ELITE FOCUS LTD v. HO TUNG MING TOMMY AND ANOTHER

HCMP 2001/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2001 OF 2008

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BETWEEN

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D E C I S I O N

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The application

1.  This is the hearing of an originating summons issued by Elite Focus Limited (“Elite Focus”) on 13 October 2008, pursuant to section 350B(1)(h) or (3) of the Companies Ordinance, Cap. 32. Elite Focus seeks an order in these terms:

(a)  Ho Tung Ming Tommy, the 1^st Defendant herein (“Mr Ho”), do authorise Madam Ngai Chung Yuet Ming Rosamond (“Mrs Ngai”), a director of Elite Focus, to take up and perform the task of de-registration of Kunming PAL Active Bio-Research Company Limited 昆明百威順生物研究有限公司 (“Kunming PAL”) and that PAL Active Limited 百威順有限公司, the 2^nd Defendant herein (“HK PAL”), do reimburse Mrs Ngai all expenses and out of pocket monies reasonably incurred by her in relation to the task; and

(b)  Mr Ho do execute all documents relating to the authorisation of Mrs Ngai from time to time as reasonably required by Elite Focus for the purpose of and in the de-registration process of Kunming PAL.

2.  The application is for mandatory injunctions. The injunctions sought are not of an interlocutory nature. Under section 350B(1)(h), the court has power to grant a mandatory injunction on the application of a member of a company where a director is engaging or is proposing to engage in conduct that constituted or would constitute a breach of his fiduciary or other duties as a director.

3.  Much evidence has been filed on both sides. I will concentrate only on the matters I regard as relevant.

The background

4.  I will first state the relevant background matters.

5.  HK PAL has two directors and equal shareholders, being Elite Focus and Mr Ho. It has no business activity in Hong Kong. Its only purpose is to hold the entire interest in Kunming PAL, an entity established in the PRC. Mr Ho is the sole director, general manager and authorised legal representative of Kunming PAL.

6.  Elite Focus is owned by Mrs Ngai and her daughter. Mr Ho and Mrs Ngai have long since fallen out. Mr Ho presented a petition to wind up HK PAL on just and equitable grounds in HCCW No. 90 of 2007. On 20 March 2008, I dismissed the petition after trial, holding that the breakdown of trust and confidence was not due to Mr Ho’s allegations but due to the complaints made by Mrs Ngai against Mr Ho. In the present proceedings, Mr Ho has tried to re-open some of the old allegations and to demonstrate that Mrs Ngai had given false evidence in the winding-up petition. They are not relevant to what I need to decide in the present proceedings.

7.  At the end of my judgment in the winding-up proceedings, I had this to say about the proposed dissolution of Kunming PAL in paragraph 86:

“Now that the present dispute is determined by the court, the parties should put their differences behind them and do what is required to dissolve Kunming PAL and the Company.  If the closing down of the Kunming operation is to be done expeditiously and inexpensively, it would be necessary to have [Mr Ho’s] co-operation, as it is provided in paragraph 12.2 of the memorandum and articles of association [of Kunming PAL] that the winding-up procedure is to be initiated by the general manager who is [Mr Ho].”

8.  That exhortation to the parties to put aside their differences and to try to co-operate to dissolve Kunming PAL fell on deaf ears. Hence, the present proceedings.

9.  To cut a long story short, on 15 August 2008, at a directors’ meeting of HK PAL attended by Mrs Ngai and Mr Ho, they passed a resolution to wind up or de-register Kunming PAL in accordance with the law and procedure of the PRC and upon the winding up or de-registration of the same and the realisation of its assets if any, the proceeds are to be remitted to HK PAL to be distributed in accordance with HK law. So the parties are ad idem on the dissolution of Kunming PAL. Other resolutions proposed by Elite Focus to appoint Mrs Ngai to take up the task of the de-registration process of Kunming PAL were not passed due to Mr Ho’s opposition.

10.  The originating summons was issued in October 2008 and first came before this court on 14 November 2008. On that occasion, having considered the correspondence between the parties exhibited to Mrs Ngai’s 1^st affirmation, and having been given to understand by Mr Ho, who appeared in person throughout, that he only needed the official chop of Kunming PAL for the de-registration process, I adjourned the originating summons sine die with liberty to restore, upon his undertaking to the court to file an application to de-register Kunming PAL within 30 days of his receipt of the official chop.

11.  On 18 December 2008, Mr Ho received the official chop from the solicitors of Elite Focus. Thus, between December 2008 to July 2009, Mr Ho should have more than ample opportunity to proceed with the de-registration process, including of course, taking the first step of filing an application to de-register as he has undertaken to this court to do.

What happened afterwards

12.  What Mr Ho did later was unsatisfactory.

13.  I have been given a very detailed account in Mrs Ngai’s 2^nd affirmation. As Mr Ho only put in his 1^st affirmation in answer several days before the originating summons was restored for hearing on 9 July 2009, I adjourned the application for Mrs Ngai to file evidence in reply. This was to enable the court to have a clearer picture of the procedure in the PRC for the de-registration process in view of the conflicting versions put forward on both sides.

14.  Mr Ho asserted in his 1^st affirmation he has filed an application to de-register Kunming PAL in January 2009 and that this application was accepted by the Kunming Industry & Commerce Adminstration Bureau (昆明工商行政管理局) (“the Adminstration Bureau”) on 27 February 2009. In support of this, he produced the email of his lawyer in the PRC of the same date.

15.  Mrs Ngai maintained in her 2^nd affirmation that Mr Ho had not followed the correct procedure to apply for de-registration. In support of this, she produced a detailed opinion from her PRC lawyer dated 15 May 2009. According to this opinion, the following documents were required for the de-registration of a foreign capital company:

(i)  application form for de-registration of foreign capital company signed by the person-in-charge of the liquidation committee;

(ii)  permit of approval for de-registration by the initial approving organization/authority;

(iii)  the resolution or decision made in accordance with the laws;

(iv)  the legally filed and certified winding-up report;

(v)  certified taxation clearance by both the Tax authorities and the Custom Department;

(vi)  proof of de-registration of subsidiary company/companies;

(vii)  original and duplicate copy of Business Licence;

(viii)  other relevant documents.

16.  The PRC lawyer of Elite Focus opined that the “initial approving organisation/authority” in this instance is Kunming Municipal Bureau of Commerce (昆明市商務局) (“the Bureau of Commerce”). The Administration Bureau, where Mr Ho’s PRC lawyer had filed some documents, is only a registry which deals with documentation and records the registration, amendment and de-registration of all Kunming corporations. Mr Ho’s PRC lawyer had only filed an application at the Adminstration Bureau to amend the record of Kunming PAL (外商投資企業變更(備案) 登記申請書). The document filed was for registering the member and the person in charge of the liquidation committee, and is not directly for use in the de-registration. As for the document issued by the Administration Bureau dated 27 February 2009, being a Notification of Case Register (備案通知書), this stated that Kunming PAL has filed the name of the person in charge and member of the liquidation committee, and did not constitute the commencement of the de-registration procedure.

17.  The legal opinion further stated that for the carrying out of the de-registration procedure, these steps are required:

(1)  The foreign capital company should forward the application for liquidation along with the resolution by its board of directors to de-register the company and the list of members of the liquidation committee to the Bureau of Commerce.

(2)  After the consent given by the Bureau of Commerce, the company should publish a public notice in accordance with PRC laws.

(3)  After the period of public notification expires, the company should bring the audit report, liquidation report by the liquidation committee, the resolution on repayment of debts and taking back of creditor’s rights, the original documents of approval for incorporation of the company to the Bureau of Commerce to apply for de-registration, the Bureau of Commerce will make the decision of either approval or disapproval.

(4)  The company should then proceed to various departments for taxation, foreign exchange, custom and finance to perform de-registration procedures.

(5)  After completion of all the procedures mentioned above, the company shall bring the documents listed in (i) to (viii) above to the Administration Bureau to proceed with the de-registration of the company.

18.  Further, it was pointed out by the PRC lawyers of Elite Focus that under Articles 186(1) and 189 of the Company Laws of the PRC, the liquidation committee shall inform the company’s creditors of the establishment of the liquidation committee within 10 days following its setting up and shall make an announcement in a newspaper within 60 days of its setting up.

19.  It is not in dispute Mr Ho did not inform Mrs Ngai, who is a creditor of Kunming PAL, within 10 days of the setting up of the liquidation committee, nor did he advertise the setting up of the committee in a newspaper in the PRC.

20.  In answer to the above legal opinion, Mr Ho relied on an email of four lines from his PRC lawyer dated 12 June 2009, stating that the procedures for the Bureau of Commerce in various parts of China are different and there is no law governing the priority of the filing of case register procedure at the Bureau of Commerce (預備案程序), or the filing of the liquidation committee case register at the Administration Bureau. This lawyer then asserted since the Administration Bureau had accepted the filing of the liquidation committee case register, the de-registration procedure has commenced.

21.  I have no hesitation in preferring the evidence of the PRC lawyer of Elite Focus as set out above.

22.  The matter has been further clarified with the following documents issued by the Bureau of Commerce and the Administration Bureau.

23.  Firstly, there is the document of the Bureau of Commerce dated 27 May 2009 headed “Explanatory Note of the Relevant Conditions Concerning the Application for De-registration by Kunming PAL Active Bio-research Company Limited”. The Bureau of Commerce stated as follows:

“Kunming PAL Active Bio-research Company Limited is a foreign capital enterprise which has been approved by our bureau to establish since May 2006, its full payment of the registered capital of HK$500,000 has been received.  Up till now, our bureau has received neither any written application for de-registration nor related documents for this purpose from the Company.

Hereby, this is to certify.”

24.  Secondly, there is a second explanatory note issued by the Bureau of Commerce on 23 July 2009. It is clear from this document that the application for de-registration must be submitted to the Bureau of Commerce for it to issue the permission to set up the liquidation committee for the liquidation process to begin. Further, it is after various steps have been taken as mentioned in the explanatory note that the Bureau of Commerce will issue the “Return slip of de-registration of approval certificate for foreign investment enterprise” （外商投資企業批准證書註銷回執）,and only by producing (i) the permission to set up the liquidation committee, and (ii) the return slip of de-registration of approval certificate for foreign investment enterprise can the foreign investment enterprise proceed with the de-registration.

25.  Thirdly, there is the explanatory note issued by the Administration Bureau dated 23 July 2009, stating that “at present, [Kunming PAL] has not yet submitted its registration application for company de-registration to our Bureau”.

26.  I hold on the evidence Elite Focus has established to the satisfaction of the court Mr Ho has not filed an application to de-register Kunming PAL.

27.  I find Mr Ho in breach of his undertaking to the court to file an application for de-registration within 30 days of his receipt of the official chop of Kunming PAL or at all. I reject his contentions thiswas due to Mrs Ngai’s obstruction or non-cooperation with him. Mr Luk’s reply submission for Elite Focus has dealt with each of these allegations comprehensively.

28.  Mrs Ngai had offered to give assistance to the PRC lawyer and the accountant engaged by Mr Ho but they refused to see her even though she went to Kunming to seek a meeting with them and brought along with her original documents to facilitate the de-registration process.

29.  Mr Ho has given no satisfactory explanation why the correct procedure was not adopted by lodging the necessary application with the Bureau of Commerce in the first place. Even if he were mistaken at first, the solicitors for Elite Focus had written to him many times to inform him of the right procedure.

30.  I find Mr Ho in breach of his duty as a director to HK PAL to carry out its board resolution on 15 August 2008 to proceed with the de-registration of Kunming PAL with due diligence, being the sole director appointed by HK PAL to the board of Kunming PAL and thereby authorised under the articles of association of Kunming PAL to propose the winding-up procedure and organise a liquidation committee to carry out the winding up. As mentioned earlier, he has been given more than sufficient opportunity to proceed with the de-registration for at least eight months when the originating summons was restored for hearing in July 2009. Mr Luk suggested Mr Ho may have ulterior motives in not proceeding with de-registration of Kunming PAL with due diligence. It is not necessary to express any view on this.

31.  I am satisfied it is appropriate to exercise my discretion in the circumstances to grant the mandatory injunctions sought in the originating summons under section 350B(1)(h), to compel Mr Ho to authorise Mrs Ngai to proceed with the de-registration of Kunming PAL. I will make an order accordingly.

32.  Mr Luk seeks a costs order on an indemnity basis against Mr Ho on the ground that Mr Ho is in breach of his undertaking to the court. I am not prepared to hold that Mr Ho has acted in bad faith in failing to comply with his undertaking. He has taken some steps in purporting to carry out de-registration, although as I have found he has not followed the correct procedure under PRC law.

33.  I award costs of these proceedings to Elite Focus on a party and party basis, including the costs reserved on 9 July 2009.

34.  I make a gross sum assessment of the costs incurred by Elite Focus. Having considered the statement of costs submitted by its solicitors, I assess the amount of costs that should be paid by Mr Ho to Elite Focus in the sum of HK$160,000.