Re The Winsome Printing Press Ltd
Read the full judgment text of HCCW 10/1971 on BabelCite. This High Court CFI judgment.
1. This is a Petition for the winding-up by the Court of a company known as the Winsome Printing Press, Limited, which was incorporated on 1st November 1961.
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HCCW000010/1971 IN THE SUPREME COURT OF HONG KONG Companies (Winding-up) No. 10 of 1971 -----------------
Coram: Huggins, J. Date of Judgment: 27th July, 1971. ----------------- JUDGMENT ----------------- 1. This is a Petition for the winding-up by the Court of a company known as the Winsome Printing Press, Limited, which was incorporated on 1st November 1961. 2. The case is somewhat unusual in that the Petition and the affidavits in opposition raise issues of fact of some complication yet neither side applied to cross-examine upon the affidavits. I am therefore left in the position that there are numerous disputes of fact which quite clearly I am not in a position to resolve. Moreover, the parties appeared before Mr. Justice Mills-Owens on 15th May of this year and he made an Order adjourning the hearing of the Petition and, according to the endorsement of the record by the Clerk (there being no endorsement by the learned Judge himself), leave was given to the Petitioner to file affidavits in reply. In fact affidavits have been filed, but the Order which was drawn up as a result of the hearing on 15th May quite clearly says there shall be leave to file one affidavit, and in the face of that, there having been no attempt to correct the Order which was filed, the parties agree that I am bound to look at only one of the affidavits which have been filed and the affidavit of Mr. Rupert LEE, although on the record, has not been looked at. 3. This Company was incorporated with a nominal capital of $150,000. In August 1963 that capital was increased to $200,000. As its name implies, the company carries on the business of a printing press. There have at all times been three and no more than three shareholders: they are the two Petitioners and Mr. LUI Choi, who has appeared to oppose this petition. 4. These three gentlemen were named in Article 6 of the Articles of Association to be Permanent Directors of the Company, who were to hold office until they died or ceased to be Directors by reason of any of the causes provided for by those Articles. However, Article 8 went on to say that the qualification of a Permanent Director should be the holding of at least 500 fully paid shares in the Company. Article 19 provided that Mr. LUI Choi should be the Managing Director of the Company and that the two Petitioners should be Assistant Managing Directors, each of them holding office until such time as he ceased to be a Permanent Director. Article 20 provided that the carrying on of the business of the Company should be entrusted to the Managing Director and the Assistant Managing Directors, who were to observe all such directions and restrictions as the Board f Directors might from time to time give. And, finally, Article 26 provided that at a general meeting of the company every member should have one vote for each share of which he is holder. 5. It is common ground that according to the Share Register the first Petitioner (Mr. YUEN Kwong-pui) holds 750 shares, the second Petitioner (Mr. HEUNG Huen) holds 200 shares and Mr. LUI Choi holds 1,050 shares. It is alleged by the Petitioners that there was an agreement that although Mr. HEUNG Huen did not have the 500 fully paid shares which were required by Article 8 of a Permanent Director, nevertheless the other two members of the company were to let him have the advantage of the excess which they held over the 500 qualifying shares, so that Mr. HEUNG Huen in theory or in practice, whichever way one looks at it, would have the necessary qualification. The existence of this agreement is, I think, in dispute, but it is at least agreed by counsel for the Petitioners that for the purposes of this case he is bound by the Register. There has been no attempt since 1961 to have the Register amended and I agree that I am bound by the Register for the present moment. 6. In 1970 an offer was made by Mr. Rupert LEE to purchase this company for $600,000. I think it is agreed that this offer was made, because it is clearly agreed that as a result of some offer of this kind Mr. LUI Choi made an offer to purchase the company for the same figure of $600,000, and it is agreed that that offer was accepted - but it was accepted, so Mr. LUI Choi says, just before he went abroad to Taiwan for some ten days and he says that when he returned he found that the Petitioners had been misappropriating property of the company and he felt himself no longer bound to carry out this purchase. Any misappropriation of this kind is, of course, in dispute. 7. It will have been seen from what I have read from the Articles of Association that the Petitioners have a majority on the Board of Directors; and they have indeed agreed to dispose of the assets of the company. Mr. LUI Choi, on the other hand, would have a majority of votes if there were a general meeting of the shareholders. It is common ground that Mr. Lui has in fact requisitioned a general meeting but that none has been called. It is argued as a ground for my ordering winding-up of the company that the Petitioners would in any event be under no compulsion to attend any meeting which was called, and therefore it is said that the company is deadlocked because Mr. Lui could not successfully requisition, and has not successfully requisitioned, a general meeting. 8. To complete the factual picutre: it is agreed that production by the company ceased on or about 25th October, 1970, and that there remain printing machines on the premises which were occupied by the company, those machines deteriorating to a greater or lesser extent. On 25th November, 1970, there was a meeting of the Board of Directors, at which I need hardly say, Mr. LUI Choi was not present. At that meeting notice to quit was agreed to be given to the landlord of the premises occupied by the company. Those premises are owned by Mr. LUI Choi. 9. Now it was complained by Mr. LUI Choi in a letter of 24th November that the two Petitioners had by their conduct disqualified themselves from acting as Directors. That, I think, cannot be correct. It may be that they had conducted themselves in such a way that they could be removed, or in such a way that they ought not to carry on as Directors, but they were Directors at that date and even though Mr. HEUNG Huen had not, as I find, sufficient qualifying shares to be a Permanent Director, he nevertheless had the necessary number to qualify as a Director. Therefore I have no doubt that what was done on 25th November was binding - and binding on Mr. LUI Choi. I should mention that on receipt of the notice of this meeting Mr. LUI Choi objected and he wrote a letter through his solicitors, in which it is said:
(I will come back in a moment to the films referred to.)
This was followed on 26th November (two days later) by a letter which was written on receipt by Mr. LUI Choi of Minutes of the meeting which had been held on the previous day. The letter refers to "purported Minutes" of a "purported meeting". It is possible that it could be read together with the letter of 24th November as indicating that Mr. LUI Choi did not recognize that the meeting, if held, was a valid meeting at all. Equally, read alone it can be taken as saying no more than that Mr. LUI Choi did not admit either that a meeting had been held or that these were Minutes of that meeting. In any event he clearly meant to object to the fact that the meeting had (or so it was reported) agreed to dispose of the company's assets and close down the business. As I see it, there is really nothing which can fairly be complained of in the letter of 26th November. That was followed one month later, on 24th December, by a letter from Mr. LUI Choi himself to the Board of Directors, and to each of the Petitioners, requisitioning an Extraordinary General Me ting of the company for four purposes:-
10. On or about 27th October, 1970, the two Petitioners and the Mr. Rupert LEE who was the proposed purchaser of this business incorporated a company known as the "Good Year Printing Company" and the allegation of Mr. LUI Choi is that the actions of the Petitioners have indicated an intention that this new company should take over in unfair competition the business of the Winsome Printing Company. 11. I said just now that I would have to say something more about the films. These films are films which are used in offset printing known as colour separation films and it is said by Mr. LUI Choi that the Petitioners have disposed of certain films which are the property of the company. It is very much in dispute whether these films are in fact the property of the company and it is obviously impossible for me to make any finding on that matter, although I must confess I would require strong evidence to persuade me that films of this kind belong to the company rather than to the person for whom they were ordered and on whose behalf they were used. 12. Another complication in the case is that Mr. LUI Choi is the licensee of the printing press under the Printing Presses (Licensing) Regulations made under the Control of Publications Consolidation Ordinance. Under Regulation 6 it appears to be an offence to remove the printing machines from the premises where this company carried on its printing business and therefore it would require Mr. LUI Choi's agreement to an application for alteration of the licence to cover other premises. 13. It is further common ground that the company was making good profits up to the time that it closed its business. On 31st March 1970, the end of the last financial year for which a Balance Sheet appears to have been prepared, the assets were shown as $690,000. 14. The ground of the Petition is, of course, that it is "just and equitable" that the Company be wound up, and I accept (and it is relied upon by the Petitioners) that the words "just and equitable" have a very wide scope. But what is alleged in the Petition is that the company is deadlocked. That allegation is contained in para.26 of the Petition. It is said that, in addition, the Petition indicates that the company was formed in the guise of and run as a partnership and it has been sought to graft upon that allegation a further allegation which is not expressed, that the Petitioners have lost confidence in Mr. LUI Choi - and that for that reason it is just and equitable to wind up the company. 15. In the closing arguments the point was taken that the Petition was not drafted in terms sufficiently wide to justify a winding-up on the grounds of lack of confidence and an application was made at the eleventh hour to add in para.27 of the Petition the words: "As a result of the actions of the said LUI Choi as set out above the Petitioners have a justifiable lack of confidence in the said LUI Choi". I refused leave at that stage and I said I would give reasons for so doing. In my view it would not have been just at that late stage to allow the amendment. I entirely agree that where an amendment can be made and the other side can be sufficiently compensated by an order as to costs then no formality should be allowed to prevent the doing of justice, but it is repeatedly found stated in the cases relating to this matter of amendment that amendment will be allowed at a late stage only if no injustice will result to the other side. The injustice that I think would result here is that the opponent, Mr. LUI Choi, has not had an opportunity of cross-examining on the matters which would arise if lack of confidence were at issue, for in my view the Petition as drafted was not sufficiently wide to raise this particular issue. 16. Is there deadlock in this company? In my view there is not. The position in undoubtedly an unsatisfactory one and I do not regret or resile from what I said at the very outset of this case, that I thought it was one where the parties ought to put their heads together and try to act reasonably. The position is that Mr. LUI Choi has the whip hand. Admittedly he cannot compel the Petitioners to attend a general meeting but he can, and has, requisitioned a meeting and he can compel the calling of a meeting. If the Petitioners choose not to attend that meeting in my view they cannot rely upon their own wrong, if I may so describe it, in not attending the meeting as a ground for saying that the company is deadlocked: the deadlock is created by their own refusal to go to the meeting. Admittedly if they go to the meeting they stand in grave danger of being overruled by the major shareholders, but that is a position which was created when the company was formed and they have no right at this stage to complain about it. Therefore in my view there is no deadlock at all, but, as I have already indicated, if there is a deadlock it is the creation of the Petitioners and I think that clearly that would not entitle them, having regard to dicta in Re Yenidje Tobacco Co., Ltd.(1) to an order for winding-up. 17. If I be wrong in saying that the question of lack of confidence is not sufficiently pleaded, or if I was wrong in refusing leave to amend, I think it is common ground that this is in truth what is commonly known as a partnership company. However, if it be in dispute I rule that it is a partnership in the guise of a company. In In re Leadenhall General Hardware Stores, Ltd.(2) it was said that in deciding whether a company was a partnership in the guise of a company equal participation in the day's work of those concerned was important and perhaps decisive. In the present case it is quite clear from the Articles of Association that it was intended that all three of the shareholders should have a part in the running of this business and although their parts were not "equal", in the sense that Mr. LUI Choi was the Managing Director and the other two were Assistant Managing Directors, that does not prevent their having for all practical purposes equal participation. 18. In my view the application for leave to amend was worded correctly in that it alleged a justifiable lack of confidence of the Petitioners in Mr. LUI Choi: clearly the Petitioners cannot rely upon a lack of confidence by Mr. LUI Choi in themselves. What is relied upon as destroying their confidence is the attempt by Mr. LUI Choi to oust the Petitioners from the post of Director. Now quite clearly Mr. YUEN cannot be ousted because he is, under the Articles of Association, a permanent Director and the Articles which allows the removal of a Director by a voit of a general meeting does not apply to Permanent Directors. Mr. HEUNG, being not a Permanent Director, could be removed. The original letter sent by Mr. LUI Choi, threatened legal proceedings for removal of the Petitioners. No legal proceedings have in fact been taken. Subsequently he wrote the letter of 24th December requisitioning a meeting, in which he said that he wished to discuss the taking of such action as may be required to remove the (two Petitioners) from their posts as directors". Counsel for the Petitioners relied upon the decision in Re Westbourne Galleries, Ltd.(3) but it has today been drawn to my attention that very recently that decision was overruled in the Court of Appeal - Re Westbourne Galleries Ltd.(4) This dealt with this question of the effect of removing a director in a partnership company and it was there held by the Court of Appeal that the exclusion of one of the partners from participation in the management and conduct of the business of the company does not form a ground for holding that it is just and equitable that the company be wound up unless it be shown that the power was not exercised bona fide in the interests of the company or that the grounds for exercising the power were such that no reasonable man could think that their removal was in the interests of the company: and - and this, I think, is important - it is for the person alleging the lack of bona fides to establish it. In the circumstances of this case, where all the material facts which might go to establishing a lack of bona fides are in dispute and there has been no cross-examination of the opponent, it is quite impossible for the Petitioners to establish, as they are required to do, a lack of bona fides. 19. In all these circumstances although I think that the prospects of this company may be very poor nevertheless the Petitioners have not established the ground upon which they seek to wind up the company and the Petition must be dismissed. 27th July, 1971. Representation: (1) 1916 & 1917 All E.R. (Rep.) 1050 (2) (1971) 115 Sol. J ...(illegible) . 202 (3) 1970 3 All E.R. 374 (4) 1971 1 All E.R. 561 |