RE INTERNATIONAL CAPITAL NETWORK HOLDINGS LTD

HCCW898/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO.898 OF 2002

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J U D G M E N T

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1. This is an application for appointment of provisional liquidators for International Capital Network Holdings Limited ("the Company").

THE COMPANY

2. The Company is incorporated in the Cayman Islands on 12 July 2001 and registered in Hong Kong under Part XI of the Companies Ordinance, Cap.32, with an authorised capital of HK$10,000,000.00 divided into 1,000,000,000 shares of HK$0.01 each. On 30 November 2001 ("the Listing Date"), the shares bearing stock code 8004 were listed for trading on the Growth Enterprise Market of the Hong Kong Stock Exchange ("the GEM"). They remain so to date but trading has been suspended since 13 November 2002.

3. The objects for which the Company was established are, inter alia, to carry on business as an investment company and as an investment holding company. According to the Company's prospectus dated 20 November 2001 ("the Prospectus"), the principal business focus of the group of companies comprising the Company and such subsidiaries formed prior to the Listing Date (collectively "the Group") is the provision of business development and corporate advisory and finance services to small and medium size companies in Hong Kong with significant growth potential. Such services include :

(a) advising clients on the formulation of business development strategies, performance improvement and corporate reorganisations;

(b) assisting clients on the evaluation of market opportunities and business expansion;

(c) advising on pre-initial public offering corporate management and initial public offerings; and

(d) conducting corporate finance advisory works such as acting as an independent financial adviser and advising clients on connected and notifiable transactions under the Rules Governing the List of Securities on the Stock Exchange.

THE PARTIES

4. At all material times, 320,000,000 of the Company's shares were issued and distributed as follows :

5. The four corporate shareholders are all BVI companies. ICN Investor's issued share capital is beneficially owned as to 76.34% by Dynasty Nation Group Limited ("DNG"), another BVI company wholly and beneficially owned by Daniel Hui Chuen Kin ("Daniel Hui"); and as to the remaining 23.66% by International Capital Partners Limited ("IC Partners"), also a BIV company wholly and beneficially owned by Michael Lui Bing Kin ("Michael Lui").

6. The petitioner's issued share capital, according to the petitioner, is wholly and beneficially owned by Cecilia Chu Oi Wan ("Cecilia Chu"). Capital Ace is wholly and beneficially owned by Digital World Holdings Limited. The petitioner's case is that the issued share capital of Wise Express is wholly and beneficially owned by Mona Leung Yuk Kit ("Mona Leung"). The Company, however, alleges that Capital Ace, Wise Express, the petitioner, Cecilia Chu, Wise Express and Mona Leung are all associates or nominees of one Kenneth Cheung Chi Shing ("Kenneth Cheung") or have been acting under his control or direction. As will be seen in a moment, it is a hotly contested issue and the very seed of the present and other proceedings.

7. It is the petitioner's case that Daniel Hui, Michael Hui, Cecilia Chu and Mona Leung, through their respective controlled companies, are the founders of the Group. For the purpose of the Rules Governing the Listing of Securities on GEM ("the GEM Listing Rules"), the initial management shareholders of the Company were ICN Investor, DNG, IC Partners, the petitioner, Wise Express, Daniel Hui, Michael Lui, Cecilia Chu and Mona Leung.

8. As at the date of the presentation of this petition, that is, 9 August 2002, the Company's board of directors consisted of two executive directors, Daniel Hui (chairman and management director appointed on 12 July 2001) and Michael Lui (vice-chairman appointed on 7 August 2001); and two independent non-executive directors, Wong Wai Ho (appointed on 13 November 2001) and Tsui Hung Nui (appointed on 4 June 2002 following the resignation of his predecessor on 13 November 2001).

THE GENERAL MANDATE

9. By written resolutions of all the shareholders of the Company passed on 13 November 2001, the rules of a share option scheme for the directors and employees of the Group ("the Share Option Scheme") were adopted and approved and the board of directors was given a mandate ("the General Mandate") :

(a) to grant options to subscribe for shares under the Share Option Scheme and to allot and issue such shares pursuant thereto and to take such steps as might be necessary or desirable to implement the Share Option Scheme; and

(b) to allot, issue and deal with shares with an aggregate nominal value up to the sum of 20% of the aggregate nominal amount of the share capital of the Company then in issue; and any shares repurchased by the Company.

THE SHAREHOLDERS' UNDERTAKINGS

10. In accordance with the GEM Listing Rules, each of the management shareholders undertook to and covenanted with the Company, its sponsor, its lead manager and the underwriters that each of them would not for a period of 12 months commencing from the Listing Date ("the Lock-up Period") :

(a) sell, transfer or otherwise dispose of or create any rights in respect of any of his/her/its direct or indirect interest in the relevant securities (as such term is defined in Rule 13.15 of the GEM Listing Rules) of the Company held by him/her/it or his/her/its nominees or trustees; or

(b) sell, transfer or otherwise dispose of or enter into any agreement to sell, transfer or dispose of any interest in any shares controlled by him/her/it which was directly, or through another company indirectly, the beneficial owner of any of the shares ("the Shareholders' Undertaking").

11. The effect of the Shareholder's Undertaking is that until the expiry of the Lock-up Period (namely, 30 November 2002), and regardless of the condition of the market, all shareholders have become locked-in shareholders of the Company. In short, they are not at liberty to dispose of their shares or interest in their shares without infringing the GEM Listing Rules and the Shareholder's Undertaking.

THE COMPANY'S UNDERTAKINGS

12. Further, in accordance with the GEM Listing Rules, each of the Company and its executive directors also jointly and severally undertook to and covenanted with the sponsor, the lead manager and the underwriters that, apart from a few exceptions (which are irrelevant for present purposes), the Company would not, and the executive directors would procure that the Company would not, for a period of six months from the Listing date (which expired on 30 May 2002) :

(a) allot or issue or agree to allot or issue any securities in the Company or any of its subsidiaries; or

(b) grant or agree to grant any options or other rights carrying any right to subscribe for or otherwise acquire any securities in the Company or any of its subsidiaries ("the Company's Undertakings").

13. The effect of the Company's Undertakings is that until 30 May 2002 and regardless of the level of trading price of the Company's shares, its board was not at liberty to exercise the General Mandate and the Company was not at liberty to grant options to subscribe for shares or to allot or issue shares without infringing the GEM Listing Rules and the Company's Undertakings.

14. It is apparently not in dispute that before 30 May 2002, the parties' relationship had deteriorated.

PROPOSED EGM BY CAPITAL ACE AND WISE EXPRESS

15. On 10 April 2002, Capital Ace and Wise Express (collectively "the Requisitionists"), issued a requisition pursuant to Article 72 of the Articles of Association of the Company for an extraordinary general meeting to be convened within 21 days. The resolutions proposed to be considered at the EGM were, inter alia :

(a) To revoke all previous mandates for the issue of shares and options by the board;

(b) To appoint seven additional directors, including Mona Leung; and

(c) The aggregate number of directors be increased accordingly.

16. By a letter dated 18 April 2002, the Requisitionists' solicitors put the Company and its directors on notice that the board had until mid-night on 1 May 2002 to convene the EGM sought and that upon default the Requisitionists would themselves proceed to do so. Confirmations were also sought from the Company and its directors that the EGM would be convened for 17 May 2002 and that until the conclusion of the EGM, no additional directors would be appointed in the interim; and if the EGM were to be convened for a date beyond 30 May 2002 the board would not seek to exercise the General Mandate or to allot, issue or deal with, or make or grant offers, agreements, options over any shares of the Company.

17. The Company refused to give the confirmations sought and on 29 April 2002, the board gave notice that the EGM would be held on 2 December 2002, some 8 months later instead of 17 May 2002 proposed by the Requisitionists. Further, by an announcement of the same date, the Company stated the reasons as follows :

"(a) strong circumstantial evidence led the directors of the Company to consider that there may be a group of people who are acting in concert and had acquired sufficient shares to have triggered mandatory takeover obligations as required by Rule 26 of the Codes on Takeovers and Mergers and Share Repurchases (the 'Takeovers Code');

(b) there may have been a breach of Section 26A of the Securities and Future Commission Ordinance, and there may have been a failure to make the disclosures required under the Securities (Disclosure of Interests) Ordinance;

(c) the board had commenced an investigation into the ownership of the Shares by serving on a number of parties notices under section 18 of the Securities (Disclosure of Interests) Ordinance (the 'Section 18 Notices'), the time necessary to complete the investigation would depend largely on the cooperation of the parties on whom the Section 18 Notices were served, and 'for this reason' the board had decided to set a lengthy notice period for the requisitioned EGM;

(d) the directors believed it was not in the interest of the Company for it to acquiesce in arrangements which might allow a party to gain control of the board without first fully complying with the provisions of the Takeovers Code by making a mandatory offer at the highest price it had paid for the shares in the 6 month-period preceding the date on which the mandatory offer obligation arose;

(e) an investigation was also being carried out by the Company with a view to establishing whether shares purchased since the Listing Date had caused any party to become, in breach of Section 26A of the Securities and Futures Commission Ordinance, an unapproved substantial shareholder of International Capital Network Limited (an indirect wholly owned subsidiary of the Company and an investment adviser registered under the provisions of the Securities Ordinance)."

18. The Requisitionists were dissatisfied. After taking legal advice, they proceeded to convene the EGM and did so by publishing in the press an announcement dated 7 May 2002 by way of giving notice to all shareholders of the Company that the requisitioned EGM would be held on 23 May 2002 so that the shareholders might be able to express and to vote upon the proposed resolutions.

LITIGATION

19. Not surprisingly, what followed is a string of legal proceedings.

20. On 15 May 2002, the Company commenced HCA1842/2002 against the Requisitionists and obtained an ex parte injunction restraining the Requisitionists, until further order, from holding the requisitioned EGM. The return date for the further hearing of the Company's application was set for 27 and 28 January 2003. The matter however came before Chung J on 27 and 28 August 2002. On 3 September 2002, he discharged the injunction. His order was, by consent, stayed pending appeal.

21. On 30 May 2002, that is, the day on which the General Mandate became exercisable by the board, the Requisitionists commenced HCA2066/2002 against the Company and the directors and obtained an ex parte injunction whereby it was ordered that, other than the approval of the shareholders of the Company in general meeting, and until further order, the Company was restrained from issuing any shares, options or other securities convertible into equity securities; and each of the directors of the Company was restrained from procuring or effecting such issue. On 5 August 2002, Deputy Judge Carlson discharged the injunction and granted a short stay of his order for discharge until 4 p.m. on 9 August 2002 (presumably to enable an appeal to be lodged). On 3 September, the Court of Appeal dismissed the appeal. And the Company undertook not to issue shares before the EGM to be held on 2 December 2002.

22. The two actions were in the event consolidated. Neither the petitioner nor Cecilia Chu is a party to or takes part in the actions.

PETITION

23. On 9 August 2002, the petitioner petitioned to wind up the Company on the just and equitable ground. The petitioner's complaints may be summarised as follows.

24. The petitioner first alleged that the significance of postponing the EGM to 2 December 2002 (which would be the first trading day after the expiry of the Lock-up Period) was that :

(a) between 31 May and 30 November 2002, Daniel Hui and Michael Lui would be able to procure the board to exercise the General Mandate and cause shares to be issued and allotted (and if they saw fit) they would be able to exercise such powers to bolster the voting power of ICN Investor by issuing and allotting shares to independent parties sympathetic to them; and/or

(b) between 30 November and 2 December 2002, ICN Investor (controlled by Daniel Hui and Michael Lui) would be able to dispose of its shares before relinquishing control of the Company, in the event they were unable to secure sufficient voting power to reject the resolutions proposed by the Requisitionists.

25. Referring to the return dates of the Company's application in HCA1842/2002 (27 and 28 January 2003), the petitioner complained that by which time the EGM convened by the Company for 2 December 2002 would have been held already. In the circumstances, the board's decision to hold the EGM on 2 December 2002 was unreasonable; the inter partes hearing would be wholly academic; and it was impracticable for the petitioner and the general body of shareholders of the Company to exercise their constitutional right to oversee the management of the Company through participation in shareholders' meetings prior to 2 December 2002 and in particular prior to the General Mandate becoming exercisable by the board.

26. The petitioner further alleged that the consequence of discharging the injunction obtained by the Requisitionists in HCA2066/2002 was that the General Mandate might be exercised, thereby altering the shareholding of the Company, at a time when the petitioner and the general body of shareholders of the Company were prevented from exercising their constitutional right to alter the board's powers and/or to alter the composition of the board by the board's decision to delay holding the EGM until 2 December 2002. The petitioner complained that the unreasonable delay in holding the EGM until 2 December 2002, coupled with the Company's refusal to give confirmations sought by the Requisitionists in their solicitors' letter dated 18 April 2002 had frustrated the very purpose for which the EGM was requisitioned and constituted an infringement of the contractual rights enjoyed by the petitioner under the Articles of the Association to oversee the management of the Company through participation in shareholders' meetings to be held within a reasonable period upon being requisitioned.

27. These complaints relate to the petitioner's rights as shareholder under the Articles of Association. There is another head of complaint that concerns the Company's cash assets. The net proceeds arising from the public offer and placing of the shares were in the region of HK$40 million for application in or towards financing the Group's business as stated in the Prospectus. As of 15 May 2002, the Group apparently had cash assets in the region of at least HK$45 million with no or no significant liabilities. However, between December 2001 and January 2002, contrary to the representations made in the Prospectus, the board controlled by Daniel Hui and Michael Lui caused the proceeds of HK$40 million arising from the public offer and placing of shares to be removed from the direct control of the Company. The transfer of funds was achieved by the formation of ICN Finance Limited ("ICN Finance"), a BVI company, to whom the said sum of HK$40 million was transferred in exchange for the allotment to the Company of 20,000,000 shares of HK$1 each in the capital of ICN Finance; and to Daniel Hui on trust for the Company the remaining balance of 20,000,000 shares of HK$1 each in the capital of ICH Finance. The petitioner alleged that the Articles of Association of ICN Finance render it more difficult than usual to remove the directors of ICN Finance. In the circumstances, the petitioner complained that the cash of assets of the Company raised pursuant to the public placing are in the exclusive control of ICN Finance and not with the control of the Company, despite any change in composition of the latter's board that may result form the EGM to be held on 2 December 2002. The affairs of the Company were thus conducted in a manner contrary to the representations made in the Prospectus whereby the directors of the Company had expressed their intention that (a) such proceeds will be applied in or towards pursuing or developing the Group's legitimate business of providing corporate advisory and finance services to small and medium size companies; and to the extent that such proceeds are not immediately required for the Group's legitimate business, they will be placed on short-term interest bearing deposits with authorised financial institutions.

28. The petition was heard by the court on 11 November 2002, 23 December 2002 and 27 January 2003 and has been adjourned with directions. In his affirmation filed on 5 November 2002 to oppose the petition, Michael Lui raised two main points. He first alleged that the petition is an abuse of process because the complaints arising from the requisition of the EGM are already before the court in the actions referred to above and they should be properly resolved at the trial of those actions and not by a winding-up petition, especially when the Company is solvent and a listed company. The Court of Appeal's decision provides or ought to provide a satisfactory solution to the petitioner's complaint in relation to the share allotment issue. Mr Lui then explained the transfer to HK$40 million by the Company to ICN Finance thus. ICN Finance is a wholly owned subsidiary of the Company. Under the trust arrangement between Daniel Hui and the Company, the Company may at any time require Daniel Hui to transfer the beneficial interest in the 20,000,000 shares according to its direction. The trust arrangement is necessary in that it affords the executive directors of the Company some time to react should someone attempt to take control of the Company by stealth instead of making a proper general cash offer or attempt to get access to the Company's cash resources.

POST-PETITION EVENTS

29. Recent events have happened and developed since the filing of the petition, which eventually triggered the present application for appointment of provisional liquidators. Some of these events are described in a press release dated 8 November 2002 published by the SFC and an announcement dated 19 November 2002 by the Company ("the Announcement").

(1) Koffmann offer

30. The SFC's press release published a resolution made by the Takeovers and Mergers Panel of the SFC ("the Panel") in relation to an offer made by Koffmann Securities Limited ("Koffmann") for the Company's share capital. The circumstances leading to the resolution are in brief as follows. On 5 September 2002, Koffmann announced its intention to make a voluntary offer for all the issued shares in the Company. Shortly thereafter, the Company advised the Executive Director of the Corporate Finance of the SFC ("the Executive") that it did not consider the Koffmann offer to be bona fide or in accordance with the Takeovers Code and accordingly the Company did not propose to take further action in relation to the offer until it was investigated. The Company alleged that the Koffmann offer was part of a series of arrangements between a group alleged to own a majority interest of the Company's shares acting in concert and Koffmann and that the said group had prior to Koffmann offer triggered a mandatory offer obligation under Rule 26.1 of the Takeovers Code at a far higher price than the Koffmann offer. Accordingly, the Company did not believe the shareholders should respond to the Koffmann offer. By letters dated 27 September and 3 October 2002, the Executive ruled that the Koffmann offer constituted an announcement of the terms of an offer that triggered various obligations of the board of directors of the Company under the Takeovers Code; and that unless it was demonstrated to the satisfaction of the Executive or the Panel that Koffmann or its financial advisers were in breach of the relevant provisions of the Takeovers Code, the Company must comply with the provisions of the Takeovers Code in response to the Koffmann offer and any failure to do so would not be in the interest of the shareholders of the Company and would be in breach of the Takeovers Code. On 8 October 2002, the Company applied to the Panel for a review of the Executive's ruling. On 31 October 2002, the Panel resolved that the Koffmann offer was capable of being implemented in full; that shareholders were generally best served by being afforded the opportunity to consider an offer, the application to that offer of the Takeovers Code's disciplines on disclosure of information and the timely provision of independent financial advisers; and that the Company must respond to the Koffmann offer in accordance with the Takeovers Codes.

31. On 4 November 2002, First Shanghai Capital Limited resigned as independent financial adviser to the independent board committee of the Company appointed in connection with the Koffmann offer, stating that material information had been withheld from it in the course of its diligence.

32. On 12 November 2002, Anglo Chinese Finance Limited resigned as the Company's financial adviser, stating its reasons to be its belief that the Company breached the Takeovers Code and the GEM Listing Rules.

33. In connection with the Koffmann offer, the Company, through the Announcement, made it known that its response to the Koffmann offer had been delayed to a date yet to be determined. The petitioner complained that the Company had not taken any action to respond to the Koffmann offer in accordance with the Takeovers Code prior to its expiration. On 9 December 2002, Koffmann had not received sufficient acceptances for its offer to become unconditional and the Koffmann offer lapsed.

34. Daniel Hui, in his first affirmation dated 8 January 2003 filed in opposition of the present application, denied that the Company had not taken steps to respond to the Koffmann offer. According to him, the Company prepared and circulated to the SFC and the Stock Exchange for clearance a draft response but the document was not cleared by the SFC and Stock Exchange before the Koffmann offer lapsed. The latest draft response exhibited to his affirmation was dated 14 December 2002, that is, after the expiry of the offer. The document stated several matters to be discussed with the SFC, including :

(a) Waiver of all obligations under the Takeovers Code that curtailed appointments of financial advisers on the ground that it had been unable to find either a financial adviser as an independent financial adviser for its independent board committee. (As noted above, the financial adviser had already resigned by that time.)

(b) The reference to the allegation that the offer was an attempt to acquire control of the Company in disregard of the general principles of the Takeovers Code and other laws and regulations. (It is apparent from the same paragraph that the SFC wanted to delete it but the Company thought it was material information that ought to be disclosed).

Daniel Hui had not explained why the financial adviser resigned and why the Company had been unable to find a replacement. Nor had he stated the reasons why the Company thought it material to include the allegation in (b) above in the absence of any findings by the SFC and in light of the Panel's ruling and the SFC's indication that it should be deleted.

(2) The Company's cash assets

35. The Announcement disclosed the following events concerning the financial affairs of the Company.

36. On 30 September and 3 October 2002, the Group entered into contracts with Mr Qi Zhi Guo ("Mr Qi") and Mutual Well International Limited ("Mutual Well") respectively in relation to opening and operating five representative offices in the Mainland. Pursuant to these contracts, the Group paid the Mainland parties a non-refundable sum of approximately HK$20.2 million between 30 September and 24 October 2002 by way of pre-payment of setting up costs and first year operating costs for the said offices.

37. On 8 October 2002, Top Advance (HK) Limited, an indirectly wholly owned subsidiary of the Company, made a loan of HK$11,250,000 to one JQK Investment Limited, a BVI company. The loan was secured by a charge over the entire issued share capital of Regal Town Trading Limited, the owner of 30% of the issued share capital of Best Express Trading Limited, which was in turn the owner of the intellectual property rights in a patent application under International Application No.PCT/CA00/01414. The Announcement asserted that the loan was made on normal commercial terms and/or in the ordinary and usual course of the Company's business. But the Company at the same time announced that it did not know the value of either Regal Town Trading Limited or Best Express Trading Limited, nor did the Company obtain its own valuation of the assets of these companies, which had been valued by a valuer retained by JQK Investment Limited at US$8,500,000.

38. It is common ground that the above transactions had not been disclosed as post-balance sheet events in the Company's annual audited financial statements for the year ended 31 July 2002, which was announced by the Company on 28 October 2002. Nor were they disclosed in Michael Lui's affirmation (filed on 5 November 2002). According to the Announcement, the directors of the Company considered that the above transactions were on normal commercial terms and in the ordinary usual course of its business, but had subsequently been advised that they might have been in breach of Rule 4 of the Takeovers Code and/or a breach of the GEM Listing Rules. The Executive had indicated that enquiries would be conducted into a possible breach of the law and/or Rule 4 of the Takeovers Code and might commence disciplinary action or legal action if appropriate. The Listing Division of the Stock Exchange had also indicated that it would conduct enquiries regarding a possible of its listing rules and might commence disciplinary action if appropriate.

39. The Announcement further revealed that the actual expenditure incurred by the Company on its stated objectives in the three month period from 1 August 2002 to 31 October 2002 of HK$31,433,000 exceeded (a) the expenditure it proposed in the Prospectus for the 12 month period from 1 August 2002 to 31 July 2003 (HK$13,200,000) by HK$18,233,000 and (b) the total amount available for the 12 month period from 1 August 2001 to 31 July 2003 (HK$26,075,000) by HK$5,358,000. As at 31 July 2002, the cash balances of the Group were said to amount to about HK$41 million. As at 19 November 2002, they were about HK$3.6 million.

40. It was stated in the Announcement that both the Executive and the Stock Exchange indicated that they considered the information in the Announcement to be inadequate and expressly reserved the right to take legal and/or disciplinary action against the Company and the relevant directors.

41. Further, during the 12 month period between 1 August 2001 to 31 July 2002, the Group had suffered an operating loss of HK$10,090,899, according to its annual audited statements for the year ended 31 July 2002. During the period between 1 August 2002 and 31 October 2002, the Group achieved a turnover of HK$246,604 but suffered a loss of HK$7,283,842, according to the Company's announcement dated 13 December 2002.

42. Daniel Hui refuted the allegation that there had been dissipation of cash assets in paragraphs 9 to 27 of his first affirmation filed on 8 January 2003. In summary, he said :

(1) The Company had utilised its assets validly and consistently with the Company's objectives as they appear in the Prospectus and other public documents including the Announcement.

(2) I n line with the Company's expansion plans, in September and October 2002, ICN Finance entered into contracts with Mr Qi and Mutual Well for them to set up five representative offices in the Mainland and operate them on its behalf. The purposes of the offices are to improve the public awareness of the Group in the Mainland; to enhance the Group by expanding its alliance network; and to provide marketing of the Group's services in the Mainland with a view to obtaining business for the Group in Hong Kong. These contracts were negotiated at arm's length. Certain relevant information with respect to these contracts was set out in the Announcement. Further details of the scope of work undertaken by Mr Qi and Mutual Well and the scope of business of the offices were stated in paragraphs 15 to 17 of his first affirmation.

(3) An aggregate sum of about HK$20.2 million was paid under the two contracts as setting up costs and other operating expenses for the offices. The benefits to the Group derived from the transactions were significant. The outsourcing of the work can help improve efficiency in achieving the business objectives of the Group, to minimise costs, avoid overheads and heavy manpower commitment.

(4) The transactions was not disclosed as an post-balance sheet events on 20 December 2002. The executive directors considered them to be ordinary commercial contracts in the normal course of the Group's business. They therefore thought that it was not necessary to disclose them as post-balance sheet events in the audited consolidated financial statements of the Group for the year ended 31 July 2002. After the Announcement, the directors revisited the issue and concluded that disclosure was necessary for a proper understanding of the financial position of the Group and therefore made the above disclosure.

(5) At the time of the above transactions, the executive directors also considered that they did not require public requirement under the GEM Listing Rules. They were entered into with independent third parties and were to types that were already contemplated as part of the business objectives of the Company and its Group as set out in the Prospectus, interim report and announcement dated 17 September 2002 which contemplated costs for the provision of wider financial services of HK$5.6 million, set-up costs of overseas offices of HK$2.4 million, expansion of alliance network of HK$2.4 million, recruitment of additional staff of HK$12 million and improvement of public awareness of HK$2 million for the period ended 31 July 2002.

(6) The transactions were not mentioned in Michael Lui's affirmation for the same reason that the executive directors were under the impression that they did not require announcement.

(7) The loan of HK$11,250,000 by Top Advance (HK) Limited, an indirectly wholly owned subsidiary of the Company to JQK Investment Limited was at arm's length and effected on appropriate commercial terms. The loan is repayable within 10 months and represents an opportunity for favourable returns for the Group as a whole including an arrangement and commitment fee of HK$112,500 and interest of HK$900,000, profit sharing arrangement which entitles the Group to 20% of the balance of the proceeds of the shares in Regal Town Trading Limited charged to Top Advance (HK) Limited, subject to a cap of HK$2 million. The transactions were not disclosed previously until the Announcement as the board took the view that they did not fall under any disclosure requirements.

(8) The petitioner's complaints about the expenditure for the period between 1 August and 31 October 2002 demonstrate a lack of understanding of the prevailing market conditions and commercial dealings. It was in the interest of the Company to be flexible and to be able to react appropriately to prevailing market conditions and business realities. The transactions complained of were within the scope of the Company's business objectives and the directors had at all times monitored the Company's progress to ensure that it developed in the direction of its intended objectives.

(3) Ms Elaine Cheung

43. By a letter dated 21 November 2002, the Stock Exchange advised the Company that it was noted that Ms Elaine Cheung, an associate director, made a newspaper announcement that day stating that she had not taken part in and was unaware of any of the incidents described in the Announcement and that she would file complaints with the relevant regulatory bodies. The Stock Exchange further stated that given Ms Cheung's senior management position with the Company and the material nature of the arrangements described in the Announcement, her announcement caused the Stock Exchange concern as to why she had no knowledge of such arrangements which were described by the Company as "in the ordinary and usual course of its business". The Stock Exchange sought an explanation from the Company. It is the petitioner's case that the Stock Exchange apparently did not receive any satisfactory reply.

44. Daniel Hui alleged in his first affirmation that Ms Elaine Cheung was not an associate director of the Company at the material time. She was a mere marketing employee of the Group. Thus she was not consulted. However, according to Prospectus, Ms Cheung was said to be an associate director of International Capital Network Limited, a wholly owned subsidiary of the Company and other subsidiaries of the Group. She was also described as part of the senior management of the Group and an investment adviser registered under the Securities Ordinance. Ms Cheung in her affirmation filed on 30 January 2003, confirmed that although she occupied the above position in the Group, she was not consulted with any of the matters referred to. It came as a shock to her when she discovered the same from the Announcement. Shortly after the release of the Announcement, she tendered her resignation as associate director of International Capital Investment Limited and as directors of other subsidiaries with effect from 21 November 2002.

(4) EGM

45. By a letter dated 29 November 2002, the Company advised the petitioner :

(a) that its directors had formed the opinion that the petitioner was or might be interested in shares of the Company in breach of Section 26A of the Securities and Futures Commission Ordinance ("Section 26A") and that if the petitioner was in breach of Section 26A, the votes attached to those shares could not be lawfully cast at the EGM;

(b) that the Company had provided evidence to the courts that the petitioner was interested in shares in breach of Section 26A and such evidence remained sub judice;

(c) that the petitioner would be permitted to attend the EGM and exercise or purport to exercise voting rights, but that the chairman of the EGM would take no account of any votes cast by the petitioner in relation to its shares (although a record would be kept as to how such votes were to be cast);

(d) that the Company urged the petitioner to take independent legal advice before purporting to exercise its voting rights.

46. The Requisitionists also received similar letters.

47. By a letter dated 2 December 2002 to the Company, the petitioner's solicitors denied, inter alia, that the petitioner was in breach of Section 26A or that voting rights attached to the petitioner's shares could not be exercised by reason of an alleged breach of Section 26A in the absence of any rulings by the SFC or the court. The letter also stated that neither the Company nor the chairman of the EGM was entitled to exclude the petitioner's votes under the Securities and Futures Ordinance or the Companies Ordinance or the Company's Articles of Association and required the petitioner's votes to be given full effect at the EGM. The Requisitionists' solicitors wrote similar letters to the Company on 2 December 2002.

48. By a letter of the same date, the petitioner's solicitors advised the SFC of the letter of 29 November 2002 received from the Company and invited the SFC to intervene at the EGM. The petitioner's solicitors also put Standard Registrars Limited, the branch share register of the Company in Hong Kong and the scrutineers appointed for the purpose of the poll voting at the EGM, on notice of the Announcement and reminded it of the duty to act impartially. Mr Jerry Yip of the petitioner's solicitors was advised verbally over the phone by Ms Lucinda Wong, the director of the Licensing Division of the SFC that insofar as the petitioner was concerned the SFC had made no findings that suggested any breach of Section 26A. By a letter dated 2 December 2002, Ms Wong confirmed in writing that based on the information so far received by the SFC, it had not yet made any findings that suggested any non-compliance with Section 26A, although that was ultimately a question of fact to be decided by the court.

49. The EGM was chaired by Daniel Hui. He declared that he had decided to exclude certain votes which he stated to be in breach of Section 26A. Notwithstanding requests made by shareholders, Daniel Hui and the Company's legal adviser refused to answer any questions raised by them. Mr Jerry Yip, representing Rising Balloon Limited, informed Daniel Hui of the verbal confirmation he obtained from Ms Wong of the SFC and invited him to contact her. But Daniel Hui refused to do so. Mr Richard Lum, a proxy holder who attended the EGM, requested telephone facilities equipped with hand-free speaking devices be set up so that a telephone link up could be made with Ms Wong for confirmation of the advice given to Mr Yip in the presence of all the shareholders. The request was also refused. The Company's legal adviser stated that it was for the court and not the SFC to decide whether there had been a breach of Section 26A and that no discussion would be allowed at the EGM. Daniel Hui then proceeded to decide himself that he would exclude the votes of those shareholders he alleged to have been in breach of Section 26A.

50. In a poll conducted by Daniel Hui as chairman, all the resolutions proposed by the Requisitionists (for the appointment of further directors and for revocation of the General Mandate) were declared to be defeated. But the resolutions would have been passed if there had been no exclusion of the votes of the Requisitionists and the petitioner. It is the petitioner's case that Daniel Hui then closed the meeting and left against protests from shareholders, who then remained and continued the EGM which they considered had been wrongfully terminated by Daniel Hui. They elected Mr Jerry Yip as the chairman. The Requisitionists' resolutions were then all passed.

51. By a letter dated 3 December 2002, the Requisitionists advised the SFC and the Stock Exchange of the conduct and outcome of the EGM. By a notice of the same date appearing in the Standard on 4 December 2002, the Requisitionists notified all shareholders of the Company of the conduct and outcome of the EGM, including the appointment of new directors. On 5 December 2002, the board formed pursuant to the resolutions passed by the Requsitionists and others at the EGM removed Daniel Hui as chairman of the board with immediate effect and Daniel Hui and Michael Lui as authorized representatives of the Company for the purpose of the GEM Listing Rules and resolved that an investigation be conducted into the dissipation of the cash assets of the Group. On the same day, the Company made an announcement as to the results of the EGM, which asserted that after declaring the results of the poll, the chairman declared the meeting closed and nobody present raised any objection or made any comment on the termination of the meeting whether before or after the meeting was terminated and the director left the room, the meeting have been ended. It further made an announcement on 9 December 2002 by order of the board with Daniel Hui as chairman.

52. Mr Hui explained his decision in his first affirmation thus :

"34. In advance of the EGM held on 2 December 2002, the Company received advice from its legal advisers in relation to the effect of section 26A of the SFCO and the treatment of the voting rights. The effect of the advice was clearly communicated to those present at the EGM on 2 December 2002. The effect of the advice was also set out in the Company's announcement dated 5 December 2002 (exhibit 'LT-29').

35. The question whether there has been a breach of section 26A of the SFCO is one of the issues scheduled to be determined by the Court at the trial of the Consolidated Action. Evidence has been submitted to the Court on behalf of the Company in the Consolidated Action which suggests that Capital Ace, Wise Express, Kenneth Cheung and his concert parties are behind a scheme engineered to take over control of the Company. The evidence provided by the Company also suggests that Capital Ace, Wise Express and at least one other party (companies controlled or connected to Kenneth Cheung) may be together 'associates' for the purpose of the SFCO (collectively, the 'Associates'). Therefore, if the Associates have become holders of 35% or more of the Company, they would have become a 'substantial shareholder' in the Plaintiff's subsidiary, International Capital Network Limited, without the approval of the Securities and Futures Commission. International Capital Network Limited is a registered person for the purpose of Section 26A.

36. In view of the above, the Company would have been put in an invidious position if it had counted votes purportedly cast with respect to shares held in breach of section 26A. At the EGM on 2 December 2002, I, acting as Chairman sought to explain to those present the situation at hand concerning such shares. Briefly,

· if the Associates chose to cast their votes for the Company to count the votes (or to refuse to allow them to be voted), that may be to pre-empt to a court decision.

· if the directors recognized votes cast on all or any of such shares, resolutions that would otherwise have failed (or been passed) may be passed (or fail).

· if section 26A operated in such a way that votes can lawfully be cast on some or all of the shares held by associates (as defined in the SFCO), and if the Company refused to recognize those votes, the Associates would have a legitimate complaint and the true voting intention of the EGM may not be ascertained.

37. Therefore the decision to exclude the purported votes was done in good faith and in the belief that it was in the interests of the Company and its shareholders to do so. The Company's Directors took pains to ensure that there was a full record of proceedings and of all votes cast (whether or not taken into account). This was done with a view to preserving the information necessary for a court to determine the true voting intention of the meeting in the event that it were to hold that the votes should have been counted.

38. Messrs. Maples and Calder, a firm of Cayman Island Attorneys, in their opinion, have confirmed the authority of the Chairman to discount the votes in the situation. There is now produced and shown to me marked 'HCKD-5' a copy of the advice dated 6 January 2003 rendered by Maples and Calder. Further, the SFC had advised in correspondence with the Petitioner's solicitors that it had made no findings that suggested non-compliance with section 26A and that the issue was ultimately a question of fact to be decided by the court (exhibit 'LT-25').

39. The Petitioner's version of the conduct of EGM is misleading. The EGM was at all times conducted in a reasonably orderly fashion."

53. He went on to say that according to Maple & Calder, the resolutions passed by the purported EGM after he had declared the meeting closed and left were invalid and of no effect and the second board was invalidly appointed.

(5) AGM

54. By a notice of Annual General Meeting dated 19 December 2002, directors of the Company announced that the AGM would be held on 11 January 2003 for the purpose of considering resolutions, inter alia, to approve the granting of a general mandate to the directors of the Company to issue new shares and to grant options to subscribe for new shares; and to approve the extension of the proposed general mandate to issue new shares by adding to the share capital of the Company the number of shares repurchased. On 2 January 2003, the petitioner received from the Company a letter dated 31 December 2002 in terms similar to the letter dated 29 November 2002 received by it shortly before the EGM. So did the Requisitionists. By a letter dated 10 January 2003, the petitioner's solicitors denied that the petitioner was in breach of Section 26A. They also stated that any refusal by the chairman of the AGM to take into account votes cast by the petitioner on the ground of the alleged breach of Section 26A amounted to a breach of the Company's Articles of Association; that in the absence of any determination by the court, it was not open to the Company or the chairman of the AGM to decide whether any particular shareholder could or could not exercise its constitutional right to vote at general meeting; and that neither the Company nor the chairman of the AGM was empowered or authorized under the Securities and Futures Ordinance, the Companies Ordinance, the Company legislation in the Cayman Islands or the Company's Articles of Association to conduct the AGM in the manner set out in its letter dated 31 December 2002. The Requisitionists' solicitors wrote a similar letter to the Company on 7 January 2003.

55. At the AGM, Daniel Hui took the chair. He declared that he had decided to ignore the votes which he considered to be in breach of Section 26A, despite objections raised by the Requisitionists and the petitioner. The resolutions proposed in the notice of meeting were then passed. Had the votes of the Requisitionists and the petitioner been counted, the resolutions would have been defeated. On 14 January 2003, the Company made an announcement of the results of the AGM.

56. On 24 January 2003, the Requisitionists commenced proceedings in HCA318/2003 and obtained from me an interim injunction restraining the Company from carrying out and/or giving effect to resolutions described in paragraph 54 above and purported to have been passed at the AGM; and from issuing or granting any options to subscribe for shares in the Company pursuant to the Share Option Scheme.

57. It is Mr Hui's evidence that the petitioner was at all material times associated with the Kenneth Cheung and his nominees, including the Requisitionists. He alleged in paragraph 7 of his first affirmation that :

"(1) Cecilia Chu was introduced to Kenneth Cheung to handle his personal business.

(2) A computer disk was found in Cecilia Chu's former office which was marked 'K Cheung I' in her handwriting. Among the documents stored on the disk were 2 draft declarations of trust, one of which declared that Cecilia Chu was holding shares in the Petitioner as nominee. The other declared that Mona Leung held shares in Three Cheers Limited (a company which held shares in the Group's former group holding company before restructuring) as nominee. In light of other documentation found, and the fact that the computer disk was marked with Kenneth Cheung's name, the inference is to be drawn that the two women held their shares in the Petitioner and Three Cheer Limited respectively as nominees for Kenneth Cheung.

(3) Although Cecilia Chu purported to be beneficial holder of 24.33% of the Company's shares she did not attend the Company's listing ceremony or listing celebration and took no interest in the affairs of the Company.

(4) An abandoned document headed 'List of Saleable Items' was found in Cecilia Chu's old office. This appeared to be a list of saleable items or assets of Kenneth Cheung, showing amongst other things the respective interests held by Cecilia Chu and Mona Leung in the Company.

(5) Also found stored in the disk were documents in respect of Digital World Holdings Limited, which is the sole beneficial owner of Capital Ace (one of the Requisitionists)."

58. In his second affirmation filed on 16 January 2003, Mr Hui went on to say :

"4. At paragraphs 6 to 8 of my 1st Affirmation and at paragraph 11 of Lui's Affirmation, reference is made to the relationship between the Petitioner, Cecilia Chu, the Requisitionists and Kenneth Cheung, whom the Company believes (and has submitted evidence) is behind the scheme to take over the Company by stealth. The Petitioner claims it is 'independent' from the Requisitionists and unrelated to them however, as I have pointed out in my 1st Affirmation, cogent evidence has been submitted in the Consolidated Action that this claim is false.

5. In the Company's application for an injunction against the Requisitionists in H.C.Action No.1842 of 2002 (which is referred as the 'Lead Action' in previous affirmations of the parties), I set out in my affirmations details of Kenneth Cheung's involvement in attempts to take control of the Company by stealth. I refer in particular to paragraphs 18 to 51 of my 1st Affirmation filed on 15 May 2002 and 18 to 26 of my 2nd Affirmation filed on 5 July 2002. I will set out briefly below the background on how Kenneth Cheung came to be involved in the Company's affairs.

6. Kenneth Cheung was at the material time (and until 18 June 2002 when he resigned), the Chairman of Styland Holdings Limited ('Styland') a company listed on the Hong Kong Stock Exchange (stock code 0211). I came to know Kenneth Cheung (in or about September 1995) when I was working at South China Capital Limited ('South China'), a corporate finance company which assisted Kenneth Cheung in Styland's corporate dealings. During the course of doing so, I came to know Mona Leung (purportedly the beneficial owner of Wise Express, one of the Requisitionists) as the personal assistant of Kenneth Cheung.

7. Mona Leung was subsequently (through Wise Express) one of the founders of the Company. In paragraph 10 of the Petition it is pleaded that the entire issued share capital of Wise Express, a company incorporated and registered in the British Virgin Islands, is wholly and beneficially owned by Leung Yuk Kit also known as Leung Yuk Kit Mona.

8. In the course of my dealings with Kenneth Cheung he told me he was closely associated with Digital World Holdings Limited ('Digital World') a company listed in Hong Kong. In paragraph 9 of the Petition it is pleaded that Digital World beneficially owns the entire issued share capital of Capital Ace, the other Requisitionist. Kenneth Cheung also informed me he had interests in other listed companies in Hong Kong, such as Inworld Group Limited ('Inworld'), Riverhill Holdings Limited ('Riverhill') and Rainbow International Holdings Limited ('Rainbow'). There is now produced and shown to me at page 1 of exhibit 'HCKD-6' a chart showing the shareholdings of the companies mentioned above.

9. From between April 2000 and November 2001 the Company was the financial adviser of Styland, Digital World, Rainbow and Riverhill. The Company also participated in transactions involving Ever-Long Securities Company Limited ('Ever-Long'), a subsidiary of Styland. Extracts of Styland's financial statements published on its website are exhibited at pages 2 to 7 of 'HCKD-6'. The Chairman of Digital World is Mr. Chan Tak Hung ('Mr. Chan'). I have observed from my dealings with Digital World that Mr. Chan would not make corporate decisions independently without consulting with Kenneth Cheung and I believe Mr. Chan is holding the shares in Digital World as nominee for Kenneth Cheung.

10. Following the establishment of the principal office for the Group at Two Exchange Square and until about early April 2002, Kenneth Cheung visited our offices on average about 3 to 4 times a week to see Mona Leung. At the time I had no particular objections to this given the good relationship between the Company and its group and Kenneth Cheung. In addition, I knew Mona Leung was still acting as his personal assistant and would be assisting Kenneth Cheung in his business which I assumed was what she was doing when he came to see her at our offices. For reasons unknown to me Mona Leung left our offices abruptly in early April 2002, just before the Ching Ming Festival."

59. The petitioner denies that it is associated with Kenneth Cheung or the Requisitionists as alleged. Further, according to the petitioner's legal advisers on the law of the Cayman Islands, Daniel Hui's refusal at the EGM and the AGM to have regard to the votes of the petitioner and the Requisitionists was ultra vires his powers as the chairman and liable to be set aside.

(6) Resignations

60. As noted, Ms Elaine Cheung resigned on 21 November 2002. On 11 December 2002, Wong Wai Ho resigned as one of the two independent non-executive directors and the chairman of the audit committee. On 20 December 2002, Michael Lui resigned as one of the two executive directors. On about 24 December 2002, the Company's sponsor also resigned.

APPLICATION FOR PROVISIONAL LIQUIDATORS

61. By a summons dated 17 December 2002, the petitioner seeks the appointment of provisional liquidators. The law relating to appointment of provisional liquidators is well settled. The court has a wide and unfettered discretion whether to appoint a provisional liquidator. How this general power is to be exercised depends on the particular circumstances of each case. The court will have to embark on a two-stage enquiry. The first question is whether the petitioner has made out a good prima facie case for a winding-up. In order to establish a good prima facie case for winding up, the petitioner must show, by believable evidence, facts which are not disproved at present stage and which, if eventually proved at the hearing of the petition, would entitled the petitioner a winding-up order. In deciding this question, the court looks at not merely the petitioner's evidence but also the evidence put in by those opposing the application. The court must then form a provisional view and decide, as the matter then stands, if there is a reasonable prospect that the petition might succeed. Unless the evidence put in by the opposing party is so "obviously cogent", any conflict of evidence should be left to be resolved at the hearing of the petition. Any views expressed by the court on the merits of the petition at this stage are provisional only, as the views are formed on the basis of affidavit evidence untested by cross-examination. The second question is, if there is good and prima facie case for winding up, whether it is just and convenient to appoint a provisional liquidator in the circumstances. This is to be decided on the basis of commercial realities, the degree of urgency and need established by the petitioner and the balance of convenience according to the circumstances. See Re Five Lakes Investment Company Limited [1985] HKLR 273, Re Boldwin Construction Limited, 31 October 2002, unreported, Kwan J, Re Hang Tak Buddhist Hall Association Ltd [2002] 2 HKLRD 863, Re Astrotech International Holdings Limited, 21 February 2003, unreported, a decision of mine.

62. Before addressing the two fundamental questions, I first deal with a preliminary point. The petitioner complains that it is unable to exercise its constitutional rights as a shareholder, notwithstanding the increasing and justifiable loss of confidence in the controlling management and shareholders of the Company especially in light of the post-petition events. It is also concerned that the Company's funds have not been dealt with consistently with the representations made in the Prospectus for the public offering or with due care. Ms Ismail, counsel for the petitioner, submitted that although reliance is placed on the post-petition events, the nature of complaints are just the same. Mr Wright, counsel for the Company, however, submitted that the court should not look at the events since the presentation of the petition. The court should confine its scope of inquiry to the pleaded case in the petition. With respect, I disagree. In my view, where appropriate, the court is entitled to take into account post-petition events. In deciding whether to appoint provisional liquidators, the court has to have regard to the urgency, commercial reality and need in the circumstances of the case. If necessary, the court will examine the parties' conduct and relevant events after the presentation of the petition. Mr Wright's submission, if accepted, unduly restricts the court's inquiry and examination of the circumstances. As will be seen below, the post-petition events are of considerable significance here. Due regard must be given to them.

63. I now turn to the question whether the petitioner has established a good prima facie case for winding up.

WHETHER A GOOD PRIMA FACIE CASE TO WIND UP

64. To recap, the petitioner raised essentially two complaints in the petition : (1) the inability to exercise its constitutional rights as a shareholder resulting in loss of confidence in the current management of the Company; and (2) the depletion of the Company's cash assets.

65. Initially, it was the delay in holding the EGM for six months that gave rise to the petitioner's concern that it had been unable to exercise its constitutional rights as shareholder. As at the date of the present application (17 December 2002), the EGM had already been held (2 December 2002). But it does not necessarily render the concern academic. For the petitioner's votes at the EGM were excluded on the purported ground that it had breached Section 26A and the Takeovers Code. For the same reason, the petitioner's votes were excluded one month later at the AGM (11 January 2003). The right of a shareholder to vote at general meetings is fundamental. Among other things, it enables the shareholder to take part in the supervision of the company's affairs and management and if necessary, to change the board of directors, by voting on the relevant resolutions. Excluding the shareholder's votes and thereby depriving him of his fundamental rights qua shareholder is indeed a very serious matter.

66. The Company contended that the petitioner was in breach of the Takeovers Code or Section 26A. Accordingly, Daniel Hui as chairman was justified in excluding their votes at the two general meetings. I have already summarized Daniel Hui's evidence in paragraphs 52, 57 and 58 above. Mr Wright submitted that the evidence clearly suggested that the petitioner is associated with Kenneth Cheung and that the present application is linked with the attempts by Kenneth Cheung and his associates to gain control of the Company. The evidence on the relationship between Cecilia Chu and Kenneth Chu cried out for a response from her personally but there was none. There is cogent evidence that Cecilia Chu in fact holds her shareholding in the petitioner as nominee for Kenneth Cheung or at least that she is under his direction or is cooperating with him.

67. Rule 26(1)(d) of the Takeovers Code requires a mandatory offer to be made to other shareholders when two or more persons are acting in concert and they collectively hold not less than 30% but not more than 50% of the voting rights. For the purposes of the Code, persons "acting in concert" are "persons who pursuant to an agreement or understanding (whether formal or informal) actively co-operate to obtain or consolidate control through the acquisition by them of voting rights". "Control" is deemed to mean "a holding or aggregate holdings of 30% or more of the voting rights of a company, irrespective of whether that holding gives de facto control". Mr Wright submitted that Kenneth Cheung and his camp, including the petitioner, must therefore make a mandatory offer under Rule 26(1)(d).

68. Section 26A(1) provides that a person shall not become a substantial shareholder of a registered person that is a corporation unless the SFC has given its approval. The Company's case is that International Capital Network Limited, a wholly owned subsidiary of the Company, is a registered person within the meaning of Section 26A(1). "Substantial shareholder", under section 2(1) of the Securities and Futures Commission Ordinance, includes a person who, either alone or with an associate holds shares in another corporation or corporations which holdings allow him either alone or with an associate and either directly or indirectly to exercise of 35% or more of the voting power of the other corporation or of a further corporation, which is itself entitled either alone with an associate and either directly or indirectly to exercise or control the exercise of more than 10% of the voting power of the company. "Associate", according to the same definition section, includes another person who has agreed or arranged to act together with the person to acquire hold or dispose of shares or other interest in a corporation to act together in voting in the corporation. Mr Wright submitted that the Requisitionists and the petitioner together control the exercise of more than 35% of the voting power of the Company. They are each substantial shareholders of International Capital Network Limited. They therefore need the SFC's approval but they have not obtained any such approval. They are in breach of Section 26A.

69. In my view, whether the petitioner together with Kenneth Cheung and his camp acted in breach of the Takeovers Code or Section 26A cannot be resolved at this interlocutory stage. Although the Company had previously lodged complaint with the SFC, the SFC had not made any findings at the time of the EGM or AGM. It is a hotly contested issue and can only be determined after trial of the consolidation action. Indeed, Daniel Hui himself acknowledged that to be the case in his affirmations. However, at the general meetings complained of he purported to make a determination of this central issue that, he now accepts, can only be determined by the court. Reliance was placed on the opinion of the Company's legal advisers of the Cayman Islands that Daniel Hui could, as chairman of the general meetings, exclude the petitioner's votes. But there is a conflict of legal opinion. In these circumstances, it is obviously questionable if Daniel Hui was entitled exclude the votes concerned.

70. It is also important, in my view, to have regard to the events that happened at or about the same time when the general meetings were held. To those matters I now turn.

71. The first matter relates to the Koffmann offer. The evidence can be found in paragraphs 30 to 34 above. On 31 October 2002, the Panel resolved, inter alia, that despite the Company's complaints, the offer was capable of being implemented in full; that shareholders were generally best served by being afforded the opportunity to consider the offer and that the Company must respond to the offer in accordance with the Takeovers Code. General Principle 5 of the Takeovers Code stipulates :

"shareholders should be given sufficient information, advice and time to reach an informed decision on an offer. No relevant information should be withheld. Documents and advertisements issued in connection with takeovers and mergers should be prepared with the highest possible degree of care, responsibility and accuracy."

Further, under rule 2.1 of the Takeovers Code :

"A board which receives an offer, or is approached with a view to an offer being made, should, in the interests of shareholders, retain an independent financial adviser to advise the board as to whether the offer is, or is not, fair or reasonable. Such advice, including reasons, should be obtained in writing and such written advice should be made known to shareholders by including it in the offeree's circular along with the recommendation of the offeree's board regarding acceptance of the offer...."

72. Hardly can it be disputed that the board had failed to respond to the Koffmann offer under the Takeovers Code before it lapsed on 9 December 2002. Under rule 2.1, the board must retain an independent financial adviser to give advice. The financial adviser resigned on 4 November 2002 on the ground that material information had been withheld from it in the course of its diligence. No evidence has been filed by the Company to refute this point. There is nothing in the evidence to suggest that the Company had after the financial adviser's resignation engaged another independent financial adviser in connection with the Koffmann offer. Daniel Hui had not explained in his evidence why that was not done. He said that the Company had prepared for the SFC's clearance a draft response but it was not cleared by the SFC before the Koffmann offer lapsed. But the board had not retained any independent financial adviser to advise on the merits of the Koffmann offer under rule 2.1. In the absence of such advice, which must be included in the response to be sent to the shareholders, how could the SFC clear the draft? The Company asked for a waiver of all obligations that curtained appointments of financial advisers. But no satisfactory reasons had been given in support. In the circumstances, the board had prima facie breached its obligations under the Takeovers Code in connection with the Koffmann offer.

73. The second matter that needs consideration relates to the various transactions resulting in a drastic reduction of the Company's cash assets. The relevant evidence is summarized in paragraphs 35 to 42 above. It should be noted that these transaction were said to have been entered in September and October 2002. At that time, the Koffmann offer had already been made. Rule 4 of the Takeovers Code provides :

"No frustrating action

Once a bona-fide offer has been communicated to the board of an offeree company or the board of an offeree company has reason to believe that a bona-fide offer may be imminent, no action which could effectively result in an offer being frustrated, or in the shareholders of the offeree company being denied an opportunity to decide on the merits of an offer, shall be taken by the board of the offeree company in relation to the affairs of the company without the approval of the shareholders of the offeree company in general meeting. In particular the board must not, without such approval -

(a) issue any shares;

(b) issue or grant options in respect of any unissued shares;

(c) create or issue or permit the creation or issue of any securities carrying rights of conversion into, or subscription for, shares of the company;

(d) sell, dispose of or acquire or agree to sell, dispose of or acquire assets of material amount;

(e) enter into contracts, including service contracts, otherwise than in the ordinary course of business; or

(f) cause the company or any subsidiary or associated company to purchase or redeem any shares in the company or provide financial assistance for any such purchase.

Where the company is under a prior contractual obligation to take any such action, or where there are other special circumstances, the Executive must be consulted at the earliest opportunity. In appropriate circumstances the Executive may grant a waiver from the general requirement to obtain shareholders' approval."

Ms Ismail submitted that the board had committed a breach of Rule 4(d) and (e) accordingly. Daniel Hui contended that they were contracts in the ordinary course of business. That may or may not be true. But it is not an answer to a possible breach under paragraph 4(d). Both the SFC and the Stock Exchange have indicated that they would investigate the cash-depletion transactions and the director's conduct in relation thereto.

74. The third matter that needs to be considered is the non-disclosure of the above transactions until the Announcement. The evidence is also found in paragraphs 35 to 42. Ms Ismail submitted that the board had not made full disclosure, notwithstanding a departure from public representations in the Prospectus. They were not disclosed in the published accounts nor in Michael Lui's affirmation until after service of the present summons and its supporting evidence (making this particular complaint), leading to revised accounts and announcements on 19 December 2002.

75. The non-disclosure was justified on the ground that they were ordinary commercial transactions. I find it hard to accept. They were significant transactions involving huge sums. Indeed, a substantial portion of the funds raised through public placing of the shares had been utilized. I see no reason why they were not disclosed in the published accounts if they were, as alleged, just ordinary commercial transactions. And I see no reason why Ms Elaine Cheung was not consulted. Daniel Hui's allegation that she was a mere marketing employee is simply untenable.

76. The transactions were not disclosed in Michael Lui's affirmation either. His affirmation was made on 8 November 2002. By that time, ICN Finance had already paid some HK$20 million to the Mainland parties to set up representative offices. He did not disclosing the whereabouts of the money. Instead, he went on to deal with the transfer of money to ICN Finance, giving the false impression that the money was still with ICN Finance. He said that the transfer to ICN Finance was to protect the Company from any attempt to take control of the Company by stealth instead of a proper general cash offer or attempt to get access to the Company's cash resources. He must be referring to the attempt by Kenneth Cheung and his associates. But on the evidence before me, the transfer to ICN Finance in about December 2001 and January 2002 was made three to four months before Kenneth Cheung and his camp took the first move by requisitioning the EGM in April 2002. This renders his allegations hollow. It is alleged that Michael Lui did not make the disclosure because the transactions were ordinary business transactions that did not require disclosure. I am unable to accept this contention. Michael Lui was not dealing with disclosure requirements imposed by the regulatory bodies in his affirmation. The petition raised an allegation of cash depletion. He was answering that allegation specifically. I see no reason why he chose not to disclose the transactions.

77. On the evidence before me, the board made the disclosure for the first time in the Announcement. But both the SFC and the Stock Exchange considered the information disclosed inadequate and would carry out investigations. There is nothing in the evidence to suggest that the board then made further disclosure to the regulatory bodies. The disclosure in the relevant account statements did not come until after the present application was taken out in which a specific complaint about non-disclosure was made. It came late and is in my view a tactical move to pre-empt any argument on non-disclosure that the petitioner may raise in the present application.

78. The above events show a strong prima facie case that the controlling management had misconducted themselves in the management and affairs of the Company. A winding-up order may be made on the basis that the directors or principal shareholders of a public company choose to flout the code imposed by the regulatory bodies : see Re St. Piran Ltd [1981] 3 All ER 270 at p.277. Have the about events been pleaded and relied on in the petition, they alone will arguably support a good prima facie case for winding up. In the midst of those misconducts, the petitioner had been denied twice at general meetings the right to exercise its constitutional rights qua shareholder to oversee the Company's affairs and management when its votes on proposed resolutions, including that on appointment of additional directors, were excluded. By excluding the votes of the petitioner and the Requisitionists, Daniel Hui and his camp were able to maintain control of the Company when its affairs, through the controlling management, were prima facie conducted in breach of the Takeovers Code and the law. But for the injunction that I granted in HCA318/2003, Daniel Hui and his camp might, if necessary, issue shares to dilute the shareholdings of other shareholders, thereby reinforcing their control of the management. By virtue of the Shareholders' Undertakings and the Company's Undertakings, the petitioner is locked in the Company. The petitioner has justifiably lost confidence in the controlling management but it is unable to remove the directors. In the circumstances, it is prime facie unjust and inequitable to require it to continue as a member. See French on Applications to Wind up Companies at pp.292-293 and also Loch v. Blackwood [1924] AC 783 at 769.

79. Mr Wright argued that no winding-up order should be made. He first submitted that the petitioner did not come to the court with clean hands. There was clear evidence showing that the petitioner was Kenneth Cheung's associates and they had breached Section 26A and the Takeovers Codes. I have already ruled that for present purposes, that is still an undecided issue. No reliance can be placed on this point. Mr Wright next submitted that there is alternative remedy open to the petitioner other than a winding-up order. It may for example call for a general meeting to be held to address its grievances or to issue proceedings against the directors personally. I am unable to accept this submission. Past events show that calling for an extraordinary general meeting, like what the Requisitionists did, is nothing but a recipe of further disputes and proceedings. As the matter now stands, nothing fruitful will be gained by such a course. Personal actions against the directors do not help either. The petitioner is at the moment locked up in the Company. There is no escape under the Companies Ordinance. Remedies under section 168A are not available here. The only remedy is a winding-up order.

80. For the above reasons, I am of the view that the petitioner has established a good prima facie case for winding up.

WHETHER JUST AND CONVENIENT TO APPOINT PROVISIONAL LIQUIDATORS

81. I now turn to the question whether it is just and convenient to appoint provisional liquidators. I note that the Company is apparently solvent. I also have regard to the possible damage that may be caused to the Company's reputation and goodwill should provisional liquidators be appointed. But on balance, I am satisfied that provisional liquidators should be appointed and indeed, the sooner the better. On the evidence before me, the affairs of the Company had apparently been conducted by the controlling management without due regard to and in breach of various codes and requirements imposed by the regulatory bodies. Both the SFC and the Stock Exchange are investigating into possible breaches of the Takeovers Code and the law. There are an exodus of members from the senior management and resignations of the financial adviser, the sponsor and the lead manager, apparently without replacement. This must have adversely affected the Company already. I wonder if the Company can in the circumstances meaningfully continue with its business without contravening the GEM Listing Rules. The petitioner's interests as shareholder as well as the Company's are in the circumstances seriously prejudiced. The damage caused thus far must be contained as soon as practicable. Provisional liquidators should be appointed forthwith so that the Company's interests and assets can be safeguarded and the conduct of the directors complained of can be investigated independently.

CONCLUSION

82. For the above reasons, I will allow the petitioner's application and make an order in terms of paragraphs 1 to 6 of the petitioner's summons with the exception that the identity of the provisional liquidators be changed to Mr Alan Chung Wah Tang and Mr Wong Kwok Man. I will also make an order nisi that the petitioner shall have the costs of the application to be taxed if not agreed. The order nisi will be made absolute 14 days after handing down of this judgment.