RE ACTION INDUSTRIAL (INTERNATIONAL) LTD

HCCW 35/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 35 OF 2007

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D E C I S I O N

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1.  I have before me a summons issued by the Official Receiver for the removal of Mr Chan Kin Hang Danvil (“Danvil Chan”) and Mr Chan Man Yiu (“MY Chan”) of Honest Joy Accounting Service Co Ltd (“Honest Joy”) as liquidators of Action Industrial (International) Limited (“the Company”), the appointment of replacement liquidators and consequential orders. The summons is not resisted by the respondents, who have appeared by their solicitors today. They have proposed to deal with the Official Receiver’s application by consent summons but this is refused by the Official Receiver as the matter falls within the discretion of the court. I think it is right for the Official Receiver to refer the matter to the court as this involves serious professional misconduct on the part of the respondents and it is for the court to consider what appropriate orders should be made.

2.  The relevant matters leading to this application may be summarised as follows.

3.  The Company was ordered to be wound up on 16 April 2007. The respondents were appointed as provisional liquidators on the same day by the Official Receiver in his place pursuant to section 194(1A) of the Companies Ordinance, Cap. 32. The appointment was made in accordance with terms and conditions of a contract between Honest Joy and the Official Receiver, pursuant to an offer submitted by Honest Joy on 24 January 2006 under the tender documents entitled “Tender for Taking Up of Appointment as Provisional Liquidators under section 194(1A) of the Companies Ordinance” and accepted by the Official Receiver on 15 March 2006.

4.  The respondents as provisional liquidators convened meetings of creditors and contributories and resolutions were passed to appoint them as liquidators of the Company. They then applied to the court to be appointed as liquidators and an order was made on 14 May 2008. The liquidation is a non-summary liquidation and has not been finalised.

5.  The affirmation of fitness in relation to MY Chan in support of his application for appointment as liquidators was made by a solicitor Mr Tang Man Ching (“MC Tang”), who stated that MY Chan “has been practising in accounting firms for about 10 years”. This was misleading at best or incorrect at worst, as according to the Declaration on Details of the Tenderer made by MY Chan on 24 January 2006 and submitted by Honest Joy which formed part of the contract with the Official Receiver, MY Chan declared and confirmed he was not registered to any recognised professional body and his position in Honest Joy at the material time was “an Assurance & Business Advisory Manager”.

6.  Although the legislation imposes no formal requirements for the appointment as liquidators, the Official Receiver takes the view it would be more appropriate to appoint a professional accountant as liquidator in non-summary compulsory liquidation, as work in such liquidation would necessarily require accountancy work, which should be performed by a professional accountant. In my view, MY Chan should be removed as a liquidator of the Company for this reason alone.

7.  Danvil Chan is a qualified accountant and a member of the Hong Kong Institute of Certified Public Accountants. Based on matters revealed in Official Receiver’s investigation, the Official Receiver is of the view he should also be removed as a liquidator for serious professional misconduct.

8.  Firstly, Danvil Chan in his capacity as director of Honest Joy made false declarations in the Declarations on Details of the Tenderer dated 24 January 2006, in which it was declared and confirmed that he and MC Tang are the recognised professionals as defined in the tender and both were the directors of Honest Joy. In fact MC Tang was not a director or employee of Honest Joy, and this was known to Danvil Chan. His subsequent explanation to the Official Receiver was that he had agreed with MC Tang to appoint the latter as a director if the tender was accepted but MC Tang later declined to be appointed and Honest Joy had employed another qualified accountant since two years ago. Honest Joy did not meet the qualification criteria stipulated in the tender and had the Official Receiver been fully apprised of the background of Honest Joy, the tender submission would not be accepted. The subsequent appointment of a qualified accountant is irrelevant. I agree with the Official Receiver this false declaration gave rise to serious concern if Danvil Chan is a fit and proper person to act as a liquidator for the Company.

9.  Secondly, Danvil Chan and MY Chan had failed to comply with the statutory duty of a liquidator in section 202 of Cap. 32. They failed to pay $387,891.37, being the surplus proceeds of a property of the Company under a mortgagee sale forthwith to the Companies Liquidation Account without any deductions. The money was received by them on 19 November 2007. It was only when the Official Receiver asked them to clarify the whereabouts of the surplus proceeds on 21 August 2009 that they remitted the proceeds on 27 August 2009, but they deducted $9,940 from the proceeds remitted. Notwithstanding the Official Receiver’s requests for explanation, no explanation has been provided by the respondents for their retention of surplus proceeds. The shortfall of $9,940 was paid to the Official Receiver only on 19 November 2009. This is clearly serious professional misconduct.

10.  Thirdly, notwithstanding they had received the surplus proceeds on 19 November 2007, in their subsequent report to the court and the accounts submitted to the Official Receiver, they reported there was no asset realisation. It was only when the Official Receiver made enquiries in August 2009 that they made an attempt to amend the relevant accounts to reflect the receipt of the surplus proceeds. I agree with the Official Receiver they had failed to perform with professionally acceptable standard in their conduct of the liquidation.

11.  Fourthly, they failed to provide security to the satisfaction of the Official Receiver within 21 days of the order of their appointment as liquidators dated 14 May 2008, in breach of section 195 of Cap. 32. The Official Receiver was not informed of their appointment until receipt of the letter dated 27 August 2009 from Danvil Chan.

12.  The above matters render the respondents not fit and proper persons to continue as liquidators of the Company. The court has jurisdiction and discretion to remove them under section 196(1). Further, under section 202(2A), the court also has discretion to remove a liquidator where he retains any sum in contravention of section 202(2)(a) or (b), unless the liquidator explains the retention to the satisfaction of the court. Under section 202(2A), the court may disallow the liquidator’s fees, and to order the liquidator to pay interest on the amount retained at the rate of 20% per annum.

13.  I make the orders for the removal of Danvil Chan and MY Chan and for replacement liquidators to be appointed as sought by the Official Receiver, as well as consequential orders set out in para 10 of the supplemental report of the Official Receiver dated 17 November 2009. There will be an order in terms of paras (1) to (10) and (12) of para 10 of the supplemental report.

14.  In respect of the Official Receiver’s costs of this application in para (11), the Official Receiver seeks an assessment on a gross sum basis. The respondents’ solicitors Mr Pang submitted that the hearing today is not necessary. I do not agree. He also submitted there was no need for preparation of hearing of two hours and detailed perusal of documents, as the respondents have indicated through their solicitors they will not resist the application. I have regard to the fact that the shortfall in surplus proceeds was paid back to the Official Receiver only on 19 November 2009, by which time most of the work of the Official Receiver had already been done. I will only make a slight reduction to the perusal of documents and preparation for hearing. I assess costs on a gross sum basis at $19,000.