RE LEE CHUAN TECK

HCMP 2703/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2703 OF 2006

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D E C I S I O N

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1.  This is an application made by Mr Lee Chuan-teck, the major shareholder of Polyworld International Company Limited which subsequently became known as Polyworld International Limited and which I shall refer to as "the company" seeking a permanent stay of the company's winding-up pursuant to sections 209 and 255 of the Companies Ordinance, Cap. 32. 

2.  It appears from the evidence that the company was set up by the applicant as a trading business with a view to providing consultancy solutions in Hong Kong.  It has, however, had no real business since its incorporation and has had very few, if any, transactions.  As it was not actively trading, the applicant and his wife, who was the other shareholder of the company holding one share in the company, decided to close it down by way of deregistration.  However, the applicant unfortunately downloaded the wrong form from the Companies Registry website and filled in and filed with the Companies Registry Form W2 which is a form that is used to wind up a company pursuant to section 228A of the Companies Ordinance.  That section provides a mechanism by which directors of a company can commence a winding-up of the company without following any of the other more usual procedures that are provided for in the Ordinance, that is, either by the presentation of a petition or by the passing of an appropriate resolution by the members of the company.  It is only to be used where the other means of commencing a winding-up are either impossible or impracticable in the circumstances of the case. 

3.  Although certain further steps were required and called for by the Companies Registry, when these steps were brought to the attention of applicant, he did not at first realise the significance of the matter and persisted in his belief that what he had initiated was a deregistration of the company, a procedure which he had undertaken on one previous occasion. 

4.  When it eventually dawned on the applicant that he had started off the wrong procedure, he realised that he did not wish to proceed with the winding-up of the company since this would entail the appointment of a liquidator and the expenditure of sums of money which would not be worth incurring, given the fact that the company had no real transactions, had no real assets, and no significant liabilities. 

5.  I pause at this stage to observe that, on the evidence, at the time that the Form W2 was, according to the applicant, mistakenly filed, the company had very limited creditors.  The principal creditor was the applicant himself who was owed a sum of slightly over $100,000 by the company and there were two other external creditors being, I think, the company's auditor and one other creditor with a total debt of some $13,000.  The evidence, however, shows that the two external debts have since been settled, leaving the only creditor as the applicant himself.  The applicant has indicated that he is prepared to waive the company's indebtedness to him, a stance which is not particularly surprising since the company is, in effect, wholly controlled by him. 

6.  Mr Leung, who appears for the applicant, has drawn my attention to a number of relevant authorities.  For present purposes, I think I need refer only to a decision of Madam Justice Kwan in Re Outboard Marine Corp. (Asia) Ltd [2003] 1 HKLRD 585 where Madam Justice Kwan indicated at page 588 that:

"The power to grant a stay of winding-up proceedings is discretionary.  The burden is on the applicant to make out a sufficient case for a stay that carried conviction.  Before granting a stay, section 29(1) requires proof to the satisfaction of the court that all proceedings in relation to the winding-up ought to be stayed.  Hence, it is not really sufficient for the applicant to establish that the stay is reasonable in the circumstances.  He must satisfy the court that it ought to grant a stay.  Where there are sufficient assets to pay all the creditors and the expenses of liquidation, the interest of the members, in addition to those of the creditors and the liquidator would be considered.  The court would also consider whether the stay is conducive or detrimental to commercial morality and to the interests of the public at large."

7.  Madam Justice Kwan also went on to say at page 587 at letters G to H that she was satisfied that it is appropriate in the present case for the liquidator to proceed ex parte as the application is supported by all the contributories and it is not envisaged for good reasons that there would be opposition from any creditor. 

8.  In the present case, I am satisfied that it would be appropriate for the court to grant a stay.  In the first place, although the applicant used Form W2, section 228A requires as a precondition for its use the passing of a resolution by the directors of the company which, among other things, sets out the reasons for using section 228A rather than one of the other sections of the Company's Ordinance to initiate a liquidation.  In this case, the evidence from the applicant which is supported by his wife is that there was never, in fact, a director's meeting or any resolution to that effect.  There having been no such resolution, it was clearly inappropriate for Form W2 and section 228 should have been used and the section 228A procedure initiated. 

9.  In the circumstances, it seems to me that the winding-up having been commenced on an unjustified basis, it would clearly be appropriate for the winding-up proceedings to be brought to a halt at this stage.  It also seems to me that there can be no prejudice to any creditor or other party in the granting of this application.  Although the company does not appear to have sufficient assets to pay all its creditors, the only creditor that is on the evidence now remaining is the applicant himself.  The applicant has also taken steps prior to the hearing to advertise the fact of the hearing so that any potential creditors who may exist will have had an opportunity to come forward and express their views on this application.  There has been no creditor who has appeared or contacted the applicant or his solicitors as a result of the notice and it seems to me that this too supports the applicant's evidence that he is, at the moment, the only creditor of the company. 

10.  That being the case, it seems to me that there is nothing that is otherwise unconducive to commercial morality or the interests of the public at large in granting the stay.  It does not seem to me that the public interest is seriously affected in this case, given the nature of the company, the fact that it has no liabilities, and in a sense it might be said that it is desirable that were a section 228A liquidation has been commenced on the wrong basis or without any proper basis, it is desirable that it should be brought to a halt as soon as possible. 

11.  In all the circumstances, therefore, I am satisfied that this is an appropriate case in which I should grant a permanent stay of the winding-up so as to enable the applicant to seek to proceed to deregister the company in accordance with the relevant provisions of the Companies Ordinance in due course.