RE UNIVERSAL INFORMATION LTD

CWU No. 187 of 1995

HEADNOTE

Company winding up - Just and equitable ground - if refusal of an offer to buy out the Petitioner is to be made a ground for refusing a petition the offer must be complete on the day of the hearing.

Company winding up - Just and equitable ground - objection raised that Company has no assets will not necessarily lie even if the company is temporarily insolvent if it is not balance sheet insolvent.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

(COMPANIES (WINDING-UP) NO. 187 OF 1995)

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In re Universal Information Limited

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J U D G M E N T

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Rogers, J.:

1. This is the hearing of a Winding-up Petition.

2. Before I go to the events of today, I think it is necessary to say a few words about the events which led up to this matter coming on for hearing today.

3. The Petition was presented on the 8th of May of this year and that first came on for hearing on the 12th of June.

4. On that occasion, the parties were not represented by counsel and so the hearing was in open court. There was an irregularity because the solicitors themselves attended. They of course have no right of audience in open court - and, indeed one of the solicitors, if my memory serves me correctly, was not even robed.

5. However, in order to save the parties unnecessary costs, I made an order for directions and that was that the Company and the Opposing Contributory should file their evidence within twenty-one days and that the Petitioner should file evidence in reply fourteen days thereafter.

6. I made it clear at the time - and indeed I have refreshed my memory by listening to the tape-recording of the hearing - that that was all I was prepared to do on that occasion, and, as is the practice in this court, the matter should thereafter have been mentioned in court and restored for hearing on the normal companies call-over day to ascertain what further needed to be done for the Petition to be ready for hearing and if the parties did consider themselves ready as to how long it would take.

7. I would also mention that it is now the practice in the companies court that when petitions are to be heard, the parties will prepare a non-contentious list of issues. The purpose of that is to make sure that each party has concentrated on what will be the issues in the case and it has been found in practice that this very much simplifies the hearing and indeed makes the presentation of arguments much simpler.

8. For some reason, this matter came to be listed today for the hearing of the Petition, without the matter having been mentioned in court for further directions, without any order for setting down and without any estimate as to the time the Petition would take to be heard. As it transpired, this matter could be concluded today, but if it had not been possible to conclude it today other consequences would no doubt have followed.

9. The Petition is a comparatively short one and it is presented on behalf of the minority shareholders. The allegation is that the Company was set up for specific purposes and those purposes were contained in a shareholders agreement and they have for reasons unconnected directly with the parties been concluded.

10. In addition, there was, as a result of the shareholders agreement a quasi partnership of sorts set up. The Petitioners have not only been excluded from control of the Company but large sums of money have been taken out by the majority shareholder and used as loans by the majority shareholder. This has been at the instance of the particular Director responsible.

11. The Opposing Contributory has only sought to defend the Petition on what are effectively two grounds.

12. First, it says that in the last day or so, it has made an offer to the Petitioners which should be accepted. That offer is an offer to buy out. The Opposing Contributory says that even if that offer is not accepted it is possible that they may go higher and they say it is likely that an accommodation between the parties can be made in the foreseeable future and that in any event the Opposing Contributory may be able to make an improved offer and they ask that this matter be adjourned so that at the adjourned hearing, whenever that might be, such improved offer could be considered and if the court considers it reasonable that such approved offer be accepted by the Petitioner then the Petition should be dismissed because there are alternative remedies available to the Petitioners.

13. In my view - and I have been shown the cases including In re a Company [1983] 1 WLR 927 and Virdi v. Abbey Leisure Ltd [1990] BCLC 342 - I must consider the matter as of today - I do not consider it right, particularly in the circumstances of this case that any adjournment should be allowed simply for the purpose of allowing the Opposing Contributory further time to put together an offer which may or may not be reasonable.

14. I then turn to the offer which has been made by a letter dated yesterday's date which indeed the Petitioners have had scarcely sufficient time to consider.

15. The offer, to summarize the effect of it, appears to be this: that what the Opposing Contributory wishes to do is to effectively take the Company over, use such liquid assets (in other words, a payment which has been received from one of the major creditors but not the major creditor), distribute it to itself as dividends and pay out the Petitioning Contributory from those dividends.

16. That seems to me to be dependent on a number of other things fitting in with this rather odd arrangement and in particular it would be dependent upon the Company being able to stave off its exisiting creditors for a sufficient time to enable it to complete the process and, in effect, not to pay its existing creditors including apparently a substantial sum claimed on behalf of the Revenue.

17. Having looked at this offer, this is not an offer which I consider a court should present to the Petitioners and indicate that this is an offer which should be accepted by the Petitioners in lieu of a winding-up.

18. It may well be that the Opposing Contributory can formulate a better offer, but in default of the Opposing Contributory showing that it has the means to buy out the Petitioner - in the circumstances of this case I do not consider that, expedient though it might be from the Opposing Contributory's point of view, this is an offer which I should say to the Petitioner precludes the successful prosecution of this Petition.

19. There remains one further point which has been taken on behalf of the Opposing Contributory and that is that the Petition does not contain an allegation of a tangible interest in the winding-up. In respect of that, the Opposing Contributory relies on the authority of In Rica Gold Washing Co. [1879] Chancery 36. That was a case in which paragraph 20 of the Petition read as follows:

"The operations of the Rica Company were from the commencement unsuccessful. The said company in a short time exhausted the funds available for the purpose of its business, and it has for several years past ceased to carry on any business. It has no means of raising further capital, and there is no prospect that the business of the company could be recommenced with any advantage even if further capital could be procured."

20. Now, that case was a case where the paid-up capital of the Company was ￡40,000 and the Petitioners apparently had the princely capital of ￡75.

21. When the matter came before the Court of Appeal, Jessel, M.R., pointed out that the Petitioner must show the court that he has a sufficient interest to entitle him to ask for the winding-up of the Company - and then he went on to say:

"I say 'a sufficient interest,' for the mere allegation of a surplus or of a probable surplus will not be sufficient. He must shew what I may call a tangible interest. I am not going to lay down any rule as to what that must be, but if he shewed only that there was such a surplus as, on being fairly divided, irrespective of the costs of the winding-up, would give him 5 pounds, I should say that would not be sufficient to induce the Court to interfere in his behalf."

22. But later on in the judgment at page 45, the judge referred to the paragraph of the Petition which I have already cited and observes:

"That is an allegation of insolvency, certainly of commercial insolvency, . .." -

and he goes on to observe that there is nothing else in the Petition to show assets and there is nothing to show that any of the frauds alleged in the Petition ended in abstracting moneys from the assets of the company which the parties committing the fraud were liable to pay.

23. As a result of that, the Master of the Rolls came to the conclusion that:

"... when the petition is fairly looked at, there is no allegation of any assets left, much less of there being any surplus in which the Petitioner could participate after payment of the debts and costs of the winding-up." -

and as such he considered the Petition to be defective.

24. Now, when I turn to the present Petition, paragraph 11, as has been pointed out, starts off by saying that although only one dividend has been declared the Company has been extremely successful and has made substantial profits during the period of its incorporation. That, if anything could be, is an exact reverse of paragraph 20 of the Rica Gold petition. That is an allegation of a prosperous company that has made money and continued to make money.

25. One then goes on to see the allegations in paragraph 13 of the money being taken out of the Company by means of loans which indeed is by far the major subject matter of complaint and the Petition does not indicate that they will not be repaid. It is a matter of complaint that the loans were made and it again may well be and it would appear from the Petition that if there were anything wrong with those loans, in view of the connection between the Director who was responsible for the making of the loans and the companies to whom the loans were made, it may well be that the Director himself would be responsible for repayment. In my view there is clearly an interest shown in the winding-up of this Company and if there is not money in this Company it is the subject matter of the complaint in the Petition that there should be.

26. In my view, therefore, that objection must fail. Those being the only grounds on which this Petition is opposed, I see no alternative but to make a Winding-up Order. In view of the possibility of an offer which might be acceptable being made and in view of the discussion during the course of argument in which the Petitioner indicated that it maybe preferable for a purchase of the shares provided there were adequate safeguards for the Petitioner, I am disposed if the parties so wish to order that whilst I so make the order for winding-up that this order should lie in Chambers for twenty-eight days to see whether a suitable purchase can be made and if so the matter can be restored before me and any suitable accommodation between the parties if it is approved by me can therefore be made.