CHOW YAT TIM v. TANG HING KEUNG AND OTHERS

HCCW 396/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 396 OF 2007

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D E C I S I O N

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1.  This is an application by Tang Hing Keung, the 1^st respondent herein, to strike out the prayer for winding up in the amended petition presented by Chow Yat Tim against Hing Ming Gondola (HK) Company Limited (“the Company”), on the ground that there is no reasonable cause of action to justify a winding-up order under section 177(1)(f) of the Companies Ordinance, Cap. 32 and that the petitioner is acting unreasonably in insisting on winding up the Company instead of restricting himself to alternative available remedy under section 168A for his shares to be bought out by the Company or the 1^st respondent.

2.  The question is whether at this stage, assuming that the petitioner proves all the facts in the amended petition, there is or is not a real possibility of the court making a winding-up order on the amended petition.  If it is clear there is no real possibility of that happening, the winding-up prayer should be struck out as winding up is a remedy of last resort and it would be unfair and unjust to have the threat of winding up hanging indefinitely over the head of the Company.

3.  The power to strike out is to be exercised in a plain and obvious case, so the court should always act with circumspection.  I bear in mind that the onus is on the 1^st respondent to establish that the petitioner is acting unreasonably to have the Company wound up instead of pursuing his remedy under section 168A.

4.  I first set out the relevant background matters.

5.  The Company was incorporated on 22 September 1997 with a nominal capital of $1 million divided into 1 million shares of $1 each, all of which were issued and paid up.  The petitioner was issued 100,000 shares, the 1^st respondent 800,000 and the 3^rd respondent who is the 1^st respondent’s wife 100,000.  All three were appointed directors of the Company.

6.  The Company is engaged in the business of hiring out, buying and selling gondolas and lifting equipment.  The petitioner was employed as a supervisor in the Company, the 1^st respondent was and is its managing director.  It is alleged by the petitioner that the Company was a quasi partnership between him and the 1^st respondent, and owing to the matters complained of in the petition, there has been complete loss of trust and confidence between them.

7.  The complaints relied on by the petitioner to found his petition to wind up the Company and for relief under section 168A are the same and may be summarised as follows:

8.  Mr Dawes submitted for the 1^st respondent that it is plain and obvious there is no real prospect that a winding-up order would be made for these reasons.

9.  Firstly, it is common ground that the Company is solvent and doing very profitable business.  I have before me the audited accounts for the years ended March 2001 to March 2007 and the management accounts from April to August 2007.

10.  According to the audited accounts for the year ended March 2007, the turnover was $29 million, gross profit was $15.9 million and net assets were $19 million.  In the management accounts from April to August 2007, the Company recorded fixed assets of $11.7 million, current assets of over $18 million and retained profits carried forward of $22.3 million.

11.  In my view, it is not relevant that no dividends were declared.

12.  The Company was established for 10 years and has reputation in the field of gondola rental, it has been providing gondola services to major contractors both local and overseas.  The total contract sums for large scale projects in the next 12 months amounted to $14.6 million.

13.  The Company is now engaged in temporary gondola business and has been exploring opportunities to go into permanent gondola business which requires building maintenance units.

14.  It is clearly not in the interest of any of its members to wind up the Company.

15.  Secondly, the court has wide discretion under section 168A to order the 1^st respondent or the Company to buy out the petitioner’s shares and this would provide a sufficient remedy to the petitioner.

16.  There is no suggestion that the 1^st respondent or the Company is not financially capable of buying out the petitioner at a fair value of his shares on a proper valuation.  The fact that the 1^st respondent did not make any response to the petitioner’s offer to be bought out prior to the presentation of the petition is immaterial, nor is it relevant that, to date, the 1^st respondent has not come up with an offer to the petitioner’s satisfaction.

17.  Thirdly, there is an innocent shareholder who would be affected if the Company were to be wound up.  The 3^rd respondent holds 10% of the shares prior to the increase of share capital in her own right.

18.  In my view, the above are cogent reasons.

19.  It was asserted by Mr Ho for the petitioner that winding up is the primary or preferred relief for the petitioner.  However, no explanation was given as to why the relief of winding up is preferred.  Nor can I see what prejudice would be suffered by the petitioner if he is confined to his remedy under section 168A.

20.  Mr Ho further submitted that the question whether the petitioner has acted unreasonably in insisting on winding-up relief should only be considered at the trial.  I disagree.  This is wholly contrary to well established authorities.

21.  Lastly, Mr Ho submitted that as allegations were made by the petitioner against the 1^st respondent that the 1^st respondent had issued cheques to his personal account and the personal account of his relative, these alleged irregularities might not be taken into account properly in a share valuation exercise.  Again, I beg to disagree.

22.  In my judgment, this is a clear case that there is no real prospect a winding-up order would be made on the petition.  I strike out the prayer for winding up with costs to the 1^st respondent in any event.