RE BEST RESOURCES DEVELOPMENT LTD

HCCW 843/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 843 OF 2004

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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 provisional liquidators of Best Resources Development Limited (“the Company”) on 7 February 2005 under section 221 of the Companies Ordinances, Cap. 32, seeking an order (1) to examine orally three individuals, Lam Shuk Yin Helen (“Ms Lam”), Chan Mei Ling (“Ms Chan”) and David Tse Kin Wah (“Mr Tse”); and (2) production of all books, papers, writings and documents in the possession, power, and custody of the Company as against these three individuals.

2.  Ms Lam and Ms Chan were and are the only shareholders and directors of the Company.  They claimed however that they are only “nominee directors”.  Mr Tse is alleged by the provisional liquidators to be a de facto director.

3.  The Company was incorporated in Hong Kong in May 1999.  Its principal business was property investment and development.  I understand the only business undertaken by the Company was to acquire land for development of a resort hotel in Yim Tin Tsai, Sai Kung, New Territories.

4.  The Company was ordered to be wound up on the petition of creditors on 15 September 2004 and provisional liquidators were appointed the same day.  According to the statement of affairs filed by Ms Lam on 6 April 2005, the Company has an estimated deficiency of $174,000.00 odd. 

5.  I do not propose to rehearse the principles for the exercise of the discretion to make orders for oral examination and production of documents under section 221.  Suffice to say that I have borne in mind the approach to be adopted as stated in various authorities cited by counsel on both sides.  

6.  I would consider the question of oral examination first.  The provisional liquidators say they have a reasonable requirement to examine Ms Lam, Ms Chan and Mr Tse orally for these reasons. 

7.  There are important gaps in the provisional liquidators’ knowledge regarding the transactions undertaken by the Company.  Mr Liang for the provisional liquidators has set out for my reference 30 matters identified by the provisional liquidators in the accounts for the year ended 30 September 2000 and 3 matters in the accounts for the year ended 30 September 2004 that the provisional liquidators would wish to investigate.

8.  These transactions included payments to a director, various agents and consultants; unidentified entries for payment, expenses, loans, “development costs”, and bad debts in the journal vouchers; doubtful loans to the Company; doubtful payments relating to conveyancing transactions of the Company. 

9.  I note that these are among the matters set out in a questionnaire served by the provisional liquidators on the respondents on 18 April 2005.  Although the respondents provided some sort of answers in writing by their solicitors on 12 May 2005, the answers were incomplete and unsatisfactory.  This was recognised by the respondents as they would need to see the account journals and vouchers before they could supplement their answers.

10.  An appointment was made for a representative of the respondents to inspect the documents on 14 June 2005 but this representative did not keep the appointment.  Then photocopies were supplied by the provisional liquidators to the respondents’ solicitors at the latter’s suggestion on 18 July 2005.  On 21 July 2005 the respondents’ solicitors replied that as Mr Tse was not in Hong Kong, they could not obtain instructions from him to give further answers to the questionnaire until his return.

11.  At the hearing today, Ms Lin for the respondents informed the court that the respondents’ solicitors have obtained instructions and answers were prepared to the 33 matters that are regarded as outstanding set out in the schedule prepared by Mr Liang.  Ms Lin sought an adjournment of this application for the provisional liquidators to consider whether the further answers given by the respondents would be satisfactory.

12.  Having considered the questionnaire and the nature of the information sought by the provisional liquidators, I do not think it is a satisfactory way to conduct this investigation by written questions and answers.  This would only lead to further rounds of questions and answers and is not an expeditious and cost effective way of proceeding.  At the very least, the individuals should offer to attend interviews with the provisional liquidators on a voluntary basis, if they wish to avoid attending court to be examined formally.  I note that there is no such offer.

13.  I note also that the amount involved in the transactions to be investigated is substantial on Mr Liang’s calculation.  It is in the region of $7.7 million.

14.  Ms Lam and Ms Chan claimed to be nominee directors.  The provisional liquidators have no knowledge of who was or were behind the running of the Company.  They made enquiries of the respondents about this by letter dated 29 December 2004, but was no reply to this enquiry.

15.  Ms Chan has still not submitted a statement of affairs to the provisional liquidators.

16.  As for Ms Lam, she executed at least three assignments on behalf of the Company as purchaser.  She also signed the letter dated 30 November 1999 appointing LT Property Consultants Limited (“LT”) as the development consultant of the Company for the project at Yim Tin Tsai.  Mr Tse is the managing director of LT.  LT was also appointed by Ms Lam and Ms Chan on 30 September 2005 after the winding-up order was made to handle the affairs of the Company.

17.  Further, documents were exhibited by the provisional liquidators showing that Mr Tse was closely involved in the affairs of the Company at all material times.  He had supplied audited accounts of the Company to a party on 26 August 2004.  On 15 November 1999, he reported to an investor the progress of the project at Yim Tin Tsai and issued instruction to the investor to remit funds to the Company.  He called a shareholders’ meeting of the Company in November 2003 and circulated details of the Yim Tin Tsai project before the meeting.  In April 2004, he asked an investor to sign an audit confirmation for the Company relating to the shareholders’ loan to the Company.  In June 2004, he liaised with an investor relating to a shareholders’ agreement involving the Company and the progress of auditing the financial statements of the Company.  The operation of the Company was conducted at all times at the office of LT.

18.  As directors, Ms Lam and Ms Chan are “officers” of the Company within the term in section 221.  As for Mr Tse, I am satisfied that he is also an officer for the purpose of section 221.  “Officer” in section 221 is defined in section 2(1) to include “a director, manager or secretary”.  A “director” is defined in section 2(1) to include “any person occupying the position of director by whatever name called”.  A “manager” is defined in section 2(1) to mean “a person who under the immediate authority of the board of directors exercises managerial functions …”.  So none of the three individuals could be regarded as outsiders or strangers to the Company.

19.  I am satisfied that reasonable requirement has been made out to examine each of them.  The need to obtain information from them would clearly outweigh any risk of oppression to them in this situation.

20.  As for the production of documents, the respondents say that when they submitted a statement of affairs to the provisional liquidators on 6 April 2005, they had also delivered the books and records of the Company to the provisional liquidators.  The respondents’ solicitors took a narrow view of what was required to be delivered to the provisional liquidators, suggesting that the title deeds of properties held by the Company were not required to be furnished as they are not “books and records”.  This seems to be a curious attitude to say the least, as under section 221(3) the court may order production of any “books and papers in [the respondent’s] custody or power relating to the company”.

21.  On 11 May 2005, the respondents’ solicitors sent the title deeds of the Company’s properties that were available to the provisional liquidators.  It would appear that 5% of the title deeds had not been delivered.  At the hearing today, I am informed by Ms Lin that the respondents have now obtained the originals of the remaining 5% of the title deeds, and that these original title deeds would also be handed over to the provisional liquidators.

22.  Apart from the title deeds, the “books and records” supplied to the provisional liquidators on 6 April 2005 do not appear to me to be complete, as the provisional liquidators in their questionnaire served on the respondents on 18 April 2005 had identified a considerable number of documents that should be in existence and have not been supplied.  The provisional liquidators have no idea what other books and records relating to the Company in the possession of the respondents have not been handed over.  I see no reason why I should not make an order for production in this situation.  I would hear counsel on the form of the order to be made and on the question of costs.