RE TAK FUNG SHARES INVESTMENT COMPANY LTD

DCMP 5473/2023

[2024] HKDC 196

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 5473 OF 2023

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REASONS FOR DECISION

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1.  By an ex parte Originating Summons filed on 23 November 2023 (the “OS”), the Applicant applies for an order to pay unclaimed cash and securities into court or be given liberty to deal with the same. The application is made pursuant to sections 56 and 62 of the Trustee Ordinance (Cap. 29) (the “TO”).

BACKGROUND

2.  The Applicant was a securities brokerage firm which dealt, on behalf of its clients, with shares listed on the Stock Exchange of Hong Kong Limited (“HKSE”). From 16 September 2004, the Applicant has been licensed by the Securities and Futures Commission (“SFC”) to conduct dealing in securities (type 1 regulated activities under Part 1, Schedule 5 of the Securities and Futures Ordinance (Cap. 571) (the “SFO”)) as a licensed corporation.

3.  Due to unfavourable business conditions, the Applicant decided to terminate its business. Accordingly, by a resolution passed on 8 November 2021, the Applicant’s board of directors resolved to close down its business under the SFO.

4.  By a circular issued on 29 March 2022 by the HKSE, the HKSE acknowledged and informed all other exchange participants of the Applicant’s decision to cease trading on HKSE with effect from 29 March 2022.

5.  Since 1 December 2021, the Applicant had made the following attempts to contact its remaining clients on its cessation of business:-

(a) On 1 December 2021, the Applicant sent letters to each of its clients except those that it had lost their contacts concerning the cessation of business and invited its clients to sell or withdraw their shares with the Applicant. None of the letters had been returned to the office of the Applicant through the undelivered letter service.

(b) From 1 December 2021 to 28 March 2022, the Applicant contacted its clients through telephone for whom it had records of phone numbers.

(c) On 11 January 2023, the Applicant placed advertisements in Chinese and English in two locally circulated newspapers, namely, Sing Tao Daily and The Standard. The advertisements gave notice that the Applicant had ceased its stock trading activities since 28 March 2022 and all of its affairs are desirous to be wound up in around March 2023. It invited customers to contact its staff by certain designated telephone numbers to deal with their existing accounts by withdrawing all the cash balances and/or stock portfolios thereunder and closing the same. It also gave notice that if any customers did not contact its staff to deal with the matter aforesaid by 1 August 2022, the Applicant shall forthwith apply to the court for an order under the TO to dispose of the unclaimed assets without further notice.

6.  However, as of November 2023, there remained 20 accounts which had not been closed. Hence, the Applicant made the present application to handle the unclaimed assets.

THE UNCLAIMED ASSETS

7.  The unclaimed assets as listed in the Schedule of the OS (“Schedule”) are as follows:-

(a) Part A – unclaimed cash in the amount of HK$90,867.62;

(b) Part B – unclaimed securities (except the odd lot shares and delisted shares) with stock value as at 20 November 2023 in the amount of HK$201,852.00;

(c) Part C – odd lot shares which include some shares which were suspended and some other shares with small stock value as at 20 November 2023, ranging from HK$2.25 to HK$956.25;

(d) Part D – delisted shares.

8.  The Applicant seeks leave to dispose of the assets in the following manner:-

(a) Part A – to pay the unclaimed cash into court after deduction of the costs of this application and any costs to be incurred in giving effect to the order to be made herein;

(b) Part B – to sell, realise or dispose of the live unclaimed securities, with the proceeds from the sale or disposal be paid into court after deduction of the costs of this application and any costs to be incurred in giving effect to the order to be made herein;

(c) Parts C and D – liberty to deal with the unclaimed odd lot shares and delisted shares as it sees fit including the forfeiture thereof.

THE APPLICABLE PRINCIPLES

Section 62 of the Trustee Ordinance

9.  Sections 62(1) and (2) of the TO state as follows:

“(1) Trustees, or the majority of trustees, having in their hands or under their control money or securities belonging to a trust, may pay the same into court, and the same shall, subject to the rules of court, be dealt with according to the orders of the court.

(2) The receipt or certificate of the proper officer shall be a sufficient discharge to trustees for the money or securities so paid into court.”

10.  In applying section 62, the court generally goes through a two-stage process. First, the court needs to be satisfied that the property which forms the subject matter of the payment in application is a trust property held by the applicant as trustee. Second, the court then proceeds to consider whether it should exercise its discretion to allow the payment in: Re K&R International Ltd, [2021] HKCFI 561, HCMP 99/2021, 26 February 2021, paragraph 40.

11.  In relation to stage one, unless otherwise is shown, a broker generally is a trustee over the money and security it holds on behalf of its clients: Re Gainwell Securities Co Ltd, [2018] HKCFI 1497, HCMP 295/2018, 25 May 2018, paragraph 4.

12.  In relation to stage two, in considering whether to exercise its discretion, the court would consider whether the applicant has made reasonable efforts to locate and contact the clients but is still unable to obtain their instructions as to how to deal with, dispose of or return the trust assets. What is reasonable must depend on the circumstances of each case, including the nature of business, the circumstances in which the assets were received by the applicant in the first place and the information it has in respect of the beneficiaries. The court also needs to consider whether there is sufficient justification for the use of the court’s judicial and administrative resources when granting such payment in order: Re K&R International Ltd, [2021] HKCFI 561, HCMP 99/2021, 26 February 2021, paragraphs 40-43, 50-54; Re Gold Fund Securities Co Ltd, [2020] HKCFI 2884, HCMP 1705/2020, 4 November 2020, paragraph 13; Re Times Securities Company Limited, [2022] HKCFI 1810, HCMP 1431/2021, 22 June 2022, paragraph 9.

13.  Applications under this section was considered as a flexible and pragmatic solution to enable a securities broker to properly cease its business and deal with the unclaimed assets in a way that protects the interests of their clients: Re Drake & Morgan Ltd, unreported, HCMP 1490/2009, 27 August 2009, paragraph 16 and Re K&R International Ltd, [2021] HKCFI 561, HCMP 99/2021, 26 February 2021, paragraph 42.

Section 56 of the Trustee Ordinance

14.  Section 56(1) of the TO states as follows:-

“Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorized to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.”

15.  The court has a discretion to confer on trustees any necessary power to effect any transaction (such as the sale of the trust assets) that in the opinion of the court is expedient in the management or administration of trust property. As a matter of principle, provided that it is satisfied that it would be expedient to exercise its powers under section 56(1) in relation to a particular class or classes of securities, the court has power to authorise such sale: Re The Joint and Several Liquidators of BANKAMERICA NOMINEES (HONG KONG) LIMITED (in members’ voluntary liquidation), [2020] HKCFI 399, HCMP 2023/2018, 5 March 2020, paragraph 17.

16.  In order to seek relief under section 56, the court would need to be satisfied that firstly, there is no power vested in the applicant as trustee to dispose of the assets and secondly, it is expedient for the court to confer that power on it: Re Wing Fat Securities Limited, [2021] HKCFI 3851, HCMP 1036/2021, 20 December 2021, paragraph 32.

17.  The court may confer power on the applicant to deal with the unclaimed shares or cash which have little or no monetary value as the applicant sees fit, including the forfeiture thereof: Re Piper Jaffrey Asia Securities Ltd (in Liq), [2013] 2 HKLRD 835, HCMP 437/2013, 13 March 2013, paragraph 7; Re A One Investment Co Ltd, unreported, HCMP 1518/2013, 23 October 2013, paragraphs 4-6; Re Gold Fund Securities Co Ltd, [2020] HKCFI 2884, HCMP 1705/2020, 4 November 2020, paragraph 18; Re Times Securities Company Limited, [2022] HKCFI 1810, HCMP 1431/2021, 22 June 2022, paragraphs 13(c) and (e); Re Shun Loong Finance Limited, [2021] HKDC 1285, DCMP 4204/2020, 15 October 2021, paragraphs 15-16.

DISCUSSION

18.  I have read the account opening agreements between the Applicant and its customers, which include “統一現金客戶合約”, “淺白語言統一現金客戶協議書” and “統一保證金客戶協議書”. I am satisfied that the terms therein show that the unclaimed assets in question are held by the Applicant as trustee. In any event, there is nothing to depart from the general principle that a broker generally is a trustee over the money and security it holds on behalf of its clients as stated above.

19.  I am satisfied that the Applicant had made reasonable endeavours to contact its clients as stated in paragraph 5 above. Despite reasonable endeavours, the beneficiaries could not be contacted or were unresponsive, or the Applicant was otherwise unable to obtain instructions as to how to deal with, dispose of or return the trust assets, being the unclaimed cash and securities.

20.  Further, as to the unclaimed assets, the account opening agreements between the Applicant and its customers do not contain any provision granting power to the Applicant to deal with or dispose of the assets of the residual clients in the circumstances when they are unclaimed. Without an order from the court, the Applicant would not be able to get a discharge in relation to the unclaimed assets.

21.  I am prepared to invoke sections 56 and 62 of the TO as requested by the Applicant. It is expedient to pay the unclaimed cash (Part A) into court and to sell, realise or dispose of the live unclaimed securities with proceeds to be paid into court (Part B). Since the odd lot shares (Part C) and the delisted shares (Part D) are of little or no value, it is expedient for the Applicant to be at liberty to dispose of them as it sees fit including the forfeiture thereof.

ORDERS

22.  Accordingly, I made the following orders:-

(1) It be declared that the Unclaimed Assets (the “Unclaimed Assets”) as set out in the schedule of the Originating Summons (the “Schedule”) consisting of cash (the “Unclaimed Cash”) and securities (the “Unclaimed Securities”) are held by the Applicant as a trustee for each of the clients set out therein (the “Clients”).

(2) The Applicant do have leave to pay into court the remaining balance of the Unclaimed Cash as particularized in Part A of the Schedule, subject to the deduction of costs and expenses under paragraph 8 below.

(3) The Applicant do have leave to sell, realise or dispose of the Unclaimed Securities as particularized in Part B of the Schedule and to pay the same into court, subject to the deduction of costs and expenses under paragraph 8 below.

(4) The Applicant be at liberty to deal with the Unclaimed Securities as particularized in Part C and Part D of the Schedule as it sees fit including the forfeiture thereof.

(5) Notification of the order to be made herein and the right of the clients of the Applicant as set out in the Schedule to apply for payment out of their respective unclaimed moneys or securities, as the case may be, under Order 92 of the Rules of the District Court (Cap 336H) be given by way of advertisements once in a Chinese-language and once in an English-language newspaper within 28 days from the date of the Order to be made herein and by way of letters to such clients at their last known address, if any.

(6) Upon compliance with paragraphs 2 to 5 above, the Applicant be discharged from any obligations or claims in respect of the Unclaimed Assets and the Applicant do have leave to dispense with the requirements under Order 92 rule 4 of the Rules of the District Court (Cap 336H) upon compliance with the paragraphs hereinabove.

(7) Costs of this application, summarily assessed at HK$85,000, be to the Applicant.

(8) The Applicant be permitted to use the Unclaimed Assets for the purposes of (a) paying the costs as stated in paragraph 7 above and (b) defraying the newspaper advertising fees to be incurred under paragraph 5 above before making the payment into court.

(9) There be liberty to apply.