Re Chi Sun Co. Ltd.

HCCW 175/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 175 OF 2002

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D E C I S I O N

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1. This is an application for a validation order under S.182 of the Companies Ordinance. It is not disputed that the Company is solvent and profitable and that its bank accounts have been frozen because of the issue of this petition. As a result, its suppliers have not been paid for a period of time.

2. The summons for the validation order was issued on 11 March 2002, and it was served on the Petitioner's solicitors on 12 March 2002. According to the Petitioner's solicitors, the papers were sent to the Petitioner on 13 March 2002.

3. Nearly a week later on 19 March 2002, the Petitioner's solicitors wrote to the Company's solicitors enquiring about certain items in the Suppliers Aging Report which had been exhibited to the affirmation in support of the summons. According to the letter from the Petitioner's solicitors, they took exception to the terms of the order suggested in the summons. It was said that the Supplier's Aging Report was not accurate as some of the purported outstanding bills had already been settled or there had been no transactions in respect of some of the bills, in particular in relation to a Chinese company by the name of 莎樂美. The Petitioner's solicitors' instructions were that no supply of goods had ever been made by 莎樂美to the Company the subject matter of this petition, and therefore, the Company the subject matter of this petition was not obliged to make any payment of the outstanding sum, alleged to be $5.6 million.

4. There were some other matters mentioned in relation to 3 other suppliers which seem to suggest that there may have been some errors in the Suppliers Aging Report. Therefore, the Petitioner said that the terms of the order being sought were too wide for the following reasons:-

1) that the payments should not be made by reference to the bank account of the Company, but the identities of the payees and the amount of payment should be set out in a schedule to be approved by the court; and

2) it was not clear from the application what dispositions of property were to be made after the hearing of the summons.

5. These objections to the validation order were also contained in an affirmation filed on behalf of the Petitioner 2 days ago. They have not had any substantive reply due to the shortness of time. Therefore the Petitioner said that whilst he had no objection to a validation order being made, it has to be made subject to the conditions specified.

6. I am not prepared to make such conditions upon the validation order. The validation order is in terms for payments to be made into or out of the bank accounts of the Company in the ordinary course of business of the Company and for dispositions of the property of the Company made in the ordinary course of business for proper value. If, as alleged, no supply of goods had ever been made to 莎樂美, then any payments could not be made within the ordinary course of business, although I note that it is accepted that when the Petitioner was a director of the Company, he was aware that such payments were made. If the Petitioner is now concerned with the propriety of such payments, then no doubt, as he may be advised, he might make it a matter of complaint in the petition and can seek discovery orders if thought fit. However, it seems to me that it is impracticable to suggest that the identities of payees and amounts of payment from the Company's ordinary business bank account should be set out in a schedule to be approved by the court.

7. Accordingly, I would made an order that notwithstanding the presentation of the petition, payments made into or out of the bank accounts of the Company with the Bank of East Asia Limited in the ordinary course of business of the Company and dispositions of the property of the Company made in the ordinary course of business for proper value between the date of presentation of the petition and the date of the termination of the petition, or the determination of any motion for striking out the petition, whichever is the latter, shall not be void by virtue of S.182 of the Companies Ordinance in the event of an order for the winding-up of the Company being made provided that the said bank shall be under no obligation to verify for itself whether any transactions through the Company's bank accounts is in the ordinary course of business or that they represent full market value for the relevant transactions.