Re Yick Fung Estates Ltd

Case No.HCCW 100/1984

Court

High Court CFI

Date03 May 1985

Judge—

Case Document

100%Judiciary

HCCW000100/1984

IN THE HIGH COURT OF JUSTICE

NO. 100 OF 1984
COMPANIES WINDING-UP

IN THE MATTER OF YICK FUNG ESTATES LIMITED

AND

IN THE MATTER OF THE COMPANIES ORDINANCE (CAP. 32)

________________

IN THE HIGH COURT OF JUSTICE

NO. 101 OF 1984
COMPANIES WINDING-UP

IN THE MATTER OF SHUI HING INVESTMENT COMPANY LIMITED

AND

IN THE MATTER OF THE COMPANIES ORDINANCE (CAP. 32)

__________________

Coram: The Honourable Mr. Justice Jones in Chambers

Dates of hearing: 25, 26 & 29 April 1985

Date of delivery of judgment: 3 May 1985

____________

JUDGMENT

___________

1. I have before me summonses for the appointment of a provisional liquidator pursuant to Section 193 of the Companies Ordinance for two companies, Yick Fung Estates Limited (Yick Fung) and Shui Hing Investment Limited (Shui Hing).

2. Petitions were presented by two contributories, Waychong Enterprises Limited (1st petitioner) and Cheng Kwei Sheng (2nd petitioner) on the 19th March 1984 to wind up the two companies on the just and equitable ground. An order for consolidation of the two petitions was made on the 27th April 1984. The hearing of the petitions has been fixed to commence on the 1st October 1985.

3. Motions to strike out the petitions by the companies were heard by me over a period of ten days last year and were dismissed on the 15th June 1984. For convenience I will set out the facts of the case as they appear on pages 2, 3 and 4 of my judgment.

"FACTS

	T.H. Wang and his life Nina Wang (the Wangs) control a group of private companies known as the Chinachem group. the group includes the two respondent companies, Hop Kay Company Limited (Hop Kay), On Lee Investment Company Limited (On Lee), Wing Wong Company Limited (Wing Wong) and Ripple Corporation Limited (Ripple). The first petitioner and the two respondent companies were incorporated for the purpose of real estate development. The Wangs control 80% of the issued share capital of the respondents whilst the 1st and 2nd petitioners each hold 10%. The Wangs, Tai Ching Ping (Tai) an employee of the Wangs, the 2nd petitioner, and Ho Chew who represents the interests of the 1st petitioner are directors of both the respondent companies. Another company under the control of the Wangs Sunday Investment Limited is also a director of the 2nd respondent.
	Prior to 1976 the Wangs representing the Chinachem group and the 1st petitioner represented by Ho Chew or other companies carried out certain real estate developments as joint ventures. The 2nd petitioner had also been engaged in joint ventures with the Wangs.
	In May 1976 a joint venture agreement was entered into between the Wangs on the one hand and the 1st and 2nd petitioners on the other for the development of Shatin Town Lot No. 11 as a residential and commercial complex. For this purpose the two respondent companies acquired land as tenants in common in equal undivided shares from the Hong Kong Government by public tender for $66,500.000. Completion of the development was to be on or before the 31st December 1982. It is common ground that the management of the project has throughout been under the control of the Wangs.
	Disputes arose between the parties at an early stage in the development, but were resolved by correspondence in September 1977.
	In December 1979 four residential blocks that were in the course of erection on the land were sold by the respondent companies at an alleged under value to Wing Wong and Ripple. The petitioners claim that they had no knowledge of these transactions.
	On the 22nd December 1982 the petitioners, solicitors wrote to the the Wang requesting explanations on various documents and accounts. Further correspondence ensued until April 1983 when the writ in the derivative action was issued. It is clear that the petitioners had contemplated filing a winding up petition in May 1983, but a petition in draft form was not ready until October 1983. Negotiations held without prejudice to try to achieve a settlement were conducted between the solicitors for the parties in December 1983 and January 1984, but were unsuccessful. Of the 14 tower block that were originally contracted to be built 8 have so far been completed and some progress has been made on the other 6.
	By reason of the failure to complete the project within the stipulated period government re-entered the undeveloped portion of the land on the 20th January 1984. However, the re-entry was subsequently cancelled on the 15th May 1984.
	On the 15th April 1983 the petitioners as minority shareholders commenced a derivative action against the respondent companies and their associates on behalf of the respondent companies and their shareholders for damages for fraud and conspiracy.
	...............................................................................
	The statement of claim includes a number of allegations of fraud, breach of fiduciary duty and lack of bona fides. The petitions contain a series of allegation of breaches of duty by the Wangs which the petitioners claim resulted in their exclusion from consultation and decision making. In particular the petitioners rely on paragraph 21 of the petition which reads:
	"	21. Notwithstanding the vesting of the management of each of these joint ventures in a particular participant, it was fundamental that the other parties should be kept informed of all important developments and that the other parties should be consulted on matters of policy. Those matters included matters relating to the layout and design of the development, employment of architect and contrators, financing of the project and the disposal of the same."
	Specific allegations are made that construction costs were high, architectural fees excessive, funds were improperly diverted, failure to disclose accounts, and that the Wangs were guilty of mala fides.
	By virtue of the conduct alleged the petitioners contend that the joint venture has been prejudically affected by putting the assets of the companies in jeopardy. The petitioners also claim that they have lost confidence in the Wangs because of an abuse of their power as directors and controlling shareholders of the companies with a view to benefiting themselves at the expense and to the detriment of the petitioners and the companies.".

In those proceedings counsel for the companies conceded that the petitions revealed a good cause of action whilst I held at page 10 of my judgment as follows:-

"The evidence if accepted supports the petitioners' allegation that they have no confidence in the continued management of the companies by the Wangs.".

4. Mr. Millett who appeared for the companies on the present applications concedes that if the evidence of the petitioners is accepted at the trial, a winding up order will be made and equally justifies grounds for fearing that the assets of the company are in jeopardy. He also concedes that the petitioners had produced prima facie evidence in June 1984 to support some of their allegations.

5. The summonses were issued on the 19th March 1984 and the hearing was due to commence on the 21st May 1984. However, the motions to strike out the petitions began on the 17th May 1984 and did not finish until the 30th May 1984 when judgment was reserved. As a result the summonses were adjourned until the end of July 1984. However, on the 31st July the parties by a consent order agreed that the summonses be adjourned sine die with liberty to restore on two clear days notice on certain terms. The principal terms of the order were as follows:-

"	1.1 A11 monies in the hands of Yick Fung Estates Limited ("Yick Fung") and Shui Hing Investment Company Limited ("Shui Hing"), all proceeds from the sales of units in the Shatin Town Lot No. 11 Development ("the Development") and all rentals and other income be paid into an interest-bearing bank account to be opened in the names of Messrs. Woo, Kwan, Lee & Lo and Messrs. Philip K.H. Wong & Company jointly ("the Account").
	1.2 The Account be one which can only be operated by signatures of at least 2 signatories, one of which must be one of the partners of Messrs. Philip K.H. Wong & Company designated as signatories by the joint petitioners and one of which must be one of the partners of Messrs. Woo, Kwan, Lee & Lo designated as signatories by the opposing contributories.
	1.3 The joint petitioners designate at least 3 of the partners of Messrs. Philip K.H. Wong & Company as such signatories. The opposing contributories designate at least 3 of the partners of Messrs. Woo, Kwan, Lee & Lo as such signatories.
	2.1 Except to the extent set out in paragraph 3.1 below, expenditure on the Development be against certificates of the authorised person, Mr. K.K. Wong and countersigned by a quantity surveyor to be appointed. The quantity surveyor be selected by agreement of the joint petitioners and the opposing contributories or, failing such agreement, by the Court.
	2.2 Yick Fung and Shui Hing will not enter into any contract the terms of which provide for payment by them or either of them in excess of $10 million save with the prior approval, of the joint petitioners or the Court.
	2.3 This order is without prejudice to the right of the boards of Yick Fung and Shui Hing to exercise their own unfettered commercial judgment in good faith.
	3.1 A cash impressed account be operated by Yick Fung and Shui Hing for miscellaneous expenses (''the impressed account").
	3.2 $1 million be paid from the Account into the impressed account upon opening, and the amount therein shall never be allowed to exceed $1 million or fall below $100,000.00
	3.3 The opposing contributories will supply the joint petitioners with itemised statements of expenditure when seeking to replenish the impressed account.".
	5. Within 56 days from the date hereof the opposing contributories shall make such contribution (according to their record as at the 30th June 1984) towards the costs of the Development as may be necessary to bring the contributions of the opposing contributories, Waychong Enterprises Limited and Mr. Cheng Kwei Sheng respectively to the proportions 80:10:10 respectively. The amount shall be adjusted as necessary on completion of audit of Yick Fung and Shui Hing's for the year ended 30th June 1984.
	6. The joint petitioners and their accountants (at their expense) shall within 14 days from the date hereof have access to the accounts and documents for carrying out an audit of Yick Fung and Shui Hing from the date of the last audited accounts, i.e for the year ended 30th June 1981 for the purpose of carrying out up-to-date audits of Yick Fung and Shui Hing.".

6. As a result of investigations made by Messrs. Coopers & Lybrand, the petitioners' accountants, it was discovered after the consent order had been made that the Wangs had made charges for sales commission and management fees during 1982 and 1983 without the knowledge or consent of the petitioners. As a result an order was made to amend the petition on the 19th September 1984 to include two additional paragraphs. They are paragraphs 83A and 83B which read: -

"83A. Further, during the years ended 30th June, 1982, and 30th June, 1983, the Wangs and their servants or agents without the knowledge or consent of Waychong or Chang procured Shui Hing to pay to or to credit Yau Fook Hong Company Limited, a company under the actual or effective control of the Wangs, the respective sums of $12,762,383.75 and $16,104,284.60 purportedly by way of commission on the sale of units in the project and "management fee".

PARTICULARS

Year ended

30th June 1982

Year ended

30th June 1983

Sales commission

"Management fee"

$ 7,582,383.75

5,180,000.00

___________

$12,762,383.75

=========

$13,704,284.60

2,400,000.00

____________

$16,104,284.60

=========

83B. The payment or credit by Shui Hing to Yau Fook Hong Company Limited of sales commissions and of "management fee" allegedly in respect of office maintenance services were wholly unjustified and were not made bona fide and in the interests of Shui Hing but were intended by the Wangs to benefit themselves to the detriment and at the expense of Shui Hing and ultimately Waychong and Cheng. If and insofar as it may be found that Yau Fook Hong Company Limited was entitled to any sales commission, the sales commission was charged at 7.5 per cent of the sale price and was excessive.".

These charges have been admitted by Mr. Wang, but he denies that there is anything wrong or improper about them.

7. The main thrust of Mr. Litton's submission on behalf of the petitioners is that there have been breaches of the consent order by the Wangs which now require the appointment of a provisional liquidator as a matter of urgency. Mr. Millett on the other hand asserts that there have been no breaches of the order, that it is not an appropriate case for the appointment of a provisional liquidator, but instead invites the court to deal with the application by means of undertakings. In any event he submits that the petitioners should not have restored the summonses, but instead should have referred the matter back to the court under the provision for liberty to apply.

8. I will now turn to the terms that were agreed to by the parties in the consent order and consider the evidence. Clauses 1 and 3 joint bank accounts. It is not in dispute that neither an interest bearing account nor an imprest account has been opened. On the 15th August 1984 the solicitors for the Wangs, Woo, Kwan, Lee & Lo suggested that the accounts should be opened with the Continental Illinois Bank Limited (C.I.B.L.). The petitioners' solicitors, Philip K.H. Wong & Co. replied that before expressing an opinion upon this suggestion, they wished to have a detailed account of the money that the companies proposed to pay in. Eventually Woo, Kwan, Lee & Lo replied that the sum to be paid in was $23,140,400.08. As C.I.B.L. had experienced financial problems in the United States at this time, the parties agreed by the 24th September 1984 to open the accounts with the Chase Manhattan Bank. However, despite further correspondence between the solicitors for the parties, no steps were taken to open the accounts. On the 4th December 1984 the Wangs changed their solicitors to Ip, Ku & Stoppa and on the 17th December 1984 they wrote to the petitioners' solicitors requesting their consent to the names of the prospective signatories to the accounts being changed. Consent was given somewhat belatedly on the 1st February 1985 and the documents for the opening of the accounts were sent to Ip, Ku & Stoppa on the 6th March 1985. However, on the 18th March 1985 they replied to the effect that it would be preferable to open the accounts with C.I.B.L. as the interest rates offered were higher than those of the Chase Manhattan, and also on the grounds that the Chase Manhattan had refused to open the imprest account. Correspondence then ensued between the parties' solicitors, some from Ip, Ku & Stoppa being unnecessarily acrimonious. This correspondence achieved no positive result. It is true that the consent of the petitioners to the identity of the bank is not required by the order, but quite obviously the accounts cannot be opened without their approval having regard to the fact that the accounts are to be joint accounts.

9. The Wangs contend that the Chase Manhattan refused to open the imprest account because of the pending litigation between the parties. This seems an extraordinary reason when the account was to be credited with up to $1 million whilst banks are concerned with matters of litigation everyday of the week. No evidence was adduced by anyone from the Chase Manhattan Bank to support this allegation. Mr. Wang in paragraph 6 of his affirmation of the 24th April 1985 says:-

"At all material times, and at the present time, all the moneys relating to the sale and leasing of units in Shatin Town Lot No. 11 have been deposited in a day call deposit account with CIBL, which amount is now in the region of approximately $104 million and which is earning interest at 7.75% per annum.".

The name of tire account holder is not mentioned.

10. In my judgment there is abundant evidence that the Wangs have deliberately delayed the opening of the accounts, and have now raised the issue of interest as a further excuse for delay.

11. Clause 5 was to be complied with within 56 days of the order, but no payment has been made. The Wangs say that they were unable to make an payment until they had received their accountants' report to determine how much was required. Nevertheless, the order required payment to be made according to the companies' records as at the 30th June 1984 which need not be audited. Only upon completion of the audited accounts would it be necessary to adjust the amount if that happened to be necessary. There has been a clear breach of this clause.

12. Clause 6 has not been complied with, but the Wangs deny that there has been a wilful refusal to supply the accounts and documents. Coopers and Lybrand, the accountants instructed to carry out the audit have set out in their report of the 17th April 1985, details of the steps they have taken to gain access to the records of the company. From the outset they encountered difficulties in obtaining the necessary records. On the 12th December 1984 they wrote to the companies requesting that they be supplied with certain documents and for bank statements and records up to the 30th June 1984, but no reply was received. Mr. Millett said that Coopers & Lybrand should have followed up this letter with a reminder and commented that businessmen tend to regard litigation as of secondary importance to their business activities. That is no doubt true but affords no excuse for the Wangs' failure to comply' with the consent order. It was not the accountants' responsibility to try and prise out the documents from the Wang. Again there has been a clear breach of the order whether wilful or otherwise.

13. My attention was drawn to various allegations made by the petitioners which support their claims that they have lost complete confidence in the Wangs. In particular I was referred again to the Wing Wong and Ripple agreements, the Land Exchange Entitlements and the tenders invited for the four remaining blocks that are to be built. I do not propose to analyse these arguments for these disputes cannot be decided on the affidavits. That evidence can only be considered at the trial. However, if the petitioners' evidence is true a winding up order will be made for the Wangs have abused their power as directors in the conduct and management of the companies.

14. The matter of appointing alternate directors on behalf of the petitioners was also raised, but I do not consider that it is relevant to the present application.

15. The court has an unfettered discretion to appoint a provisional liquidator if it is shown that there is a prima facie case to make a winding up order and either the property of the company is in danger or it is alleged that those in control are misappropriating or wasting its assets or any other good cause exists.

16. Mr. Millett concedes that the petitioners have cause for complaint, but that they themselves have contributed to the delays that have occurred. He submits that the petitioners should not have restored the application for the appointment of a provisional liquidator, but that an application should have been made under the provision for liberty to apply. Mr. Millett asserted that if a provisional liquidator is appointed it will deter tenders being made for the contract for the remaining blocks or tenders will be submitted with onerous terms imposed. This matter is not relevant to the circumstances of this case but in any event I do not consider that there is any merit in this argument for tenderers are likely to know that a petition has been presented and that litigation is pending.

17. Mr. Millett submitted that the solution to the present impasse would be by way of undertakings. I assume although it was not stated that the undertakings would be given by the Wangs. Mr. Wang on his own evidence regards the project as his own. The management is under the control of the Wings. Large payments have been received by way of commission and management fees by the Wangs without any explanation which indicates that the assets are being misappropriated, and there is no reason to suppose that this situation will not continue. The evidence if accepted supports the petitioners claims that they have lost all confidence in the Wangs. Having treated the consent order with complete disdain one wonders how any faith can be placed in any undertaking that might be given by the Wangs. It is indicative of his attitude that Mr. Wang has not even complied with Section 122(l) of the Companies Ordinance by placing the last annual accounts of the companies before a general meeting within the statutory period.

18. The petitioners have shown remarkable tolerance and forbearance in not restoring the summonses earlier in view of the Wangs' attitude. The order was made to preserve the position until the petition but that is no longer possible having regard to the Wangs' failure to comply with the order. It is therefore necessary to protect the assets until the hearing of the petition for they are undoubtedly in jeopardy. Accordingly in the exercise of my discretion I am satisfied that the Official Receiver should be appointed as the provisional liquidator of the two companies.

(B.L. Jones)
Judge of the High Court

Representation:

Mr. H. Litton, Q.C. & Mr. W. Poon (Philip K.H. Wong & Co.) for Petitioners.

Mr. P. Millett, Q.C. & Mr. R. Sujanani (Ip, Ku & Stoppa) for Companies.

Mr. E.G. Knos for Official Receiver.