RE VISION INTERNATIONAL INVESTMENT (HK) LTD

HCCW 1277/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1277 OF 2004

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AND

HCMP 3340/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3340 OF 2004

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(Heard Together)

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D E C I S I O N

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The applications

1.  There are before me three applications in HCCW No. 1277 of 2004 and an application in HCMP No. 3340 of 2004.  I will deal with them in the order mentioned below.

2.  The first application is a summons issued on 18 October 2005 under rule 33 of the Companies (Winding-up) Rules by Madam Lam Yin (“Lam”), for leave to be substituted as a petitioner, in place of Zhang Hongxin (“Zhang”), to wind up K Vision International Investment (H.K.) Limited (“the Company”) in HCCW No. 1277 of 2004. 

3.  The second application is a summons issued by Lam on 3 November 2005 under section 193 of the Companies Ordinance, Cap. 32, for provisional liquidators to be appointed to the Company.

4.  The third application is a summons issued again by Lam on 3 November 2005, under Order 30 rule 1 of the Rules of the High Court.  She seeks to appoint receivers to the Company, without prejudice and in the alternative to her application for provisional liquidators. 

5.  The fourth application is in respect of part of an originating summons that has not been disposed of.  It was issued by Qu Hong, also known as Richard Qu (“Qu”), on 31 December 2004, under section 114B of Cap. 32.  He seeks to convene an extraordinary general meeting of the Company, for the purpose of considering and if thought fit, passing a resolution to appoint three additional directors to the Company.

6.  It is necessary to set out in some detail the relevant background matters, to put into proper context the applications that I am concerned with. 

The Company

7.  The Company was incorporated in Hong Kong on 20  October  1992 under its former name.  Initially, the authorised and issued share capital was HK$10,000.00, divided into 10,000 shares of HK$1.00 each.  80% was held by Qu and the other 20% was held by Lam.  They were the first directors and have remained directors. 

8.  Qu is a Chinese national resident in Mainland China.  Lam has settled permanently in Hong Kong in 1992.  It is not in dispute that she was asked by Qu to become a shareholder and director of the Company because of her status as a permanent resident of Hong Kong.  It is also not in dispute that Lam was responsible for the day-to-day operation of the office of the Company in Hong Kong and that Qu was responsible for the operation of the Company in the Mainland.  Lam was paid a salary by the Company.  According to the employer’s return of the Company submitted to the Inland Revenue Department in 1995, the capacity in which she was employed was that of a “financial director”.

9.  In about September 1993, the share capital of the Company was increased to HK$1 million, divided into 1 million shares, all of which were issued and paid up.  Qu continued to hold 80% of the shares and Lam 20%. 

10.  In about March 1994, the name of the Company was changed to its present name. 

11.  On 13 July 1995, Qu transferred 550,000 of his shares in the Company to Chow Fu Chu as the nominee of Madam Chow Fu Hsien (“Madam Chow”).  Chow Fu Chu transferred these shares to Madam  Chow on 4 November 1996 and on 8 January 1997, Madam Chow transferred her shares back to Qu. 

12.  In May 1998, Lam transferred to Qu 170,000 of her shares in the Company, which represented 17% of the issued share capital. 

13.  Qu thereafter became and has remained the registered shareholder of 97% of the shares in the Company. 

14.  There is dispute as to who had put up the share capital of the Company.  Lam has claimed that the entire share capital was put up by her notwithstanding that she has always been a minority shareholder, that she was misled by Qu into transferring 17% of the shares in the Company to him, and that she had never received any consideration for the transfer.  Qu claimed that he was the sole contributor to the share capital, that he had given 20% of the shares to Lam to hold as a nominee and she later transferred 17% back to him at his request when the Company was expected to be making a profit. 

15.  In about May 2004, Lam transferred out of her shareholding 1% of the shares in the Company to Zhang and Zhang was appointed an additional director of the Company.  Qu disputed the validity of the transfer of these shares to Zhang and his appointment as a director.  He claimed that he did not attend the board meeting held on 8 May 2004 to appoint Zhang as a director or the board meeting on 17 May 2004 to approve the transfer of 10,000 shares of Lam to Zhang and that both board minutes were forged. 

16.  The business of the Company was and is its investment in two property projects in Beijing, the Sunshine Plaza and the Celebrity Plaza.  It is not in dispute that Qu was instrumental in obtaining substantial capital funding for the Company to finance these projects.  There had not been any borrowing from a bank or any mortgage of the Company’s interests in the projects.  Qu claimed that these projects have been his sole responsibility since their inception in the 1990s.  Lam did not appear to dispute that Qu was largely responsible for the operation in the Mainland, although she asserted that in respect of Celebrity Plaza, she was and is responsible for “the non-financial operation of the Company in the PRC, such as the preparation of the formal or legal documents and important dealings with the other partners of the [co-operative joint venture].” The significance of this assertion would appear from the subsequent narrative. 

Sunshine Plaza

17.  The developer of Sunshine Plaza was Beijing Golden Horse Great Wall Estate Construction Company Limited (“Golden Horse”).  Madam Chow is its majority shareholder and managing director. 

18.  By an agreement dated 21 March 1993 made between the Company and Golden Horse, the Company purchased from the latter the residential and commercial parts of the development of about 103,000 sq  m (out of a total of 159,000 sq m), at the price of US$142 million odd.  The development was to commence construction in May 1993.  65% of the purchase price was to be paid to Golden Horse by seven instalments within the periods as stipulated.  The remaining 35% was to be paid out of the proceeds of sale of individual sub-purchasers.  In the event that the units were sub-sold at prices above a certain amount, the Company and Golden Horse were to share in such profit at the ratio stated. 

19.  Sunshine Plaza was completed in about the end of 1996 or early 1997.  About 600 units, more than 95% of all the units, were sold.

20.  In December 1994, the Company sub-sold 22,750 sq m of the development to a company in the Mainland known as Po Lee (保利科技有限公司).  This was effected by an agreement dated 3 December 1994 made between Golden Horse as the seller and Po Lee as the purchaser. 

21.  In 1999, disputes arose between the Company and Golden Horse regarding the final accounts of Sunshine Plaza, as a result Golden Horse refused to deliver up vacant possession of the property sold to Po Lee.  Po Lee sued Golden Horse and the Company and obtained judgment in its favour from the Beijing High People’s Court on 17 July 2001.  The appeal of Golden Horse was dismissed by the Supreme People’s Court on 6 March 2002.  Golden Horse was ordered to deliver up vacant possession to Po Lee and both defendants were liable to pay compensation.  It was held in the judgment of the High People’s Court that the Company had paid US$88.11 million to Golden Horse, being 65% of the purchase price with interest under the agreement dated 21 March 1993, but Golden Horse had not received all of the remaining 35% from the proceeds of sale of the individual purchasers and the accounts with the Company had not been finalised. 

22.  To date, the final accounts of Sunshine Plaza have still not been agreed between the Company and Golden Horse.

Celebrity Plaza

23.  Celebrity Plaza was developed by a sino-foreign co-operation enterprise known as Beijing K Vision Building Construction Company Limited (“Beijing K Vision”), which received its approval from the Beijing authorities on 29 July 1994.  According to the certificate of approval issued on 28 November 2003, the total investment was US$30 million, the registered capital was US$12 million and there were four investors, their particulars and the amount of capital contribution of each are as follows:

Name of Investor	Place of Registration	Capital Contribution (US$)
1.  Beijing Zhu Zong Group Co., Ltd. (“Zhu Zong”)	China	Not stated
2.  the Company	Hong Kong	2.4 million
3.  Sino Science International Trust Investment Co. Ltd.  (“Sino Science”)	China	6.6 million
4.  Far East Petroleum Company Limited (“Far East Petroleum”)	Hong Kong	3 million

24.  On 26 December 2004, Qu caused the Company to bring arbitration proceedings against Sino Science, Zhu Zong and Far East Petroleum before the China International Economic and Trade Arbitration Commission (“CIETAC”) in Beijing to terminate the co-operation agreement, to wind up Beijing K Vision, and to seek a distribution of its assets on liquidation. 

25.  According to the application for arbitration of the Company, the changes in the interest held by various parties in Beijing K Vision were as follows.

26.  On 2 June 1994, the Company entered into a co-operation agreement with Zhu Zong to establish Beijing K Vision for the development of the Celebrity Plaza project.  Their respective interests in Beijing K Vision were 20% to Zhu Zong and 80% to the Company. 

27.  By a share transfer agreement made on 29 August 1995 between the Company and Sino Science, the Company transferred part of its shares being a 55% interest in Beijing K Vision to Sino Science for the aggregate consideration of US$22 million, RMB 105.69 million and assignment to the Company of 6,000 sq m of the commercial premises of Celebrity Plaza on completion of construction.  Zhu Zong consented to the above transfer in September 1995 and the three parties made amendments to the co-operation agreement and the constitution of Beijing K Vision.  The respective interests of the three in Beijing K Vision were 20% to Zhu Zong, 25% to the Company and 55% to Sino Science.  The monetary consideration had been paid fully by Sino Science.

28.  By a share transfer agreement made in September 1996 between Zhu Zong, the Company and Sino Science, Zhu Zong agreed to transfer its 20% interest to the Company, such that the Company was to hold 45% interest in Beijing K Vision and Sino Science 55%. 

29.  Also in September 1996, another share transfer agreement was made between Zhu Zong, the Company, Sino Science and Far East Petroleum, by which the Company agreed to transfer part of its interest being 25% in Beijing K Vision to Far East Petroleum for the consideration of US$3 million.  The respective interests held in Beijing K Vision were 20% to the Company, 55% to Sino Science and 25% to Far East Petroleum.  Changes were made by the four parties to the co-operation agreement and the constitution of Beijing K Vision.  The Company and Sino Science were responsible for providing the funds required for the construction of the entire project except for the service apartments, the funds for which would be provided by Far East Petroleum.  The service apartments would go to Far East Petroleum on completion and the other parts of the development would be divided between the Company and Sino Science in the ratio of 26.7% to the Company and 73.3% to Sino Science.

30.  Lam, Zhang and Madam Chow have alleged that of the 20% interest held by the Company in Beijing K Vision, 35% (effectively 7% interest in Beijing K Vision) is held by the Company on trust for Madam  Chow.  This is denied by Qu. 

31.  Construction of the development commenced in 1995.  Work was completed in late 2004.  Despite the voluminous evidence filed by all parties in various proceedings in Hong Kong, the court has not been given a clear or coherent picture of what had been happening regarding the sale of units in Celebrity Plaza.  This should not be a controversial matter, nor should it be difficult for such evidence to be obtained.  Furthermore, it is clearly relevant to the alleged risk of dissipation of assets, in the applications to appoint provisional liquidators and interim receivers for the Company.  It is not apparent to this court why none of the parties have provided proper information in this respect. 

32.  Lam exhibited to her 2^nd affirmation made on 7 December  2004 in HCA No. 2710 of 2004 a copy of a report made by Qu on behalf of the Company to the Beijing authorities in December 2004.  In that report, the Company stated that it would bring an arbitration before CIETAC to terminate the co-operation agreement and to wind up Beijing K Vision, and requested the authorities to suspend processing the application for permission to sell units in Celebrity Plaza and not to issue the permit to sell.  This would seem to indicate that permission to sell the units had not been granted at that time. 

33.  However, according to the 3^rd affirmation made by Qu in HCA No. 2710 of 2004 on 8 December 2004, the sale of the units had “just started on 1 December 2004”.  In his 4^th affirmation filed in the same proceedings on 30 December 2004, Qu stated that he took immediate steps to “suspend the imminent sale of Celebrity Plaza which was scheduled in early December 2004”. 

34.  In an affirmation made by Zhang in HCCW No. 1277 of 2004 on 17 January 2005, he claimed that he was informed by estate agents in Beijing that Qu “is now offering to sell the Company’s assets in Beijing at fire sale prices” and he learned from a particular estate agency (which he did not identify) that the Company’s interest in Celebrity Plaza was “offered for sale at about RMB30 million” but “the transaction had to be concluded and paid outside of China”.

35.  It is not known if the authorities have issued the necessary permit for the sale of units in Celebrity Plaza after December 2004.  In the 2^nd affirmation of Qu in HCA No. 2842 of 2004 made in September 2005, he did not depose to any change regarding the suspension of the sale of units in Celebrity Plaza.

36.  In the 4^th affirmation of Qu in HCCW No. 1277 of 2004 made on 18 November 2005, Qu stated that he has found out recently that the sale and leasing of Celebrity Plaza are “re-activated”.  He exhibited a letter of the Company’s solicitors to Lam’s solicitors dated 16 November 2005, in which the former stated on instructions that Celebrity Plaza “is currently being sold and/or leased” and asked where the proceeds of the sale and leasing have gone.  Lam made no comment on this in her lengthy affirmation in reply, nor did her solicitors confirm or deny the allegation that Celebrity Plaza is being sold or leased in their reply dated 17  November 2005. 

The financial position of the Company

37.  It would appear that the Company no longer has any active business, other than to sort out the final accounts of Sunshine Plaza and Celebrity Plaza and to wind up Beijing K Vision.  In the 2^nd affirmation of Lam filed in HCMP No. 3340 of 2004 on 15 January 2005, it is alleged that the Company had ceased to have any active operation in Hong Kong since about 1997.  Qu on his part has claimed that the Beijing branch office of the Company was closed down in 2000, and this is disputed by Lam. 

38.  According to the audited accounts of the Company for the year ended 31 December 2003 (Qu has denied that these accounts had been laid before the Company in general meeting), the Company had accumulated losses of HK$35.5 million odd.  However, the evidence available to the auditors all along was very limited.  The contract terms and financial commitments of the substantial transactions in property investments in the Mainland have never been made available to the auditors all these years.  The audited accounts were qualified as the auditors were simply unable to comment on the existence and the extent of actual or contingent liabilities which existed at the date of the balance sheet in any financial year, or the recoverability of the accounts receivable.  They were not even able to determine if proper books of account had been kept. 

39.  In the 4^th affirmation of Qu in HCCW No. 1277 of 2004 made on 18 November 2005, he deposed to his expectation that the Company could share about HK$150 million to HK$200 million profits conservatively, after paying off the construction costs and land costs of Celebrity Plaza, and that such substantial asset has not been reflected in the audited accounts of the Company.

The legal actions in Hong Kong

40.  Towards the end of 2004, Qu, Lam, Zhang and Madam Chow brought or caused to be brought a series of proceedings in Hong Kong.  Qu claimed there was a concerted move of Lam, Zhang and Madam Chow against him.  Allegations were made on each side of fraud, forgery and bogus transactions involving millions of dollars.  Within a short space of time, a number of demands for payments were served on the Company and Qu.  There was a flurry of interlocutory applications in these proceedings.  Qu, Lam and Zhang each sought to remove or restrain the other from acting as director of the Company.  Each has applied for and obtained discovery orders against the other for the documents of the Company.  Each has alleged that the other side had been keeping the books and records and other material documents of the Company and that the other side has failed to disclose all such documents in his or her custody or control, notwithstanding the orders for disclosure. 

(1) HCA No. 2710 of 2004

41.  The first action was brought by Qu in the name of the Company against Lam and Zhang.  This is High Court Action No. 2710 of  2004.  Before the writ was issued on 29 November 2004, the Company applied for an ex parte injunction and an order was granted by Stone J on 26 November 2004:

(1) restraining Zhang from acting or purporting to act as a director of the Company until after the hearing of the inter partes summons, and

(2) requiring Lam to give the Company’s solicitors access to and to take copies of all the documents held by her for and on behalf of the Company at an address in China Overseas Building, Hennessy Road, Hong Kong. 

42.  In the statement of claim, the Company claimed a declaration that these minutes of the Company be declared void on the ground that the corporate records were falsified:

(1)

the minutes of directors’ meetings of 1 September 2003 (there were two board minutes of this date and both were alleged to be forged, by these minutes Lam was appointed the sole legal representative of the Company with full authority to execute on its behalf any contract of Beijing K Vision and any agreement to amend the articles of association of Beijing K  Vision, full authority to negotiate and dispose of the Company’s shareholding and related rights in Beijing K  Vision, full authority to deal with Sino Science in finalising outstanding accounts, and full authority to deal with any loans to Beijing K Vision and the application of the proceeds as affecting the rights of the Company);

(2) & (3)

	the minutes of directors’ meetings on 8 May 2004 and 17  May  2004 (both have been mentioned in the earlier part of this Decision);
(4)	the minutes of directors’ meeting on 1 September 2004 (by which it was resolved to hold the 2004 annual general meeting on 30 September 2004); and
(5)	the minutes of the annual general meeting of 30 September  2004 (in which resolutions were passed adopting the audited accounts for the year ended 31 December  2003 and that Lam, Qu and Zhang were to continue in office as directors).

The Company also claimed an injunction to restrain Lam and/or Zhang from acting as directors, an order directing them to deliver all the books and records of the Company to Qu, and damages or equitable compensation for breach of fiduciary duty.

43.  It was alleged in the statement of claim that between September 2003 and December 2004, Lam utilised falsified corporate documents with intent to defraud the Company.  Armed with the authority in the forged board minutes, and without the knowledge of Qu, she purportedly entered into an undertaking on behalf of the Company dated 9 September 2004, by which:

(1)	Sino Science was released from its obligation under the share transfer agreement of 29 August 1995 to assign to the Company 6,000 sq m of the commercial premises of Celebrity Plaza; and
(2)	the Company acknowledged that Sino Science was entitled to pursue Beijing K Vision for repayment of the monetary consideration paid by Sino Science to the Company in excess of US$6.6 million for the transfer of 55% of the shares in Beijing K Vision.

It was alleged that the effect of the undertaking was extremely detrimental to the Company, as this would reduce to nothing the value of the Company’s interest in Beijing K Vision. 

44.  Lam and Zhang asserted in their defence that the action was not brought by the Company with the authority of the board of directors, and it was brought by Qu to stifle and obstruct their investigation into Qu’s own misdeeds.  The allegations of forgery were denied. 

45.  The ex parte injunction to restrain Zhang from acting as a director was continued by Deputy Judge Carlson at the inter partes hearing on 3 December 2004 and has since remained in force.

46.  On 8 December 2004, Lam and Zhang obtained an order for specific discovery against the Company to disclose, the accounts of the Beijing office of the Company from 1996 to 2004, and documents relating to transactions with Sino Science and other entities.  Qu filed an affirmation on 30 December 2004 deposing that the documents sought by Lam and Zhang were and have been kept in Lam’s custody throughout. 

47.  On 9 November 2005, an unless order was made requiring Lam and Zhang to file and exchange witness statements by 7 December  2005.  The checklist hearing before the Listing Master was adjourned to 16 February 2006. 

(2) HCA No. 2842 of 2004

48.  The next action is a derivative action brought by Lam and Zhang as minority shareholders for the benefit of the Company on 15 December 2004.  This is High Court Action No. 2842 of 2004.  The Company is the 1^st defendant and Qu the 2^nd defendant. 

49.  In the statement of claim, Lam and Zhang complained of the following matters, which are also the subject of complaints made in the recent draft amended petition of Lam in HCCW No. 1277 of 2004, save and except for the last of the complaints:

(1)  Between 1993 and 1995, Qu misappropriated a total of RMB325,000.00, US$6,900.00 and RMB5,548,360.00 from the Beijing branch office of the Company.

(2)  Between February 1997 and April 1998, without the authority of the board of directors, Qu purportedly borrowed in the name of the Company a total of RMB7,496,620.00 from Golden Horse.

(3)  Between May 1994 and May 1997, Qu purportedly received in the name of the Company the proceeds of sale paid by the individual sub-purchasers of Sunshine Plaza in the total sums of RMB726,197.48 and US$775,996.18 and pocketed the same for himself. 

(4)  On 22 December 1994, Qu caused the Beijing branch office of the Company to purchase paintings worth RMB3.5 million and kept them for himself.

(5)  Without the approval of the board, in November 1996, Qu caused the Company to guarantee the indebtedness of Hainan International Trust and Investment Co. Ltd. (“HITIC”), and in May 1998, he caused the Company to guarantee the indebtedness of Kinbond (H.K.) Ltd (“Kinbond”), for the payment of purchase price of units in Sunshine Plaza. 

(6)  During November 2003 to January 2004, Qu misappropriated the assets of the Company in the sum of RMB 1 million to an entity known as Qihui Cultural Development (北京其匯文化發展有限公司), of which he was a 35% shareholder. 

(7)  Qu forged the signature of Lam and caused the Company to enter into six agreements with Hainan Overseas Chinese Investors Company Limited (“Hainan Overseas”).  They were dated 26 March 1993 (for the sale to Hainan Overseas of about 77,000 sq m of premises in Sunshine Plaza); 27  August  1993 (to terminate the agreement of 26  March  1993 and to provide for repayment of US$11.5  million to Hainan Overseas within a year); October  1993 (to vary the payment obligations of the Company on termination of the agreement of 26 March 1993); an undated agreement made before June 1995 (Hainan Overseas to apply US$10 million towards the construction costs of Sunshine Plaza); 20  July  1997 (to confirm Hainan Overseas had received payment in full from the Company); and an undated agreement made after July 1997 (to confirm the agreement of 20 July 1997).  It was alleged that the net effect of these agreements was that HK$200 million were transferred out of the Company without commercial reasons.

(8)  In October and November 1996, Qu siphoned off assets of the Company, being 490,820,000 shares in Oriental Patron Holdings Limited (“OPHL”) and 20 units in Sunshine Plaza, to Well Done Investments Limited (“Well Done”) and Coston Investments Limited (“Coston”), which were companies controlled by him. 

(9)  During December 1997 to May 1998, Qu misappropriated the Company’s assets, being 17 units in Sunshine Plaza in the value of US$4,911,301.00, to settle the indebtedness owed by Oriental Patron Finance Limited (“Oriental Finance”) to an associated company of Kinbond known as Kinbond Group (中國農村發展信託投資(啟邦集團)有限公司).  OPHL was the ultimate beneficial owner of Oriental Finance and Qu was the majority shareholder of OPHL through his shareholdings of Well Done and Coston. 

(10) In December 2004, Qu wrongfully initiated arbitration proceedings in the name of the Company against Sino Science to terminate the co-operation agreement and to wind up Beijing K Vision. 

50.  Lam and Zhang claimed an injunction to restrain Qu from acting in breach of his fiduciary duties to the Company, from appointing additional directors chosen by him to the board, and from removing Lam and Zhang as directors of the Company; damages; an account of profits made by Qu as a result of his breaches and payment to the Company of the sums found due; and an order that Qu is to transfer 17% of the shares in the Company to Lam and account to her for the profits thereof. 

51.  On 15 December 2004, on the application of Lam and Zhang, an injunction was granted by Deputy Judge Carlson against Qu until the return date of the inter partes summons.  Qu was restrained from:

(1)  disposing of or diminishing the assets, documents, funds or any property of the Company without an order of the court;

(2)  holding an extraordinary general meeting on 16 December  2004 to appoint his appointees as additional directors; and

(3)  holding an extraordinary general meeting on 20 December  2004 to remove Lam and Zhang as directors. 

52.  At the hearing of the inter partes summons before Deputy Judge Poon on 21 December 2004, the injunction in (1) above was continued and has since remained in force.  As the dates for holding the extraordinary general meetings had lapsed by the time of the hearing, Lam and Zhang did not seek an injunction in terms of (2) and (3). 

53.  On 6 September 2005, an order for specific discovery was made against Qu on the application of Lam and Zhang to disclose documents similar to what was sought by them in HCA No. 2710 of 2004.  Qu made an affirmation referring to his affirmation in that other action filed on 30 December 2004 and repeating his assertion that Lam had brought all the documents of the Beijing office to Hong Kong when the office was closed for business in 2000.

54.  Witness statements are due to be exchanged.  The parties are also to appear before the Listing Master for setting down of the action for trial.

(3) HCCW No. 1277 of 2004

55.  On 17 December 2004, Zhang presented a creditor’s petition to wind up the Company.  The petition was founded on a demand for a debt of US$800,000.00 served on the Company on 25 November 2004.  Madam Chow, Golden Horse, and another company controlled by Madam  Chow, Golden Horse International Investment Limited (“Golden Horse International”) gave notices of intention to appear as supporting creditors.  Qu gave notice of intention to appear as opposing contributory.

56.  On 10 January 2005, Zhang issued a summons for appointment of provisional liquidators for the Company.  He filed a supporting affirmation on 17 January 2005 deposing that the Company is “hopelessly insolvent” and in view of Qu’s history of siphoning off the assets of the Company, there is an “urgent need” to appoint provisional liquidators to preserve and protect the assets for the benefit of its creditors and shareholders.  He also relied on the various affirmations made by Lam in HCA Nos. 2710 of 2004 and 2842 of 2004. 

57.  On 12 January 2005, Qu caused the Company to issue a summons to strike out the petition on the ground there is no reasonable cause of action, that it is scandalous, frivolous or vexatious, or is otherwise an abuse of the process of the court.  Qu disputed the existence of the debt alleged to be owed by the Company and claimed that Zhang had coerced him into signing a declaration on behalf of the Company in 2001 to acknowledge the assignment of the alleged debt to Zhang. 

58.  On 3 February 2005, Zhang issued a summons to appoint interim receivers for the Company, two days after similar applications were issued against the Company in four High Court actions mentioned below.  In his 4^th affirmation filed in support of this application, he referred to and relied on the affirmations in support in the High Court actions.  In his 5^th affirmation made on 5 February 2005, he alleged that Qu had applied to the Beijing authorities to halt the sale of units in Celebrity Plaza with an ulterior motive, namely, to pressure Sino Science to buy him out at an exorbitant price and as soon as possible.

59.  On 7 February 2005, Deputy Judge Poon adjourned Zhang’s applications for appointment of provisional liquidators and interim receivers, the Company’s application for striking out of the petition, and five applications in various other proceedings to dates to be fixed, with four days reserved.  Hearing dates in November 2005 were given. 

60.  About a month before the hearing, on 18 October 2005, Lam issued a summons to be substituted as petitioner in place of Zhang.  She made this tactical move as her locus as a registered shareholder to present a winding-up petition on the just and equitable ground cannot be disputed, unlike the case of Zhang.  At the hearing of this summons on 1 November 2005, Mr Johnny Mok, who appeared for Zhang and Lam, informed the court that Zhang would consent to withdrawal of his petition but asked for the petition to be kept alive for the purpose of Lam’s application for substitution, which is opposed by Qu and the Company.  On that basis, the Company’s application to strike out the petition was dismissed but Zhang was ordered to pay its costs.  The application for substitution was adjourned to be heard with the applications to be taken out by Lam for the appointment of provisional liquidators and interim receivers.  These summonses were issued by Lam on 3 November 2005.  In support of her applications, Lam relied on all the evidence hitherto filed by Zhang. 

61.  At the outset of the hearing on 1 December 2005, I made an order dismissing Zhang’s applications for appointment of provisional liquidators and interim receivers and provided that the costs of these applications are to be costs in the said applications of Lam. 

(4) to (9) HCA Nos. 2880 to 2884 of 2004 and HCA No. 2938 of 2004

62.  On 20 December 2004, Golden Horse and Madam Chow issued five writs against the Company and Qu. 

63.  In HCA No. 2880 of 2004, Golden Horse claimed against the Company RMB7,649,420.00, being loans made to the Company at Qu’s request from February 1997 to April 1998. 

64.  HCA No. 2881 of 2004 was brought by Golden Horse against Qu, claiming RMB2,790,000.00 and US$30,000.00 in respect of advances made between January 1997 to December 1998.

65.  HCA No. 2882 of 2004 was brought by Madam Chow against the Company for the outstanding balance of the advances she made between June 1995 and July 1995.  She claimed US$2,292,569.85 and HK$7,608,000.00. 

66.  HCA No. 2883 of 2004 was also brought by Madam Chow.  She claimed against Qu US$5.8 million, which should have been repaid within a year from May 1998.

67.  HCA No. 2884 of 2004 was brought by Madam Chow against the Company for a declaration that there is a valid and subsisting declaration of trust by which the Company holds 35% of its interest in Celebrity Plaza on trust for her and for consequential relief.

68.  On 23 December 2004, Golden Horse International issued a writ in HCA No. 2938 of 2004 against the Company claiming HK$1,400,150.00 and US$60,000.00 in respect of advances made from January 1997 to September 1997.  Default judgment entered against the Company in January 2005 was set aside on 13 September 2005 and the Company was given leave to defend.

69.  In January 2005, Golden Horse and Madam Chow applied for summary judgment against the Company in HCA Nos. 2880, 2882 and 2884 of 2004.  The applications were adjourned to be heard immediately after Qu’s applications to stay these actions on the ground of forum non conveniens. 

70.  On 1 February 2005, the respective plaintiffs in HCA Nos. 2880, 2882, 2884 and 2938 of 2004 issued 4 identical applications for appointment of receivers to the Company, on the ground that the Company is dissipating its assets and receivers should be appointed to preserve the assets in jeopardy.  In the supporting affirmations, the deponents referred to and relied on the evidence filed by Zhang in HCCW No. 1277 of 2004 in support of his application for provisional liquidators.

71.  On 7 February 2005, these applications in the High Court Actions also came before Deputy Judge Poon and were ordered to be adjourned and heard together with, inter alia, Zhang’s applications for appointment of receivers and provisional liquidators in HCCW No. 1277 of 2004. 

72.  On 15 November 2005, the solicitors for these plaintiffs wrote to Qu’s solicitors giving notice that their applications for appointment of receivers would not be proceeded with and that they would not appear at the hearing although they are still supporting creditors to the petition.  On 2 December 2005, I gave leave to these plaintiffs to withdraw their applications and ordered them to pay the costs of the Company in the applications. 

(10)  HCMP No. 3340 of 2004

73.  On 31 December 2004, Qu issued an originating summons under section 114B.  The respondents are Lam and Zhang.  He seeks an order to convene an extraordinary general meeting of the Company for the purpose of considering, and if thought fit passing as special resolutions the resolutions set out in the schedule. 

74.  On 7 February 2005, Deputy Judge Poon made an order to convene an extraordinary general meeting of the Company in respect of the resolutions to appoint solicitors for the Company and to ratify their authority in various legal proceedings brought by or against the Company or relating to the Company, upon Qu’s undertaking not to instruct the same solicitors to represent him personally in those proceedings.  The application to hold a general meeting to consider the remaining resolution in the schedule, which is for the appointment of three persons nominated by Qu (Zhang Li, Wang Ming Zhe and Liu Yun Ling) as additional directors of the Company, was adjourned to be heard with the applications in other proceedings in November 2005.

The application for substitution as petitioner

75.  I now turn to the applications I am concerned with in the hearing.

76.  Lam applied for substitution as petitioner in the winding-up proceedings as a registered shareholder and a creditor of the Company.  In the draft amended petition exhibited to her 1^st affirmation in HCCW  No.  1227 of 2004 filed on 15 October 2005 in support of this application, she seeks to wind up the Company on two grounds:

(1)  The Company is unable to pay its debts, under section 177(1)(d).

 It is alleged that the Company is indebted to Lam in the sum of HK$5,770,434.00, being the total of outstanding loans advanced by Lam to the Company from January 1996 to June  2003 and salaries due and owing to her by the Company from 1998 to 2001.  On 25 November 2004, Lam served a demand for the said debt under section 178(1)(a) at the registered office of the Company.  She relied on this deeming provision that the Company is unable to pay its debts as the demand was not complied with. 

(2)  It is just and equitable to wind up the Company, under section 177(1)(f).

It is alleged that Qu has abused his position as the person in control of the Company in that he used the Company’s assets and funds for his personal benefit in blatant disregard of the interests of the Company and its shareholders other than himself.  The matters complained of are the same as in the derivative action brought by Lam and Zhang in HCA No. 2842 of 2004, with an additional complaint that Qu wrongfully initiated arbitration proceedings in the name of the Company against Sino Science in December 2004.  It is asserted that the situation has become so intolerable that Lam has lost all trust and confidence in Qu and it has become impossible to conduct the business of the Company properly.  Hence, it would be just and equitable to wind up the Company.

77.  In support of her application, Lam referred to and relied on the affirmations filed in HCCW No. 1277 of 2004, HCA No. 2710 of 2004, HCA No. 2842 of 2004, HCMP No. 3340 of 2004 and HCMP No. 1607 of 2005 (being another originating summons issued by Qu against Lam and Zhang on 2 August 2005 under section 114B to convene a general meeting of the Company to appoint another firm of solicitors in lieu of the existing solicitors to act for the Company in various proceedings). 

78.  Mr Mok submitted on behalf of Lam that on the facts as set out in the draft amended petition and her supporting affirmation, at the very least, there is a prima facie case that Lam, as a creditor and registered shareholder, is entitled to present a winding-up petition and should be substituted as the petitioner. 

79.  On behalf of Qu, Mr Jat, SC advanced the following grounds in opposing the application:

(1)  there is no locus to present the petition on the just and equitable ground as there is no tangible interest in the Company being wound up;

(2)  there is a bona fide dispute of Lam’s debt on substantial grounds; and

(3)  Lam is acting unreasonably in seeking to have the Company wound up instead of pursuing other remedies available to her. 

80.  Mr Jonathan Wong, who appeared for the Company, took the position that Lam’s debt is subject to a bona fide dispute on substantial grounds and if the court should allow Lam to be substituted as petitioner, she should not be permitted to seek a winding up on the ground of insolvency and should be confined to the just and equitable ground.  

81.  The first ground advanced by Mr Jat may be disposed of quickly.  He contended that on Lam’s case, the Company is “hopelessly insolvent” and she has failed to identify in the draft amended petition any other tangible interest in having the Company wound up.  I do not agree with this. 

82.  The fact that the Company has no liquid funds does not mean it would have no assets.  Qu does not accept the Company is insolvent, he expects that the Company could share about HK$150 million to HK$200 million profits on a conservative basis, when the units in Celebrity Plaza are eventually sold.  Tangible interest is not restricted to a surplus of assets for distribution among the shareholders (Ng Yat Chi v. Max Share Ltd. & Anr. [2001] 1 HKLRD 561 at 578E to F).  The need for an investigation into the affairs of a company is of itself a sufficient advantage to justify the making of a winding-up order (Re Comtowell Ltd. [1998] 2 HKLRD 463 at 471C to 472F; Re China International Business Development (Hong Kong) Ltd., CACV No. 94 of 2005, 18 November 2005, paras. 17 to 23).  The allegations raised in the draft amended petition of abuse of position and misappropriation of Company assets by Qu, if established, would require investigation in the independent process which follows upon a winding-up order.

83.  Mr Jat contended in his third ground that Lam is acting unreasonably in seeking a winding-up order, as the commercial reality is that her shareholding is minimal and there are alternatives more appropriate to her than the draconian remedy of putting the Company into liquidation, such as an order to buy out her shares under section 168A or a derivative action (this has been brought by Lam and Zhang in HCA No. 2842 of 2004). 

84.  The fact that Lam’s shareholding is small is not a bar to her petitioning to wind up the Company if what she hopes to recover in the liquidation is likely to be appreciable in relation to the size of her shareholding (Bryanston Finance Ltd. v. de Vries (No. 2) [1976] 1 All ER 25 at 33f to g).  There is no or no serious offer from Qu to buy out Lam’s shares, just an assertion in his 4^th affirmation made on 18 November  2005 that he is “ready willing and able to buy out her shares in the Company by paying a reasonable sum according to the value of the Company”.  There would appear to be a lot of animosity and mistrust between them.  In the absence of clearly defined machinery as to the valuation of the shares and payment of the purchase price, it is not plain and obvious that the court would decline to make a winding-up order and leave Lam with the remedy of a buy-out of her shares.  As for the derivative action already commenced, I am not persuaded that the independent process of investigation consequent upon a winding-up order would not bring additional benefit to the creditors and shareholders. 

85.  This leaves the ground of the disputed debt.  Mr Jat and Mr  Wong pointed to a number of inadequacies in the evidence adduced by Lam and submitted that they cast doubt on the genuineness of the alleged debt.  The main inadequacies are as follows:

(1)  Lam stated that the debt of HK$5,770,434.00 in the draft amended petition (being the amount the Company owed her as at 31 December 2003) was made up of outstanding principal sums advanced to the Company of HK$3,242,436.00 and salaries owed to her of HK$2,515,800.00.  These two figures add up to HK$5,758,236.00, not the petitioning debt.  No breakdown was given of the two figures for the outstanding loans and salaries. 

(2)  There is a big difference between the monthly salary allegedly owed to Lam (HK$90,000.00 as from May 1994) and the monthly salary stated in the employer’s return for Lam for the financial year ended 31 March 1995 (HK$13,000.00).

(3)  Lam alleged that the accounts for the financial year ended 31 December 2003 had only reflected the wages owed to her for the years of 1998 to 2001, but not 2002 and 2003.  The reason she gave for not including the outstanding wages for these two years in the financial statements (because the Company was short of funds and Qu assured her she would be paid) is incredible. 

(4)  Lam merely gave a breakdown of the advances she had made to the Company during January 1996 to June 2003, being US$606,000.00 and HK$3,932,905.00, making a total of HK$8,647,585.00.  She did not mention the repayments made to her (Qu produced a document he retrieved from the Company’s records showing that HK$1,088,150.00 was repaid during May 2003 to February 2004) or the release of debt granted by her in 2001 of HK$5,980,296.00 (as recorded in a note of the audited accounts for the year ended 31 December 2001). 

86.  Qu also alleged that since late 1996, Lam had received substantial salary from Goodwill China Business Information Limited (“Goodwill”; which was at that time owned by Qu and others) and he speculated that the loans allegedly advanced by Lam to the Company were actually “movement of funds with Goodwill”, as he “cannot imagine where Lam could have obtained such large sums of money from her own resources”.  This is not something Qu can verify at the moment.

87.  On the available materials, I do not think the matters raised by Qu and the Company at present are sufficient to show that there is a bona fide dispute of Lam’s debt on substantial grounds.  I have taken into account these matters:

(1)  It would appear that a running account was maintained by Lam with the Company.  It would be better if Lam had provided a breakdown of the salaries allegedly owed to her from 1998 to 2001 and the repayments made to her, and had shown the effect of the release of debt granted by her in 2001.  For present purpose, it is sufficient to show that the petitioning debt of HK$5,770,434.00 had been audited by the Company’s auditors in the financial statements for the year ended 31 December 2003. 

(2)  On Qu’s own case, Lam’s salary was “at most HK$50,000.00 including accommodation provided by the Company”, so the different figure stated in the employer’s return for salaries tax is neither here nor there. 

(3)  There is no evidence from Qu that Lam had continued to receive salary from the Company after 1996 or that she was not entitled to receive such salary.  He only stated that Lam received substantial salary from Goodwill since late 1996.

(4)  Lam has disclosed documents relating to her bank account such as pay-in slips, customer’s advices, withdrawal forms, and transfer application forms for most of the amounts allegedly advanced to the Company.  In one of the few instances where there is no supporting bank document, she produced an IOU signed by Qu on behalf of the Company on 15 October 2001 for the loan of HK$600,000.00. 

(5)  The Company and Qu are not able to demonstrate at present that no amount is owing to Lam, after taking into account the repayments of HK$1,088,150.00 and the release of debt in 2001.  The fact that the precise sum of the debt is in dispute is insufficient not to allow a petition to proceed, so long as there is a debt in existence that would otherwise entitle the petitioning creditor to a winding-up order (Re Tweeds Garage Ltd. [1962] Ch 406). 

88.  That being the view I have reached, it is not strictly necessary to deal with Mr Mok’s argument premised on the dicta of Goulding J in Holt Southey Ltd. v. Catnic Components Ltd. [1978] 2 All ER 276 at 280e to 281a.  Mr Mok contended that once it is established that a petitioner has locus to present a winding-up petition in whatever capacity (as a registered shareholder, for instance), he should be allowed to present his petition on whatever ground he chooses (whether it is on the ground of insolvency or on the just and equitable ground), even though the petitioning debt may be the subject of a bona fide dispute, and it should be left to the court hearing the petition to determine the validity of any allegations that may be made in the petition. 

89.  I have reservations about the correctness of this argument.  The relevant dicta in Holt Southey were said in the context of the exercise of the jurisdiction of the High Court in granting an injunction to restrain the presentation of a petition in the Companies Court, and the judge was “very loath” to extend the scope of this kind of proceedings where the High Court seeks to control proceedings in the Companies Court (at 280a to b and f to g).  The present application for substitution is before the court seized with the hearing of the petition.  It makes no sense at all that this court should not “weigh up and decide by its own process all the allegations that may be made in the petition” and disallow a petition to proceed on grounds that are plainly unsustainable or would amount to an abuse of the process of the court. 

90.  For the reasons given above, I grant the application of Lam to be substituted as petitioner in the place of Zhang, and leave to amend the petition as per the draft exhibited to her 1^st affirmation.

The appointment of provisional liquidators

91.  The broad guiding principles governing the general power of the court to appoint provisional liquidators are not in dispute.  Firstly, the applicant must make out a good prima facie case or a reasonable prospect that a winding-up order will be made.  Secondly, it must be shown that in the particular circumstances it is right that a provisional liquidator should be appointed.  This question is to be decided on the basis of commercial realities, the degree of urgency and need established by the applicant, the balance of convenience according to the circumstances, and where any other good cause is shown.  It is inappropriate to limit the exercise of this power by restricting it to fixed categories or classes of circumstances or fact, as commercial affairs are complex and circumstances will vary greatly (Re Union Accident Insurance Co. Ltd. [1972] 1 All ER 1105 at 1109h and 1110 a to b; Re Five Lakes Investment Co. Ltd. v. Multiford Co. Ltd. [1985] HKLR 273 at 284A to B; Australian Securities Commission v. Solomon & Ors. (1996) 19 ACSR 73 at 80). 

92.  With regard to the establishment of a good prima facie case, Lam is required to show, by believable evidence, facts which are not disproved at the present stage and which, if eventually proved at the hearing of the petition, would entitle her to a winding-up order.  The court should look at the evidence put in by all parties and form a provisional view if there is a reasonable prospect that the petition might succeed.  Any conflict of evidence should be left to be resolved at the hearing of the petition (Re Boldwin Construction Co. Ltd. & Ors. [2003] 2 HKLRD 237 at 247A to D). 

93.  Having regard to the views I have reached on the application for substitution, I am inclined to think that Lam has shown a good prima facie case for a winding-up order based on the ground of her alleged debt.  As for the allegations relied on to wind up the Company on the just and equitable ground, I form the provisional view that Lam has also made out a good prima facie case.  Mr Jat and Mr Wong did not advance any argument here in addition to their contentions in opposing the application for substitution. 

94.  I turn to the grounds put forward by Lam for the appointment of provisional liquidators.  They may be summarised as follows:

(1)  The assets of the Company are in jeopardy.  Lam relied on her allegations in the derivative action and the draft amended petition that there was abuse of position by Qu and that he had siphoned off Company assets which have remained unaccounted for.  The total amount involved in the three sets of transactions concerning the transfer of 20 units in Sunshine Plaza to HITIC to set off against the price for the OPHL shares, the transfer of 17 units in Sunshine Plaza to Kinbond Group to repay the debts of Oriental Finance, and the borrowing and drawing of monies not recorded in the Company’s accounts would amount to approximately HK$200 million.  The explanations provided by Qu to these allegations are unsustainable and full of inconsistencies.  There are suspicious circumstances regarding the profit of US$20 million (before tax and expenses) made by the Company in Sunshine Plaza, which Qu disclosed for the first time in his 2^nd  affirmation in HCCW No. 1277 of 2004 filed on 25  February 2005, and the US$20 million which Po Lee allegedly paid as purchase price to the Company’s Beijing bank account.  If provisional liquidators were not appointed, Qu would be in a position to deplete the Company of whatever assets remaining out of the reach of creditors.

(2)  The past behaviour of Qu and his serious mismanagement have left one with no confidence that the affairs of the Company would be properly conducted with due regard to the interests of creditors and shareholders.  This gives rise to justifiable concern that the Company’s assets should not be allowed to remain under his control and provisional liquidators should be appointed to safeguard the interests and assets of the Company and to maintain the status quo until the disputes are resolved. 

(3)  Qu has brought arbitration proceedings purportedly on behalf of the Company against Sino Science and others to wind up Beijing K Vision and to seek a distribution of its assets on liquidation.  Once the assets are distributed, the Company’s interest in Celebrity Plaza would be out of reach of its creditors.  There is a possibility that Qu may sell such assets, or the Company’s interest in Beijing K Vision, at an undervalue to generate cash for himself.  Provisional liquidators should be appointed to ensure that Qu would not be able to get hold of the assets once the award in the arbitration is made.

(4)  Numerous proceedings are now on foot in Hong Kong and in the Mainland between the Company and its creditors, as well as its directors, involving allegations and counter-allegations.  There is an urgent need for these proceedings to be assessed and handled by independent provisional liquidators, as there is a conflict of interest between Qu and the Company and Qu is not an appropriate person to represent the interest of the Company.  Of particular importance is the pending action in the Beijing Intermediate People’s Court brought by the China Construction Bank (“the CCB”), which had taken over the rights of Kinbond Group, against Oriental Finance, Golden Horse, the Company, and others, seeking a transfer of 17 units in Sunshine Plaza pursuant to an agreement between Kinbond Group and Oriental Finance on 31 December 1997 and a memorandum between Oriental Finance and the Company in December 1997. 

(5)  Qu has made conflicting statements in his affirmations if the Beijing branch office of the Company was in operation after 2000.  He has disclosed just a few documents when he was ordered to give discovery, claiming that he is no longer in possession of documents because of the time lapse or the closure of the Beijing branch office.  But when it suited his purpose, Qu has managed to locate further documents, as for instance the documents relating to the transactions with Hainan Overseas.  There is an urgent need for an independent officer of the court to be appointed to investigate fully the numerous wrongs of Qu and the complex transactions involving the Company and to take immediate action against Qu and other responsible parties if appropriate, as Qu is seeking to rely on a limitation defence.

95.  Voluminous evidence has been filed in this hearing.  I have had very detailed written submissions from all counsel on the allegations and counter-allegations, supplemented in their oral arguments.  The allegations are not one way, Qu also levied allegations of fraud, forgery and other instances of impropriety against Lam and Zhang, which I have set out in the earlier parts of this decision.  Given the gravity of the allegations, the seriously conflicting evidence, the complexity of the transactions and the numerous allegations of forgery on both sides, it would not be a fruitful exercise to subject the evidence adduced on affirmation to a close and searching analysis, as counsel has asked me to do, without the benefit of cross-examination and expert evidence.  Nor would it be appropriate to form any view as to the wrongs alleged by or against the Company in respect of its dealings with Sino Science, Far East Petroleum and Golden Horse, as the evidence is far from complete as matters stand at present.  I do not propose to set out the submissions made to me save to say that I have considered them and I do not think I can say at this stage that the explanations proffered by Qu must all be treated as suspect or that they are patently unreliable. 

96.  Moreover, the allegations against Qu are all tied up with the underlying disputes between the parties in the derivative action and the draft amended petition, dating back to the time when the Company was incorporated in 1992.  It is neither possible nor appropriate to attempt to resolve the sharp conflicts in evidence in this application.  I decline to draw any firm inference one way or other. 

97.  Besides, the allegations are largely matters of history.  Almost all of the allegations regarding the dissipation of Company assets took place in the 1990s, save for the alleged misappropriation of assets in favour of Qihui (which allegedly took place during November 2003 to January  2004).  Other than the allegations of past misconduct, Lam can only point to the unsubstantiated allegation based on hearsay that Qu is offering to sell the Company’s assets in Beijing at fire sale prices to back up her assertion that assets are in jeopardy.  I note there is already an injunction in place against Qu made in HCA No. 2842 of 2004 granted on 15 December 2004, restraining him from disposing of the assets of the Company pending trial of the derivative action.  It does not seem to me that the risk of dissipation of assets is particularly strong, and I see no urgency for an independent investigation to be carried out right away, instead of deferring this until a winding-up order is to be made.  As for the limitation defence raised by Qu to some of the claims, Lam and Zhang has already brought a derivative action against Qu. 

98.  The Company is not in active business.  It has taken part in two property projects only.  As far as Sunshine Plaza is concerned, the final accounts with Golden Horse would take time to be sorted out.  Golden Horse and Madam Chow have resorted to litigation with the Company and Qu in Hong Kong.  As for the action brought by the CCB in Beijing, that was commenced in November 2003.  The trial originally scheduled to take place on 18 January 2005 was adjourned to 9  September  2005.  Qu attended that hearing in September for the Company.  The parties are waiting for the judgment of the court after the hearing.  Regarding the action brought by Po Lee against the Company and Golden Horse, this ended with the appeal being dismissed in March 2002 and the judgment of the court below in favour of Po Lee was upheld.  The compensation ordered by the court has not been paid to Po Lee to date.

99.  As for Celebrity Plaza, the Company’s interest is held through its minority shareholding in Beijing K Vision.  It is not clear if the sale and leasing of units, apparently suspended in December 2004 at Qu’s initiation, has been re-activated.  Even if it has, Qu does not have control over the business of Beijing K Vision.  In June 2004, Lam removed Liu Yun Ling and Zhang Li, who were appointed to the board by Qu, as directors of Beijing K Vision and appointed her nominees, Madam Li Congying and Madam Li Ning in their place.  She appointed Madam Li Congying in the place of Liu Yun Ling as the chairman of the board of directors and the legal representative.  In July 2004, the constitution of Beijjing K Vision was altered to provide that Sino Science instead of the Company is to appoint the chairman of the board of directors.  The board of directors has been under the control of Sino Science. 

100.  In respect of the arbitration brought by Qu on behalf of the Company against Sino Science, Far East Petroleum and Zhu Zong, at a hearing on 25 July 2005, the arbitration tribunal has ordered that an independent auditor be appointed to audit the accounts of Beijing K Vision.  At the time of the hearing before me, the audited accounts have not been published.  It is not known when the tribunal will publish the award.  I am inclined to agree with Mr Jat that even after the award is published, it would probably take quite some time for the matter to be resolved with the recourse to an appeal and the difficulty that may arise in enforcement. 

101.  I agree with the submissions of Mr Jat and Mr Wong that Lam has not made out a sufficient case to show that the assets of the Company are in jeopardy.  It seems to me the reason for the application may well be a strategic move to wrest control of the Company from Qu, not so much to protect assets in jeopardy or for any of the other reasons advanced on Lam’s behalf.  When the timing of the previous applications made by Zhang for provisional liquidators and interim receivers is considered with the applications made against the Company by other parties in other proceedings, it is hard to avoid drawing the inference that the legal actions in Hong Kong are all part of a concerted move against the Company and Qu.  It is difficult to explain otherwise why legal proceedings in respect of wrongs allegedly done in the 1990s were brought against the Company at more or less the same time in late 2004 and early 2005.  I am not persuaded there is a real need for urgent intervention of the court.  The balance of convenience does not lie in favour of appointing provisional liquidators.  I dismiss this application.

The appointment of interim receivers

102.  Similar considerations apply for the application to appoint interim receivers, although the test is slightly different.  The approach here is similar to an application for an interlocutory injunction (Chinese United Establishments Ltd. v. Cheung Siu Ki [1997] 2 HKC 212 at 223E).  The applicant must first satisfy the court there is a serious issue to be tried, and if so, whether financial compensation would provide an adequate remedy; if not, the court should go on to consider whether the balance of convenience lies in favour of or against the appointment of interim receivers. 

103.  In lieu of the powers initially sought for the receiver in the summons, Mr Mok has provided a draft spelling out the specific powers for the receiver and they are limited to three aspects:

(1)  to ascertain the whereabouts of the Company’s assets and to take appropriate action and proceedings to recover, take possession of, or collect the same;

(2)  to take possession of and collect any assets which may be awarded to the Company as a result of legal proceedings or arbitration proceedings; and

(3)  to defend the proceedings brought against the Company by the CCB. 

104.  For the reasons I have given earlier, I am not satisfied that a sufficient case is made out of a real risk of dissipation of assets.  That is enough to dispose of the application.  Besides, as I have noted, there is already an injunction in place against Qu to restrain him from disposing of the assets of the Company pending trial of the derivative action.  I am not persuaded that an injunction may not hold the position satisfactorily to justify the need for this intrusive and expensive form of relief. 

105.  Last but not least, I do not think the undertaking as to damages offered by Lam is sufficient in the context of this particular case.  The only securities she is prepared to offer to back up her undertaking as to damages are her shares in the Company (she is a registered shareholder as to 3% of the shares), the debt the Company allegedly owed her (in the sum of HK$5.7 million) and a property in Kornhill, Hong Kong which is unencumbered and said to be worth HK$4 million. 

106.  I also dismiss the application of Lam to appoint interim receivers.

The appointment of additional directors

107.  This is the remaining matter to be disposed of, and this is in HCMP No. 3340 of 2004. 

108.  Qu contended that it is necessary to appoint additional directors to the Company because of a stalemate in the board, which is made up of himself and Lam; Zhang is restrained by the order of Stone J in HCA No. 2710 of 2004 from acting as a director pending the trial of the action.  Lam is a minority shareholder and there is no express allegation that she should enjoy equal voting power with Qu on the board.  The allegation in the draft amended petition is that it was expressly agreed between Lam and Qu that both would be directors of the Company so as to participate in the business development and to safeguard the interest of each in the Company.  By a letter dated 24 December 2004 from the solicitors of Lam and Zhang to the solicitors of Qu and the Company, it was stated that Lam and Zhang “remain firmly opposed to any attempt to hold other purported meetings and to pass any purported resolutions thereat that may affect the constitution of [the Company’s] existing board of directors…”. 

109.  Section 114B of Cap. 32 provides that the court may order a meeting to be convened and held if it is “impracticable to call a meeting of the company in a manner in which meetings of the company may be called”.  Article 8 of the articles of association requires a quorum of two members present in person or by proxy for the transaction of business at any general meeting.  Plainly, the quorum requirement cannot be satisfied without the co-operation of Lam.

110.  The court has a discretion to exercise whether to convene a general meeting under section 114B in this situation.  The existence of a petition seeking relief on the basis of unfairly prejudicial conduct does not necessarily prevent the court from exercising its discretion to convene a meeting under this provision in an appropriate case (Re Whitechurch Insurance Consultants Ltd. [1993] BCLC 1359 at 1362a to g).

111.  Qu is willing to offer an undertaking that pending the outcome of the petition in HCCW No. 1227 of 2004, Qu and the additional directors appointed will not exercise their rights to remove Lam and Zhang as directors, or interfere with Lam in her day to day conduct of the business of the Company, or effect any alteration in the constitution or capital of the Company, along the lines of the undertaking required in Re Sticky Fingers Restaurant Ltd. [1992] BCLC 84 at 90b to d.

112.  Mr Jat submitted on behalf of Qu that the Company cannot function without an effective board at the moment and the board can no longer remain in stalemate as there are these serious matters to pursue in the Mainland:

(1)  the arbitration proceedings brought by the Company against Sino Science

Audited accounts of Beijing K Vision are awaited from the independent auditor appointed by the arbitration tribunal on 25  July 2005.  It was contended that it would be in the interest of the Company to have a functioning board to deal with “on-going matters” arising from the arbitration.

(2)  the action brought by the CCB against the Company and others

Judgment is awaited from the court in Beijing after the case was heard on 9 September 2005.  It was contended that once judgment is delivered, instructions would have to be given to lawyers to consider the next step for the Company, including the taking of the final accounts in relation to Sunshine Plaza, so a board meeting would have to be convened to appoint legal representatives for the CCB action.

(3)  the final accounts of Sunshine Plaza

The final accounts of Sunshine Plaza have not been completed due to the dispute of the Company with Golden Horse and the refusal of the latter to pay to Po Lee the compensation ordered by the court in Beijing.  It was contended that if Golden Horse should persist in its refusal to pay compensation to Po Lee, the Company would have to commence arbitration proceedings against Golden Horse and that is another matter that the board would have to attend to once Po Lee has completed its enforcement proceedings against Golden Horse in respect of the unsatisfied judgment.

113.  It would be seen that these are essentially the same matters that I have considered in the application for the appointment of provisional liquidators and I have arrived at the view that they do not warrant urgent intervention by the court. 

114.  On behalf of Lam and Zhang, Mr William Wong submitted that the discretion should be exercised against convening a general meeting.  There is evidence before the court that oppressive or unfairly prejudicial conduct might result, if the resolution is passed appointing additional directors and the board is under the control of Qu.  The possibility that this might result is a matter that the court would take into account in the exercise of its discretion, as the court would not lend its aid to the commission of any acts that would be unfairly prejudicial to any shareholders (Re Success Plan Ltd. [2002] 3 HKLRD 560 at 568I to 569C). 

115.  Mr Wong further submitted the court should take into account the express agreement and understanding alleged by Lam (this is disputed by Qu) that both would become and remain directors so as to participate in the business development of the Company and to safeguard each party’s interest.  If additional directors were appointed, this would disturb the balance of powers on the board and override the agreement and understanding reached between the parties on the joint management and control of the Company.  In support of this, he cited Mansfield Coatings Ltd. v. Springfield Coatings Ltd. & Anr. [1995] 1 HKC 74 at 78D to F and 79A to B and Re Rich Treasure Enterprises Ltd. [2001] 3 HKLRD 769 at 771H and 772A to B; Harman & Anr. v. BML Group Ltd. [1994] 2 BCLC 674 at 679i to 680a.  He submitted that the status quo should not be disturbed by appointing additional directors who would be allies of Qu.  Lam has not indicated that she would refuse to attend any meeting which is not for the purpose of altering the composition of the board.

116.  I am inclined to agree with Mr Wong.  It is immaterial that by the proposed undertaking, Qu would not seek to remove Lam and Zhang as directors, as with the votes of the additional directors, Lam’s voting power on the board would in effect be reduced to nothing.  Even though there is no allegation Lam should have equal voting right on the board, her voting right should not be rendered meaningless such that she would not be able to safeguard her interest in the Company, which was the agreement and understanding alleged by her.  The Company has ceased to have active operations.  As for the litigation and arbitration in the Mainland, the outcome of the deliberation of the tribunals in both matters is pending, it does not seem to me that it is necessary to have an effective board to handle any matters arising, as, after all, the litigation and arbitration have proceeded to the stage of judgment without an effective board in place.  There is no evidence of any or any significant disadvantage suffered by the Company in this process.  I am not persuaded that it is right and desirable in all the circumstances to exercise my discretion to convene a general meeting to enable additional directors to be appointed.  I dismiss this application of Qu.

Orders

117.  These are the orders I make in respect of the four applications and the orders on costs, which will all be orders nisi. 

118.  On Lam’s application for substitution as petitioner, I order that Lam is to be substituted as the petitioner in the place of Zhang, leave is given to amend the petition as per the draft annexed to her summons, and the amended petition is to be filed and served within 7 days hereof.  I have previously ordered that the petition is to be restored for hearing on the first Monday after the determination of the present applications.  Lam’s costs of the application, up to and including the costs of the hearing on 1  November  2005, will be costs in the cause of the amended petition.  As for her costs of the hearing on 1 and 2 December 2005, I order Qu and the Company to pay such costs in any event.  I will certify the application as fit for two counsel and apportion the costs of the application at one-quarter of the costs of the hearing. 

119.  On Lam’s applications for appointment of provisional liquidators and interim receivers, I dismiss both applications.  I order Lam to pay the costs of Qu and of the Company in any event, including the costs reserved by Deputy Judge Poon on 7 February 2005.  I will certify the applications as fit for two counsel.  I will apportion the costs of these applications at half of the costs of the hearing on 1 and 2 December 2005.

120.  On Qu’s application to convene an extraordinary general meeting to pass various resolutions, he has succeeded in part in that an order was made by Deputy Judge Poon on 7 February 2005, the costs of which hearing were reserved.  I see no reason why Qu should not have the costs of that hearing.  As for the balance of the application, which relates to the resolution for the appointment of additional directors, I refuse the application to convene a general meeting to consider this resolution.  Costs of the balance of the application should follow the event.  Qu is to pay the costs of Lam and Zhang in this regard, including the costs reserved by Deputy Judge Poon on 7 February 2005 for this part of the originating summons.  I will certify the matter as fit for two counsel and I apportion the costs of this application at one-quarter of the costs of the hearing on 1  and 2 December 2005.