The Official Receiver v. Wong Kwan Pui

HCMP 1464/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1464 OF 2001

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Coram: Hon Kwan J in Court

Date of Hearing: 4 December 2002

Date of Judgment: 4 December 2002

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J U D G M E N T

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1.The Official Receiver seeks a disqualification order against Mr Larry Stradmoor, the 3rd respondent in these proceedings.

2.Agreement has been reached between the Official Receiver and the 3rd respondent's legal advisers as to the facts on which the application is to be dealt with, thus enabling the court to deal with the matter summarily by adopting what has been described as the Carecraft procedure, which had originated from the case of Re Carecraft Construction Co. Ltd [1993] BCLC 1259 and had been applied in Hong Kong in Re Design Positive Architects Planners Ltd, HCMP No. 6570 of 2000, 26 August 2002, Yuen J.

3.Under this procedure, the court is not entitled to make findings upon materials other than the agreed facts. However, the procedure would not oblige the court to make a disqualification order and would not bind the judge to the period of disqualification to be imposed. If the judge is of the view that the agreed facts do not establish a case for a disqualification order, he would make known his views and this summary procedure would not be adopted and the application would proceed to a full hearing (Secretary of State for Trade and Industry v. Griffiths [1998] BCC 155; Re Design Positive Architects, paras. 12 to 14)

4.The background giving rise to the Official Receiver's application may be briefly stated as follows.

5.Emperor Hotel Management Co. Ltd ("EHM Ltd") was incorporated in Hong Kong on 28 August 1981. The 3rd Respondent was appointed a director on 18 October 1989 and remained a director at the time of the winding-up. He was also a shareholder holding 20% of the issued shares. The principal activity of the company was the provision of hotel management services.

6.The 3rd respondent was appointed a director of Emperor Hotel Reservations Co. Ltd ("EHR Ltd") in June 1991. EHM Ltd held 60% of the shares in EHR Ltd.

7.A winding-up petition was presented against EHM Ltd on 19 March 1997 and a winding-up order was made on 7 May 1997.

8.Up to the date of the 1st report of the Official Receiver dated 16 March 2001, the total proof of debt filed with the Official Receiver in the liquidation amounted to HK$7,500.00 and US$7,500.00 and the assets realized by the Official Receiver came up to HK$15,555.69. EHM Ltd is insolvent as its assets are insufficient to pay its debts and other liabilities and the expenses of the liquidation.

9.There are three charges against the 3rd Respondent. The first two are accounting records offences. The third relates to the receipt of dividend when EHM Ltd was insolvent. I do not propose to summarize the agreed facts. As stated in Re BPR Ltd [1998] BCC 259, it would be better that the agreed facts be set out as an appendix to this judgment, to avoid any possibility of misstatement in summarizing them, as that may be injurious to the 3rd respondent. I also set out in the appendix the agreed mitigation factors. The facts which are not agreed as stated in the schedule for the Carecraft procedure signed by the Official Receiver and the 3rd respondent's solicitors will not be reproduced in the appendix.

10.On the basis of the agreed facts, I am satisfied that the conditions in section 168H(1) of the Companies Ordinance, Cap. 32 are met, namely that the 3rd respondent has been a director of EHM Ltd which had become insolvent when he was a director, and the 3rd respondent's conduct as a director of that company makes him unfit to be concerned in the management of a company.

11.As for the period of disqualification, I am urged by both the Official Receiver and the 3rd respondent to impose the minimum term which is one year. I agree the conduct complained of does not make this a serious case and there are strong mitigating circumstances. I will accept this submission to impose the minimum term of disqualification in this instance.

12.The orders I make are as follows:

(1) Pursuant to section 168H of the Companies Ordinance, the 3rd respondent shall not, without leave of the court, (a) be a director of a company; (b) be a liquidator of a company; (c) be a receiver or manager of a company's property; or (d) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company for a period of one year beginning from the date of this order.

(2) The 3rd respondent is to pay the Official Receiver HK$20,000.00 as agreed costs between the Official Receiver and the 3rd respondent in these proceedings.

13.For the avoidance of doubt, I should also mention that under r. 10 of the Companies (Reports on Conduct of Directors) Regulations, the disqualification order I make is to take effect from the beginning of the 21st day after the day on which the order is made. This is in effect a temporary suspension designed to give the 3rd respondent a reasonable period within which to put his house in order so as to comply with the disqualification order, but the term of the disqualification order would begin from today (Re Cannonquest Ltd [1997] BCC 644 at 648 to 649)

Representation:

Mr M K Tam, Senior Solicitor of the Official Receiver, for the Applicant

Ms Pat Wong, instructed by Messrs Peter C Wong, Chow & Chow, for the 3rd Respondent

APPENDIX

Schedule for Carecraft Procedure

Preamble

1. The facts set out in this Schedule are made and agreed on the footing that the case against the 3rd Respondent will be dealt with by the court summarily. If the court is of the view that an adjournment for further consideration with a view to impose a disqualification period for more than 5 years or an adjournment for full trial is appropriate, all admissions herein made and all proposals for disqualification order, disqualification period and agreed costs shall not be referred to or relied on by either party against each other at any adjourned or subsequent hearing without the written consent of the party concerned.

2. The admissions made herein are made for the only purposes of the present disqualification proceedings and any related or subsequent application by the 3rd Respondent under Section168Q of the Companies Ordinance (Cap. 32).

3. Under no circumstances shall any of the admissions in this Schedule be used by the Applicant against the 3rd Respondent for any other purposes whatsoever in any civil or criminal proceedings or quasi-legal proceedings other than those mentioned in Paragraph 2 above. In any such other proceedings the 3rd Respondent may require the Applicant or any other person who seeks to establish any fact or matter stated in Part A1 (Facts Agreed) of this Schedule to prove such fact and matter to the satisfaction of the relevant court or tribunal without reference to any admissions made therein.

Part A Schedule of Facts Agreed or Not Agreed

Part A1 (Facts Agreed)

Background

1. The 3rd Respondent admitted the background information set out in the Paragraphs 5 to 12, 28, 29 and 31 and the exhibits therein referred to (if any) of the Official Receiver's 1st Report (by Fiona Lee) filed herein on 16th March 2001.

Breach of s. 121 and s. 274 by EHM Ltd.

2. Emperor Hotel Management Company Limited ["EHM Ltd."] failed to comply with the provisions of Sections 121 and 274 of the Companies Ordinance ["the Ordinance"] as set out in the Paragraphs 5 to 9 of the Affirmation of Chan Bik Yee Daisy and the exhibits therein mentioned ["Chan's Affirmation"] filed herein on behalf of the Applicant on 16th March 2001.

Breach of s. 274 by 3rd Respondent

3. The 3rd Respondent, being a director of EHM Ltd. failed his individual responsibility as a director of taking reasonable steps to ensure the requirement of Section 274 was complied with by EHM Ltd. throughout the period of 2 years immediately preceding the commencement of the winding up of EHM Ltd. The particulars of breach are set out in the Paragraphs 5 to 9 of the Chan's Affirmation and the exhibits therein mentioned.

Breach of s. 122 re EHR Ltd.

4. All directors of Emperor Hotel Reservations Company Limited ["EHR Ltd."] including the 3rd Respondent had breached the provisions of Section 122 of the Ordinance in that they failed to cause to be made out and lay before the company at its annual general meeting profit and loss account and balance sheet for the years 1995 up to its voluntary winding up under a special resolution dated 30th April 1999. In this regard the major responsibility rests with the 1st Respondent who is the director and chief accountant of EHR Ltd. and charged with a duty to prepare the annual account and balance sheet. The 3rd Respondent, to a much lesser extent in contrast with the 1st Respondent, failed his individual responsibility of seeing that the requirement of Section 122 was complied with.

Receipt of dividend

5. The 3rd Respondent received and retained payment under a cheque dated 1 May 1995 drawn by EHM Ltd. for $60,000.00 which he was informed by the 1st Respondent to be a dividend from EHM Ltd. The Respondent simply relied on the representation of the 1st Respondent and did not make his own check of the actual financial position of EHM Ltd. So far the 3rd Respondent has been unable to provide the Applicant with any board resolution of EHM Ltd. approving such a dividend or any other evidence to prove or support a declaration of such dividend by EHM Ltd.

6. EHM Ltd. was insolvent at that time when the purported dividend $60,000.00 was paid to the 3rd Respondent.

Non-cooperation with the liquidator

7. The 3rd Respondent failed to make timely reply to the enquiry made by the Official Receiver in April 2000 about the payment of $60,000.00 from EHM Ltd. to him.

Part B Agreed Mitigation Factors

1. Although still on record as a director of EHM Ltd. and EHR Ltd., the 3rd Respondent left these two companies in July 1993 to work for a totally unrelated company, firstly in Indonesia and then secondly in North Korea in 1997. Since leaving EHM Ltd. and EHR Ltd. in July 1993, the 3rd Respondent was not in possession of any financial documents or accounts relating to the two companies.

2. As regards his breach of S. 274 in relation to EHM Ltd. the 3rd Respondent at the material time did believe, rightly or wrongly, that the 1st Respondent who was a qualified accountant and the chief accountant of EHM Ltd. would have taken care of the requirement of Section 274.

3. The 3rd Respondent did not respond to the Official Receiver's enquiry in April 2000 about the payment of $60,000.00 because he was based in North Korea at that time and wrongfully entrusted the matter to the 1st Respondent who told the 3rd Respondent that he would answer the relevant enquiry for him. On 14th September 2000, the 3rd Respondent did fax his own letter to the Applicant notifying the Applicant that he had left EHR in 1993 and giving his contact numbers for future communication.

4. It is not alleged in these proceedings that the 3rd Respondent has acted dishonestly in connection with the receipt and retention of the said sum of $60,000.00.

5. During the course of these proceedings the 3rd Respondent showed remorse for his conduct and adopted a reasonable course of action to conclude these proceedings by way of the Carecraft procedure which may save both the time and costs of the Applicant and the court.