RE MAINKEY DEVELOPMENT LTD TRADING UNDER THE NAME OF MAN SANG TRADING CO (IN COMPULSORY LIQUIDATION)

HCCW 1195/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 1195 OF 2000

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D E C I S I O N

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1.  There is before me a summons taken out by Mr Tsoi Wai as a creditor of Mainkey Development Ltd (in compulsory liquidation) (“the Company”). By that summons the applicant seeks an order that the Official Receiver be removed as liquidator of the Company and that the firm of Deloitte Touche Tohmatsu or some other firm of accountants be appointed in her place. Further or alternatively, the applicant asks for directions to be given to the liquidator in relation to the preservation of the assets of the Company, in particular its interests in two Mainland companies.

2.  The reference to the appointment of a firm of accountants as liquidator is clearly mistaken.  Only individuals may be appointed as liquidators, albeit they may be partners of a firm.  I shall take the application as one for the appointment of the specified individuals as liquidators.

Background

3.  The Company was incorporated in Hong Kong.  It was wound up by an order of the court made on 14 March 2001 upon the petition of a bank as creditor.  The Official Receiver was appointed liquidator of the Company by an order of the court dated 13 June 2001.

4.  It appears that prior to 12 May 2000, the shares in the Company were held by Mr Tsoi Kei Lung (who is the father of the applicant and whom I shall call “Mr Tsoi Snr”) and by a company incorporated in the British Virgin Islands called Major Business Ltd.  Mr Tsoi Snr was apparently the founder and, until 12 May 2000, a director of the Company.  On 12 May 2000, the shares in the Company were transferred to two persons, namely, Chan Fu Fung and Cheng Wai Sun (whom I shall call Chan and Cheng).  Chan and Cheng were the directors of the Company immediately before its liquidation.  Little else is known about these two individuals.

5.  For many years after the commencement of winding up, the Official Receiver had been unable to contact Chan and Cheng.  In June 2001, the Official Receiver also sought the assistance of Mr Tsoi Snr to explain the assets of the Company and to provide a set of audited accounts, but in vain.  No statement of affairs was submitted to the Official Receiver in her capacity initially as the provisional liquidator or subsequently the liquidator of the Company.  Nor did the Official Receiver have any books and records of the Company.

6.  In June 2009, after a long lapse of time, a solicitors’ firm, Messrs Tai, Mak & Partners, suddenly wrote to the Official Receiver indicating that the two shareholders, Chan and Cheng, were willing to settle the outstanding indebtedness of the Company.  However, when the Official Receiver asked Chan and Cheng, through the solicitors, to attend for a preliminary examination of directors, to deliver up all assets, books and documents, and to submit a statement of affairs, there was no response from them.

7.  On 2 August 2012, the Official Receiver received a letter from Messrs Wat & Co on behalf of a Mainland resident, Mr Ma Delin (“Mr Ma”), stating that he had entered into an agreement with the Company dated 3 January 1996, whereby the Company agreed that a Mainland company, namely, Kansu Kei Lung Real Estate Developing Company Limited (“Kansu company”), of which the Company was registered shareholder and investor, was in fact held for Mr Ma.  According to the letter, Mr Tsoi Snr had complained on behalf of the Company to certain Mainland authorities that Mr Ma had misappropriated the Company’s assets, as a result of which the authorities revoked Mr Ma’s registration as legal representative and chairman of the board of directors of the Kansu company.  Mr Tsoi Snr has since December 2008 been re‑registered as the legal representative and chairman of the board of the Kansu company.  As Mr Ma subsequently learnt that the Company had in fact gone into liquidation, his solicitors asked the Official Receiver as liquidator of the Company to honour and implement the agreement dated 3 January 1996 and transfer the equity interest in the Kansu company to Mr Ma.  A copy of the agreement was enclosed, which appears to bear the signature of Mr Tsoi Snr.

8.  On 21 September 2012, Messrs Wat & Co supplied further information to the Official Receiver, indicating that the Company was also the holding company of another Mainland company called Chungking Kei Leung Real Estate Developing Company Limited (“the Chungking company”).

9.  On 28 September 2012, the Official Receiver wrote to Mr Tsoi Snr stating that she had received information indicating that the Company was the owner of the Kansu company. She specifically asked Mr Tsoi Snr to provide information as to whether the Company held the equity interest in the Kansu company as at the date of winding up, and whether Mr Tsoi Snr had taken steps in the name of the Company, after the liquidation, in dealing with the Kansu company.  There was no reply to this letter.

10.  Instead, there is some evidence (which was provided to the Official Receiver by Messrs Wat & Co only in September 2013) that suggests that on the very day on which the Official Receiver issued her letter of 28 September 2012, the Company apparently purportedly held a general meeting and passed members’ resolutions (i) to change the scope of business of the Kansu company; (ii) to extend the term of business of the Kansu company from 20 years expiring on 26 March 2013 to 40 years expiring on 26 March 2033; and (iii) to replace one Ma Weiguo as director of the Kansu company and replace him with one Dong Hua.  The record of the meeting was purportedly signed by Mr Tsoi Snr “for and on behalf of” the Company.  Further, on 9 November 2012, Mr Tsoi Snr apparently signed a number of documents to implement those resolutions.  If they did really take place, then these steps were obviously most extraordinary, given that the Company had by then gone into liquidation for over ten years and should have been in the sole control of the Official Receiver as liquidator.

11.  As stated above, Mr Tsoi Snr did not respond to the Official Receiver’s enquiry of 28 September 2012.  Instead, what then happened was that Mr Tsoi Snr’s son, i.e. the applicant herein, began to take steps to acquire the debts owed by the Company to the proving creditors.  After obtaining the assignment of two substantial debts owed by the Company to Bank of China (Hong Kong) Limited and Bayer Far East Service Company, Limited in April and May 2013 respectively, on 21 June 2013 the applicant wrote, through his solicitors, Messrs Patrick Mak & Tse, to the Official Receiver, stating that the applicant had obtained assignments of those two debts and that he had become the sole creditor of the Company.  It was said that it was the intention of the applicant’s father, i.e. Mr Tsoi Snr, to stay the winding-up of the Company because it had “sentimental value” to him.

12.  The letter further stated that the Company should consider bringing a civil action in the Mainland against three persons, namely, Li Shuixin, Wu Jiqin and Chen Dahai, who were said to be former shareholders of the Company, in relation to the Company’s assets in the Mainland (which, counsel for the applicant, Mr Bernard Yuen, has confirmed to be the Chungking company).  The applicant offered an indemnity for the Company’s costs of any such litigation on the Mainland.  Two passages from that letter are quoted in paragraph 22 below.

13.  It appears that the handling solicitor in Messrs Patrick Mak & Tse was Mr Patrick Mak, who was also the handling solicitor in Messrs Tai, Mak & Partners who acted for Chan and Cheng in writing to the Official Receiver four years earlier, in 2009 (see paragraph 6 above).

14.  On 28 June 2013, the Official Receiver replied to the applicant that no statement of affairs or books of accounts of the Company had been supplied by Chan and Cheng, without which the assets and liabilities of the Company could not be ascertained.  There was, therefore, no basis for the applicant to claim to be the sole creditor of the Company.  The Official Receiver asked Messrs Patrick Mak & Tse to advise the whereabouts of Chan and Cheng and provide full information on the assets and liabilities of the Company, stating that, not until the Official Receiver had obtained full information of the affairs of the Company could she as liquidator decide how to handle the civil claims in Mainland China.

15.  This exchange led to a long series of correspondence between the Official Receiver on the one hand, and the applicant, Mr Tsoi Snr and his Mainland law firm on the other, which it is unnecessary to recite in full.  Suffice it to say that, eventually, the applicant was dissatisfied with what the Official Receiver had done or failed to do in respect of the Kansu company and the Chungking company, and took out an application for her removal as liquidator of the Company.

The main contentions

16.  The applicant’s case on his summons can be summarised as follows:

(1) The applicant is now the sole creditor or at least a substantial creditor of the Company.

(2) The Official Receiver has received concrete information of very substantial assets belonging or appearing to belong to the Company, namely, its equity interests in the Kansu company and the Chungking company.

(3) The applicant and Mr Tsoi Snr have repeatedly urged the Official Receiver to take immediate acts to protect such assets.

(4) The Official Receiver has unjustifiably failed to take any action, and has instead focussed only on investigating the conduct of Mr Tsoi Snr in relation to the Company after its liquidation.

(5) Unless she is removed as liquidator or directed to act differently by the court, the Official Receiver will continue to maintain her present stance which is detrimental to the Company.

17.  The gist of the Official Receiver’s response is that she has in her possession insufficient information and evidence in relation to the Company’s interests in the two Mainland companies, that the relevant parties have failed to cooperate and that in the circumstances it would be inappropriate for her to take any steps by way of asserting any interest on behalf of the Company in the two Mainland companies.

18.  I shall first deal with the applicant’s status as a creditor of the Company before turning to examine the alleged knowledge and failure to act on the part of the Official Receiver.

Applicant as a creditor of the Company

19.  As I understand the position, the Official Receiver does not seriously dispute that the applicant is a creditor of the Company.  No challenge has been made to the assignment of debt by Bank of China (Hong Kong) Limited and Bayer Far East Service Company, Limited.  Having regard to these debts which total $9.34 million, I am satisfied that I should proceed, for present purposes, on the basis that the applicant is a creditor of the Company.

20.  The Official Receiver is, however, in my view correct not to accept the applicant’s assertion that he is now the sole creditor of the Company.  The Official Receiver, who has received neither a statement of affairs nor the books of account of the Company, is in no position to tell what the full extent of the liabilities of the Company is.  I do not accept the applicant’s suggestion that the liabilities can be comprehensively seen from the list of proofs of debt lodged so far.  There may be various reasons why not all creditors have lodged proofs, particularly since for a long time the Company did not appear to have any assets.  Indeed, in their letter dated 8 July 2013, the applicant’s solicitors accepted that it could not be said that the applicant was the sole creditor of the Company. 

Information given to the Official Receiver about shareholdings in the Kansu and Chungking companies

21.  On the evidence, four different sources have purported to make various statements to the Official Receiver concerning the shareholdings in the Kansu and Chungking companies.

(1) The applicant

22.  First, in the first letter from Messrs Patrick Mak & Tse to the Official Receiver dated 21 June 2013 referred to in paragraph 11 above, it was stated on behalf of the applicant:

“We are informed by Mainkey Founder’s PRC lawyer, Guang Dong Bailifu Law Film (廣東百利孚律師事務所) (‘PRC Lawyer’) that Mainkey should consider seriously taking out a civil action in PRC against Mr. Li Shuixin, Mr. Wu Jiqin, and Mr. Chen Dahai (‘Intended Defendants’), also the former shareholders of Mainkey for the reasons that the Intended Defendants had wrongfully and illegally disposed of the PRC assets owned by Mainkey by forging signatures of Mainkey Founder in or about 2007 (‘Intended PRC Action’). In fact, during the course of forging the signatures of the Mainkey Founder by the Intended Defendants, the Mainkey Founder’s shares in Mainkey were also illegally sold by having his signature being forged by the Intended Defendants. As advised by the PRC Lawyer, both Mainkey and Mainkey Founder have a good arguable case in the Intended PRC Action.

We are further advised by the PRC lawyer that if Mainley could join the Intended PRC Action as a 2^nd plaintiff to claim against the Intended Defendants, the chances for a judgment being obtained in favour of both Mainkey and Mainkey Founder will be substantially and absolutely increased. Meanwhile, in order not to incur any further legal costs of Mainkey, Mr. Tsoi Wai had executed a guarantee letter in favour of Mainkey (a copy of which is hereby enclosed for your reference) to keep Mainkey indemnified against all damages, liabilities, and costs (including without limitation the legal costs) which will be incurred or sustained by Mainkey during the Intended PRC Action.”

23.  In their further letter dated 8 July 2013, Messrs Patrick Mak & Tse stated that there was a possibility that valuable assets could be collected for the benefit of the creditors and the Company, and requested a meeting between the Official Receiver and their firm.  The solicitors also stated that they did not know the whereabouts of Chan and Cheng.

24.  However, when the Official Receiver wrote to Messrs Patrick Mak & Tse on 5 August 2013 raising a number of questions including what Mainland assets the Company had and whether Mr Tsoi Snr or the applicant had purported to sign any document, after the winding-up of the Company, claiming to be acting for and on behalf of the Company, the solicitors replied on 19 August 2013 that they only acted for the applicant, who was only a creditor and neither a director nor shareholder of the Company and had “no knowledge” of the affairs of the Company.

(2) Mr Tsoi Snr

25.  Despite the fact that Mr Tsoi Snr had apparently failed to respond to the Official Receiver’s enquiry in September 2012 (see paragraph 9 above), the Official Receiver sought to contact Mr Tsoi Snr again for further information after the applicant requested her to take legal action in the Mainland. Specifically, on 5 September 2013, the Official Receiver wrote to Mr Tsoi Snr, raising a number of questions and formally asking him to produce a statement of affairs of the Company.

26.  However, on 26 September 2013, the Hong Kong solicitors’ firm Messrs Francis Kong & Co replied on behalf of Mr Tsoi Snr, stating that since he had ceased to be a shareholder and director of the Company prior to the winding-up order, he had no detailed knowledge of the assets of the Company.

27.  By a letter dated 25 November 2013, Messrs Francis Kong & Co further explained that after the Company’s premises were impounded by Hong Kong Customs and Excise Department in April 1998, Mr Tsoi Snr had not had access to those premises.  Further, Mr Tsoi Snr was imprisoned for 6½ years from 2003 and was adjudicated bankrupt.  He did not have in his possession the records of the Company.  He confirmed, however, that there had been disputes about the ownership of the two Mainland companies (i.e. the Kansu company and the Chungking company) since before 1997.

28.  Subsequently, in a letter to the Official Receiver dated 29 January 2014, Messrs Francis Kong & Co stated that Mr Tsoi Snr believed from his recollection that the two Mainland companies belonged to the Company, but produced no document in support.  Mr Tsoi Snr also supplied the names of the two Mainland companies and, later, their addresses. When the Official Receiver wrote to the two companies, however, there was no response.

29.  By a letter dated 10 January 2014 attaching copies of the documents provided by Messrs Wat & Co as referred to in paragraph 10 above, which appear to bear the signature of Mr Tsoi Snr, the Official Receiver asked Mr Tsoi Snr whether he had signed documents on behalf of the Company after its winding up.  There is, to date, no response from Mr Tsoi Snr.

(3) Guangdong Bailifu Law Firm

30.  The Official Receiver also entered into correspondence with Guangdong Bailifu Law Firm (“Bailifu”), the Mainland law firm nominated by the applicant for pursuing a civil action in relation to the Chungking company.

31.  By a letter dated 29 September 2013, Bailifu indicated they would be prepared to accept instructions from the Official Receiver to pursue a legal action in the Mainland relating to the Chungking company.  However, when the Official Receiver asked for further information from Bailifu, the firm responded, by letter dated 23 December 2013, that they could not provide the requested information to the Official Receiver, citing concerns about the duty of confidentiality, unless the Official Receiver first engaged the firm.

32.  The Official Receiver then stated to Bailifu that she, as liquidator of the Company, was entitled to represent the Company and that neither the applicant nor Mr Tsoi Snr had any standing to act for the Company.  As far as the evidence shows, there was no further response from Bailifu to the Official Receiver.

33.  In fact, by a letter dated 7 November 2013 the Official Receiver also asked Messrs Francis Kong & Co whether Bailifu were instructed by Mr Tsoi Snr.  There was no reply.  It was wholly unclear who the client of Bailifu was.  It was only at the hearing of this application that counsel for the applicant confirmed that Bailifu was engaged by Mr Tsoi Snr, but he said that the applicant knew very little about what went on between Mr Tsoi Snr and Bailifu.  On this basis Mr Tsoi Snr could have authorised Bailifu to provide relevant information to the Official Receiver but, for reasons best known to himself, has chosen not to do so.

(4) Messrs Wat & Co

34.  As stated in paragraphs 7, 8 and 10 above, between August 2012 and September 2013, Messrs Wat & Co had written to the Official Receiver on behalf of Mr Ma, claiming to be the real beneficial owner of the Kansu company. 

Discussion

35.  Under s. 196(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“the Ordinance”), a liquidator appointed under s.194 may be removed on cause shown.  The burden is on the applicant to show good cause for removing a liquidator.  I accept that the court has a wide discretion to remove and replace liquidators, if satisfied that it is for the general advantage of those interested in the assets of the company, notwithstanding no personal misconduct or unfitness is established in respect of the provisional liquidators or liquidators: Re Keypak Homecare Limited [1987] BCLC 409; Re Liote Property Management Limited [2006] 2 HKLRD 106 at 108.

36.  The gist of the basis of this application is that the liquidator has not taken sufficiently vigorous and effective steps to investigate, protect and recover the Company’s assets being its interests in the two Mainland companies.  It is said that the assets are thereby put in jeopardy because of litigation in the Mainland, of which there is little evidence.

37.  It can be seen from the above summary, however, that the Official Receiver as liquidator of the Company has been facing real difficulties in obtaining necessary information about the Company and the two Mainland companies said to be its subsidiaries.  She has not been supplied with any documents by the applicant, or by Mr Tsoi Snr, or by his Mainland lawyer. She does not even have a statement of affairs or any books of account of the Company either from the directors or anyone connected with the Company. 

38.  While the applicant and Mr Tsoi Snr have asserted that the two Mainland companies belong to the Company, both companies are the subject of adverse claims: Mr Ma claims to be the true beneficial owner of the Kansu company based on an agreement signed by Mr. Tsoi Snr, while the Chungking company is in the hands of Li Shuixin and his associates. 

39.  Mr Yuen says that on the basis of the information she has received, the Official Receiver should at least have commenced investigation into the Company’s interests in the two Mainland companies. 

40.  It is, of course, correct that under s 197 of the Ordinance, a liquidator should seek to gain control of all the property and things in action to which the company is or appears to be entitled.

41.  However, I do not think that the Official Receiver has acted unreasonably in pursuing her investigation by seeking information from, inter alios, Mr Tsoi Snr.  While the applicant has criticised the liquidator for not doing enough, he has been able to point to very little in terms of realistic concrete steps which can take the matter much further. Mr Yuen says the liquidator should have held meetings with the applicant’s solicitors.  But the same solicitors have stated that their client, i.e. the applicant, is only a creditor of the Company with no knowledge of the affairs of the Company.

42.  Mr Yuen also says the Official Receiver should have done the equivalent of a company search in the Mainland.  However, the history of the formal registration of interests with the relevant Mainland authorities is likely to be of very limited assistance.  It is the dealings with the persons who are making claims for the Mainland companies that are important and require investigation.

43.  On the materials before the court, plainly the person who is in the best position to explain such dealings is Mr Tsoi Snr.  In fact, at the hearing, a private examination of Mr Tsoi Snr was mentioned by the Official Receiver as a possible step, though she has not so far pursued it for lack of funding.  No offer has been forthcoming from the applicant to fund such step.

44.  Meanwhile Mr Tsoi Snr appears to be operating the Kansu company and to have signed various documents on its behalf.  But he has failed to respond to the liquidator’s enquiries as to how it was that he continued to act on behalf of the Company, despite its liquidation, in connection with the affairs of the Kansu company.

45.  Likewise, so far as the Chungking company is concerned, Mr Tsoi Snr seems to be giving instructions to Bailifu, the Mainland lawyers, in connection with litigation concerning the ownership and control of that company, but the same lawyers have refused to supply any relevant information to the Official Receiver.

46.  The involvement of the applicant is supposed to have been sparked off by the “sentimental value” of the Company to Mr Tsoi Snr.  Yet the best source of information about the Company and the two Mainland companies, namely, Mr Tsoi Snr, has refused to assist the liquidator and evaded important enquiries.  In these circumstances the liquidator cannot in my view be expected to instruct Bailifu or indeed any Mainland lawyer or other agent to take part in legal proceedings in the Mainland before obtaining a full picture.

47.  Mr Yuen criticises the Official Receiver for diverting attention to Mr Tsoi Snr’s post-liquidation conduct.  I do not think the questions asked in any way fall outside the purview of the liquidator’s functions.  A liquidation is not conducted merely for the creditors’ benefit. One must not lose sight of the wider dimension about investigation of the conduct of those concerned in the liquidated company’s dealings and affairs: The Joint & Several Liquidators of Kong Wah Holdings Ltd v The Grande Holdings Ltd (2006) 9 HKCFAR 766 at §23; Re Pantmaenog Timber Co Ltd [2004] 1 AC 158 at 164, 172-3, 177.

Conclusion

48.  It follows from the above that the grounds for the application are not made out and that the summons for removal must be dismissed.  I make an order nisi that the applicant pay the costs of the liquidator to be taxed if not agreed.

49.  For completeness, I formally grant leave for the applicant to adduce the 2^nd affidavit of Ng Siu Ling, Rowena and make an order in terms of the applicant’s summons dated 18 September 2014.