PRILICIOUS INVESTMENT LIMITED AND ANOTHER v. PROFITCO COMPANY LIMITED AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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COMPANIES WINDING-UP 94 of 1993

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C O R R I G E N D U M

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In the last line of the first paragraph on page 3, delete the figure "$1,149,031.77" and substituted therefor the figure of "$1,287,031.77"

In the second line of the second paragraph on page 3, delete the figures "$1,149,031" and "$1,149.03" and substituted therefor the figures of $1,287,031" and "$1,287.03" respectively.

In the fifth line of the second paragraph on page 3, delete the figure "$1,149.03" and substituted therefor the figure of "$1,287.03".

In the fourth line on page 5, delete the figure "$1,149.03"and substituted therefor the figure of "$1,287.03".

Dated this 20th day of October, 1993.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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COMPANIES WINDING-UP 94 of 1993

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J U D G M E N T

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1. This is an amended petition filed in March 1993 to obtain an order of this court that the 2nd and 3rd Respondents should purchase the shares of the Petitioners in the 1st Respondent (the company), or alternatively, that the company be wound-up pursuant to the provisions of the Companies Ordinance. I am happy to say that the parties have agreed that the 2nd and 3rd Respondents, who are husband and wife, will purchase the shares of the Petitioners in the company and therefore the company does not need to be wound-up.

2. The issue before me has fallen within a very narrow compass, namely, firstly, what is the fair valuation to be placed upon the shares, secondly, whether the Petitioners should be awarded any interest, and thirdly, whether the 2nd and 3rd Respondents should be given time in which to pay for the said shares.

3. The issue, in relation to valuation, has simply been one in relation to the propriety of a deduction of $312,000 made in the profit and loss account, which has been produced for the company from the period of incorporation on 23rd September 1980 until 31st December 1992. The sum of $312,000 is said to be management charges or management fees which Chung Nam Trading Company has charged, and was entitled to charge, the company because the company had no premises of its own, and it was run from the offices of Chung Nam by staff employed by Chung Nam, and therefore it is said that it is not unreasonable for this deduction to be made.

4. A number of points were made in the various affidavits filed, but at the end of the day, the issue revolved around the management charges. Mr. Liang, for the Petitioners, initially invited me to deal with the matter on the basis of the affidavits, but eventually he invited me to permit him to cross- examine Madam Chan, the 3rd Respondent.

5. She produced a series of annual debit notes and a series of annual resolutions dealing with the management charges.

6. [Although I did not say this at the time I delivered my ex tempore judgment, I should make it clear that I accepted the evidence of Madam Chan.] Although Mr. Liang challenged the deduction of the management charges in toto, I was satisfied that a deduction of management charges was not unreasonable. In my judgment, at the end of the day, the real dispute between the parties was whether or not it would be reasonable to deduct management charges from May 1991 until the end of 1992, because the properties, which belonged to the company, were sold in 1991. Mr. C.Y. Li for the Respondents had sensibly agreed that it would be reasonable to make a small deduction from the $312,000 to exclude the management charge for that period. Taking a rough and ready approach, I have deleted the management fee for 1992 and one half of the management fee for 1991 and these produce a deduction of $69,000. Therefore, the figure referred to in the 5th affirmation of Madam Chan at the top of page 3, instead of being $1,218,0377 should in fact be $1,149,031.77.

7. There are one thousand shares in this company and one thousand divided into $1,149,031 produces a valuation per share of $1,149.03. On that basis, the appropriate order is that the 2nd and 3rd Respondents do purchase the five hundred shares in the company, owned by the 1st and 2nd Petitioners at the price of $1,149.03 per share. It was agreed by both sides, that such order is to be on the basis of an undertaking by each Petitioner to waive re-payment by the company to each of them of a loan of $258,595.50. I trust my figures will be checked in due course by Counsel to make sure there are no errors.

8. I am now left with two outstanding matters. Mr. Liang, on behalf of the Petitioners, submits that once the properties were sold in May 1991, it would not be unreasonable for the Petitioners to receive some interest on their investment in the company. Mr. Li, for the Respondents, points out that the company is the beneficial owner of its own property and does not hold it on trust for its members. They have no legal or equitable of interest therein. This is clear and well established law. Mr. Liang says I have a very wide discretion under the appropriate sections of the Companies Ordinance with which I am dealing. However, it seems to me that on balance, I should not allow the claim for interest, which is sought from 22nd May 1991 until payment at the rate of 9.5%. Mr. Li correctly reminded me that the original loan made by the Petitioners was free of interest and it also appears to me that there has been some delay here, because whereas the property was sold in May 1991, it took 2 years for the Petitioners to get to a position where they were prepared to issue a petition and bring this matter to a head. Had they acted with more expedition this matter would have been sorted out earlier and they would not have been deprived of the use of their money for such a long period. In the circumstances, I think that the justice of this case requires that I make no order in relation to interest.

9. The final matter between the parties is the date of payment for the shares. Madam Chan, in her fifth affirmation which was placed before me and which will be filed later today, adverts to a number of financial difficulties and says that it would take to the end of the year before this sum can be paid. During the course of the hearing before me she softened her position somewhat, so that Mr. Li was in a position to give me an indication that his clients were prepared to pay for the shares by 30th November 1993. Mr. Liang, having taken instructions, was only prepared to go to mid October 1993. Bearing in mind that these properties were purchased in 1980 and bearing in mind that it took some eleven years for them to be sold, one cannot really say that this is a terribly urgent matter. It seems to me not unreasonable, in all the circumstances adverted to in Madam Chan's affirmation, for the Respondents to be given until the end of November, which is, after all, only six weeks longer than the period which the Petitioners are prepared to accept. I cannot believe that six weeks, in the context of this case, is going to matter one way or the other.

10. I will therefore make an order that the 2nd and 3rd Respondents do purchase the 500 shares, as aforesaid, at a price of $1,149.03, payment to be made on or before 30th November 1993, on the basis of the undertaking by the Petitioners above cited.

11. Having heard counsel on the question of costs, I think that the justice of this case requires that each side should pay their own costs, but that the costs of the Official Receiver shall be borne by the company.