BEATRICE TSANG SAU HING AND ANOTHER v. YUENG MAN LOONG MAXLY AND OTHERS

                   HCCW49-52/2006
& HCCW130-133/2007

HCCW49/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 49 OF 2006

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BETWEEN

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HCCW50/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 50 OF 2006

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____________________

BETWEEN

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HCCW51/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 51 OF 2006

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____________________

BETWEEN

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HCCW52/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 52 OF 2006

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____________________

BETWEEN

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HCCW130/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 130 OF 2007

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____________________

BETWEEN

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HCCW131/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 131 OF 2007

______________________

____________________

BETWEEN

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HCCW132/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 132 OF 2007

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____________________

BETWEEN

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HCCW133/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 133 OF 2007

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D E C I S I O N

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Application for inspection of documents

1. This is effectively the restored hearing of a summons issued by the petitioners on 15 June 2006 seeking an order that the provisional liquidators of Gold Pleasure Industrial Company Limited (“the Company”) do give to the 1st and 2nd petitioners, or their authorised representatives, or such other person as the court may direct, an immediate inspection of all documents which are listed in the schedule to the summons which are in the possession, control or custody of the provisional liquidators, or the Company, or their servants, employees or agents. 

2. The marginal note of the summons indicated that it was brought under section 121 of the Companies Ordinance and the inherent jurisdiction of the court.  The matter first came before Kwan J at the end of June 2006.  On that occasion, the principal area of debate was whether or not the effect of the appointment of provisional liquidators over the companies had the effect of terminating the right of a director to obtain an inspection of books and accounts of the company of which he is a director pursuant to section 121 of the Companies Ordinance and at common law.  Madam Justice Kwan held that it did not have that effect and that provided that the granting of an order of inspection would not interfere in an adverse way with the ability of the liquidators to carry out their duties, the entitlement of a director, whether at common law or under the statute, to inspect the accounting books and records of the company of which he was a director could continue notwithstanding the appointment of provisional liquidators in respect of the company. 

3. The documents that were sought in the schedule related to records of a joint-venture company, owned by the Company, which operated manufacturing facilities in China.  The documents were said to be relevant to certain issues which arise in this winding-up petition which is brought under the just and equitable ground.  In particular, they are said to go to allegations as to over-ordering of inventory and possible wrongdoing in the sense of criminal activities and the breach of various Mainland regulations as to the importation of goods in relation to the ordering of raw materials for the factory operated by the joint venture. 

4. It does not appear to be seriously disputed that the documents  of which inspection is sought are or may be relevant to issues which arise in these proceedings.  When the matter first came before Madam Justice Kwan, she noted that the application was brought under section 121 of the Ordinance and not by way of an application for discovery in the winding-up proceedings.  At that time, the provisional liquidators indicated that they were willing to co-operate as far as they were able to, although they expressed concerns that there might be difficulties in affording the petitioner with inspection of documents that were not in their immediate possession to which they had access which were maintained at the premises of the joint venture company in China.  In relation to those documents, the liquidators expressed the view, quite sensibly, as Madam Justice Kwan thought and as I think, that it would be desirable, if possible, to avoid friction in relation to the matter and it would be conducive to the maintaining of good relations between the provisional liquidators and the Chinese investor in the joint venture if the Chinese investor could be consulted before any inspection was made available.  At that time, the provisional liquidators agreed to make available records of the joint venture which were actually in their possession in Hong Kong for inspection by the petitioner and this was duly done.  The question as to what should be done about other records which were maintained at the joint venture's factory was left open for the provisional liquidators to explore further with the Chinese investor, to see whether or not the Chinese investor would be agreeable to those documents either being removed to Hong Kong for the purposes of inspection or whether it might be possible for the documents to be inspected on site at the premises of the Chinese joint venture. 

5. In the event, the Chinese joint venture partner was unwilling to afford inspection of the documents to the petitioners at all and the matter was left there.  Unhappy with this position, the petitioners sought to restore the application by summons dated 27 December 2006.  That came on initially for hearing in January 2007 when, owing to the need for some further evidence to be filed, it was adjourned until today.  Today, Mr Wong, who appears for the petitioners (but who has not appeared for them previously in these proceedings) submitted that it would be appropriate for an order to be made requiring inspection to be provided as requested in the summons. 

6. With respect to Mr Wong, it seems to me that this was far from clear, given the basis on which the application was brought, as appears from the summons itself.  The application is made under section 121 of the Companies Ordinance and under the inherent jurisdiction of the court.  The nature of the application under the inherent jurisdiction was not expanded on at the original hearing before Madam Justice Kwan but it may be that it was intended to refer to the common law right of a director to inspect books of account and other accounting records in respect of the company of which he is director. 

7. It is important, I think, not to lose sight of the fact that the company in respect of which the application is brought is Gold Pleasure Industrial Company Limited, the Hong Kong company which is the subject of these proceedings.  The application is brought by the petitioners in their capacity as director of this company.  It seems to me that under section 121, the only documents that a director has a right to inspect are accounting books and records of the company of which he or she is a director.  The documents that were sought under the schedule to the summons, however, do not appear to me to be documents of the Company, rather, they would seem to be documents of its subsidiary, the joint venture.  It does not seem to me that a director is given, either at common law, or under section 121 of the Ordinance, a right to inspect accounting books and records of a subsidiary or other entity that is not the company itself.

8. As I have indicated, Madam Justice Kwan observed in her judgment given in June last year that the application was not one for discovery in these proceedings, pursuant to RHC Order 24.  Mr Wong, in the course of his argument suggested that whatever the position might be under section 121 of the Companies Ordinance, as the company was a party to these proceedings, and as it is generally the case that in winding-up applications on the just and equitable ground and applications under section 168A that the company, although joined as a nominal party, does have obligations of discovery which may be important in any given case, it was clear that the Company remained under an obligation to make discovery in this matter. 

9. I am told that an order for discovery was in fact made in these proceedings, although a copy of it was not available at the hearing today.  It is therefore not entirely clear - although it may have been the case – whether the Company was ordered, along with the other parties to the proceedings, to make discovery in the usual way.  I am informed, however, that whether or not the order was addressed to the Company as well, the discovery order was not apparently served on the Company and the position is that the Company has not, in fact, made discovery pursuant to the order.  Moreover, no application to enforce the discovery order, as against the Company, has ever been taken out. 

10. It seems to me that it may well be the case that the Company is under an obligation to make discovery in these proceedings.  If so, even though it has not done so, none of the parties have sought to enforce its obligation to do so.  Mr Wong has indicated that he now wishes to enforce that obligation on behalf of his clients and, with that in mind, has sought leave to amend the summons so as to make it an application under RHC Order 24, rules 3 and 7 as well. 

11. Miss Chhoa who appears for the provisional liquidators has indicated that her clients do not object to that course being taken and that they will cause the Company to comply with its obligations of discovery in the circumstances of this case by filing an affirmation as to whether or not the Company has in its possession, custody or control, any of the documents that are listed in the schedule to the summons and, in doing so, will also disclose by way of discovery any other documents that are relevant which the Company does have in its possession, custody or control. 

12. It seems to me that this is an acceptable approach and, in the circumstances, I am prepared to allow the summons to be amended in the way indicated.  Mr Wong has undertaken to file an amended summons within the course of today and I shall therefore order that upon the undertaking of the petitioners to file an amended summons within, let us say, 48 hours, the provisional liquidators are to make an affidavit, within 14 days of today, setting out whether or not the Company has within its possession, custody or control, any of the documents listed in the schedule to the summons and further setting out, by a list to be exhibited to the affidavit, any further documents within the possession, custody or control of the Company which are relevant to issues arising in these proceedings. 

(Submissions on costs)

13. I think in relation to the question of costs, approaching the matter on the basis of the summons as it was framed, if the matter were to be argued out, it will be clear from the reasons which I have given, that I would have come to the view that although this may not have been appreciated at an earlier stage of the proceedings, the application was made on a basis that would not have justified making the order sought. 

14. In the circumstances, it does not seem to me to be satisfactory that the costs of this application, as far as the Company is concerned, should come out of the Company's own assets.  Although it may be that the Company may have been under an obligation to make discovery, the fact is that there is no evidence that the order for discovery was ever served on the provisional liquidator so as to prompt the Company to make discovery in the course of these proceedings. 

15. In all of the circumstances, the fact remains that the basis on which the court was asked to make an order was one on which, in my view, it could not have made the order, and I think that the appropriate order is for the petitioners to pay the costs of this application to the provisional liquidators and to the extent that the respondents have incurred any costs in relation to the application (which was served on them and in respect of which they were entitled to appear) they should have their costs in any event, all such costs to be taxed on the party and party basis if not agreed.  In so far as there is any shortfall in the costs that are recovered by the provisional liquidator in this respect at the end of the day, then that shortfall is to be met out of the assets of the Company. 

Application for validation order in respect of sale of property

16. So far as the provisional liquidators’ application for leave to sell the property of Sunville, pursuant to the conditional agreement for sale and purchase that they have entered into, is concerned, I have come to the conclusion that it would not be appropriate for the court to approve the sale of the property at this point in time.  I have come to that conclusion because the property is the asset (and the only significant asset) of Sunville, and I think, in considering whether or not it is appropriate to sanction the sale of the asset, it is relevant to take into account whether or not there is any need for the company to sell the asset in question.  There does not appear to be any particular reason why Sunville should sell the property at this time.  As Mr Wong pointed out, it is a property-holding company; it is not an operating company; it does not have substantial expenses.  Even if it were legitimate to take into account the position of the other associated companies of Sunville, there is no suggestion that they are, at this point in time, in need of funds so as to make it expedient or necessary for Sunville to find some way of raising funds to finance their operations. 

17. In those circumstances, it seems to me that the court should be circumspect when deciding whether or not to permit the sale of a major asset which is not of a nature that is wasting or apparently likely to decline in value in the immediate future.  Of course, it is not possible to predict one way or another which way the property market in Hong Kong will move.  That is an exercise that is fraught with hazards as is shown by the many cases in which parties have been caught out by unexpected movements in the market. 

18. Nonetheless, it is, I think, fair to take into account the fact that this was an apparently unsolicited offer; that the price appeared to be very substantially higher than the valuations that were in place and, that there are some features of the transactions that appear to be generous.  I do not express any view on whether or not they are so unusual as to call for specific comment.  But ultimately, the fact remains that at the present juncture, the company is not in a position where it is so short of funds that it needs to raise funds for its own operations.  There is no apparent pressing reason for the sale of the property at this point in time.  So far as the valuations are concerned, it does seem to me that as two valuers have adverted to the redevelopment potential of the property, this does suggest that that is a matter that should perhaps be taken into account.  But that is a relatively minor factor in my reasons.  The main reason that I think it is inappropriate for the court to grant the order sought in relation to sale of the property is that there does not appear to be any particular need for it at this point in time and that being the case, I think it more appropriate to leave things as they stand.  If Sunville does eventually go into liquidation then, no doubt, the property will have to be sold at that juncture – however, for the reasons I have given, I do not think it would be appropriate for me to sanction the sale of the property at this point in time. 

(Submissions on costs)

19. I think, in all of the circumstances, the petitioners are entitled to the costs of this application but I shall direct that the costs should be paid out of the assets of Sunville, as I would accept that the provisional liquidators, having been presented with such an offer, were entitled to put it before the court and, in the circumstances, it seems to me that the appropriate costs order would be to order that the costs of the 1st and 2nd petitioners be paid by the provisional liquidators, to be taxed on the party and party basis if not agreed, but that the provisional liquidators should be at liberty to reimburse themselves for such costs, and their own costs, from the assets of the company.  Of course, that will be subject to the need to go through the usual taxation procedure in relation to the provisional liquidator's own costs.  So far as the respondents’ costs are concerned, as they were served with the summons, I will make the same order that I did in relation to the previous summons, so that their costs will also be paid out of the assets of the company, although I expect that such costs are likely,  in relation to this matter, to be minimal.