RE SURGE RECREATION HOLDINGS

HCCW 1185/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1185 OF 2003

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D E C I S I O N

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1.  This is an application by Wong Pak Wai Peter (“the applicant”) for substitution as the petitioner in a petition to wind up Surge Recreation Holdings Limited (“the Company”) under rule 33 of the Companies (Winding-up) Rules.

2.  By this provision, where a petitioner consents to withdraw his petition or to allow it to be dismissed, the court may, on such terms as it thinks just, substitute as petitioner “any creditor … who in the opinion of the court would have a right to present a petition, and who is desirous of prosecuting the petition”.

3.  The procedure and approach I adopt here are as in Re Hon Seng Engineering Ltd [2001] 2 HKLRD 295 at 297I to 298C and in Re Calsil Ltd (1982) 6 ACLR 515 at 524.  I will determine on the evidence adduced at this stage if there is a bona fide dispute of the debt of the applicant on substantial grounds, so as to arrive at an opinion whether he would have “a right to present a petition” under rule 33, instead of leaving the question whether that debt is established to be determined at the ultimate hearing of the petition.

Background matters

4.  The Company was incorporated in Bermuda on 5 June 2001 and has established a place of business in Hong Kong.  It was registered in Hong Kong under Part XI of the Companies Ordinance, Cap.32 on 30 August 2001.  The shares of the Company are listed on the main board of the Hong Kong Stock Exchange Limited after a reorganisation carried out in 2002, in which the Company became the holding company of a group of companies (“the Group”).  The Company holds a substantial interest through one of its subsidiaries, Penny Farthing Agents Limited, in a joint venture company in the Mainland (“the joint venture”) and the joint venture manages and operates a theme park in Panyu, Guangdong province, called SammyLand.  This is the core business of the Group.

5.  Between December 2003 and February 2004, there was a dispute between Puregain Assets Limited (“Puregain”), which was owned by Chan Chak Mo (“Mr Chan”), and Super Master Holdings Limited, which was owned by Li Tat Ting, also known as Sammy Li (“Mr Li”), for the controlling stake of the Company.  The dispute was resolved in favour of Puregain.  As a result, Mr Chan has taken over control of the board from Mr Li since March 2004.

6.  On 25 October 2003, a creditor’s petition to wind up the Company was presented by Elegance Finance Printing Services Limited (“Elegance”) on a debt of about $1.5 million.  In January 2004, Mr Li filed an affirmation on behalf of the Company opposing the petition and seeking an adjournment for a potential rescue proposal to be formulated.  In March 2004, after Puregain has acquired the controlling stake in the Company, the new management under Mr Chan took over the conduct of the petition on behalf of the Company.  An adjournment was granted in March 2004 for 4 weeks for the new management to examine the books and records and to work out a debt restructuring with its creditors.

7.  At the hearing of the petition on 19 April 2004, Elegance indicated that it has reached a settlement with the Company and it intended to ask for a dismissal of the petition.  Shortly before the hearing, 9 creditors gave separate notices of intention to appear and to support the petition, including Mr Li, other former directors, and the applicant.  Three of the supporting creditors had given notice of intention to appear in early February 2004, but as opposing creditors.  As one of the supporting creditors, Cheung Man Yau Timothy (“Mr Cheung”), applied to be substituted as petitioner in place of Elegance, I did not grant Elegance’s application to dismiss the petition.  I gave directions for the Company to file evidence in opposition of that application and for Mr Cheung to file evidence in reply.  The Company later reached a settlement with Mr Cheung.

8.  At the hearing of the petition and Mr Cheung’s application for substitution on 7 June 2004, I gave leave to Mr Cheung to withdraw his application for substitution.  By then, the applicant has issued his application on the same day to be substituted as petitioner in place of Elegance.  Directions were given for the filing of evidence on both sides and on 26 July 2004, I adjourned the application for argument and the petition until the determination of the application for substitution.

The applicant’s case

9.  The applicant has made a total of 4 affirmations in support of his case.

10.  He claims that the Company is indebted to him in the sum of HK$240,000.00, being his wages from July 2003 to February 2004, at HK$30,000.00 a month for 8 months.  He had been employed by the Company from July 2003 to February 2004.  As the Company was in financial difficulties, he was not paid his salary from July 2003 to November 2003.  In November 2003, the applicant gave three months’ notice to resign to Mr Li, who was then the chairman and Mr Li accepted his resignation.  Hence, his last working day would be 29 February 2004.  Before the applicant left his job, the Company agreed that HK$240,000.00 was owed to him for his salaries.  Upon his repeated requests and demands for payment, on 1 January 2004 the Company paid him by cheque of this amount dated 1 January 2004.  He was told he could present the cheque for payment at a later stage when the winding-up petition was dismissed.  When he presented the cheque for payment on 6 February 2004, it was dishonoured.

11.  In the last affirmation he filed, the applicant said he was employed by the Company and he was also allowed by the Company to work for the joint venture in the Mainland.  Mr Li had agreed with him his salaries would be paid by both companies to reflect his work done.  The joint venture would pay him $10,000.00 a month and the Company would pay him $30,000.00 a month.

12.  There was no employment agreement in writing.

13.  The applicant has produced the following documents in support of his case:

(1)             the cheque dated 1 January 2004 which was dishonoured and a returned cheque advice of the bank 

The cheque was initially made out to be paid to one Mok Kin Nam in the sum of $48,000.00.  It was then altered to be paid to “Wong Pat Wai” (this would seem to be an error in spelling the applicant’s name) in the sum of $240,000.00.  The cheque was signed by Mr Li and another for the Company.

(2)             an extract from a prospectus issued by the Company dated 31 July 2002, which contained this statement:

“Mr Wong Pak Wai, Peter aged 40, joined the Group as the general manager in December 2000 and is responsible for overall management administration and operations of SammyLand.  Mr Wong has years of experience in the entertainment business in the PRC”. 

I note that it is not stated which entity in the Group had employed the applicant.

(3)             a letter dated 9 June 2004 from Manulife Provident Funds (“Manulife”) to the Company and copied to the applicant 

In this letter, Manulife acknowledged receipt of the “Notice of Employee Termination” form for “your terminated employee Wong Pak Wai” and stated further that as of the date of the letter it had not received “the outstanding contribution information and/or payment pertaining to the said employee’s termination.”

14.  The applicant stated he has received information from a staff of Manulife that the Company did pay contribution for his mandatory provident fund (“MPF”) to Manulife until May 2003.

15.  Mr David Chan, who appeared for the applicant, submitted that the evidence of payment of MPF contribution is cogent evidence to support the applicant’s case that he was, during July 2003 to February 2004, employed by the Company.  He drew my attention to sections 43E and 44(1) of the Mandatory Provident Fund Schemes Ordinance, Cap. 485.  Section 43E provides that a person, who in any document given to an approved authority of a registered scheme in connection with the Ordinance, makes a statement that the person knows to be false or misleading in a material respect, or recklessly makes a statement which is false or misleading in a material respect, commits an offence.  Section 44(1) provides that where an offence under the Ordinance is committed by a company and is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of any officer or other person concerned in the management of the company, the officer or person is liable to be proceeded against and punished accordingly.  He submitted that if what the Company said were true as to the circumstances under which it had made MPF contribution regarding the applicant, which I shall come to, then the officers of the Company, including Mr Li, would have committed an offence.

The Company’s case

16.  The Company’s case is simply that the applicant was not an employee of the Company at any time and no salary was owed to him.

17.  Evidence was adduced from Mr Chan, Leung Hon Fai (“Mr Leung”) and Fan Hon Wing (“Mr Fan”).  Mr Leung was the chief accountant of the Company between 1 September 2002 and 21 May 2003 (which was not the period for which the applicant claims his salary) and since 22 March 2004, after the new management took over, he is the financial controller of the Company.  Mr Fan was the manager of the Company between May 2003 to mid January 2004, which covered part of the period for which the applicant claims his salary.

18.  Both Mr Leung and Mr Fan claimed that they have not seen the applicant in the Company’s office in Hong Kong.  I do not attach importance to this, as it is quite possible that the applicant might have worked only in the Mainland.  Mr Fan also said he has never received any demand for outstanding salary from the applicant.  Again, I do not think this is of much significance, as the applicant had been dealing with Mr Li and it is possible that he might have made demands for payment to Mr Li.

19.  What is important is how the Company sought to explain the MPF contribution.  According to Mr Leung, following the successful public listing of the Company in August 2002, he was told by Mr Li in September 2002 that Mr Li had agreed to provide retirement benefit to the applicant, as the applicant was not entitled to such benefit under his employment with the joint venture for he is a Hong Kong resident.  Mr Li gave instructions to Mr Leung to name the applicant as an employee of the Company in the provident fund scheme maintained by the Company with Manulife, so as to provide some form of retirement benefit to the applicant.  Mr Leung did so on the instructions of Mr Li.  From September 2002 to June 2003, the Company made MPF contribution to Manulife for the applicant, not because the applicant was in truth an employee of the Company but because of the instructions given by Mr Li.   I should also mention that according to the applicant, a Notice of Employee Termination in respect of him was received by Manulife from the Company on 8 April 2004, that would be after the new management took over but before the applicant has filed a notice of intention to appear in this petition as a supporting creditor on 19 April 2004.

20.  Mr Anson Wong, who appeared for the Company, submitted that the Company’s explanation as regards MPF contribution cannot be rejected as incredible at this stage.  The fact that a criminal offence might have been committed by the officers of the Company is a separate matter that I need not be concerned with today.

21.  Counsel also made the point that as the Company is a listed company, one would have expected to find something in its records as regards the applicant’s employment with the Company, if he was indeed employed by the Company.  Even if there was no employment contract or letter, the applicant should be able to produce at least some record of payment of salary by the Company.  There was no explanation on affidavit on the applicant’s part regarding the absence of such supporting documents.  Mr Wong submitted that it is difficult for the Company to prove the negative that it had not employed the applicant, whereas it should have been relatively easier for the applicant to prove the affirmative that he was so employed.

22.  Given this situation, the Company has produced a number of documents to support its case that the applicant was not its employee:

(1)     employee tax returns signed by Mr Li on behalf of the Company for the year 2001/2002 dated 24 June 2002 and for 2002/2003 dated 21 May 2003 

In the first tax return, 2 employees were listed.  In the second tax return, there were 11 employees.  The applicant’s name did not appear in either tax return.  Although these 2 tax returns did not cover the period for which the applicant claims his salary, being July 2003 to February 2004, the period in the second tax return covered part of the period in which the Company was paying MPF contribution for the applicant, from September 2002 to March 2003.

(2)     a contract between the joint venture and a company in Dongguan dated 1 November 2003 

This contract was signed by Mr Li on behalf of the joint venture, by which the joint venture contracted out the operation and management of the theme park to the Dongguan company for a contracting fee in the monthly sum of RMB1.5 million as from 1 December 2003 for 2 years.

This contracting out arrangement lasted until May 2004.  The Company contended that by virtue of the contracting out arrangement, the applicant as general manager of the theme park would have ceased to have any work or function from December 2003 onwards.

I do not think this is a matter of significance, as by then Mr Wong had tendered 3 months’ notice to resign.

(3)     receipts evidencing payment received by the applicant from the joint venture

There are 3 receipts produced, 2 were issued in August 2003, and the last was issued in November 2003, by the joint venture.  The receipts issued in 2003 were for payment of the wages in 2002.  On the face of these documents, the applicant received RMB10,000 a month for his work in March 2002, August 2002 and September 2002 and RMB20,000 a month for his work in July 2002.

(4)     tax returns submitted by the joint venture to the authorities in Panyu 

The tax returns covered the period from February 2003 to December 2003, part of which was the period for which the applicant claims his salary from the Company.

In these tax returns, the applicant’s monthly wages were stated as RMB8,000 and he was described in the last column as “Hong Kong employed” or “Hong Kong employee”.  It was submitted on the applicant’s behalf that these tax returns do not prove that the applicant was not also employed by the Company, whilst receiving wages from the joint venture at the same time.

23.  I think it is unsatisfactory there is no clear evidence as to when the applicant came to be employed by the Company, if indeed he was so employed.  It is not stated in any of the 4 affirmations made by the applicant when his employment commenced with the Company, although his counsel would seem to have advanced the case that the applicant’s employment only commenced in July 2003, and contended that would seem to be the reason why there was no past record of payment of salary as the applicant was never paid by the Company during the entire period of his employment.

24.  In the prospectus, it was stated that the applicant joined “the Group” in December 2000, before the Company was incorporated in June 2001.  It was only with the reorganisation of the Group in 2002 before the public listing that the Company took on substantive business.  It is not clear on the available evidence at the time the reorganisation took place, what had happened to the applicant’s employment with the entity in the Group that had been his employer.  Was there, for instance, transfer of his employment to the Company, if his employment was indeed transferred?  Mr Wong drew my attention to the relevant page of the prospectus exhibited by the applicant.  In respect of 3 other staff of senior management, it was stated that they joined “the Company” in various positions in July 2001.  In contrast, for the applicant, it was merely stated that he joined “the Group as the general manager in December 2000”.  It would appear that an inference may be drawn that at least at the time of the prospectus, which was dated 21 July 2002, the applicant’s employment had not been transferred to the Company.

25.  If the applicant’s employment had indeed been transferred to the Company only in July 2003, which may explain why there was no record of any payment of salary by the Company to him and why he was not named as an employee in the two tax returns of the Company for 2001/2002 and 2002/2003, this does not explain why the Company had made MPF contribution in September 2002, well before the commencement of his employment, or why the Company had stopped making MPF contribution in June 2003, right at the time when his employment was actually transferred to the Company.

26.  As regards the cheque issued to the applicant dated 1 January 2004, I find it odd for there to be such material alterations, which were initialled by Mr Li and the other signatory.  Why was a new cheque not issued?  Mr Fan said in his affirmation that when the cheques were prepared, they were originally drawn in favour of the then 2 remaining employees, being himself and Mr Mok, to cover their salaries, so the original amount of each of the cheques was $48,000.00 only.

27.  Looking at the matter in its totality, I am persuaded by Mr Anson Wong that the Company has made out a bona fide dispute of the debt of the applicant on substantial grounds.  As it is not established that the applicant has “a right to present a petition” under rule 33, I therefore dismiss the application.

28.  Costs of this application should follow the event.  I award the costs of and occasioned by this application to the Company.  I adjourn the hearing of the petition to 20 September 2004 at 9:30 am.