THE JOINT & SEVERAL PROVISIONAL LIQUIDATORS OF ARTSHOP DESIGN AND CONSTRUCTION LTD v. SHIU WING HAN

HCCW 1420/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1420 OF 2002

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D E C I S I O N

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1. I have before me a summons issued by the liquidators of Artshop Design and Construction Limited (in compulsory liquidation) ("the Company") under sections 266B and 276 of the Companies Ordinance, Cap. 32. The respondent to the summons is Ms Shiu Wing Han. The liquidators seek the following orders against the respondent:

(1) all payments made by the Company in favour of the respondent between 3 December 2001 and 7 October 2002 be declared unfair preferences within section 266B and void accordingly;

(2) the payment by the Company in favour of Chief Concept Limited ("Chief Concept") on or around 5 August 2002 of $725,600.00 in management fees be declared an unfair preference within section 266B and void accordingly; and

(3) the respondent is to repay the said sum of $4,427,637.90 to the liquidators with interest thereon.

2. In support of the summons, an affirmation was filed by the liquidators dated 17 May 2004. The Company was wound up on 19 March 2003 upon the petition of a creditor, R & D Production Limited ("R & D"), presented on 24 December 2002. The liquidators were appointed under section 194(1A) by the Official Receiver on the same day.

3. The Company was incorporated on 12 March 1985 and had been carrying on business in theatrical and stage construction works. It ceased trading on 30 June 2002. The respondent was appointed a director on 12 April 2002 and she resigned on 16 October 2002. Only limited books and records of the Company have been made available to the liquidators. From the liquidators' investigation, it would appear that the Company suffered serious financial difficulties from about October 2001 onwards. There was an agreement ("the loan agreement") signed by the respondent and the Company on 20 October 2001, according to which the respondent would pay the operating expenses of the Company and the amounts she advanced to the Company would be repaid after the Company had received funds from clients for completed work orders.

4. Between October 2001 and October 2002, funds were provided by the respondent to the Company under the loan agreement in the aggregate sum of $3,702,037.90 to meet the operating expenses of the Company.

5. Between December 2001 and October 2002, the Company made a number of repayments to the respondent under the loan agreement in the total amount advanced by her. The liquidators have found no evidence in the books and records of the Company to show any pressure brought to bear on the Company or its directors by the respondent for the repayments made to her.

6. Under the loan agreement, the respondent was also to be paid management fees of $725,634.00 by the Company. On 5 August 2002, the Company paid the said sum to Chief Concept. The respondent is a director of Chief Concept. There is no evidence in the books and records of any agreement entered into between the Company and Chief Concept but the liquidators believe that such payment was made in satisfaction of the management fees due from the Company to the respondent under the loan agreement.

7. As at 15 October 2002, when the respondent resigned as a director, a total of $4,427,637.90 had been paid by the Company to her, in reduction of her current account and by way of management fees.

8. On 4 September 2002, R & D obtained a judgment against the Company in DCCJ No. 4996 of 2002 for $555,000.00 odd. According to the Statement of Claim filed by R & D in those proceedings, the debt accrued between December 2000 and July 2002. The liquidators' investigation revealed that during November 2001 and October 2002, only minimal amounts were repaid to R & D whereas substantial amounts were repaid to the respondent. The total amount repaid to the respondent during this period was $3.7 million odd and the total repaid to R & D was only $118,000.00 odd. The respondent was at that time an employee and/or a director of the Company.

9. On the above information, the liquidators believe that at the time of the payments to the respondent, she was placed in a better position than other creditors because of the repayments to her. And having regard to the payments made to R & D over the same period and the total sum owed to R & D when the Company stopped trading, there was clearly an intention to prefer the respondent when the Company was unable to pay other debts as and when they fell due.

10. On 24 March 2004, a letter before action was sent by the liquidators to the solicitors then representing the respondent, demanding $5,101,989.00, being $4,427,638.00 plus interest calculated up to 19 March 2004. No substantive response was received from the respondent or her solicitors when the present summons was issued by the liquidators on 17 May 2004.

11. At the first hearing of this summons on 9 June 2004, the respondent did not appear. In view of the correspondence exchanged between the liquidators' solicitors and the respondent's solicitors before the hearing, I decided to adjourn the application to today to give a further opportunity to the respondent to respond.

12. Since then, I understand that on 9 June 2004, a letter dated 7 June 2004 was received by the liquidators' solicitors from the new solicitors for the respondent, stating that the respondent is unable to pay her debts and that she has presented a petition for her bankruptcy and a copy of a debtor's bankruptcy petition of the respondent dated 1 June 2004 in HCB No. 5634 of 2004 was enclosed.

13. At the request of the liquidators' solicitors, the respondent's solicitors supplied a copy of her statement of affairs in the bankruptcy proceedings. Under the list of unsecured creditors in the statement of affairs, the liquidators' claim in the amount of $5,101,989.00 (being the amount demanded by the liquidators' solicitors on 24 March 2004) was listed. The respondent has not appeared at the hearing today and the solicitors who act for her in the bankruptcy proceedings have informed the liquidators' solicitors that they have no instructions to act for her on this application. There is no application by the respondent to stay the present application under section 14(1) of the Bankruptcy Ordinance, Cap. 6. It would appear from her statement of affairs in the bankruptcy proceedings that the liquidators' claim is not in dispute.

14. In the circumstances, I am satisfied that the liquidators have established a case for relief under sections 266B and 276 of Cap. 32. I therefore make an order in terms of paragraphs 1 to 5 of the liquidators' summons.