STANTON SALLY LOUISE v. CONNAUGHT WEST LTD AND OTHERS

HCMP 1270/2022 and HCMP 1947/2022

(HEARD TOGETHER)

[2023] HKCFI 2035

HCMP 1270/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1270 OF 2022

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1947 OF 2022

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____________________

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(HEARD TOGETHER)

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D E C I S I O N

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The Application

1.  I have before me the first application for an order pursuant to section 48 of Occupational Retirement Schemes Ordinance, Cap. 426 (“Ordinance”), winding up an occupational retirement scheme domiciled in Hong Kong (“Scheme”) following its cancellation by the Mandatory Provident Funds Schemes Authority (“MPFA”). The Applicant seeks the appointment of Mat Ng and Nigel Trayers of Grant Thornton Recovery and Reorganisation Limited as liquidators. They are to be given powers to liquidate the Scheme broadly mirroring those of a liquidator of a company. Their fees and expenses will be charged on a time costs basis upon assessment by the court and paid out of the assets of the Scheme.

Background

2.  As I understand the evidence the Scheme was established as a vehicle through which mainly United Kingdom nationals could invest in products which would be held within the Scheme, which was not only recognised in Hong Kong, but also recognised as a Qualifying Recognised Overseas Pension Scheme by HM Revenue and Customs in the United Kingdom. Holders of retirement pensions in the United Kingdom could invest their pension funds in the Scheme and this would afford them tax advantages and flexibility in managing the underlying investments. This I assume, it is not expressly stated in the evidence, was the Applicant’s, Ms Stanton, reasons for placing some of her assets in the Scheme. She is a teacher of media studies with the ESF and a United Kingdom national. She joined the Scheme on 14 November 2014. Like, I assume from the evidence, most members of the Scheme she was not an employee of the “employer” for the purposes of the Scheme which I explain in the following paragraph. The Applicant was introduced to the Scheme by a financial adviser, David Wilkinson, who controls the 1^st Respondent.

3.  The way in which the Scheme was established is as follows. On 31 May 2012, Global Fiduciary Solutions Limited (“GFS”) was incorporated in Hong Kong. On 2 July 2013, the Scheme was established pursuant to a Hong Kong law-governed trust deed between GFS (as principal employer) and the 3^rd Respondent (as the then trustee) (“Trust Deed”). On 16 September 2013, the Scheme was registered with MPFA (being the Registrar of Occupational Retirement Schemes) under Scheme No R028832(1) in accordance with the Ordinance.

4.  For reasons I explain later on 13 February 2019, GFS went into voluntary liquidation. GFS was dissolved on 28 January 2020. Under clause 20 of the Trust Deed, the Scheme shall be terminated if the principal employer is put into liquidation.

5.  As of 31 August 2022, the Scheme’s registration under the Ordinance was been cancelled. The background to the cancellation of the Scheme’s registration under the Ordinance is set out in a decision of the Occupational Retirement Schemes Appeal Board (“Appeal Board”) dated 22 August 2022 (“Appeal Board Decision”), which is in brief as follows:

(1)  On 27 July 2021, the MPFA issued a proposal to cancel the Scheme’s registration (“Cancellation Proposal”) because not all Scheme members were eligible persons within the meaning of section 2A of the Ordinance.

(2)  On 4 October 2021, having considered the representations and objections received in response to the Cancellation Proposal, the MPFA proceeded to cancel the registration of the Scheme.

(3)  On 14 December 2021, the liquidator of GFS sought to appeal to the Appeal Board against the MPFA’s decision to cancel the Scheme’s registration.

(4)  On 22 August 2022, the Appeal Board upheld the MPFA’s decision.

6.  As of 1 September 2022, the Applicant was entitled to US$32,777.26 under the Scheme.

7.  I do not understand the above matters to be in dispute.

The controversy

8.  It would appear that the underlying problem with the administration of the Scheme arises from disputes between the 1^st to 3^rd Respondents. In short it would appear that Mr Wilkinson entered into heads of agreement dated 24 June 2016 (“HOA”) with GFS to acquire its business. Clause 1.4 of the HOA provides that the 3^rd Respondent, who is the only trustee referred to in the HOA, would be removed and replaced with Mr Wilkinson’s nominee. On 29 June 2016 the 1^st Respondent was appointed as a trustee and the 3^rd Respondent retired. On 9 December 2016 GFS wrote to Mr Wilkinson informing him that clause 1 of the HOA had not been complied with and the HOA were no longer effective. On 8 December 2016, GFS purported to appoint the 2^nd and 3^rd Respondents as co-trustees of the Scheme. As a consequence of the termination of the HOA says the 2^nd Respondent, the 1^st Respondent is not a validly appointed trustee, although from the 30 June 2016, the 1^st Respondent has been registered as the sole trustee of the Scheme. The 2^nd Respondent disputes the validity of this appointment in HCA 525/2017. The Applicant’s position is that the 1^st Respondent remains the sole trustee as the 1^st Respondent GFS did not have the power to change the trustees. On 21 December 2020 the 3^rd Respondent again resigned as a trustee.

9.  This mess gave rise to at least two practical problems. Third party investment product advisers were uncertain, who to take instructions from and members under the Scheme had difficulty obtaining access to their investments. Mr Peter Manktelow on behalf of the 2^nd Respondent explains how the 2^nd and 3^rd Respondents decided to resolve the problem in [18] of his affirmation:

“In due course, given the standoff and the frustration caused to the 2^nd and 3^rd Respondents and to the members of the Scheme, in order to try to bring matters to a conclusion and to enable the members to exit the Scheme with their funds, the process was commenced for the GFS, the principal employer of the Scheme, to be put into voluntary liquidation. GFS was ultimately dissolved on 28^th January 2020. Pursuant to the Trust Deed of the Scheme, the Scheme shall be terminated if the principal employer is put into liquidation. There are now produced and shown to me a copy of the special resolution of GFS passed on 13^th February 2019 and the company particulars of GFS on the Companies Registry website, at pages 35 to 36 of Exhibit ‘PDM-1’.”

10.  The plan seems to have been to collapse the Scheme and then distribute the assets pursuant to clause 20 the Trust Deed, which provides:

“20. TERMINATION

(a) The Scheme shall be terminated:

(i) if the Principal Employer shall be placed in liquidation otherwise than as provided in Clause 20 hereof; or

(ii) if the Principal Employer gives the notice referred to in Clause 19 hereof but subject thereto; or

(iii) if for any reason the Scheme appears in the opinion of the Trustee to be unable to fulfil its functions; or

(iv) upon the expiration of the period specified in Clause 23 of this Deed.

(b) Upon termination of the Scheme, the Trustee shall (after the assets of the Scheme satisfying (i) all debts and liabilities owed to the Trustee and persons employed pursuant to Clause 11, to the extent not met by the Principal Employer or the Participating Employer, and (ii) all other debts, charges and liabilities owed by the Trust Fund) apply the assets of the Scheme so far as the assets available shall permit to the following purposes and with the respective priorities indicated:

(i) Firstly in securing for each affected Member at the date of termination the benefits to which he would have been entitled had he left service on the day preceding the date of termination, such benefits to be payable on termination of the Member’s service or on his earlier death.

(ii) Secondly in securing for each affected Member at the date of termination the benefits to which he would have been entitled had he reached his Normal Retirement Date and retired on the day preceding the date of termination less any benefits secured for that Member under (i) above, such benefits to be payable on termination of the Member’s service or on his earlier death.

(iii) Any balance of the assets of the Scheme unexpended after making provision under (i) and (ii) above may be applied as the Trustee in consultation with the Principal Employer shall decide in augmenting the benefits of Members on eventual retirement or prior death or incapacity.

PROVIDED THAT:

(A) In the event that the assets of the Scheme after satisfying all prior charges are not sufficient to secure in full the benefits under paragraph (i) and/or (ii) above, the amount of the benefits to which each Member shall be entitled under the relevant paragraph shall be reduced as near as may be proportionately PROVIDED THAT the benefits under paragraph (i) shall be secured in full before any benefits under paragraph (ii) shall be secured.

(B) If after having made provision under paragraphs (i) and (ii) and after any augmentation under paragraph (iii) of this sub-clause any balance of the assets then remains unexpended the Trustee shall subject to any relevant laws and regulations refund such balance to the Principal Employer and/or the respective Participating Employer.

(C) Notwithstanding anything to the contrary in this sub-clause, in the event of any of the Members of the Scheme transferring to another scheme which is a registered scheme or exempt scheme under ORSO or an MPF Scheme the Trustee may at its discretion and in lieu of any benefits to which such Members would otherwise be entitled under this Clause transfer assets determined by the Trustee to be attributable to these Members subject to any relevant laws and regulations to such other retirement scheme.

(D) the Principal Employer or the Trustee shall give notice in writing notifying the Registrar and each Member of the commencement of the termination or dissolution of the Scheme to the extent required to do so under ORSO or any other applicable law.”

11.  As is obvious from its language clause 20 cannot be operated if there is a dispute about the identity of the trustee. That issue will not be resolved until the determination of the trial to be heard in October 2024.

12.  Matters took a different course from that envisaged by the 2^nd and 3^rd Respondents because of the proceedings brought by the MPFA. As a result of the cancellation of the registration of the Scheme any member was able to apply to the Court under section 48(1) of the Ordinance for an order that the Scheme be wound up; and this is the basis upon which the present application is brought.

13.  There is no dispute between the parties that the Scheme needs to be liquidated. The 2^nd and 3^rd Respondents and, an intervenor Simon Nicholas Martyn, oppose the application for a winding up on the grounds that the costs will be excessive and that it would be better to wait until the identity of the trustee is resolved at which point clause 20 can be operated. I note that the 1^st Respondent did not take part in the proceedings and must be assumed not to oppose the application. On 28 February 2023 I gave Mr Martyn, who is a member of the Scheme, liberty to intervene. According to the most recent valuation report he has received Mr Martyn is entitled to US$1,931,710.58 under the Policy he has within the Scheme. It appears from the evidence of Mr Manktelow that a number of the other 25 members of the Scheme also oppose the application. They are summarised in [27] of his 3^rd affirmation:

“As can be seen from the evidence filed by and/or on behalf of various members of the Scheme, some of the remaining members hold substantial interests in the Scheme and are concerned that their retirements funds will be depleted and used to pay liquidators’ costs. These include the following members:-

No.	Members	Amount of investments / entitlements
(1)	Mr. Craig Verdon (i.e. the Plaintiff in HCMP 1555/2022)	GBP 1,365,630
(2)	Mr. Simon Martyn (i.e. the Intervener in these proceedings)	USD 1,931,710.58
(3)	Mr. Alexander Gill (who has filed evidence in these proceedings)	GBP 1,406,764,90
(4)	Mr. Adam C. Hillier	GBP 1,054,107.53

”

14.  In contrast Ms Stanton, who as I have mentioned is a school teacher, has only US$32,777.26 in the Scheme. This was the amount that she originally deposited in cash into the Scheme in November 2014. This sum has remained in cash since that date. The Respondents and Mr Martyn make the obvious point that it is surprising that Ms Stanton has gone to the trouble and expense of the present application given her limited financial interest in the Scheme. They say, further, that this is all the stranger given that the 2^nd Respondent has offered to pay her the sums standing to her credit in the records of the Scheme. They suggest that she is probably acting at Mr Wilkinson’s behest, but whatever the reasons for her decision to initiate the application she has far less financial interest in the Scheme than the members who oppose the application. I note that I have no evidence about the likely costs of liquidating the Scheme, or the total value of the assets within it, whether through a liquidation or by a trustee, but from experience I think it reasonable to assume that the costs of a liquidation are likely to be substantial.

Legal Principles

15.  As I have mentioned this is the first application of its sought in Hong Kong. The parties agree that the principles that guide the court in determining a petition to wind up a company on the just and equitable ground apply by analogy. Mr Ho summarised them as follows in his skeleton argument.

“18. First, the general principles are thus (see Re Klimvest plc [2022] EWHC 596 (Ch); [2023] 1 BCLC 388 at [185], [194]-[195], and [198] (Judge Mark Cawson QC); Founder Group (Hong Kong) Ltd v Singapore JHC Co Pte Ltd [2023] SGHC 159 at [127] (Vinodh Coomaraswamy J)):

(a) The legislation provides that a company may be wound up by the court if ‘the court is of the opinion that it is just and equitable that the company should be wound up’.

(b) The jurisdiction is most often invoked in circumstances where the company is in substance a partnership, but it is clear that the jurisdiction is not so limited, and may be invoked whenever justice and equity require.

(c) Whilst recognising that the categories or headings under which a just and equitable winding-up petition might be brought ought not to be regarded as limited or reduced to the sum of particular instances, recognised grounds for seeking a winding up on the just and equitable ground include a loss of substratum, and a breakdown of trust and confidence within a quasi-partnership.

(d) The court is required to consider all relevant matters pertaining at the date of the hearing that might bear upon the question as to whether it is just and equitable that the company be wound up, a question that is liable to involve an element of discretion with regard to whether the relief sought ought to be granted.

(e) A winding-up order addresses injustice and inequity because it has two important effects. First, it puts a disinterested external administrator, appointed by and answerable to the court, in control of the company. It thereby releases the minority shareholder from the self-interested will of the majority. Second, the winding up order brings an end to the company as a commercial enterprise. This is why the just and equitable ground is fault-based when invoked by a shareholder, requiring establishing unfairness, lack of probity, etc.”

16.  However, in my view these principles are of limited practical assistance, because there is no dispute between the members that the Scheme needs to be liquidated. The issue is whether or not it is appropriate to commence this process immediately by appointing liquidators or to await the outcome of the trial to establish who is the trustee. Clearly it is undesirable that the matter await the outcome of a trial, which is fixed to be heard in October 2024.

17.  Ms Stanton has filed three affirmations in support of her application dated 6 September 2022. In the first affirmation made on 6 September 2022 she explains the Scheme and that (in [7]) “As of 1 September 2022, I was entitled to USD32,777.26 under the Scheme. There is now produced and shown to me marked ‘SLS-4’ a copy of the latest statement of my account issued by the 1^st Respondent dated 1 September 2022”. Ms Stanton does not complain that there is anything wrong with the account and she does not explain why she allowed her contribution to remain in cash or how she understood her investment was to be managed or complain about the way in which it was managed. From this I infer that she has no complaint about these matters.

18.  Her concern appears to be that the liquidator of GFS challenging the MPFA decision suggests that he was acting against the interests of members in trying to keep the 2^nd Respondent as a trustee even though allegations of breach of trust had been levelled against it and that the liquidator was trying to avoid the appointment of independent liquidators, which would be possible if the Scheme was cancelled and an application could be made under section 48. It is clear from paragraphs 12 onwards that Ms Stanton has been in contact with the 1^st Respondent and believes the 1^st Respondent’s version of events. She seems to do so on the basis that in her experience it has been more transparent and did not oppose the deregistration of the Scheme. Ms Stanton also expresses concerns about what she says she has read in the decision of DHCJ William Wong in the HCA 525/2017 dated 7 January 2019 granting a preservation order, which required the 2^nd and 3^rd Respondents to transfer control of trust assets to the 1^st Respondent. Of particular concern to Ms Stanton is the allegation by the 1^st Respondent, which formed part of the case before the DHCJ, that in December 2016 the 2^nd and 3^rd Respondents in breach of trust transferred US$686,496 and GBP1,107,000 to Churchill’s (a company associated with the 2^nd Respondent) account with ICBC and GBP531,458 to Interactive Brokers LLC’s account in the United States and that her funds may have formed part of these allegedly improper transfers.

19.  In her 2^nd affirmation tells the court more about her reasons for participating in the Scheme, namely, she was advised by her financial advisors, who she does not identify, that she could retrieve the pension funds at an earlier age in Hong Kong than she could retrieve the pension funds if they remained in the United Kingdom. Ms Stanton refers to the troubling history of disputes between the Respondents, which has prevented the proper administration of the Scheme and the views expressed by the MPFA recorded in the Occupational Retirement Schemes Appeal Board in [18] of its decision dated 22 August 2022, namely, that:

“The MPFA submitted that ‘in the [sic] light of the complex relationships between the relevant parties … including in particular the long history of disputes among the trustees ... and the allegation made by the [Mr Michael Kenneth Simmons, the liquidator of GFS] that [the 1^st Respondent] had been hiding information regarding the assets of the Scheme from the rest of the parties for masking fraud and/or abuse of the Scheme, the MPFA submits that the appointment of a liquidator to conduct the winding up of the Scheme in accordance with sections 48 and 49 of the [Ordinance] would appear to be in the best interest of members of the Scheme as the Court-appointed liquidator is entitled to take control of and distribute the assets of the Scheme and to investigate the issues in question’.”

20.  In her 3^rd affirmation Ms Stanton goes into considerable detail to rebut the evidence filed in opposition and argue her case. The 3^rd affirmation runs to 63 pages. Ms Stanton identifies five broad areas of concern which she suggests justifies making a winding up order. The first is that the alternative of a liquidation under clause 20 of the Trust Deed and rule 16 of the rules is not workable. Secondly the multiple disputes that have arisen, which have involved reports being made to the police and the SFC including allegations of misappropriation of funds which I have already referred to. Thirdly, the fact that the Scheme is no longer recognised in Hong Kong or the United Kingdom. Fourthly, that in some respects all the Respondents seem to have been at fault at some stage as none of the Respondents during parts of the relevant periods held the required company service provider licence. This also calls into question the ability of the 2^nd Respondent to liquidate the Scheme pursuant to the Trust Deed. Finally that the 2^nd Respondent and the 3^rd Respondent are clearly associated and there are reasons to suspect breach of fiduciary duty and self-dealing.

21.  There are clearly good reasons to take the view that it would be just and equitable to appoint liquidators to wind up the Scheme and that, in addition to advancing the distribution of assets to members, there would be value in liquidators investigating the claims and counterclaims of wrongdoing advanced by the Respondents against each other. There may be claims, which can be advanced against the Respondents, which will increase the amount available to members.

22.  I accept that given her small interest in the Scheme Ms Stanton’s application and the thoroughness with which her case has been prepared is surprising. As I have mentioned her 3^rd affirmation runs to 63 pages and descends into a remarkable level of detail some of which is of a fairly arcane nature including a lengthy paragraph of clearly inadmissible evidence on the correct method for swearing an affidavit outside Hong Kong. I think it reasonable to anticipate that Ms Stanton will have incurred fees of at least what she says is held in the Scheme quite possibly a lot more. It is a compelling inference that Ms Stanton is a proxy probably for Mr Wilkinson. It does not follow, however, that the Scheme should not be wound up. If anything the contest between the Respondents suggests that the best course may be for liquidators to be appointed and that to await the outcome of the trial in October 2024 is a false economy because, of course, the 1^st Respondent could win in which case the Scheme seems likely to be wound up anyway and, secondly, the decision could be appealed leading to yet further delay.

23.  The contrary argument is that appointing liquidators will be expensive, it should be possible for the Respondents to agree protocols, which facilitate the return to members of their assets and, if this proves not to be the case, once the dispute between the Respondents about who is the trustee had been resolved there is a mechanism for distributing the assets more cheaply than would be the case if this is left to liquidators. The Intervenor and the other members, who have expressed opposition to an immediate winding up are entitled to have their views given due weight[1], which includes having regard to their relative economic interests in the liquidation. The Intervenor is also correct in his argument that the court has regard to the expense of a liquidation in determining what is the more reasonable course to order. I am alive to how quickly the costs of a liquidation can escalate.

24.  The 2^nd and 3^rd Respondents argue, correctly, that a winding up order is generally regarded by the court as a remedy of last resort, and it will not be granted if there is a reasonable alternative[2]. In advancing this submission Mr Cheung principally focused on the availability of the alternative process for distribution of assets to members, namely, clause 20, but given that it cannot be operated at present and may never be available for this reasons I have referred to earlier, in my view the principal is most relevant in the way argued by Mr Chiu for the Intervenor. Mr Chiu argued that Ms Stanton’s rejection of the offer by the 2^nd Respondent to pay her in full the amount standing to her account in the Scheme should be viewed as analogous to a rejection of an offer to purchase shares, which is relevant to the court’s consideration of whether a petitioner is acting reasonably in insisting on a winding up[3]. Mr Chiu argued that it was unreasonable for Ms Stanton to insist on a winding up order given the offer that has been made to her. I agree.

25.  I note that in response to the 2^nd Respondent’s initial offer Ms Stanton’s solicitors wrote on 15 June 2023 a letter, which does not suggest that the figure owed to Ms Stanton is not US$32,777.26, but instead asks for a whole series of financial statements, to which Ms Stanton may have been entitled, but are not the kind of documents one would expect a school teacher anxious to get back the money she thought was owed to her would request. The letter clearly reads like an attempt to manufacture a ground for rejecting the offer, which was withdrawn on 28 June 2023 and then made again on 17 July 2023.

Conclusion and Disposition

26.  If the 2^nd Respondent had not made the offer to pay her US$32,777.26 from its own funds, I would have taken the view that given the unsatisfactory state of affairs in the administration of the Scheme the appropriate course was to order its immediate winding up. However, if the 2^nd Respondent remains willing to make this payment out of its own assets I will decline to do so.

27.  I will make the following order nisi:

(1)  The 2^nd Respondent shall confirm to the Applicant and the Court in writing by 5pm on 18 August 2022 that it will by 5pm on 31 August 2023 pay to the Applicant out of its own funds US$32,777.26.

(2)  If the 2^nd Respondent provides the aforesaid confirmation the applications by originating summons dated 6 September 2022 and summonses dated 17 February 2023 shall be dismissed. If the 2^nd Respondent does not provide the aforesaid confirmation the matter be relisted.

(3)  The costs of the applications aforesaid up to and including 17 July 2023 be paid by the 2^nd Respondent to the Applicant on a party and party basis with a certificate for counsel, such costs to be taxed if not agreed. There be no order as to costs between the Applicant and the Respondents after 17 July 2023 and there be no order as to the costs of the Intervener up to 15 June 2023, but his costs thereafter be paid out of the assets of the Scheme.

In HCMP 1270/2022

In HCMP 1947/2022