Official Receiver v. Chung Kwan Yee, Kennis and Another

HCMP003605/1994

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS NO. 3605 OF 1994

____________

____________

_______________

AND

MISCELLANEOUS PROCEEDINGS NO. 3606 OF 1994

____________

____________

____________

AND

MISCELLANEOUS PROCEEDINGS NO. 3607 OF 1994

____________

____________

____________

Coram: The Honourable Mr. Justice Rogers in Court

Date of hearing: 6 March 1995

Date of delivery of decision: 31 March 1995

__________________

D E C I S I O N

__________________

1. These are three cases in which a preliminary point has been raised by the Official Receiver. In two of the cases, the Respondents have not appeared; and in the third case, the two Respondents have appeared but have made no submissions. The applications concern Section 168H of the Companies Ordinance. This is a new provision. The heading of the Section is "Duty of court to disqualify unfit directors of insolvent companies".

2. The Section reads as follows :-

" (1) The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied -

(a) that he is or has been a director of a company which has at any time become insolvent whether while he was a director or subsequently; and

(b) that his conduct as a director of that company, either taken alone or taken together with his conduct as a director of any other company or companies, makes him unfit to be concerned in the management of a company."

That Section is broad in its principle. It will be noted it is not specifically related to any particular act, but what the court is required to do is to make an order when it sees a director has acted as a director in a manner which makes him unfit to be concerned in the management of a company.

3. Section 168K provides that :-

" (1) Where it falls to a court to determine whether a person's conduct as a director of any particular company or companies makes him unfit to be concerned in the management of a company, the court shall, as respects his conduct as a director of that company or, as the case may be, each of those companies, have regard in particular -

(a) to the matters mentioned in Part I of the Fifteenth Schedule; and

(b) where the company has become insolvent, to the matters mentioned in Part II of that Schedule,

and references in that Schedule to the director and the company are to be read accordingly."

4. The Fifteenth Schedule sets out a number of matters, it is divided into two parts. First of all, matters which were applicable in all cases; and secondly, matters which were applicable where the companies become insolvent. In respect of all cases, the court must take into account any misfeasance or breach of any fiduciary or other duty by the director in relation to the company and also in particular the extent of the director's responsibility for any failure by the company to comply with a number of provisions which include, inter alia, Section 121 of the Companies Ordinance which relates to keeping of books of account. Of course, the failure to keep books of account constitutes an offence. Other matters also constitute offences and those are in particular a failure to comply with the obligation imposed under Section 190 of the Companies Ordinance to submit a statement of affairs to the Official Receiver.

5. The point which is at issue is that the provisions as to disqualification of directors are comparatively new. The offences of which the person sought to be disqualified had been convicted were, in the case of the failure to keep books of account, committed prior to the coming into effect of the provisions relating to disqualification.

6. The offences in relation to failure to provide a statement of affairs appear to me to be a continuing offences to the extent that although initially they may have been committed prior to that event if the statement of affairs has still not been provided, then they are offences which are still continuing until the statement is provided.

7. My attention has been drawn to a number of authorities directed as to whether the power of the court should in this instance be exercised in relation to an offence which was committed prior to the coming into effect of the particular law. In my view, in this instance, there is no such bar. What the Ordinance requires the court to do is to consider whether in the circumstances of the particular case, the director is unfit to be concerned in the management of a company. The obligations which the director was required to perform have always been there. Directors of companies have always been required to perform them. The court in assessing whether the particular person is fit or unfit to be a director has to take into account the matters which are set out in the Schedule, but it is still a matter of overall assessment.

8. If the obligation of a director to do something had been imposed only recently, then his failure to carry out such an obligation would, of course, have to be looked at in the light of the circumstances existing at the time of the conduct of which complaint is made. If at that time the director did or failed to do something of which complaint could justifiably have been made, the fact that it was not known at that time that the director may be prevented from being a director of any other company is something which might be taken into account by the court in its discretion as to the penalty to be imposed but does not make the director concerned any less unfit to be a director of a company.

9. I take into account here that although the particular Sections which require the court to disqualify the directors in particular circumstances are not penal sections, see Re Cedac Ltd., Secretary of State for Trade and Industry v. Langridge [1991] BCC 148, they do have serious consequences for the director concerned and, of course, the breach of any order would have penal consequences. In those circumstances, a court should, in my view, be slow to give other than a strict construction to the statutory provisions. Nevertheless, in my view, the statute is clear. The court must have an overall regard to the fitness of the person. In taking that into consideration, it must also take into consideration the fulfilment of the director's duties under the then existing provisions of the Companies Ordinance.

(Anthony G. Rogers)

Judge of the High Court

Representation:

Mr. Bush for the Official Receiver.

The 1st & 2nd Respondents in MP 3605/94 appearing in person.

The Respondent in MP 3606/94 being absent.

The Respondent in MP 3607/94 being absent.