JINRO (HK) INTERNATIONAL LTD v. THE REGISTRAR OF COMPANIES AND ANOTHER

HCMP 5505/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5505 OF 2003

____________

____________

______________

J U D G M E N T

______________

1. This is a notice of originating motion issued by Jinro (HK) International Limited ("Jinro HK"), seeking an order that the dissolution of JK International Corporation Limited ("the Company") be declared void under section 290(1) of the Companies Ordinance, Cap. 32, and an order that Messrs Kelvin Edward Flynn and Roderick John Sutton of Ferrier Hodgson Limited be appointed joint and several liquidators in the voluntary liquidation of the Company under section 252(1).

2. The Registrar of Companies, the 1st Respondent herein, has no objection to the declaration being made, subject to the payment of his costs and the incorporation of these additional terms in the court order, to provide for the direction that may be given by the Registrar of Companies if the name of the Company should be too similar to the name of a company already registered, and for the 2nd Respondent to file with the Registrar of Companies all outstanding liquidator's statements within 30 days of the order.

3. The 2nd Respondent is Mr Chan Pei Cheong Andy, the former liquidator. He has indicated by letter dated 14 January 2004 that he has no objection that the dissolution of the Company be declared void. He only expressed concern over the conflicting position of the same individuals acting as the liquidators of the Company and as the provisional liquidators of Jinro HK.

4. The matters given rise to the application may be stated as follows.

5. The shares of the Company are held by Mr Park Kyung Youhne as to 50% and by Mr Park Young Soo as to 50%. The evidence before me is that these individuals held their shares as nominees for Jinro Limited, a Korean company subject to court receivership in Korea. Jinro HK is also a company within the Jinro Group and the provisional liquidators being Mr Flynn, Mr Sutton and another, were appointed by this court for Jinro HK on 9 July 2003. The petition for the winding up of Jinro HK has been adjourned for the provisional liquidators to explore restructuring proposals and to carry out their investigations to maximize recovery for the creditors.

6. On 8 April 2002, at an extraordinary general meeting of the Company, a special resolution was passed to place the Company into creditors' voluntary liquidation and to appoint the 2nd Respondent as liquidator. The final meetings of creditors and contributories of the Company were held on 22 July 2002 and the Company was dissolved on 30 October 2002, on the expiration of 3 months from the registration of the account of the winding up and the return made by the 2nd Respondent of the holding of the final meetings. It would appear from the 2nd Respondent's statement of account that the amount of assets realized was only HK$2 and this was distributed to the shareholders.

7. After the provisional liquidators were appointed for Jinro HK, they investigated the dealings between the Company and Jinro HK. It would appear that Jinro HK had lent a total of US$62.6 million to the Company in 1996, 1997 and 2001 and no funds have been repaid to Jinro HK.

8. In June 2001, the Company had transferred to Jinro HK certain floating rate notes and other loan instruments, as purported partial repayment of the loans, with a face value of approximately US$40 million odd. However, the actual value of these debt instruments is much less. When the provisional liquidators sought to sell these debt instruments in 2003, the aggregate of the highest bids they received was only about US$2.8 million.

9. The provisional liquidators have made inquires with the 2nd Respondent as regards the utilization by the Company of the substantial sums advanced by Jinro HK to the Company. It would appear that no investigation into this matter was carried out by the 2nd Respondent, let alone any prospect of recovering the monies advanced by Jinro HK to the Company. The 2nd Respondent is unable to explain to the provisional liquidators how and why a dividend of HK$2 was declared.

10. The 2nd Respondent has told the provisional liquidators that the creditors of the Company, including Jinro HK, have signed a waiver of debt. However, that document has not been produced to the provisional liquidators by the 2nd Respondent, nor was any explanation given why the creditors have signed such a document.

11. The provisional liquidators have also discovered from the financial statements of the Company that a significant portion of the receivables balances in the total sum of HK$347 million odd were written off by the Company for the year ended 2001. There was no satisfactory explanation for the writing off. Again, that was not a matter that had been investigated by 2nd Respondent.

12. I am satisfied that as a substantial creditor of the Company, Jinro HK does have sufficient pecuniary interest to apply for an order that the dissolution of the Company be declared void. The purpose of declaring the dissolution void is for a closer investigation into the affairs of the Company to be made. I consider that is warranted by the circumstances.

13. The provisional liquidators proposed that the 2nd Respondent should be replaced as the liquidator of the Company by the individuals mentioned earlier. They are already familiar with a number of matters concerning the companies in the Jinro Group. It is appropriate that the 2nd Respondent should be removed as the liquidator of the Company. In the event there are issues where the interests of the Company should conflict directly with those of Jinro HK, for example, in the adjudication of claims between these companies, the provisional liquidators of Jinro HK have proposed to refer these issues to another experienced insolvency practitioner in Hong Kong. I do not think the possible conflicting position raised by the 2nd Respondent should pose a problem here.

14. I grant the reliefs sought in the notice of originating motion as per the draft order submitted to the Court with one amendment. The order is also to provide that the 2nd Respondent is to file with the Registrar of Companies all outstanding liquidator's statements within 30 days hereof.