CO BUN KA v. HIP SOON TRADING CO LTD AND OTHERS

HCCW 503/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 503 OF 2006

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REASONS FOR JUDGMENT

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Introduction

1.  At the conclusion of the hearing of this petition, I made an order winding up the company and directing the costs of the petition to be paid by the 2^nd and 3^rd Respondents to the Petitioner to be taxed if not agreed.  I indicated that I would hand down my reasons for doing so in due course, which I now do.

The company and its shareholding structure

2.  The company, Hip Soon Trading Company Limited, was incorporated on 10 January 2005 for the purpose of purchasing the business of trading mobile phones then carried out by the Petitioner, Mr Co Bun Ka, and the 2^nd Respondent, Mr Wong Lam Chung, in partnership.

3.  The directors of the company have at all times been Mr Co and Mr Wong.

4.  The initial shareholders of the company were Mr Co and Mr Wong, who each held 4,750 shares, and the 3^rd Respondent, Mrs Suen Lau Wan Seung, Wendy, who held 500 shares.

5.  In May 2005, the share capital of the company was increased to HK$20,000 and two new shareholders were invited to join, namely the 4^th Respondent, Mr Shi Xiao Xin, and the 5^th Respondent, Mr Xu Qing Tian.  As from May 2005, the shareholding structure of the company has been as follows:-

Shareholders	Number of shares
Mr Co (the Petitioner)	9,000
Mr Wong (the 2nd Respondent)	9,000
Mrs Suen (the 3rd Respondent)	1,000
Mr Shi (the 4th Respondent)	500
Mr Xu (the 5th Respondent)	500

The grounds of the petition to wind up

6.  Mr Co petitioned to wind up the company under s.177(1)(f) of the Companies Ordinance, Cap.32.  It was his case that the company was a quasi-partnership and that it was operated on the mutual trust and confidence of him and Mr Wong.  He maintained that, in the circumstances that have arisen, it was just and equitable that the company be wound up.

The Respondents’ position at the hearing of the petition

7.  Neither Mr Wong nor Mrs Suen appeared at the hearing of the petition.  They had previously been jointly represented by solicitors but each filed a notice to act in person on 3 October 2007.  Notwithstanding this, neither appeared at the pre-trial review on 11 October 2007.

8.  When he was still represented, Mr Wong had filed an affirmation opposing the Re-Amended Petition on 15 January 2007.

9.  Mr Shi and Mr Xu each respectively signed letters in the same terms dated 27 October 2007 indicating that they agreed to the petition and stating that they did not intend to appear at the hearing of the petition.  Accordingly, neither of them appeared at the hearing.

The facts

10.  Due to differences between Mr Co and Mr Wong as to the manner in which the business should be conducted, the company ceased to trade from November 2005.

11.  The shareholders of the company held a discussion in early November 2005 and, by a written resolution dated 28 November 2005, they resolved that the company should formally cease its business on 15 November 2005.

12.  The resolution in question provided for a number of things.  The company was to have its accounts audited and to submit a tax return; any profit after tax would be distributed among the shareholders.  Mr Wong was to recover outstanding payments from two customers.  The remaining term of the company’s tenancy over its business premises would be assigned to Mr Wong and the rental deposit transferred to him.  The company’s vehicle would be transferred to Mr Wong, as would the company’s existing business tools and equipment.

13.  In relation to the recovery of the outstanding payments from the two customers, the resolution provided:-

“	Mr Wong Lam Chung guarantees and undertakes to the Company that if he shall not be able to collect the aforesaid outstanding payments successfully, Mr Wong Lam Chung is willing to be responsible for such outstanding payments and to pay such outstanding payments to the Company instead.”

14.  In his affirmation, Mr Wong disputed that this clause was included in the resolution.

15.  However, he was unable to produce a copy of the resolution in which this clause was allegedly omitted, claiming that he forgot to make a copy of it.  Instead, by a letter dated 11 May 2006, Mr Wong and Mrs Suen’s solicitors sent a copy of the resolution duly signed by him and Mrs Suen, which included the clause in question, to Mr Co’s solicitors. 

16.  In the circumstances, I am satisfied that the clause was part of the shareholders’ resolution.

17.  Following that resolution, the company’s accounts were examined and prepared.  It is Mr Co’s case that this exercise revealed that Mr Wong has failed to pay the company a total sum of HK$1,824,084.26.  Mr Wong disputes this alleged debt.

18.  After the company ceased its business, Mr Wong and Mrs Suen began to operate a new business in the company’s former premises in the name of Hipson Trading Company Limited and a novation agreement was entered into with the landlord to change the name of the tenant to this new company.

19.  Further to the resolution of 28 November 2005, Mr Co, Mr Shi and Mr Xu arranged for resolutions of the shareholders and directors of the company dated April 2006 to be prepared to effect a voluntary winding up of the company.  Mr Co signed both resolutions and Mr Shi and Mr Xu signed the shareholders’ resolution. 

20.  Mr Wong and Mrs Suen have refused to sign those further resolutions. 

21.  In his affirmation, Mr Wong claimed he declined to sign them because the accounts and financial statements had not been shown to him and Mrs Suen. 

22.  This claim is inconsistent with the fact the company’s auditor sent Mr Wong a copy of the draft audited accounts on 4 March 2006.  It is also inconsistent with Mr Wong and Mrs Suen’s solicitors’ letter dated 1 June 2006, indicating they would only be prepared to sign the resolutions if a rider was included.  This rider provided for Mr Wong to collect the outstanding sums due to the company from the two customers but did not require him to pay that sum to the company; it also provided that he should have an additional six months in which to collect the outstanding sums.  Finally, Mr Wong’s claim is also inconsistent with his and Mrs Suen’s solicitors’ letter dated 11 May 2006 indicating that “our clients agree to wind up” the company.

23.  In the light of the evidence, I am not satisfied that Mr Wong’s claimed reason for not signing the resolutions in question is the real reason for his refusal to do so.

Is it just and equitable that the company be wound up by the court?

24.  I accept that the company was a quasi-partnership established to take over the business previously operated by Mr Co and Mr Wong as a partnership.

25.  The shareholding structure of the company is such that there is a complete deadlock as between Mr Co, Mr Shi and Mr Xu on the one hand and Mr Wong and Mrs Suen on the other.

26.  The board of directors, consisting of Mr Co and Mr Wong, is similarly deadlocked.

27.  There is no provision in the articles of the company by which Mr Co can cause Mr Wong to buy out his shares in the company.

28.  The company, although solvent, ceased to trade as from November 2005.

29.  Mr Wong and Mrs Suen have commenced a new business, under a very similar name to that of the company, operating from the same business premises previously leased by the company.

30.  There is an ongoing dispute between Mr Co and Mr Wong as to whether Mr Wong owes the company the sum of HK$1,824,084.26.

31.  Despite Mr Wong’s indication through his former solicitors that he was willing for the company to be wound up, he declined to sign the shareholders’ and directors’ resolutions to effect a voluntary winding up.  As I have noted above, I am not satisfied that the reason Mr Wong proffered for declining to sign the resolutions in question is genuine.

32.  In the circumstances, I was satisfied at the conclusion of the hearing of the petition that this is a case in which there is deadlock in a quasi-partnership company and that there has been a loss of mutual confidence between Mr Co on the one hand and Mr Wong on the other.  I am also satisfied that the substratum of the company has been lost in that the business previously carried on by Mr Co and Mr Wong through the company is no longer being carried on and has been replaced by the business now being carried on by Mr Wong and Mrs Suen through another company.

33.  Accordingly, I was satisfied that it was appropriate to make a winding up order in respect of the company under s.177(1)(f) of the Ordinance.

Conclusion

34.  For the above reasons, I concluded that it was just and equitable that the company should be wound up and, accordingly, I made the order sought.

35.  But for Mr Wong and Mrs Suen’s refusal to sign the shareholders’ and directors’ resolutions resolving that the company be voluntarily wound up, these proceedings would not have been necessary.  I therefore also considered that the appropriate costs order should be that the costs of the petition be paid by Mr Wong and Mrs Suen to Mr Co.