THE OFFICIAL RECEIVER v. MAK WING HUNG

HCMP 2808/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2808 OF 2002

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J U D G M E N T

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1. This is an application by the Official Receiver under s. 168I(2) of the Companies Ordinances, Cap. 32 for leave to issue proceedings against Mr Mak Wing Hung under s. 168H for a disqualification order out of time. It is alleged by the Official Receiver that Mr Mak is the de facto director of China Talent International Development Ltd ("the Company"). The application is opposed by Mr Mak.

2. The circumstances giving rise to the application may be stated as follows.

3. On 14 November 1997, the shareholders of the Company passed a special resolution that the Company be wound up voluntarily and that Mr Sze Ching Po be appointed liquidator of the Company for the purpose of such winding up. Mr Sze later resigned as liquidator on 20 October 1998. On 19 March 1999, the Commissioner of Inland Revenue presented a petition to wind up the Company on the ground that it was unable to pay its debts. A winding up order was made by the court on 19 May 1999 and the Official Receiver was appointed liquidator on 21 September 1999.

4. The combined effect of sections 168I(2)(a), 184 and 228 of Cap. 32 is that an application for a disqualification order against the former directors of the company must be made before the expiry of the four-year period starting from the commencement of the winding up of the company, which was on 14 November 1997 in this instance. Hence, that period had expired on 13 November 2001. But for the fact that there was a members' voluntary liquidation before the winding up order was made, the Official Receiver would have been within time in bringing disqualification proceedings.

5. What happened after the winding up order was made was as follows.

6. In June 1999, the Commissioner of Inland Revenue reported to the Official Receiver certain transactions of the Company that may constitute fraudulent preference. The matter was then investigated by the Case and Management Division of the Official Receiver. It was only in April 2000 that the matter was referred to the Prosecution and Directors Disqualification Section of the Official Receiver to consider if proceedings for disqualification should be commenced.

7. The investigations were not entirely straightforward and they were made more difficult due to the failure to co-operate on the part of Mr Mak, and the paucity of books and records of the Company. Letters were written by the Official Receiver to Mr Mak from June 2000 to July 2001. Mr Mak had failed to respond from January 2001 onwards. I am satisfied from the letters of the Official Receiver to him dated 1 June 2000 and 23 January 2001 that Mr Mak has been made sufficiently aware of the allegations against him fairly early on.

8. Between July 2001 to May 2002, there was a period of complete inactivity. I understand from Miss Lee for the Official Receiver that the case file went missing in the office of the Official Receiver during this period.

9. On 9 May 2002, the Official Receiver applied ex parte for an order of public examination against Mr Mak. An order was granted on 10 May 2002. The public examination took place on 11 July 2002. This Originating Summons seeking leave to commence proceedings for disqualification order out of time was issued on 19 July 2002, after the Official Receiver has had an opportunity of considering the evidence given by Mr Mak in the public examination.

10. The court's discretion whether to grant leave under s. 168I(2) is unfettered. The Official Receiver has to show a good reason for an extension of time (Re Copecrest Ltd [1993] BCC 844 at 852B, per Hoffmann LJ). In the exercise of the discretion, the court has to balance the element of public interest (in that the Official Receiver is not pursuing a private right but is seeking to protect the public from the actions of a person alleged to be unfit to be a company director) with the legitimate interest of the director and the possible prejudice he may suffer if leave is granted.

11. In most situations, the court has taken into account the four factors conveniently summarized by Scott LJ in Re Probe Data Systems Ltd (No. 3) [1992] BCC 110 at 118G and they are as follows:

(1) the length of the delay;

(2) the reasons for the delay;

(3) the strength of the case against the director; and

(4) the degree of prejudice caused to the director by the delay.

12. These four factors are not exhaustive, as plainly all relevant circumstances must be taken into account in the balancing exercise and the element of public interest is always a relevant consideration. Further, the reference to "the strength of the case against the director" is not a reference to the strength or credibility of the evidence which the Official Receiver seeks leave to file but to the gravity of the charges made against the director. See Secretary of State for Trade and Industry v Davies [1997] BCC 235 at 242A-B, 247H-248A.

13. Here, the allegations against Mr Mak are as follows. He had signed an Agency Agreement which was a sham to evade the payment of profits tax on the purchase of a property. He had committed a misfeasance in causing commission of HK$1.6 million to be paid under the Agency Agreement. Further, he had misappropriated funds of the Company in the sum of HK$2,833,000.00. Apart from the above, there was failure to comply with various provisions of Cap. 32 regarding the keeping of proper books and records, the obligation to submit a statement of affairs, and the obligation to file annual returns.

14. The allegations made against Mr Mak regarding the Agency Agreement and the misappropriation of funds, if established, are serious.

15. As for the delay, I do not think the Official Receiver has given a satisfactory explanation regarding the delay in respect of the period between July 2001 and May 2002. Nevertheless, the adequacy of the explanation for the delay is a matter to be considered with all the other relevant circumstances and the delay in itself is not to be treated as a free-standing or threshold test which has to be satisfied before other considerations could be taken into account (Secretary of State for Trade and Industry v Davies, at supra. 244G-H).

16. As against the explanation for the delay, I have taken into account that part of the delay was attributable to the non co-operation of Mr Mak. I also take into account the gravity of the charges against him and that he was made sufficiently aware of these charges by the letters of the Official Receiver that I have mentioned. It seems that he would not have suffered any specific prejudice other than the prejudice inherent in the pendency of the disqualification proceedings.

17. In my judgment, the balance comes down in favour of granting leave to the Official Receiver to bring disqualification proceedings notwithstanding that the time for doing so has expired.

18. I make an order as sought in paragraph 1 of the Originating Summons. I order that the costs of this application be in the disqualification proceedings.