THE OFFICIAL RECEIVER v. WONG PING KUEN

HCMP 897/2020

[2021] HKCFI 1735

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 897 OF 2020

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J U D G M E N T

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1.  There are 2 applications before the Court:

(1)     The Summons dated 23 June 2020 issued by the Official Receiver (“OR”) under ss 168H and 168I of the Companies (Winding-Up and Miscellaneous Provisions) Ordinance (Cap 32) (“CWUO”) for a disqualification order against the Respondent, Mr Wong Ping Kuen (“OR’s Summons”); and

(2)     The Summons dated 20 May 2021 issued by the Respondent under s 168D(1) of the CWUO for leave to act as director of Bespark Technologies Engineering Limited (“Bespark”) during the disqualification period (“Respondent’s Summons”). 

2.  In respect of the OR’s Summons, the parties agreed to dispose of it by way of Carecraft procedure.  For this purpose, a “Statement of Facts not in dispute for the purpose of a Carecraft settlement as between the OR and the Respondent” was filed on 5 May 2021 (“Statement”). A copy of which is appended to this Judgment.

3.  It is well established that under Carecraft procedure, the Court is not entitled to make findings upon materials other than the agreed facts (SFC v Ho Yik Kin Norman, HCMP 3392/2013, 9 October 2014, per Godfrey Lam J, §2).  The procedure would not oblige the Court to make a disqualification order and would not bind the judge to the period of disqualification to be imposed (Official Receiver v Wong Kwan Pui [2002] 3 HKLRD 805, §3, per Kwan J (as she then was)).

4.  It is for the Court to decide whether a disqualification order should be made based on the agreed facts, and if so, for what period.  The judge can in his discretion consider a wide range of matters in mitigation, while adhering to the 3-tiered division (“not very serious”, “serious” and “particularly serious” cases) in the range of periods of disqualification set out in Re Sevenoaks Stationers (Retail) Ltd [1990] BCC 765 (Official Receiver v Chan Min Simon, HCMP 6570/2000, 26 August 2002, §§12, 15, perYuen J (as she then was)).

Background

5.  The following facts and matters are taken from the Statement or those parts of the affirmation of the Respondent dated 20 August 2020 (“R’s Aff”) which are not disputed by the OR.

6.  J.V. Fitness Limited (“Company”) was incorporated in Hong Kong in November 1995.  Until cessation of its business on 12 July 2016, the Company engaged in the business of operating fitness centres[1].   

7.  The Respondent is the sole shareholder and director of Bespark[2], which carries on business in providing engineering and renovation services to customers.  The Company was one of the customers of Bespark[3]. 

8.  The Respondent was a director of the Company from 15 December 2015 to 5 May 2016.  Despite his resignation, the Respondent continued to act as de facto director and Chief Executive Officer of the Company until provisional liquidators were appointed on 13 July 2016[4].  As such de facto director, the Respondent was responsible for the Company’s business operation, financial affairs, and employment of senior personnel and decision making.  He was the sole signatory of the Company’s bank accounts and, hence, could decide whether and when wages were to be paid to the Company’s employees[5]. 

9.  According to the Company’s accounting records, as at 30April 2016 and 31 May 2016, the Company had net liabilities of HK$240,406,415 and HK$246,882,704 respectively[6].

10.  The winding up proceedings in respect of the Company was commenced by the petition presented by Bespark on 27 June 2016 under HCCW 209/2016.  This was followed by an application for appointment of provisional liquidators on 13 July 2016, which was supported by an affirmation made by the Respondent on behalf of Bespark.  The Company was wound up by the Court on 23 November 2016[7].

The impugned conduct

11.  The OR complains, and the Respondent accepts, that the following conduct on the part the Respondent justifies a disqualification order to be made against him.

12.  First, the Respondent failed to ensure due payment of wages to the employees of the Company in accordance with ss 23, 25(1), 63C and 64B(1) of the Employment Ordinance (Cap 57).  As a result,  the Protection of Wages on Insolvency Fund Board had to pay ex-gratia payments of HK$17,624,772.96 to 550 former employees of the Company.  The Labour Department had issued 101 summonses against the Respondent in respect of his failure to ensure due payment of the wages during the period from 1 May 2016 to 30 June 2016, and the Respondent pleaded guilty to all those summonses and was fined HK$202,000 and made restitution of HK$379,451.46[8].

13.  Second, the Respondent failed to ensure due payment of MPF contributions in accordance with ss 7(1), 7A(1)-(2), (8) of the Mandatory Provident Fund Schemes Ordinance (Cap 485).  The MPF Schemes Authority had lodged proof of debt in the amount of HK$2,041,941.46 in respect of the outstanding MPF contributions concerning 700 former employees, 13 of whom were outstanding during the period from March to May 2016[9]. 

14.  Third, the Respondent allowed the Company to continue to trade and operate while it was insolvent.  When the Respondent joined the Company in December 2015, the Company already had net liabilities and net current liabilities in excess of HK$359 million and HK$328 million respectively.  The Respondent accepts that he allowed the Company to trade including to sell new membership to the public when he knew that there was no reasonable prospect that the Company could avoid insolvent liquidation such that the Company would not be able to fulfil the terms of the membership[10].

15.  Fourth, the Respondent caused the Company to repay a total sum of HK$10,204,100 to Bespark during the period from 14 – 21 June 2016 when the Company was insolvent[11].

16.  Fifth, the Respondent failed to keep minutes books as required by s 619 of the Companies Ordinance (Cap 622)[12]. 

17.  Sixth, the Respondent failed to update the register of directors and secretaries as required by ss 641 and 648 of the Companies Ordinance (Cap 622)[13].

Proposed order

18.  In light of the agreed facts set out above, the OR submits, and the Respondent accepts, that the Court can be satisfied as to his unfitness to be concerned in the management of a company and that it would be appropriate to make a disqualification order against him for 3 years[14]. 

19.  The Respondent also agrees that he should pay the OR’s costs of the proceedings in the agreed sum of HK$100,000 within 14 days of the order to be made by the Court[15].

Period of disqualification

20.  On the basis of the agreed facts, this Court is satisfied that the Respondent’s conduct has fallen below the standard of probity and competence one would expect of a director and that the conduct is sufficiently serious to warrant a disqualification order (cf. Re Copyright Ltd [2004] 2 HKLRD 113, §§29-30, perKwan J (as she then was)).

21.  Mr Alan Kwong, counsel for the OR, submits that the Court should be guided by the principles set out in Re Citrend Services Ltd [2008] 5 HKLRD 279 §§22-25 where by Cheung JA said this:

“(4) Approach to length of disqualification

22. The decision to disqualify is not a discretion but the period of disqualification within the statutory period of minimum one year and maximum of 15 years under section 168H (4) is a matter of discretion. It must reflect the gravity of the offence. It must contain deterrent elements.

23. The approach is to fix the period of disqualification by starting with an assessment of the correct period to fit the gravity of the conduct, and then allowing for mitigation factors.

(5) Three categories of length of disqualification

24. Regard may be made to the three broad categories of length of disqualification:

(1) The top bracket of disqualification for periods over ten years should be reserved for particularly serious cases. These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again.

(2) The minimum bracket of two to five years’ disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious.

(3) The middle bracket of disqualification for from six to ten years should apply for serious cases which do not merit the top bracket.

(6) Relevant factors

25. There is no precise or exhaustive test but the following are relevant:

(1) Is the director likely to offend again?

(2) His general ability.

(3) His conduct as a director.

(4) His age and state of health.

(5) The length of time he has been in jeopardy.

(6) Whether he has admitted that his conduct renders him unfit to be a director.

(7) The length of disqualification of his co-directors.”

22.  The OR draws the Court’s attention to the following mitigating factors in favour of the Respondent[16]:

(1)  The downfall of the Company was attributed to the aggressive marketing strategies pursued by the former management of the Company, which was not the responsibility of the Respondent. 

(2)  The Respondent had no prior experience in running fitness centres and he had entrusted specific employees to oversee the daily operation and book-keeping matters.

(3)  The Respondent has suffered significant loss as a shareholder and investor of the Company including the HK$20 million he injected into the Company to enable it to pay the employees’ wages during the period from 24 December 2015 to 17 May 2016. 

(4)  The Respondent has already been fined and he provided restitution of HK$379,451.46 to the Company. 

(5)  The Respondent has been the sole shareholder and director of Bespark for more than 15 years.  Bespark has 128 employees and is financially stable and healthy. 

23.  The Official Receiver takes the view that a disqualification period of 3 years is a sufficient and proportionate period in the circumstances of this case. 

24.  Mr Jose Maurellet SC (leading Mr Leo Wong), counsel for the Respondent, submits that in addition to those matters identified by the OR, there are the following mitigating factors which the Court may take into account in deciding the appropriate period of disqualification:

(1)  The Respondent only acted as director of the Company for about 6 months;

(2)  The Respondent was not the cause of the Company’s downfall, and its problematic business model and insolvency pre-dated his involvement;

(3)  The Respondent did not make any gain from his involvement in the Company and was a victim himself in that he had both purchased shares in the Company (and sold at a loss) and injected HK$20 million to salvage the Company; and

(4)  The OR does not suggest any dishonesty on the part of the Respondent. 

25.  In my judgment, taking into account the following matters, the appropriate period of disqualification is 2 years:

(1)  Although the Respondent’s conduct as director and de facto director of the Company has fallen short of the standard one would expect of a director, his conduct is not and cannot be said to be very serious. 

(2)  The Respondent’s acts in trying to salvage and turn around the financial position of the Company by injecting fresh fund into the Company (albeit unsuccessful in the end) and subsequently causing Bespark to commence winding up proceedings in respect of the Company and appoint provisional liquidators to take charge of the Company were responsible acts taken for the benefit of the Company and the creditors as a whole. 

(3)  The Respondent readily admit the allegations made by the OR and agrees to dispose of the proceedings by Carecraft procedure, thereby saving much time and costs of the OR and the Court’s time. 

(4)  The other mitigating factors advanced by the OR and Mr Maurellet.

Respondent’s Summons

26.  Mr Maurellet relies on The Official Receiver v Chan King Hang Danvil & anor, HCMP 1202/2010 & HCMP 1278/2010, 7 September 2011, where Harris J made a disqualification order of 3 years in respect of one of the respondents (at §38) and gave leave to him to act as director of Billion Asia, a private company with nominal capital which provided simple secretarial and book keeping services, on the grounds that (1) Billion Asia was the respondent’s sole source of income; and (2) the misconduct which resulted in the disqualification order did not sufficiently call into question his ability to run Billion Asia to justify preventing him from being one of its directors (alongside with his wife) and continue to run it as he had done (§§40-41).

27.  Mr Maurellet submits that while the Respondent’s acquisition of the shares in the Company proved to be a mistake both as an investment and as something the Respondent had the ability to manage properly, there is no suggestion by the OR that the Respondent has not been able to manage his own engineering business profitably or properly.  As in the case of Chan King Hang Danvil, this is not a case where public interest requires that he should be prevented from being a director of Bespark. 

28.  Mr Kwong submits that the Respondent may not go behind the facts set out in the agreed facts for the Carecraft procedure, unless the Court requires amplification or clarification (Secretary of State for Trade & Industry v Collins & Ors [2000] 2 BCLC 223, 225a (headnote (2)), 235f-h, 236e-f, per Judge LJ).  Read in its proper context, Judge LJ held that it is not properly open to a respondent to re-open or re-argue facts agreed in the Carecraft statement, which must be right. This does not mean and cannot be taken as the court expressing an impediment on the scope of the facts and matters which can be relied on by the respondent in support of an application for permission to act as director during the period of disqualification.   

29.  Other than the above, the OR takes a neutral stance and makes no submissions on the application.  This is despite the OR’s stance that the conduct of the Respondent is sufficiently serious to warrant a disqualification order in the public interest.  When asked by this Court on the apparent inconsistency of the stance adopted by the OR, Mr Kwong submits that this is “usual practice” adopted by the OR in an application of this nature and that practice is in line with a passage in a textbook the name of which he cannot recall.  When being pressed further, Mr Kwong confirms that the application is not common and the OR is not aware of any other case where the Court made a disqualification order against a respondent and gave leave for the same respondent to act as director of a company. 

30.  Mr Kwong subsequently provides an extract of Mithani: Directors’ Disqualification, Vol 2, Issue 82 §28 where the learned editor stated that in an application for permission by a person subject to a disqualification order under s 11 of the Company Directors Disqualification Act 1986, s 11(3) expressly requires the Official Receiver to appear and oppose the application if he believes that the grant of permission is contrary to the public interest.  The passage goes on to say that s 17(5) of the Act places no such obligation on the Secretary of State but simply requires him to appear at the hearing and calls the attention of the court to any matters that seem to him to be relevant.  The Secretary of State “will usually take a neutral stance on the outcome, whilst drawing the court’s attention to any issues arising from the application and evidence which may adversely affect the public interest.  Attention will be drawn to any other relevant matters. By doing so, grounds of opposition will be identified and given effect to, if sound, but it is far from difficult for an advocate to present those grounds neutrally in accordance with s 17(5).”

31.  The legislative regime in the U.K. is of course different from that of Hong Kong in particular, the role of the Secretary of State is akin to the role performed by the Official Receiver under our regime. Nevertheless, it is clear from the passage cited by Mr Kwong that it does not support the so-called “usual practice”.  Rather, it describes the role of the Secretary of State in drawing the Court’s attention to any issues arising from the application which may adversely affect the public interest and the other matters relevant to the application.  Neither has been done by the OR here. 

32.  In my judgment, the starting point is that a person who is subject to a disqualification order (“Person”) should not be allowed to act as a director of a company.  The reasons are obvious. 

(1)  In making the disqualification order against the Person, the Court has necessarily formed a view that by reason of his past conduct as director of a company or companies, he is unfit to be a director and that public interest requires that he cannot act as director or be concerned in the management of a company for the specified period.  Thus, there is a high threshold for the Person to meet in order to justify the Court taking the exceptional course of allowing him to act as director or be concerned in the management of a company particularly where, as here, the application for which leave is sought covers the entire period of disqualification. 

(2)  Once the disqualification order is made, it will be published.  Thus, any third party dealing with the Person will be taken to have knowledge of the fact that he cannot act as director during the period of disqualification.  By contrast, the order giving leave to the Person subject to a disqualification order does not need to be published.  There will be uncertainty, if not confusion, as to whether the Person can act as director of the company concerned.  The confusion will be much more acute if the company concerned carries on an active or substantial business. 

33.  The burden is on the Person to identify and establish good reasons to satisfy the Court that despite his past misconduct and the need to protect the public, he should be allowed to act as director or be concerned in the management of the company in question.  While what constitutes good reasons vary from case to case, I would expect such reasons to be at least similar to those accepted by Harris J in Chan King Hang Danvil,as there is a competing (if not equally important) public interest to ensure that a person can continue to work or use his skill to make a living to provide for himself (and his family) in the way he has always done notwithstanding the disqualification order. 

34.  I am not satisfied that the Respondent has established good reasons to justify the Court giving leave for him to act as director of Bespark for the following reasons:

(1)  The only reasons identified by the Respondent to justify his application are that he has for the past 15 years acted as the sole director of Bespark and Bespark is financially healthy and stable with 128 employees.  These are not good reasons for the Court to permit him to act as director of Bespark.

(2)  The other reasons identified by Mr Maurellet only go to mitigation, which have already been taken into account in reducing the period of disqualification from 3 years to 2 years. 

(3)  There is no suggestion that Bespark will fail if the Respondent is not allowed to act as its director or that no other person can assume that role. 

(4)  Nor is there is any suggestion that the Respondent will not be able to earn a living if he is not allowed to act as director of Bespark. 

35.  At the hearing, Mr Maurellet submits that Bespark is the Respondent’s main source of income and he has been managing its affairs qua sole director for 15 years, and the company would benefit from his continued involvement and his substantial experience both on the technical and the business side.  If the Respondent is not allowed to be involved in any way in the management of Bespark, it is inevitable that there will be an adverse impact on its business.  Further, there is an uncertainty in that if the Respondent is involved in Bespark’s business, even on the technical side, it may be said against him that he acts against the disqualification order.  For these reasons, Mr Maurellet advances, as a fall back position in the event that this Court does not give leave to allow the Respondent to act as director of Bespark during the period of disqualification, that leave be given to the Respondent to be concerned in the management of Bespark. 

36.  I accept that the disqualification order may have the effect of preventing the Respondent from being “concerned in the management” of Bespark, and that Bespark may likely suffer if the Respondent is prevented from participating in its business.  For these reasons, I agree that this is an appropriate case where the Court should grant leave to the Respondent to be concerned in the management of Bespark during the disqualification period, subject to the condition that the Respondent is required to report and work under the supervision of the director(s) to be appointed by Bespark during the period of disqualification.  The permission is subject to review by the Court upon an application made by any person having an interest in Bespark and there be liberty to apply for this purpose. 

Disposition and order

37.  For the above reasons, this Court makes the following order:

(1)  a disqualification order is made against the Respondent for a period of 2 years from the date of this Judgment;

(2)  the Respondent shall pay the Official Receiver’s costs in the agreed sum of HK$100,000 within 14 days of this Judgment;

(3)  leave to the Respondent to be concerned in the management of Bespark during the period of disqualification, subject to the condition that the Respondent is required to report and work under the supervision of the director(s) to be appointed by Bespark during the period of disqualification; and

(4)  any person having an interest in Bespark has liberty to apply to review or vary the order under §(3) above upon giving 7 days’ written notice to the Respondent. 

Appendix: Statement of Facts not in dispute for the purpose of a "Carecraft" settlement as between the Official Receiver and the Respondent

 INTRODUCTION

1.     On 23 June 2020, the Official Receiver issued these proceedings by Originating Summons under Section 168H of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (“the Ordinance”) seeking a disqualification order against the Respondent.

2.     Subject to the approval of this Honourable Court, the Official Receiver and the Respondent are willing to dispose of these proceedings against the Respondent by way of the shortened form of procedure sanctioned in Re Carecraft Constructions Co. Ltd. [ 1994] 1 WLR 172, as clarified by the English Court of Appeal in Secretary of State for Trade and Industry v. Rogers [1996] 4ALLER 854.

3.     The purpose of this Statement is to identify, in relation to the allegation of unfitness relied on by the Official Receiver against the Respondent, the core material facts which (for the purpose of a “Carecraft” disposal of these proceedings) are not disputed by the Respondent. None of the facts set out below is disputed and it is acknowledged that there is evidence verifying each of the same.

4.     The Official Receiver submits that, by reference to the undisputed facts, the conduct of the Respondent as director of J.V Fitness Limited (trading as California Fitness, Myoga and Leap) (“the Company”) has been such as to make him unfit to be concerned in the management of a company and that, accordingly, the Court is bound, pursuant to Section 168H of the Ordinance, to make a disqualification order against the Respondent. It is further submitted by the Official Receiver that the conduct of the Respondent is such that a disqualification order for a period of 3 years (which, subject to approval of the Court, has been agreed by the parties) is appropriate.

5.     The Respondent accepts that, by reference to the facts which are not in dispute, the Court can be satisfied as to his unfitness to be concerned in the management of a company, and that subject to the approval of the Court, it would be appropriate to make a disqualification order against him for a period of 3 years.

6.     The Respondent also agrees that if, pursuant to this Statement, there is a “Carecraft” disposal of these proceedings, there should additionally be an order that he should pay the Official Receiver’s costs of these proceedings in the agreed sum of HK$100,000 payable within 14 days of the making of the disqualification order herein.

7.     The Official Receiver and the Respondent agree that if the Court is unwilling to approve a “Carecraft” disposal of these proceedings, then no further reference may be made by any party to these proceedings, or to the fact of any proposed “Carecraft” settlement or to the admissions made herein, during the course of these proceedings. The Official Receiver and the Respondent also agree that, in such event, they will jointly apply to the Court for a direction that a different Judge should hear the contested trial.

8.     For the avoidance of doubt, under no circumstances, save for the purpose of disposal of the present proceedings by Carecraft procedure or subsequent application by the Respondent under Section 168Q of the Ordinance or otherwise for leave to act as a director, shall any of the admissions in this Statement be used by the Official Receiver or by any person whosoever for any other purposes whatsoever in any civil proceedings or criminal proceedings or any other quasi-legal proceedings against the Respondent. Such leave will in fact be sought for the Respondent continuing to as a director of only Bespark Technologies Enginee1ing Limited and submissions will be made on his behalf at the hearing of these proceedings.

STRUCTURE OF THIS STATEMENT

9.     The structure of the remainder of this Statement is as follows:-

     (i)  Paragraphs 10 to 19 set out the background information of the Company and admittedby the Respondent.

     (ii)  Paragraphs 20 to 42set out the allegation of unfitness made against the Respondent and admitted by the Respondent.

     (iii)  Paragraphs 43 to 48 sets out certain additional facts relied upon by the Respondent which the Court may wish to take into account by way of mitigation. The Official Receiver does not necessarily accept the truth of these matters, but the Official Receiver and the Respondent have agreed that no further facts (other than those set out in paragraphs 43 to 48) may be adduced at the Carecraft hearing by way of mitigation.

BACKGROUND OF THE COMPANY

10.     The Company was incorporated on 23 November 1995. The Company engaged in the business of running fitness centres and ceased business on or about 12 July 2016. Upon a petition presented on 27 June 2016 (and subsequently amended on 14 November 2016) by Bespark Technologies Engineering Limited (鎂燦科技工程有限公司) (“the Petitioner”), a winding up order was made against the Company on 23 November 2016 in HCCW No. 209 of 2016. The Respondent was at all material times the sole shareholder and the sole director of the Petitioner.

11.     Upon an ex-parte application of the Petitioner by way of Summons dated 13 July 2016 which was supported by the Respondent’s Affirmation, an Order was made on the same day appointing Mr. Kan Lap Kee, Mr. Alan Chung Wah Tang and Ms. Hou Chung Man as the Joint and Several Provisional Liquidators of the Company (“the Provisional Liquidators”).

12.     By an Order made on 29 November 2017, Mr. Kan Lap Kee and Ms. Hou Chung Manwere appointed as the Joint and Several Liquidators of the Company (“the Liquidators”).

13.     In the course of liquidation of the Company, the liquidators have received proofs of debt amounting to HK$251,065,166.30 and have realized asset at HK$28,003,454.39. The Company went into liquidation at a time when its assets were insufficient for payment of its debts and other liabilities and the expenses of the winding-up and is an insolvent company within the meaning of Section 168H(2)(a) of the Ordinance.

14.     According to the records of the Companies Registry, the Respondent was a director of the Company between 15 December 2015 and 5 May 2016. His brother, Wong Lun (now deceased), was appointed as a director of the Company since 5 May 2016.

De facto directorship

15.     The Respondent accepts that, despite his purported resignation on 5 May 2016, he had continued to assume acting as a de facto director of the Company up until the appointment of Provisional Liquidators, and he was responsible for, inter alia, the Company’s business operation, financial affairs, employment of senior personnel and decision-making. He was the also the sole signatory of the Company’s bank accounts, and as such he could decide whether and when wages were to be released to the Company’s employees. The Respondent held the title of Chief Executive Officer after his purported resignation.

16.     The Respondent admitted to the brief facts (“the Brief Facts”) in respect of Summons Nos. ESS864/2017 to ESS964/2017 (“the 101 Summonses”) which were laid by the Labour Department as a result of wages in arrears to the former employees of the Company. The Respondent admitted that at the material times (i.e. after May 2016), as the Chief Executive Officer of the Company, he possessed the ultimate decision making power for (1)the Company’s daily operation; (2) the financial management of the Company; (3) business development of the Company; and (4) releasing wages to the Company’s employees, etc. It was also admitted that the Respondent was the only authorized signatory of the Company’s bank accounts and was in control of the Company’s bank accounts.

17.     Several former employees made witness statements to the Labour Department stating that:-

     (i)  the Respondent was still the ultimate decision maker of the Company after his purported resignation;

     (ii)  the Respondent had continuously dictated and controlled the affairs of the Company;

     (iii)  the Respondent had access to all the financial information of the Company, and the Company’s Chief Finance Officer had to report to him;

     (iv)  the Respondent was the one who decided whether to release wages to employees; and

     (v)  the staffs and senior management of the Company referred the Respondent as “the boss” and he would make speeches in the meetings and events of the Company, and give direct instructions to the Company’s senior employees.

18.     The Respondent possessed and exercised the powers in relation to the appointment and termination of the senior personnel of the Company, including the investigation and subsequent dismissal of the then Deputy Chief Executive Officer, Cheng Kar Tat (“Michael Cheng”) on 28 June 2016.

SUMMARY OF ALLEGATION OF UNFITNESS

19.     Allegation of unfit conduct of the Respondent in support of the present application is dealt with in detail in paragraphs 20 to 44 below and in summary, he:-

     (i)  failed to ensure due payments of wages to the employees of the Company in accordance with the provisions of the Employment Ordinance, Cap. 57 (“EO”);

     (ii)  failed to ensure due payment of mandatory provident fund (“MPF”) contributions by the Company to the trustee in accordance with the Mandatory Provident Fund Schemes Ordinance, Cap. 485 (“MPFSO”);

     (iii)  allowed the Company to continue trading and operating at the risk of creditors while the Company is already insolvent;

     (iv)  causing the Company to make Repayments to the Petitioner ahead of other creditors;

     (v)  failed to keep minutes books pursuant to Section 619 of the Companies Ordinance, Cap. 622 (“CO”);and

     (vi)  failed to update the registers of directors and secretaries pursuant to Sections 641 and 648 of the CO.

FAILURE TO ENSURE DUE PAYMENTS OF WAGES TO THE EMPLOYEES OF THE COMPANY

20.     Upon cessation of the business of the Company, a large number of former employees of the Company sought assistance from the Labour Department to recover wages in arrears and other termination payments due from the Company.

21.     As the Company failed to settle the outstanding wages together with the termination payments due to the said former employees, they filed claims at the Labour Tribunal but the claims were stayed due to the appointment of the Provisional Liquidators pursuant to Section 186 of the Ordinance.

22.     The former employees then sought assistance from the Protection of Wages on Insolvency Fund Board (“PWIFB”) and were granted ex-gratia payments subsequently. As a result of the Respondent’s default of director’s duties, ex-gratia payments in the total sum of HK$17,624,772.96 were paid out of the PWIFB to 550 former employees of the Company. PWIFB was later able to recover HK$333,322.42 of the ex-gratia payment from the Eastern Magistrate’s Court after theRespondent was ordered to make amends/restitution in the prosecutions instituted by the Labour Department. As a result thereof, the PWIFB lodged a proof of debt against the Company for the outstanding wages, allowances and other termination payments involving its former employees in the sum of HK$17,291,450.54 (after deducting the amounts recovered from the amends/restitution).

23.     According to the information provided by the Labour Department, 82 of the former employees were owed wages p1ior to June 2016. 74 out of these 82 former employees (who were owed wages prior to June 2016) were granted ex-gratia payments in the total amounts of HK$750,244.94 (including HK$384,443.83 which was paid in relation to wages in arrears).

24.     Due to the breaches of the EO by the Respondent, the Labour Department charged him with wages offences in relation to 99 former employees and issued the 101 Summonses against him. The Respondent pleaded guilty to all the 101 Summonses and admitted to the Brief Facts. He was accordingly convicted and was fined by the Magistrate for a total sum of HK$202,000. He was also ordered to pay amends/restitutions at a total sum of HK$379,451.46.

25.     Having examined the accounting records of the Company at the material time, the Official Receiver found that the Company was already stuck in a hopeless financial position with net current liabilities of HK$240,406,415 and HK$246,882,704 as of 30^th April 2016 and 31^stMay 2016, respectively. The Official Receiver is skeptical as to the timing of the presentation of the winding-up petition. In this connection, the Respondent was at all material time the sole shareholder and the sole director of the Petitioner which had presented the winding-up petition just less than 2 months after the Respondent’s purported resignation and 2 days before the end of the relevant salary period. The Respondent ought to have known that the Petitioner’s presentation of petition would have caused the Company’s bank accounts to be frozen and thus the Company would not be able to settle the wages and other termination payments thereafter. The Respondent accepts that he had failed to ensure due payment of wages and other termination payments to the former employees of the Company in accordance with the EO.

FAILURE TO ENSURE DUE PAYMENTS OF MPF CONTRIBUTIONS BY THE COMPANY TO THE TRUSTEE

26.     The Mandatory Provident Fund Schemes Authority (“the MPFSA”) has lodged a proof of debt in the sum of HK$2,041,941.46 being the outstanding MPF contributions (including surcharge of HK$97,236.15) involving 700 former employees against the Company. 13 of these former employees had their MPF contributions outstanding during the period between March 2016 to May 2016 in the total amount of HK$16,620.14.

27.     The Respondent accepts that he was in breach of his duties as the director of the Company at the material times to ensure due compliance by the Company of its statutory obligations under the relevant provisions of the MPFSO.

28.     The outstanding MPF contributions include the employees’ contributions. The amount of the employees’ contributions deducted from the employees’ income for payment to the approved trustee is considered as trust money held by a company as employer upon trust for the respective employees, instead of the employers’ money. Non-payment of MPF contributions adversely affects the future welfare of the employees concerned. In the failure to ensure payment of employees’ contributions to the approved trustee by the employer, the Respondent has failed to conduct the business of the Company with due regard to the ordinary standards of commercial morality.

TRADING WHILE INSOLVENT AND AT THE RISK OF CREDITORS

29.     When the Respondent joined the Company in December 2015, the Company was already stuck in a very bad financial situation. According to the audited financial statements and the management accounts available, the Company appeared to be insolvent during all the relevant periods. The Company had negative net assets values of more than HK$359 million as at all the relevant times since December 2015. The Company’s liquidity was also poor, in that the deficiencies of current assets were over HK$328 million at all the relevant times. The Company’s liquidity and insolvency during December 2015 to May 2016 were also worsened.

30.     The Respondent ought reasonably to have known that the Company was insolvent at the material time but nonetheless he had continued to cause the Company to trade at the risk of the creditors.

31.     As seen from the available financial statements, at least a significant portion of the Company’s debts were incurred as a result of prepayment of membership fees previously paid by the customers who signed up for term membership. According to the unaudited income statements of the Company, the Company continued to have new membership sales since December 2015.

32.     The Respondent accepts that he had allowed the Company to trade when he ought to have known there was no reasonable prospect that the Company would avoid going into insolvent liquidations. The Company's creditors, many of whom were members of the general public who signed up term memberships with the Company, were put at risk when there was no reasonable prospect that the Company would perform the terms of the memberships.

CAUSING THE COMPANY TO MAKE REPAYMENTS TO THE PETITIONER AHEAD OF OTHER CREDITORS

33.     As stated by the Petitioner in its Amended Petition, the Company paid a total sum of HK$10,204,100 (“the Repayments”) to the Petitioner during the period from 14 June 2016 to 21 June 2016 (i.e. within 2 weeks prior to the presentation of Petition) to settle the alleged outstanding invoices as follows:-

34.     Based on the Amended Petition, the Petitioner was a creditor of the Company at all material time when the Repayments were made. The aforesaid 3 cheques constituting the Repayments were all signed by the Respondent.

35.     The Official Receiver found that the Company had become insolvent since 31 December 2009, and the Company had remained insolvent ever since. Further, as explained hereinabove, the available accounting documents showed that the Company suffered net losses, with net liabilities and net current liabilities since December 2015 (at the very least). The Respondent ought to be aware of the financial position of the Company when he caused the Company to issue the 3 cheques for the sums of HK$7,615,000, HK$1,523,000 and HK$1,066,100 to the Petitioner. Indeed, even according to the Respondent’s allegation (which is not accepted by theOfficial Receiver), when Michael Cheng provided the financial statements of the Company to him in March 2016, the Respondent became aware of the Company’s financial circumstances. In the circumstances, the Respondent should have been aware of the poor financial position of the Company by then but nonetheless he still caused the Company to make the Repayments to the Petitioner (which was owned and controlled by himself).

36.     The Repayments made to the Petitioner shortly before the presentation of the winding-up petition may have had the effect of putting the Petitioner into a position, which in the event of the Company’s liquidation, would be better than the position it would have been in if the Repayments had not been made. Those payments were for interior fitting out work done by the Petitioner for the Company’s fitness center at Whampoa. The work was completed on 28 February 2016.

FAILURE TO KEEP MINUTES BOOKS

37.     Subsequent to the winding-up of the Company, the Liquidators found that the Respondent failed to keep minutes books pursuant to Section 619 of the CO.

38.     The Respondent alleged that he had relied on Ms. Eva YT Wong (“Ms. Wong”), the then Chief Finance Officer, to keep the Company’s minutes books and that he had no knowledge of such failure of duty. However, Ms. Wong only had less than 2 years’ post qualification experience (with limited experience in the field of auditing only) as of the time when she was employed by the Respondent. She did not have experience in company secretarial matters. She also had no experience in advising on corporate financial matters. Ms. Wong was thus not a suitable candidate to be entrusted with the duties of dealing with overall financial management as well as the duties of keeping of the Company’s books, records and the registers (bearing in mind that the Company operated as many as 12 fitness centres).

39.     In any event, the Respondent being a director had a personal duty to ensure that minutes books are kept so that all records of proceedings in general meetings or resolutions of the Company are properly recorded and kept. It is very important in this case, especially considering the Company was going through severe financial difficulties at the material time. The decisions it made could affect the creditors’ interest. Without such records, it would be difficult to investigate on the Company’s decision-making process or proceedings. The Respondent cannot shrug off the responsibilities by claiming that it was the responsibility of another person. The overall responsibility of the Respondent was not delegable. The Respondent accepts that he had breached his director’s duties to ensure the Company’s compliance of Section 619 of the CO.

FAILURE TO UPDATE THE REGISTERS OF DIRECTORS AND SECRETARIES

40.     The Liquidators also found that the Respondent did not update the registers of directors and secretaries pursuant to Sections 641 and 648 of the CO. Again, the Respondent alleged that Ms. Wong was responsible for such duty. By reason of the aforesaid, the Official Receiver did not find Ms. Wong a suitable candidate to be entrusted with the duty and the Respondent could not shrug off his director’s duties and overall responsibility. The Respondent accepts that he had breached his director’s duties to ensure the Company’s compliance of Sections 641 and 648 of the CO.

41.     The failure to update the registers of directors and secretaries had denied the rights of the members and any other persons (upon paying the prescribed fees) who are entitled to inspect and request copy of the registers.

SECTION 168P NOTICE

42.     Pursuant to Section 168P of the Ordinance, the Official Receiver sent to the Respondent a letter dated 29 May 2020 informing him of the Official Receiver’s intention to apply for a disqualification order against him.

MITIGATION BY THE RESPONDENT

43.     The Respondent was appointed on 15 December 2015 as a director and Provisional Liquidators were appointed on 13 July 2016.

44.     The cause of the Company’s sudden downfall was mainly a pre-existing issue of its aggressive marketing strategies, a long-term problem which the Company’s former management should be primarily responsible for.

45.     The Respondent had no past experience of running any fitness center. He entrusted Michael Cheng (the Company's former President) to oversee the daily operation of the fitness centers. He also employed one Ms. Eva Wong (i.e. Ms. Wong) as the Company’s Chief Financial Officer. She was specifically tasked with keeping books, records and the company registers in accordance with the legal requirements.

46.     He as a shareholder and investor suffered significant loss. He acquired the Company’s entire shareholding at $50 million. He further injected about $20 million into the Company for paying the employees’ salaries between 24 December 2015 and 17 May 2016. In May 2016, he sold all the Company’s shares to his late brother, Mr. Wong Lun, at $30 million.

47.     He has been fined and provided restitution as explained in paragraph 24 hereinabove.

48.     The Respondent has been the soledirector and shareholder of Bespark Technologies Engineering Limited (i.e. the Petitioner) for more than 15 years. There are currently 128 employees. Its financial status was proved stable and healthy.