumulated losses of $791,769.  It is pertinent to note that Honeycool has no material third party creditors, apart from the amount due to shareholders and a related company, Lincoln.  The major asset of Honeycool remains to be a landed property with a book value of $689,266, which is free from incumbrance.  As to the other 2 companies, the accounts showed a profit in operations, the net profit of Lincoln before tax for the year ended March 2008 was $346,606, and that of Hoovercool was $905,849.

5.  There is no question that a validation order should be made for each of the companies to enable them to continue with their business, as that would be in the interest of the companies and their shareholders.  The only question is the ambit of the validation order for each company and what terms, if any, should be imposed.

6.  The 1^st respondent seeks validation of payments into or out of the bank accounts in the ordinary course of business and all dispositions of property made in the ordinary course of business for proper value between the date of the presentation of the petition on 13 June 2008 and the date of judgment on each petition.

7.  I am concerned with payments since presentation of the petition, I am not concerned with expenses before that date, such as an item called “professional fees” paid to one Brumen Li or to the solicitors for the respondents for general consultation.

8.  I consider the position of each company.

9.  For Honeycool, the 1^st respondent has proposed a cap of withdrawing $20,000 a month from its bank accounts in the ordinary course of business, the Official Receiver has suggested a cap of $12,000.  It seems to me that the limit suggested by the Official Receiver is more appropriate.  It was contended by the petitioner that salaries at $5,000 a month should be disallowed, in view of the fact that rental income for this company is only $8,800 a month.  I am not going to do that, I will take a broadbrush approach at this stage.  I will make a validation order in terms of paragraph 1(1) of the amended summons subject to the limit of withdrawing $12,000 a month.

10.  As for Lincoln, the 1^st respondent has proposed a cap of withdrawing $80,000 a month in the ordinary course of its business.  The Official Receiver suggested a limit of $37,000, taking the average expenses for 3 months and rounding up the figure.  I will increase the limit to $45,000 a month, having regard to the fact that certain items of expenses during the 3-month period were not regular recurrent expenses.  I have also borne in mind the need to incur expenses for repair and maintenance.  I do not propose to disallow the item of expenses for salary and mandatory provident fund, notwithstanding the increase from the amounts paid for these items in 2007.  There will be a validation order in terms of paragraph 1(1) of the amended summons subject to the cap I have mentioned.

11.  For Hoovercool, the 1^st respondent suggested a cap of $70,000 a month in expenses withdrawn in the ordinary course of its business.  The Official Receiver proposed $47,100 a month, again taking the average figure for expenditure for 3 months and rounding up the figure.  I will adjust this to $42,000, taking into consideration the nature of the expenses incurred during the 3-month period and that some of them were not regular monthly expenses.  There will be a validation order in terms of paragraph 1(1) of the summons subject to the cap.

12.  I see no reason why a condition should not be imposed to provide a monitoring mechanism in this instance.  Instead of requiring a weekly schedule to be provided, I order each of the companies to provide a schedule of the payments made on a bi-weekly basis, giving particulars of each of the withdrawals made from the companies’ bank accounts, stating the amount, date of payment, name and address of payee, and purpose of payment.  The petitioner is permitted to inspect the supporting documents of the withdrawals made as set out in the schedule on giving 5 days’ notice to the companies.  The validation order for each of the companies would be subject to the condition mentioned.

13.  As for the disposition of properties in paragraph 1(2) of the amended summons concerning Hoovercool, I will validate the sale entered into by Hoovercool of the 3 carparking spaces.  I am satisfied on the evidence adduced that the sale was at arm’s length and at full market value.

14.  I decline to give carte blanche permission for the companies to dispose of any of the landed properties in future, even though it was proposed that the validation order is to specify that the sale would be for proper value.

15.  If any opportunity to buy or sell any landed property should arise in future, the companies could apply for a validation order supported by proper evidence.  Such an application could be heard at short notice, no prejudice would be occasioned to the companies.

16.  I assess the costs of the Official Receiver on a gross sum basis at $4,000 for each application, of which $1,750 is for the hearing on 23 July 2008 which was adjourned.

17.  The costs of the hearing on 23 July 2008 would be paid by the 1^st respondent to the petitioner and the Official Receiver in any event, the adjournment was necessitated due to the fact that the evidence filed in support of the application was insufficient.  Otherwise I order that the costs of the application be in the cause of each of the petitions.