RE JANELL LTD

HCCW 626/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 626 OF 2004

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J U D G M E N T

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1. This is a petition to wind up Janell Limited ("the Company") presented by a former employee, Mr Lai Chi Shing. The petitioner obtained an award in the Labour Tribunal in LBTC No. 10416 of 2003 on 19 December 2003. By that award, the petitioner, who was the 5th claimant in the proceedings, was awarded a total sum of HK$26,956.00. Under the award, the Company was to pay the petitioner by four equal instalments per month of HK$6,739.00 from 28 February 2004.

2. Apart from the petitioner, it is stated in the petition that there are ten employees who are owed an aggregate of HK$325,858.65 by the Company, being awards made by the Labour Tribunal on 15 October 2003, 19 December 2003 and 5 February 2004 (as amended on 14 February 2004).

3. On 26 April 2004, the petitioner served a demand by leaving the same at the registered office of the Company, requiring the Company to pay the judgment debt owed to him and the judgment debts owed to the other employees. As the demand was not met, the petition herein was presented on 28 May 2004.

4. I understand from Mr Lo of the Legal Aid Department that the Company has failed to comply with the payment schedule in the Labour Tribunal award in respect of the petitioner and of the other employees. Although there were attempts of the Company to make partial repayment by cheque belatedly, the cheques were rejected by the petitioner and the other employees.

5. At the hearing today, Mr Chan Yiu Chung, a director of the Company who has obtained leave to represent the Company in these proceedings, informed the court that the Company wishes to apply for an adjournment of 12 weeks, to enable the Company to come up with funds to pay off the petitioner and other former employees. The petitioner and five of the supporting creditors who have attended the hearing today are all opposed to the application for adjournment.

6. As a creditor who has obtained a judgment debt against the Company, the petitioner is entitled ex debito justitiae to a winding-up order in the event that a demand for the debt served on the Company is not met within the time stipulated by statute.

7. I am not minded to grant the adjournment sought by Mr Chan. I turn to consider the grounds put forward by him to oppose a winding-up order.

8. Firstly, Mr Chan asserted that the Company has only experienced a temporary cash follow problem. He referred the court to the audited accounts of the Company and what would appear to be the latest management accounts for the year ended 30 June 2003. Mr Chan submitted that according to the audited accounts, the financial statements were prepared on a going concern basis and the majority shareholders would support the Company.

9. Further, it was contended that the outstanding amount claimed by the former employees is immaterial compared to the current intangible and tangible asset value, the paid-up capital and the forecast cash income of the Company. Mr Chan also made the point that bankers and creditors of larger sums have agreed to extend time to the Company to pay, and that assets if realised in a winding up would be far below their market value.

10. As I have indicated to Mr Chan, I do not think any of these grounds are sufficient to oppose a winding-up order. Whatever is the net worth of the Company according to its accounts, this is irrelevant if the Company is unable to pay its debts as they fall due. Here there is irrefutable evidence that the Company has not been able to keep up with the payment schedule as ordered in the award of the Labour Tribunal made in favour of various former employees.

11. Furthermore, I note from the audited accounts of the Company for the year ended 30 June 2002 that the financial statements were prepared on a going concern basis notwithstanding the deficiency of net assets, on the assumption that the shareholders would continue to provide such financial assistance as necessary to maintain the Company as a going concern.

12. In fact, it would appear from the audited accounts that for the year ended 2001, the accumulated loss carried forward was in the region of HK$14.2 million; for the year ended 2002, the accumulated loss carried forward was HK$8.9 million and in that year the Company had net current liabilities of HK$3.6 million. There would appear to be no audited accounts for 2003 but from what would appear to be management accounts for the year ended 30 June 2003, the net current liabilities of the Company for that year amounted to HK$5.4 million.

13. In the circumstances, I am satisfied that the petitioner has established to the satisfaction of the court that the Company is unable to pay its debts as they fall due and that the Company is clearly insolvent.

14. Mr Chan mentioned other grounds of opposition in his affirmation, such as that the Company had only stopped to keep up with the payment schedule of the Labour Tribunal after it had received a warning letter dated 9 March 2004 from a union which represented the employees, and that the accounts department of the Company was not able to entertain further payments to the former employees because it was unable to reconcile accounts due to inconsistencies in the notices of the claimants.

15. I do not consider these are sufficient or valid reasons for opposition. In the circumstances, I think it appropriate to wind up the Company and I so order. The petitioner's costs are to be paid out of the assets of the Company.