RE ZHUANG PP HOLDINGS LTD

HCCW 56/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 56 OF 2005

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D E C I S I O N

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1.  This is a summons for discovery taken out by the petitioner on 1 June 2005 under Order 24 rule 3 of the Rules of the High Court.  For the background of this winding-up petition, I refer to my decision on 5 August 2005, paragraphs 4 to 28.  In gist, the petitioner’s complaint is that the management of Zhuang PP Holdings Limited (“the Company”) had transferred principal assets out of the Company with the purpose of defeating its creditors and that it would be just and equitable to wind up the Company for an independent liquidator to investigate its affairs.

2.  The petitioner seeks an order in the summons that within 14 days the Company is to serve on the petitioner a list of documents specifying which of the following documents, which relate to the restructuring of the respondent Company and the respondent Company group (“China United Group”) and the transfer away of the Company’s principal assets, are or have been in the possession, custody or power of the Company:

(a)	all internal memoranda/minutes of the Company/China United Group relating to:
	(i)	the background to the scheme of arrangement implemented in January 2003 whereby the Company was de-listed and replaced as the holding Company of China United Group by China United International Holdings Limited (“CUI”);
	(ii)	the decision to restructure the China United Group and the motivation for that decision;
(b)	all documents, including internal memoranda and  company minutes, relating to the matters mentioned in the extract in CUI’s interim report for the 6 months ended 30 June 2003 to the effect that CUI has undertaken a series of restructuring of shareholdings in subsidiaries held by the Company whereby the Company’s equity interests in certain major subsidiaries were transferred to the new group and to a third party and that after the restructuring, the Company and its subsidiaries became an insignificant part of the group’s net assets;
(c)	all documents relating to :
	(i)	the deterioration of the Company’s net asset position between 31 December 2002 and 31 July 2003;
	(ii)	the dilution and transfer of the Company’s shareholding in (1) Hennabun Management Inc; and (2) China United Finance Limited;
	(iii)	the writing off of the debt of HK$111 million owed by Long Bloom Enterprises Limited to First Asia (China) Limited; and
	(iv)	the transfer of the Company’s 2 shares in New Star International Inc to Top Emerald Limited (re-named China United Financial Services Limited).

3.  As stated by Le Pichon J (as she then was) in Re Playmates Investment Limited [1996] 4 HKC 577 at 585I to 586B, Order 24 rule 3 is of particular relevance to winding-up proceedings, as unlike ordinary High Court actions, there is no general discovery and often lengthy affidavits are filed.  Hence, a broad and flexible approach to Order 24 rule 3 is justified in this context.

4.  I have no doubt that the documents sought in the summons clearly relate to the matters in question in this petition.  This has not been suggested otherwise by the Company.  They are clearly of relevance to the resolution of the issues in dispute.

5.  There is nothing to suggest that the Company may not have in its possession, power or custody any of the documents sought.  I have given directions for the Company to file evidence in opposition to this application, if so advised.  No evidence has been filed by the Company.

6.  The only ground of opposition advanced by the Company is that the discovery sought is onerous and oppressive and the precise scope of some of the documents sought is unclear.

7.  I do not for a moment think that the discovery sought would not have imposed any burden on the Company, but any burden placed on the Company should be considered with regard to the apparent need for the documents in the interest of disposing fairly of the matters in issue in these proceedings and a balance should be struck.  The Company should not be put through an onerous exercise of making discovery if the documents sought would only be of marginal significance or relevance to the issues in dispute.  I do not think that is the position with regard to the documents sought in this application.

8.  I turn to consider the objections raised as regards each of the paragraphs in the summons.

9.  For paragraph 1(a), Ms Liu submitted that the precise scope of the “respondent Company group” as stated in the summons is unclear, as there was a corporate restructuring in 2003.  I do not agree with this submission.  Discovery is sought in respect of internal memoranda/minutes of the Company or the group of companies of which the Company was a member at the time the transaction or transactions took place.  Whether the Company was the ultimate holding Company or just an intermediate holding Company as a result of the group restructuring in 2003 is not relevant.  As for the submission that it would be oppressive to order  discovery in respect of documents of subsidiaries that have ceased to be subsidiaries of the Company as a result of the group restructuring, it must be borne in mind that the discovery sought is as against the Company and it is for the Company to serve a list of documents in its possession, power or custody.

10.  Ms Liu has also submitted that “all internal memoranda” in paragraph 1(a) is too wide, I do not think this is unjustified in these particular circumstances.

11.  For paragraph 1(b), Ms Liu contended that the Company has no control over CUI when the interim report of CUI was issued, so it is onerous and oppressive to require the Company to produce documents relating to matters mentioned in that report concerned with the restructuring undertaken by CUI.  The restructuring mentioned in CUI’s interim report was the restructuring of shareholdings in subsidiaries held by the Company.  There is no reason to think that the Company would not have in its possession, power or custody the documents sought in paragraph 1(b).  Further, as pointed out by Miss Sanger for the petitioner, at the material time, the management of CUI and the Company was the same.  The annual report and the financial statements of the Company for the year ended December 2002 were presented by the directors of CUI.

12.  As for paragraph 1(c), the petitioner does not accept that the Company has made full discovery of the documents sought in respect of the transactions listed therein.  As for the contention of Ms Liu that the width of the discovery sought is onerous, as I have mentioned earlier, this must be looked at in context.  In these particular circumstances, I do not think the scope of the discovery is unjustified.

13.  For the above reasons, I will order the Company to serve on the petitioner a list of documents as sought in terms of paragraph 1 of the summons, save that the time within which the Company is to comply with this order is to be changed from 14 days to 28 days hereof.

14.  The Company has been given adequate time and opportunity to consider their position with regard to this summons.  The hearing today is necessitated by the Company’s opposition.  I see no reason why the petitioner should not have their costs for the hearing today.  I make the following order as regards costs.  The costs of the application are to be in the cause of the petition, save that the Company is to pay the petitioner’s costs of today’s hearing in any event.