Re Sunni International Ltd (in Liquidation)

HCCW 121/2013

[2018] HKCFI 2371

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) PROCEEDINGS NO 121 OF 2013

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J U D G M E N T

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Introduction

1.There is before this court an application by Asia Pacific Glory Limited (“Applicant”)[1] for an order that Fung Chi Keung (“Fung”or “Liquidator”) of Fung Chi Keung & Company be removed as liquidator of Sunni International Limited (“Company”) under s 196 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“CO”) and that Mr John Robert Lees and Mr Mat Ng of JLA Asia Limited be appointed the joint liquidators of the Company.

2.The Company was wound up by the Court on 15 April 2015 while Fung was appointed as liquidator of the Company on 27 July 2015.

3.The application is principally supported by the 2^nd affirmation of Francis Kao Wai Ho (“Francis Kao”), the sole director of the Applicant. In addition to being the sole director of the Applicant, Francis Kao was also the sole director of the Company until, on his evidence, 30 March 2011 when he resigned and was replaced by Shinichi Kobayashi (“Kobayashi”) as the Company’s sole director.  The Company was incorporated in the BVI.

4.Fung’s reply to Francis Kao’s 2^nd affirmation is principally contained in his 5^th affirmation.

5.The Applicant makes the present application in its capacity as a contributory.  Indeed, the Applicant is, on the evidence presently available, the majority shareholder of the Company since November 2009, holding 54.6% of its shares.  The Applicant’s status as a contributory is not disputed by Fung for the purpose of this application.  Further, at the hearing, Mr Scott SC frankly accepted the Applicant is not a creditor of the Company and has not filed a proof of debt.

Material Background

6.The material background facts concerning the Company, its shareholding structure, directorship and business as well as the circumstances leading to the appointment of Fung as liquidator and the present application are complicated but there is little common ground between the Applicant and Fung.  This is unsatisfactory but not entirely surprising since a liquidator is usually a stranger to the company in liquidation and, most of the time, depends on the cooperation of the company’s former management[2] in order to gather information about its affairs.  In the present case, Fung alleges Francis Kao (and his associates) of being uncooperative and even obstructive.  Similar allegations are made against Fung by the Applicant via Francis Kao, which forms one of the grounds in support of the Removal Summons.

7.In these circumstances, this court can do no better than setting out the background facts summarised by the Applicant and Fung in their skeleton submissions separately.

8.In the Applicant’s skeleton submissions, a brief summary of the material background[3] is stated as follows.

9.The Company was set up in about 1994 by Francis Kao’s father Mr Michael Kao (“MK”) and was used to hold the investments of the respective shareholders’ families in the shareholding of Boto International Holdings Ltd (“Boto”).  Boto was listed on the Main Board of the Hong Kong Stock Exchange in March 1997 (stock code: 585).  Boto’s present name is Imagi International Holdings Limited (“Imagi”).

10.Boto was principally engaged in the business of designing, manufacturing, marketing and distribution of Christmas festive products, including artificial Christmas trees and other decorative accessories.  In the financial year of 1997/1998, it had a turnover of HK$665,429,000.

11.MK, Mr Lawrence Lai Chi Kin (“Lai”), Mr Kui Yiu Ngok (“Kui”), Mr Lam Pak Kin (“PK Lam”) and Ms Lilian Tsen Yun Lei (“Tsen”) were directors when Boto was listed in 1997 and MK, Lai, Kui and Tsen held shares in Boto through the Company on their behalf and on behalf of their family members.  Subsequently, PK Lam was also gifted with 5% shares in the Company as a former employee.  The Company was the major shareholder in Boto holding over 50% of Boto’s shares.  MK was the largest beneficial shareholder in Boto holding 313,446,180 shares.  Kui and Tsen, among others, held 9,442,620 and 31,224,600 in Boto respectively.

12.In 2000, Boto announced that it would raise fund from a placing exercise and the funds obtained would be used for the technology/content development of the Company’s infotainment, e‑commerce business and other internet‑related investment.  Shares in Boto were sold by the Company in the placing.  With funds raised from this placing, the first computer graphics studio under the name of Imagi Animation Studios Limited (“Imagi Studios”) was set up.

13.Boto gradually changed its line of business to computer graphics animation production and in 2002 sold its Christmas festive products and leisure furniture business to a US private equity firm for over HK$1,000 million.  The net proceeds were channelled into the newly established Imagi Studios.

14.In November 2002, Boto changed its name to IMI Global Holdings Limited (“IMI”).  In 2004, IMI further changed its name to Imagi.  Imagi later acquired a controlling stake in a failing computer graphics animation studio in Japan and further obtained the production rights of the well‑known Teenage Mutant Ninja Turtle (“TMNT”).  The production of TMNT was a major one because around 370 designers were involved which was the major milestone for Imagi’s animation production.

15.In 2005, Francis Kao became the CEO of Imagi.  In 2008, Francis Kao became its chairman until he resigned in February 2009.

16.Subsequently, Imagi Studios spent HK$500 million on the production of a computer graphics animation film viz Astro Boy but when it was released in 2009, it flopped in the box office.  Imagi Studio’s fortunes dwindled following Astro Boy’s global box office losses and it had to make a substantial lay off of staff in December 2009.  The Company suffered losses on the shares in the listed company[4] which were sold in 2009 and afterwards, movie production business continued with Unicorn Animation Studios Limited (“Unicorn”).

17.As for the background of the present application, it is stated in the Applicant’s skeleton submissions that, while it was and is the majority shareholder/contributory of the Company, it had no knowledge that the Company had been wound up until about 11 March 2016 when Francis Kao received a letter from Fung stating that he was appointed the liquidator of the Company and demanded Francis Kao to deliver assets, books and records of the Company and submit a Statement of Affairs.

18.On about 11 April 2016, Francis Kao’s former solicitors Hastings & Co wrote to Fung and informed him, inter alia, that Francis Kao was no longer a director of the Company, having resigned some 5 years ago in March 2011 and thus was not in a position to provide a Statement of Affairs.  Further, by the same letter, a Certificate of Incumbency of the Company dated 23 March 2016 (“Certificate of Incumbency”) was provided to the Liquidator.

19.Despite repeated requests, Fung has refused to provide relevant documents to the Applicant concerning the liquidation of the Company except the Winding‑Up Order dated 15 April 2015 (“Winding‑Up Order”) and the Order appointing the Company’s Liquidator dated 27 July 2015 (“Appointment Order”).  The Orders reveal that the Company was not represented at the hearing of the Winding Up Petition and the Liquidator was appointed pursuant to an ex-parte summons.

20.The Applicant as the majority shareholder of the Company has a right to be involved in the liquidation process.  However, at all times, Fung has continued to be evasive and obstructive to the disclosure of documents which are of vital importance to the Applicant.  Further, whilst the Applicant had not been given any notice of the proceedings[5], ithas also not been provided with (1) any notice to prove its debt owed by the Company as creditor (2) any notice or information regarding meetings of contributories or creditors.

21.On the other hand, Fung’s brief summary of the material background, set out in his skeleton submissions[6], is this.

22.The Company was incorporated in the BVI but had never been registered in Hong Kong as a foreign corporation, whether under the former Companies Ordinance, Cap 32, or the current Companies Ordinance, Cap 622.  There was no record of its place of business in Hong Kong or where its books and records were to be found.

23.The Company was an investment holding company to hold interests in Imagi whose shares are listed in Hong Kong.  Basically, the Company was the corporate vehicle for holding the investments for 4 families who were the founders of Imagi viz the Kao family (of which Francis Kao and Philip Kao are members), the Cheng family, the Law family and the Kui family.  Those 4 families in turn held shares in the Company.  According to the latest available audited financial statements of the Company for the year ended 30 September 2008 (“2008 Audited Accounts”), the Imagi shares that the Company held was valued at HK$202,038,384.

24.The 4 families gradually developed arguments regarding the management and operation of the Company.  Arguments among the shareholders of the Company came to a head in around 2008, with the Kao family (being the majority shareholder and with Francis Kao being the sole director of the Company at that time) on the one side, and the other shareholders of the Company on the other.

25.Francis Kao unilaterally caused the Company to transfer by way of gift tranches of Imagi shares for no consideration to third parties.  The other shareholders of the Company viz Pleasure International Limited (“PIL”), Silverbay Group Limited (“Silverbay”), Golden Jungle Limited (“Golden Jungle”) and PK Lam commenced a derivative action in HCA 1753/2008 (“HCA 1753”) against Francis Kao to restrain him from making gifts of the Company’s Imagi shares.  They eventually obtained a summary judgment against Francis Kao on 25 June 2009.

26.After that, despite enquires made by the other shareholders of the Company, Francis Kao refused to divulge any information about the Company to them.

27.PIL, Silverbay, Golden Jungle, Tsen and Kui were also creditors of the Company.  They commenced proceedings in HCA 2042/2011 (“HCA 2042”) against the Company and obtained a default judgment against it on 12 December 2012.

28.By a Petition dated 3 May 2013, PIL, with the support of the other Plaintiffs in HCA 2042, petitioned for the winding up of the Company for failing to pay its debts.

29.By the Winding‑Up Order dated 15 April 2015, the Company was wound up by the Court and the Official Receiver (“OR”) became its provisional liquidator.  On 9 July 2015, the OR convened the first meetings of creditors and contributories of the Company in which resolutions for the appointment of Fung as liquidator and the appointment of a Committee of Inspection (“COI”) were passed. 

30.By the Appointment Order dated 27 July 2015, upon the application of the OR as the provisional liquidator of the Company, Fung was appointed as liquidator of the Company and that there should be a COI consisting of 3 members. In the “Report of the Official Receiver and Provisional Liquidator in support of Appointment of Liquidator and Committee of Inspection” dated 21 July 2015 filed in support of the application, the OR had confirmed that he was satisfied that Fung was a fit and proper person to act as the liquidator of the Company.

31.On 27 January 2016, Fung was provided by the OR a set of papers regarding the Company (“OR Papers”).  However, the OR Papers contained very limited information about the Company and contained nothing about its financial affairs or its assets.  Fung was not even provided with a Statement of Affairs or any books or records of the Company.  From the OR Papers, Fung gathered inter alia:

(1)   The identity of the Company’s shareholders and their shareholdings, which did not include the Applicant as a shareholder.

(2)   The identity of the creditors of the Company were shareholders of the Company or their beneficial owners and their respective debts came to over HK$24 million.  The Applicant was not a creditor of the Company.

(3)   Francis Kao was the last known sole director of the Company, and Kobayashi, who according to Francis Kao had replaced him as the sole director of the Company on 30 March 2011, did not appear in the OR Papers at all.

32.After Fung’s appointment, he tried to obtain information on the financial affairs of the Company from Francis Kao and those associated with him, but had met with grave difficulties:

(1)   On 11 March 2016, Fung wrote to Francis Kao requesting him inter alia to deliver all the books, documents and assets of the Company and to submit a Statement of Affairs. 

(2)   The reply from Francis Kao, via Hastings & Co’s letter dated 11 April 2016, was that he had resigned as the sole director of the Company on 30 March 2011 and documents of the Company had been passed to its sole director Kobayashi.  Francis Kao did not supply any information about the whereabouts of the Company’s assets.

(3)   Kobayashi lived in Japan.  He had no address in Hong Kong and was never made a signatory of the Company’s bank accounts.

(4)   On the other hand, Francis Kao was all along a signatory of the Company’s bank accounts and was able to sign singly since 3 November 2009.  Despite having resigned as the sole director of the Company, Francis Kao remained the authorised signatory of its bank accounts and could operate them singly.

(5)   When Fung wrote to Hastings & Co for the address of Kobayashi, the response was that the firm no longer acted for Francis Kao and that Francis Kao would revert to him after his travelling, which he never did.

33.Upon being alerted by Hastings & Co’s letter, Fung made enquiries with the Company’s registered agents.  After rounds of correspondence with the registered agents in Hong Kong and in the BVI between June 2016 and February 2017, one of the registered agents viz Offshore Incorporations HK Limited (“OIL Hong Kong”) provided some records to Fung which showed that the Applicant was a shareholder of the Company.  But, there was still no information about the Applicant’s registered office or address save that it was neither incorporated nor registered as a foreign company in Hong Kong.

34.Subsequently, Fung, through other means, discovered, inter alia, Francis Kao had caused the Company to pay out around HK$345 million (“HK$345 million Payments”) from 31 January 2009 to 5 October 2013, including substantial sums paid to himself, his associates or third parties for no obvious justifications. After the HK$345 million Payments, the Company’s bank accounts were left with zero balance.

35.From 20 January 2017, Fung started to seek information from Francis Kao on some of the HK$345 million Payments, including, for example, HK$19.8 million for the purchase of a yacht and over HK$8 million for the purchase of 3 Lamborghini cars, all of which were never registered in the name of the Company.  When Fung enquired with Francis Kao about the HK$345 million Payments, he refused to provide information on most of the transactions.  For the few transactions which he did, the information provided was wholly unsatisfactory.

36.Fung then arranged for a private interview with Francis Kao regarding the financial affairs of the Company to take place on 16 August 2017.  When Francis Kao attended the interview on 16 August 2017 with his solicitors, he refused to answer Fung’s questions while his solicitors questioned Fung’s authority as liquidator.  The interview ended with Fung getting no information from Francis Kao at all.

37.Fung attempted to obtain information on the financial position (such as the audited accounts) of the only known Hong Kong subsidiary of the Company viz PBE International Holdings Ltd (“PBE”) in which the Company held 70% of its shares and to which the Company had paid over HK$9 million out of the HK$345 million Payments.  But such attempts were obstructed by Francis Kao’s cousin Philip Kao who is the sole director of PBE. 

38.Letters sent by Fung to associates of Francis Kao who had received substantial funds of the Company out of the HK$345 million Payments, viz Unicorn, Win Harvest Enterprises Ltd and Lo Kin Fung, to enquire about those payments yielded no response.  Fung then took out summonses on 25 July 2017 for the examination of them.  On 4 October 2017, Harris J adjourned the 3 summonses for argument and gave directions for the filing of evidence.  Before the adjourned hearing of the 3 summonses on 25 April 2018, the Applicant issued the Removal Summons on 21 November 2017.

The applicable legal principles

39.In Re Legend International Resorts Ltd unrep, HCCW 1139 of 2004, 7 March 2011, Fok JA (as he then was), the learned Judge set out the principles on which the court will remove a liquidator at [27]‑[35] in these terms:

“ 27. Under s.196(1) of the CO, an applicant seeking the removal of a liquidator bears the burden of showing cause why the liquidator should be removed. It is well established that the provision confers a wide discretion on the court which is not dependent on the proof of any particular breaches of duty by the liquidator.

28. It is not necessary to prove misconduct or personal unfitness on the part of the liquidator and it is sufficient if it can be shown that it is on the whole desirable that the liquidator be removed: Re Marseilles Extension Railway and Land Co (1867) LR 4 Eq 692 per Malins VC at p 694. It is clear that in removing the liquidator there need not be anything against the individual: Re Adam Eyton Ltd (1887) 36 Ch D 299 per Cotton LJ at p 303. Due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed: ibid per Bowen LJ at p 305.

29. The words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause required and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation: Re Keypack Homecare Ltd [1987] BCLC 409 per Millet J (as he then was) at p 416, approved in Re Edennote Ltd; Tottenham Hotspur plc v Ryman [1996] 2 BCLC 389 per Nourse LJ at p 398a‑c.

30. As an officer of the court, the liquidator is subject to duties which the law regards as fiduciary. He is entrusted with the reputation of the court for impartial and proper dispatch of duties and, in that regard, no lesser standard is to be expected of him than of a court or judge: Re Timberland Ltd (1979) 4 ACLR 259 at p 286. A liquidator should not only be independent and impartial, he should also been seen to be so and any conflict of interest or even over‑familiarisation should be discouraged: Re Akai Holdings Ltd [2001] 2 HKLRD 411 per Yuen J (as she then was) at p 421A and McPherson’s Law of Company Liquidation (2^nd Ed) at §8.023.

31. Where conduct of a liquidator has been such as to or at least to give rise to a perception, on reasonable grounds, that he was biased, or where his conduct has been such as to give rise to a real, and reasonable, loss of confidence in him by the creditor, the court may accede to an application to remove him: Re Gold Pleasure Industrial Co Ltd & Ors, unrep, HCCW 49‑52/2006, 7.1.09 per Barma J at §§23‑25. The court must make up its mind by looking at the overall picture, whether there is a manifested tendency of the liquidators to favour certain interests at the expense of others. If there is that perception, and if in the eyes of a reasonable observer there is not the carrying on of the liquidation to the general advantage of the persons interested in the winding up, the court may act: Re Biposo Pty Ltd (1995) 120 FLR 399 at p 405.

32. Nevertheless, as Yuen J pointed out in Re Akai Holdings Ltd at p 421B, it is not every connection or action that can give rise to an allegation of an appearance of lack of independence and impartiality on which the court should act. (Insofar as Mr Richard Zimmern, counsel for the Liquidator, sought to argue, however, that this part of her judgment indicated that lack of independence was dependent on establishing a conflict of interest on the part of a liquidator, I do not agree that lack of independence is limited to that situation. It is clear that a liquidator is under a duty to avoid a conflict of duty and interest and also, separately, a duty to act impartially: see McPherson’s Law of Company Liquidation (2^nd Ed) at §§8.019‑8.023.)

33. Furthermore, in Re Edennote Ltd, Nourse LJ observed (at p 398f) that the creditors’ loss of confidence must be reasonable: the court does not lightly remove its own officer and will, amongst other considerations, pay a due regard to the impact of a removal on his professional standing and reputation.

34. The onus of proof on an applicant will not be easy to discharge where the liquidator has become well acquainted with the business and affairs of the company or the process of winding up has almost reached completion: McPherson’s Law of Company Liquidation (2^nd Ed) at §8.046 (pp 474‑475). Even if grounds for removal are made out, it is also necessary to take into account the disadvantages that would arise from the removal of the liquidator in terms of costs and delay: Re Gold Pleasure Industrial Co Ltd & Ors at §§24 & 26. The confidence of the majority creditors in the liquidators is an important factor when there is little in the way of assets in a company, so that the process of liquidation will have to be financially supported by funds raised from creditors: Re Akai Holdings Ltd at p 419A.

35. Finally, in this context, it is right to bear in mind the dicta of Neuberger J (as he then was) in AMP Enterprises Ltd v Hoffman & Anor [2003] 1 BCLC 319 at §27:

‘ On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. Otherwise, it would encourage applications under s 108(2) [of the Insolvency Act 1986] by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.’ ” (emphasis added)

40.In Re Luen Tat Watch Band Manufacturer Ltd unrep, HCCW 497 of 2009, 27 November 2017, DHCJ To also set out the legal principles which govern applications to remove liquidators.  For the present purpose, one needs only recite the following paragraphs:

“ 3. Under section 196, the court has wide discretion to remove a liquidator for cause shown. The primary purpose of liquidation is for the general advantage of those interested in the assets of the company. The interest of those who are interested in the assets of the company is the single most important factor to consider in an application for removal of the liquidator. It is of such a paramount importance that a liquidator might be removed even if he was utterly without fault. Thus a liquidator may be removed if the court is satisfied that his removal is for the general advantage of those interested in the assets of the company notwithstanding no personal misconduct or unfitness is established against him: Re Mainkey Development LtdHCCW 1195/2000 (unreported), 10 November 2014, para 35, per Lam J and Re Keypak Homecare Ltd. (1987) 3 BCC 558, at 564, per Millett J (as he then was).

4. The next important justification for removal of a liquidator is the liquidator’s conduct. A liquidator is an officer of the court. He is subject to duties which the law regards as fiduciary. He is entrusted with the [reputation] of the court for the impartial and proper dispatch of those duties. In that regard, no less standard is to be expected of him than of a court or a judge: Re Legend International Resorts Ltd HCCW 1139/2004 (unreported), 7 March 2011, at para 30, per Fok JA (as he then was). Flowing from that standard is the duty to act fairly and honourably: Macau First Universal International Ltd v Ding Xiaohong (No 2) [2012] 2 HKLRD 494, at para 47. This is a very strict obligation. Not only must he act fairly, he must be seen to be fair. He must not only be independent but must also be seen to be independent and completely impartial…

5. Thus, a liquidator may be removed if he has been shown to have been bias, or to give rise on reasonable grounds to a perception of bias, or to give rise to a real and reasonable loss of confidence in him by the petitioner, creditor or contributories.

….

9. The burden of proof is on the party seeking to remove the liquidator. The onus is very high and not easy to discharge. This is because the court does not lightly remove its own officer and will amongst other considerations, pay due regard to the impact of a removal on his professional standing and reputation: Macau First Universal International Ltd v Ding Xiaohong (No 2) Supra, at para 55.

...

11. As for the approach in assessing a liquidator’s conduct in an application seeking his removal, the court must bear in mind that liquidators are officers of the court. They have a public duty to serve. In discharging that duty, they may be placed in a position of conflict with parties who may have personal interests to pursue. Thus, when assessing the conduct of a liquidator, the starting point must be a presumption of good faith in favour of the liquidator. A complaint against the conduct of the liquidator must at least be viewed with some caution.” (emphasis added)

Deliberation

41.According to the Applicant’s skeleton submissions, the 3 main grounds it relies upon in removing Fung are summarized as follows:

(1)   Fung was partial in failing or refusing to provide documents concerning his appointment — Ground 1.

(2)   Fung failed to ascertain or verify the identities and particulars of the company’s contributories and creditors by independent investigation and deliberately ignored the Applicant’s status as contributory in the course of the liquidation — Ground 2.

(3)   Fung knowingly deprived the Applicant of its rights and interest in the liquidation process — Ground 3.

Ground 1

42.With regard to Ground 1, the Applicant’s complaint appears to be that before the issue of a summons dated 4 October 2017 pursuant to s 219 of CO (“Inspection Summons”) and the Removal Summons, other than copies of the Winding‑Up Order and the Appointment Order, Fung had failed to provide the Applicant with the documents sought in the Inspection Summons ie all court documents in the present winding up proceedings, including the petition, affirmations, summonses and orders made, all books, correspondence, records and documents relating to his appointment as liquidator and all documents relating to the creditors and contributories meetings of the Company.  Further, after the issue of the Inspection Summons, Fung, in his 3^rd and 4^th affirmations, had only provided a number of further documents to the Applicant including documents relating to contributories meetings, accounts that Fung had lodged with the OR and Report of the 1^st Meeting of Creditors held on 9 July 2015. 

43.The Applicant submits, without any elaboration, at paragraph 12 of its skeleton submissions, that the documents requested were necessary and essential for it to assess its position for “the purpose of the liquidation process”, the winding up proceedings and to seek legal advice based on these outstanding documents. But it is difficult to see why that is so — the Applicant has never explained either in Francis Kao’s 2^nd affirmation or in its skeleton submissions what “the purpose of the liquidation process” it was that the documents were required.  The Company is insolvent with outstanding debts of over HK$20 million but no significant assets had been ascertained or recovered.  Hence, unless the Company is able to recover other assets via legal claims, it will not have any surplus assets for distribution to its contributories.  That was in fact one of the reasons why Fung had refused to allow the Applicant to inspect all the documents requested.

44.As Mr Chan SC submits, and this court agrees, Ground 1 can actually be disposed of quickly.

45.Whatever the Applicant may choose to assert, the simple fact is that the Inspection Summons has been heard and dismissed by the Court on 1 February 2018 with costs to Fung.  Importantly, apart from a bare assertion, there is no explanation as to why Fung’s failure to provide the documents requested, which ex hypothesis was found to be justified, shows he was partial.  There is simply no substance in the Applicant’s assertion and making such a serious allegation against a liquidator in these circumstances is highly unsatisfactory, to say the least.

46.Ultimately, the Applicant’s allegation of lack of partiality on the part of Fung rests on his evidence that in around June 2015, he was approached by Messrs Lau Chan & Ko, the former solicitors of PIL, a creditor and contributory, to ascertain whether he would be willing to be appointed as liquidator of the Company and Fung agreed.[7]  This was so despite Fung’s evidence on oath that before his appointment, he did not know any of the shareholders, directors or officers of the Company.

47.In Re Akai Holdings Ltd [2001] 2 HKLRD 411, the issue before the court was who should be appointed liquidators of the 2 companies in liquidation when the creditors voted in favour of one team viz Christensen, Hodgkinson and Fan, while the contributories voted in favour of another viz Kennic Lui, Lauren Lau and Ruby Leung.  One of the objections raised against the creditors’ choice was that there was an appearance of lack of independence and impartiality since a bank had entered into a funding agreement on the basis that the creditors’ choice would be appointed and a set‑off by that bank might have to be investigated in the liquidation process.  With regard to this objection, Yuen J (as she then was) pointed out at 422 D‑H:

“  69.   As for the funding, it is well‑established that the fact that a creditor is funding the liquidation (or even only specific parts or steps in the liquidation) is not a reason for criticism.  Indeed it has been accepted that “where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticized, in making funds available to the liquidators.  Nor need a liquidator be diffident in accepting funds or indemnities from creditor so as to enable a winding‑up to proceed” (Re Allebart Pty Ltd [1971] 1 NSWLR 24, 28).

70.   So the fact that a creditor is funding the liquidators does not mean that liquidators are “in the pocket”, or would be properly perceived to be “in the pocket” of a creditor.  Nor the fact that a creditor would only fund certain liquidators.  A creditor who has already lost his money is reasonably expected to be careful that he is not throwing good money after bad.  He is entitled to make sure that the funds are not wasted and to be vigilant that the liquidators who will be expending the funds are worthy of his confidence.  In my view it was reasonable for SCB to provide that Christensen, Hodgkinson and Fan and, importantly, “any other persons reasonably acceptable to SCB” would be appointed.  That does not make them beholden to it.”

48.If the fact that a creditor is funding a liquidator is not per se a sufficient reason to doubt the partiality of the liquidator, the mere fact that he had been approached by a creditor’s solicitors to take up the role of a liquidator should a fortiori not be a reason to do so.

49.In this court’s view, Ground 1 is entirely without merits.

Ground 2

50.Concerning this ground, the Applicant’s complaint is that Fung should not simply have relied on the OR Papers including inter alia the 2008 Audited Accounts to ascertain the identity of the shareholders and directors of the Company without prior verification.  Instead, Fung only did an independent verification at a late stage by (i) by contacting the Company’s BVI registered agent on 14 June 2016 and (ii) performing a company search on the Applicant on 16 November 2016, notwithstanding the fact that Fung was aware of the Applicant’s shareholding in the Company by virtue of Hastings & Co’s letter dated 11 April 2016.

51.The Applicant complains that owing to Fung’s undue delay and failure to investigate the matters independently, its rights as a contributory were substantially prejudiced in that due notices should have been but were not given to the Applicant to attend all meetings of contributories and/or that the Applicant might have been appointed to sit in the COI without hindrance.  There is also a bare assertion that Fung’s alleged delay is another example of Fung’s bias and lack of independence, without really explaining why.

52.In this court’s view, Ground 2 is equally unmeritorious.

53.To start with, the 1^st meetings of creditors and contributories were convened by the OR, not Fung, and notices of those 1^st meetings were sent out by the OR based on information available to it.  It was in those 1^st meetings that the Company’s creditors and contributories voted in favour of appointing Fung as liquidator and appointing a COI.

54.Second, unless Fung had reasons to think the OR’s lists of creditors and contributories were in any way defective, it is difficult to see why he should spent his time and the resources available to him to do an independent verification, instead of getting on with his much more important task as liquidator ie to investigate the Company’s financial affairs, ascertain and collect its assets, settle its liabilities and distribute funds amongst creditors.[8]

55.Third, in none of the OR Papers did it show that the Applicant was a shareholder or creditor of the Company.  This is not disputed by the Applicant.  It was only from the Certificate of Incumbency enclosed in Hastings & Co’s letter dated 11 April 2016 that the Applicant was listed as the holder of 5,637 shares of the Company.  According to the OR Papers, the same number of shares was held by Happy Nation Ltd (“Happy Nation”).  On Fung’s evidence, that was the first time he was informed that the Applicant was a shareholder of the Company and that Kobayashi, instead of Francis Kao, was its sole director.

56.After receiving the said letter from Hastings & Co, Fung had carried out investigations into the circumstances pertaining to the Applicant becoming a shareholder and Kobayashi becoming the sole director of the Company, but with little success.  Fung also tried to obtain information on the Applicant from Francis Kao’s and the Applicant’s solicitors Chiu & Partners (“CP”) but also without success, as evident from the exchange of correspondence between Fung’s then solicitors and CP dated 21 and 30 September 2017 referred to at [62] below.  On Fung’s evidence on oath, even now, he is still unable to ascertain the registered office of the Applicant or the identities of its shareholders.  

57.Lastly, at least in the case of an insolvent company, the wishes of the major creditors generally command greater weight over those of its contributories in determining who would be appointed as liquidator or members of the COI.  Further, in the case of an insolvent company, it is unnecessary for the COI to consist of contributories at all.

58.In Re Hung Fung Holdings Ltd [2001] 3 HKLRD 692[9], Chu J (as she then was) observed at [9] and [12] as follows:

“ 9. The authorities have established that the Court has a wide discretion over the question of appointment of liquidators: Re Dunquil Pty Ltd (1985) 9 ACLR 950 and Re Australian National Finance Ltd (1992) 7 ACSR 697. An important consideration in the exercise of the discretion is the wishes of the major creditors: Sections 287(1) and (2) of Companies Ordinance, see also Re Goldcone Properties Ltd [1999] 4 HKC 602.

…

12.   From the information provided to the Court by the Official Receiver at the hearing, it can be seen that the Company, as it now stands, is insolvent.  It is therefore likely that the creditors will not recover their debts in full.  Given that the rights of the contributories rank after that of the creditors, it is probable that the contributories will not receive any distribution or dividends.  Considering that the main functions and powers of the CI are to act with the liquidators and to oversee the liquidators in the exercise of their powers: see sections 206(1) and 200(1) of Companies Ordinance, I am of the view that it is not necessary for the CI of the Company to consist of the contributories or their representatives when the contributories are unlikely to be paid out of the estate of the Company: see also Re James, Exparte Cowra Processors Pty Ltd (1995) 13 ACLC 1582.”

59.The Applicant was and is not a creditor of the Company.  Hence, even if it had been given notice of and attended the 1^st meeting of contributories in July 2015 and voted for someone else as liquidator or members of the COI, the wishes of the creditors would still likely to have prevailed and the appointment of Fung and the 3 members of the COI would still have been approved.  It is therefore difficult to see how the Applicant’s so‑called rights as a contributory could be said to have been substantially prejudiced by Fung’s alleged undue delay and failures.

Ground 3

60.Ground 3 is in essence a minor variant of Ground 2. The Applicant’s complaint is that Fung must have been fully aware of its shareholding in the Company at the very latest by:

(1)    11 April 2016 upon the receipt of Hastings & Co’s letter enclosing the Certificate of Incumbency; or

(2)    6 February 2017 upon the receipt from OIL Hong Kong of the Bought and Sold Notes and Instruments of Transfer which showed that (i) on 13 July 2009, Happy Nation transferred 5,636 shares to Francis Kao and (ii) on 3 November 2009, Francis Kao transferred the 5,636 shares to the Applicant, both for nil consideration.

61.Yet, notwithstanding the above, Fung still deliberately refused to recognize the Applicant’s interest in the Company in an unreasonably obstructive manner.  In particular, on 21 September 2017, Fung’s then solicitors wrote to CP and “requested the ‘documentary proof’ of the shareholding of [the Applicant] in the Company as it ‘alleges itself a shareholder and contributory of the Company and/or creditor of the Company’ ”.^[10]

62.While CP was first instructed to act for Francis Kao in May 2017^[11] and subsequently for the Applicant, for the present purpose, the relevant chain of correspondence between CP and Fung’s then solicitors started from 17 August 2017 ie the day after the private interview referred to in [36] above.  The gist of the correspondence from 17 August to 30 September 2017 is that:

(1)   CP insisted on Fung providing them with the documents in the present winding up proceedings, including the petition, affirmations, summonses and orders made as a prerequisite to Francis Kao providing the information sought by Fung about the Company’s affairs, in particular, the various payments out of the Company’s bank accounts.

(2)   After Fung’s solicitors had provided the Winding‑Up Order and the Appointment Order to CP on 24 August 2017, CP then wrote back to Fung’s then solicitors on 29 August 2017 and provided some of the information sought by Fung about the payments but still insisted on Fung providing him with the documents in the present winding up proceedings.

(3)   On 6 and 16 September 2017, CP then raised the allegation that the Applicant was not just a contributory, but also a creditor of the Company and complained that the Applicant had not received notice of the present winding up proceedings, notice to prove its debt owed by the Company or notice of any creditor’s meetings.

(4)   In response, Fung’s then solicitors replied to CP by the said letter dated 21 September 2017.  Importantly, the main thrust of the letter is not quite what the Applicant submits at paragraph 26 of its skeleton submissions.  Paragraph 2 of letter reads:

‘ Asia Pacific Glory Limited alleges itself a shareholder and contributory of the Company and/or creditor of the Company. We have instructions to request the documentary proof thereof. Please also provide further details such as the address of its registered office, its shareholders/members and its directors and their addresses.’

(5)   On 30 September 2017, CP wrote back, persisting with the Applicant’s request for the documents in the present winding up proceedings and refusing to provide information about the Applicant as requested.

63.On 4 October 2017, the Applicant issued the Inspection Summons.

64.In summary, while the request of Fung, or rather his former solicitors, for documentary proof of the Applicant’s status as contributory might have been overcautious or even redundant, it is no proof that Fung had knowingly deprived the Applicant of its rights and interest in the liquidation process.  It certainly does not justify the description that Fung’s attitude was oppressive, obstructive and biased^[12].

65.In this court’s view, Ground 3 is entirely devoid of merits.  To the credit of Mr Scott SC, he did not really press on this Ground at the hearing.

Interest of those interested in the assets of the Company

66.As stated in Re Luen Tat Watch Band Manufacturer Ltdquoted above at [40], the interest of those who are interested in the assets of the Company is the single most important factor to consider in an application for removal of the liquidator. 

67.Presently, the Company has no significant assets to speak of[13] but with outstanding debts of over HK$20 million.  The liquidation process is currently funded by the creditors of the Company.  The discovery by Fung of the HK$345 million Payments raises the prospect that the Company may be able to recover some assets via legal claims but unless there is continued funding of the liquidation process and the pursuit of any potential legal claims and unless the recovery (net of legal costs and expenses so far incurred and to be incurred) far exceeds the Company’s debts, the parties who are principally interested in the assets of the Company are its creditors[14].  In a letter dated 22 December 2017 to Fung, Messrs Lau Chan & Ko representing all the creditors and all members of the COI stated categorically that they:

“(a) Continue to support Mr Fung as the sole Liquidator of the Company;

(b) Refuse to appoint anyone, especially anyone nominated by Francis Kao and/or any associates of Francis Kao, to replace Mr Fung as Liquidator of the Company; and

(c) Refuse to accept any proposal to appoint anyone, especially anyone nominated by Francis Kao and/or any associates of Francis Kao, to otherwise be appointed as Joint Liquidator to work together with Mr Fung regarding the liquidation of the Company.”

68.Since Francis Kao is the main target of Fung’s investigation and one of the potential candidates should Fung, as Liquidator, decide to pursue the Company’s legal claims, it is perfectly understandable and reasonable for the creditors to support Fung to continue his investigation into the HK$345 million Payments and oppose the appointment of any persons nominated by Francis Kao to replace him.  Further, the removal of Fung will inevitably lead to additional costs and expenses which will have to be borne by someone, most likely the Company’s creditors, as well as delay to the liquidation process.  As stated in Re Legend International Resorts Ltd quoted above at [39], the confidence of the majority creditors in the liquidators is an important factor when there is little in the way of assets in a company, so that the process of liquidation will have to be financially supported by funds raised from creditors.  A fortiori, in the present case, Fung has the confidence of all the creditors.

69.In this court’s view, not only has the Applicant failed to make out a case for the removal of Fung, it has also utterly failed to persuade this court that it is to the general advantage of those interested in the assets of the Company that Fung be removed.

70.For all these reasons, the application must fail.

Disposition and costs order nisi

71.This court hereby dismisses the Applicant’s summons dated 21 November 2017 as amended on 3 May 2018, with costs to the Liquidator, to be taxed if not agreed, with certificate for 2 counsel, on a nisi basis.

Mr John Scott SC and Mr Lincoln Cheung, instructed by Chiu & Partners, for Asia Pacific Glory Limited (the Applicant)

Mr Edward Chan SC and Mr Lee Tung Ming, instructed by T K Tsui & Co, for Fung Chi Keung (the Liquidator)

Attendance of the Official Receiver was excused