RE HAWKINS DEVELOPMENT LTD

HCCW 215/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 215 OF 2007

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D E C I S I O N

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1.  This is an application by a petitioner in a winding-up petition for an extension of time to comply with an order I made on 16 December 2008 to provide security for costs.  The petitioner, Walford International Holdings Inc., was ordered to pay into court $500,000 within28 days of the order, or withinsuch further time as the court may for special reasons allow, and in the event such security is not provided withinthe time stipulated, the petition do stand dismissed withoutfurther order.

2.  The present summons for extension of time was filed on 12 January 2009.  The petitioner seeks an order that time be extended to 9 March 2009.

3.  On 13 January 2009, I granted an interim stay of the order made on 16 December 2008 pending the determination of the present summons, on the undertaking of a director of the petitioner, Leung Ka Ho, to provide a personal guarantee as security for the Company’s costs up to $250,000 until 9 March 2009.

4.  This application is opposed by Hawkins Development Limited (“the Company”), the subject of the winding-up petition.

5.  What I need to consider here is whether special reasons are made out for further time to be granted pursuant to the order of 16 December.

6.  Mr Paul Lam for the Company referred me to Pine Enterprises Limited v Cyber Strategy Limited, CACV No. 116 of 2008, 12 December 2008, and emphasised the need for a party seeking to justify an extension of time to provide security for costs for “special reasons” to adduce sufficient evidence, see paragraphs 16 to 18 of the judgment.  He criticised the evidence adduced on the petitioner’s behalf and submitted that it is insufficient, lacking in particulars, with no documents in support in a number of respects.

7.  The special reasons relied on by the petitioner are as follows:

(1) there was a resolution of the petitioner’s shareholders passed on 8 February 2006 that for expenses of the petitioner over $200,000, the directors of the petitioner must obtain the approval of shareholders making up 75% of the entire shareholding of the petitioner before payment is to be made by the directors; and

(2) one of the shareholders of the petitioner, Mr Yum, whose shareholding is more than 25%, is in the process of selling his shares to a buyer, completion is to take place on 16 February 2009.

8.  In support of these special reasons, Leung Ka Ho has filed evidence to depose to these matters:

(1) He was informed of the order of 16 December on 18 December 2008 and he had a telephone conference with the other director, George Bai, who resides in the United Kingdom, on 2 January 2009.  He was reminded by Mr Bai of the shareholders’ resolution aforesaid.  It was agreed by the two of them that he should issue formal notices to all the shareholders before 3 January 2009 to obtain their approval to provide security for costs at $500,000.  The minutes of the annual general meeting of the shareholders of the petitioner held on 8 February 2006 and the board meeting by telephone conference on 2 January 2009 were produced.

(2) On 3 January 2009, he sent out the notices to 8 shareholders, one being himself.  The 8 notices were produced, but the names of 6 shareholders were covered up in the exhibits leaving only the surnames. On the same day, only he and another shareholder Chu Ka Wah returned the reply slip to the notice, giving approval to pay the security for costs.  Their shareholding is less than 15%.

(3) On 8 January 2009, he sent further notices to the shareholders who had not responded, to chase for a reply. These notices were produced.

(4) On 12, 14 and 16 January 2009, reply slips were received from 3 other shareholders and they were exhibited.  One of them, a Mr Tong, refused to give consent to pay security for costs.  The other 2 shareholders agreed.  The total percentage of shares those who has approved has gone up to 37%.

(5) The purchaser of Mr Yum’s shareholding would meet with Chu Ka Wah on 12 February 2009 to obtain information about the present proceedings before the completion of the purchase of Mr Yum’s shareholding on 16 February 2009.

9.  Leung Ka Ho has offered to provide a personal guarantee to pay the Company’s costs to the extent of $250,000 up to 9 March 2009, when it is envisaged that all the required approvals from shareholders could be obtained.  The petitioner’s solicitors have prepared a draft guarantee for this purpose.  He has produced a bank statement of his account in China showing a credit balance of RMB 250,000 as of 30 January 2009.  Further, he has offered to deposit $100,000 within 5 days hereof with the petitioner’s solicitors to hold as stakeholder until 9 March 2009 for the purpose of covering the Company’s costs if the petitioner is unable to pay $500,000 into court as security, subject to the condition that his total personal liability does not exceed $250,000.

10.  Unless there is good reason to think that the matters alleged in Leung Ka Ho’s evidence are not credible, I am inclined to think there are special reasons here to warrant the exercise of my discretion to extend time.

11.  Mr Lam for the Company submitted that the shareholders’ resolution is dubious, as in an earlier affirmation made by Chu Ka Wah on the petitioner’s behalf, Chu had deposed that Madam Chan Yuk Sim was the sole shareholder of the petitioner holding 1 share issued in 1995.  No shareholder surnamed Chan was among those to whom Leung Ka Ho sent out the notices on 3 January 2009.  Chu, who purportedly chaired the shareholders’ meeting of the petitioner on 8 February 2006, did not mention in his affirmation there were 8 shareholders.  Leung Ka Ho did not mention in his affirmations if these shareholders are legal registered shareholders, or whether some one is holding the share or shares on their behalf.  He merely asserted that the shareholders are not fictitious but are private investors who wish to keep their identities confidential.  He chose not to explain the apparent discrepancy between his affirmations and the affirmation of Chu and the shareholding structure of the petitioner.  Mr Robin D’souza informed the court on instructions today that the shareholders referred to in the affirmations of Leung Ka Ho are beneficial shareholders.

12.  The evidence as to the shareholding in the petitioner is not satisfactory.  This could be due to a misguided desire to keep confidential the identities of the real investors in this company incorporated in the British Virgin Islands.  On balance, I am inclined to think that there are a number of individuals who hold beneficial interest in the share or shares of the petitioner.  On the available evidence, I am not prepared to conclude that all the documentary evidence adduced by Leung Ka Ho should be rejected and his evidence disregarded as incredible.  I appreciate the position at law that a resolution of these individuals, who would appear not to be registered shareholders of the petitioner, may not impose a valid restriction on the authority of the directors of the petitioner.  If the directors are forced by circumstances to make a payment for security of costs to preserve the petitioner’s right to litigate, they may be required to shoulder personal liability pursuant to the resolution.  This may be harsh on the directors.

13.  I should strike a balance between what would be oppressive to the petitioner and what would give the Company a sufficient measure of security.  I decide to exercise my discretion to extend time.

14.  Extension of time is given to comply with the order to give security to 9 March 2009 on these conditions:

(1) Leung Ka Ho is to execute the draft personal guarantee exhibited to his 2^nd affirmation within 3 days hereof; and

(2) he is to pay $100,000 to the petitioner's solicitors as stakeholder within 5 days hereof, to be applied pursuant to the terms of his personal guarantee, provided that his maximum liability thereunder does not exceed HK$250,000.

15.  I order the costs of this application be to the Company in any event.