RE SKYCHANCES INDUSTRIAL LTD

HCCW 407/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 407 OF 2004

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D E C I S I O N

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1. This is an application taken out by Skychances Industrial Limited ("the Company") for a validation order under section 182 of the Companies Ordinance, Cap. 32. The Company seeks an order that notwithstanding the presentation of the petition on 1 April 2004, all payments made into or out of the bank accounts of the Company in the ordinary course of the business of the Company and all dispositions of the property of the Company made in the ordinary course of its business between the date of the presentation of the petition and the date of judgment on the petition or further order in the meantime shall not be avoided by virtue of section 182 in the event of any order for winding up being made on the petition.

2. The petition was presented by a contributory for winding up on the just and equitable ground and seeking alternative relief under section 168A. It is not in dispute that the Company is solvent and that it would be in the interest of everyone that it should continue its operations. The main business of the Company is the manufacture and sale of moulds for plastic products and semi-finished products. It operates a factory in Mainland China employing over 600 workers.

3. The petitioner is not opposed to a validation order sought by the Company. The only question is whether any condition should be imposed. The petitioner has suggested that to protect his interest and as he has been excluded from the management of the Company notwithstanding he is a 50% shareholder, the court should impose a condition requiring the Company to provide the petitioner's solicitors with a weekly schedule identifying in relation to the preceding week the date, amount, payee and purpose of each payment made and identifying each payee by the name and address. Further, the petitioner should be permitted to inspect on three working days' notice, all existing documents supporting or evidencing such payment.

4. A similar condition was imposed by Ribeiro J (as he then was) in Re Lun Kee Poultry Ltd, HCCW No. 632 of 1999, 28 July 1999 and Re Draper Co. Ltd, HCCW No. 634 of 1999, 28 July 1999. Alternatively, the petitioner suggested that a condition be imposed that all cheques drawn on the Company's accounts should be signed by the 1st respondent and the petitioner jointly. Such a condition was imposed by Yuen J (as she then was) in Re Heepson Holdings Ltd, HCCW No. 859 of 2000, 5 October 2000. It does not seem to me feasible to impose the second kind of condition here, as the petitioner has been excluded from the management ever since he tendered his resignation as director in October 2003 and was removed as an authorised signatory of the bank accounts in February 2004.

5. The Company is opposed to the imposition of the first kind of condition saying that it is unduly onerous. The Official Receiver supports the petitioner's stance that such a condition be imposed.

6. On balance, I am inclined to agree with the petitioner and the Official Receiver. Firstly, I note that the expenses incurred by the Company every month as appeared from the management accounts for the months from December 2003 to February 2004 are substantial. They varied from HK$5.4 million to HK$7.4 million a month. Secondly, there is no information on the net profits of the Company in the management accounts, the figures provided in the management accounts relate to gross profits only and the figures fluctuated greatly from HK$239,000.00 odd to HK$3.6 million odd.

7. Mr Tang for the Company has sought to explain this, saying that this was due to the seasonal fluctuation in workers and the supply of raw materials. Nevertheless, the court does not have full information on the financial position and the monthly expenses and there may be some cause for concern on the part of the petitioner and that he should be protected with a reporting condition since he has been excluded from the management.

8. I therefore make a validation order in the terms as sought in paragraph 1 of the summons subject to the following conditions:

(1) the Company is to provide, until further order of the court, the petitioner's solicitors with a weekly schedule on each Monday identifying in relation to the preceding week, the date, amount, payee and purpose of each payment made out of the Company's bank accounts, and identifying each payee by name and address; and

(2) the petitioner be permitted to inspect on 3 working days' notice, all existing documents supporting or evidencing each payment out of the Company's bank accounts.

9. I further give liberty to apply and I order the costs of this application be in the cause of the petition.

10. In respect of the Official Receiver's costs for this application, I assess this on a gross sum basis at HK$2,400.00.