THE OFFICIAL RECEIVER v. CHEUNG GIN HUNG

HCMP 2396/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2396 OF 2004

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J U D G M E N T

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Background

1. World Motor & Pump Company Limited (“the Company”) was incorporated in Hong Kong on 8 February 1994 for trading of motors and pumps.  On 22 September 2000, by a statutory declaration made by Mr. Cheung Gin Hung (“the Respondent”), the Company commenced the voluntary winding up.  Later, at the meeting on creditors on 5 October 2000, Mr. Pang Wai Kui (“the Liquidator”) was appointed as liquidator of the Company.

2. At the material times, there were 2 directors of the Company, the Respondent and his wife Madam Yuen Sau Chun Jenny (“Madam Yuen”).  During investigation, the liquidator found that the Respondent operated the Company on his own and Madam Yuen did not involve in any management thereof.  On 9 October 2001, a bankruptcy order was made against the Respondent and he is now an undischarged bankrupt.

Application

3. Upon further investigation by the Official Receiver (“OR”), the Company was insolvent within the meaning of section 168H(2)(a) Companies Ordinance (Cap 32) (“CO”) and that the Respondent was also a director of the Company under section 168H(1)(a) CO.

4. The OR opined that the conduct of the Respondent was unsatisfactory and as such, on 17 September 2004, commenced the present application under section 168H CO for a disqualification order against the Respondent.  On 12 November 2004, the Respondent filed an acknowledgment of service with this Court indicating that he would not be opposing the proceedings.

5. The matter then came before me on 6 December 2004.  Ms. Tsui, Acting Senior Solicitor, appeared for the OR and the Respondent was absent.  Upon hearing from Ms. Tsui, I adjourned the matter for judgment to be handed down at a later date.

Ruling

6. Upon careful consideration of the evidence authorities and submission before me, I have come to a decision that the appropriate period for disqualification is five years.  I say so for the following reasons.

(a)	The division of the 15-year disqualification period into 3 brackets, as per Dillion J in Re Sevenoaks Stationers (Retail) Ltd [1996] BCC 765 CA has been followed in Hong Kong:
	“	I would for my part endorse the division of the potential 15-year disqualification period into three brackets, ……
		1.	The top bracket of disqualification for periods over ten years should be reserved for particularly serious cases. These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again.
		2.	The minimum bracket of two to five years’ disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious.
		3.	The middle bracket of disqualification for from six to ten years should apply for serious cases which do not merit the top bracket. (page 771 to page 772 of the judgment)	”
(b)	Useful guidance can be found in Re Westmind Packing Services Ltd (No. 3) [1998] BCC 836, at page 837-838:
	“	The following should be taken as general guidance as to what is relevant and admissible evidence for the purpose of determining the length of a disqualification period ……
		1.	It was of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realize that these are inescapable personal responsibilities.
		2.	……
		3.	The primary purpose of disqualification is to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies showed them to be danger to creditors and others. Despite the fact that the courts have said disqualification is not a ‘punishment’, in truth the exercise that is being engaged in is little different from any sentencing exercise. The period of disqualification must reflect the gravity of the offence. It must contain deterrent elements. That is what sentencing is all about, and that is what fixing the appropriate period of the disqualification is all about. In relation to the period of disqualification the facts of the offence are obviously important but many other factors ought (and in reality do) come into play.
			……
		7.	A wide variety of matters – including the former director’s age and state of health, the length of time he has been in jeopardy, whether he has admitted the offence, his general conduct before and after the offence, and the periods of disqualification of his co-directors that may have been ordered by other courts – may be relevant and admissible in determining the appropriate period of disqualification as may any period of de facto disqualification ……
		8.	The appropriate period of disqualification is something which, like the passing of sentence in a criminal case, ought to be dealt with comparatively briefly and without elaborate reasoning. It is obviously undesirable for the judge to be taken through the facts of previous cases in order to guide him as to the course he should take in the particular case before him. The principles applicable to the court’s jurisdiction under the Act are now reasonably clear. The application of those principles to the facts of the particular case is a matter for the trial judge. The citation of cases as to the period of disqualification will, in the great majority of cases, be unnecessary and inappropriate.
		9.	……	”
(c)	The complaints by the OR against the Respondent have not been contradicted or denied.  The Respondent has:
		(i)	failed to disclose to the Liquidator the whereabouts and disposal of 7 sets of machine acquired on hire-purchase with JCG at a total costs of HK$502,000 in November 1998;
		(ii)	knowingly misled the Liquidator by lying that the 7 sets of machine were delivered to one of its creditor Leeman, causing unnecessary waste of resources of the OR and breaching the duty to tell the truth and to co-operate with the Liquidator and the OR;
		(iii)	misapplied the 7 sets of machine without the knowledge or consent from JCG, amounting to a lack of probity on his part and a serious breach of fiduciary duties to the Company; and
		(iv)	breached section 121 CO by failure to provide / keep the general ledgers of the Company after March 1997, rendering the Liquidator to be unable to trace the disposal and transfer of the 7 sets of machine.
(d)	Applying the relevant legal principles to the Respondent’s “misconduct”, Miss Tsui said that it should fall within the minimum bracket. I agree and would further suggest that it justifies the top punishment within this bracket because of the following factors.
		(i)	The Respondent has failed to perform not only the statutory duties but also his fiduciary obligations of being a company director. Such failure is not simply a matter of carelessness or negligence on the part of the Respondent. He did it on purpose to cover up his wrongful disposal of the 7 sets of machine.
		(ii)	The Respondent told lies to the Liquidator and the OR. He further hided away and/or destroyed the relevant accounting records. Such conduct are dangerous to the creditors and the society. The public should be protected from it.
		(iii)	The background of the Respondent is not known to this Court. He did not attend the Court. He did not choose to mitigate. He appears not to be remorseful. Probably, he does not care about how the Court will punish him.

7. In conclusion, I will make the following orders.

(a)	The Respondent shall not, without leave of the Court,
	(i)	be a director of a company;
	(ii)	be a liquidator of a company;
	(iii)	be a receiver or manager of a company’s property; or
	(iv)	in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company;
for a period of 5 years effective from the 21st day after the date hereof.
(b)	There be an order nisi that the costs of the OR incidental to and of this application be borne by the Respondent, to be taxed if not agreed.